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HQ 546535

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December 19, 1997

RR:IT:VA 546535 er
CATEGORY: VALUATION

Port Director
U.S. Customs Service
JFK Airport
Building 77
Jamaica, NY 11430

RE: Application for Further Review of Protest Number 1001-96-103579; Sale for Exportation; Related Parties.

Dear Port Director:

This is in response to your October 16, 1996, memorandum forwarding the above-referenced Application for Further Review (“AFR”), regarding the appraisement of women’s and men’s wearing apparel imported by GFT Apparel Corporation (“GFT” or “importer”) from its parent company GFT S.p.A (“S.p.A.”). Originally, two entries were the subject of the protest and the AFR: One pertains to men’s apparel and the other pertains to men’s apparel and women’s dresses. Counsel for the importer has made several submissions which contained additional documents in support of the importer’s position. In a letter via fax dated March 13, 1997, counsel withdrew all claims with respect to the entry of men’s clothing involved in the protest. Accordingly, this decision only addresses the appraisement of the dresses imported on October 22, 1995, which were manufactured in Italy by RB di Boggio Roberto (“RB” or “manufacturer”). Additionally, a meeting was held between counsel and this office on October 31, 1997. Subsequent to that meeting counsel provided us with a final submission dated November 21, 1997. We regret the delay in responding.

FACTS:

According to counsel, the importer is a U.S. corporation that imports men’s and women’s wearing apparel from its parent company, S.p.A., located in Italy. S.p.A. is divided into two divisions: GFT Donna S.p.A. (“Donna”) is responsible for women’s wear, and GFT Uomo S.p.A. (“Uomo”) handles menswear.

Although your office reports that Donna and Uomo manufacture the bulk of the garments exported to the U.S., counsel advises that Donna does not have the production facilities to manufacture the garments and that it obtains garments produced by unrelated contract manufacturers. For purposes of this decision, we will assume that the merchandise in question was obtained by Donna from RB, an unrelated manufacturer.

At issue is the appraisement of 8 dresses, style Z364. Although appraisement was based on the price paid by the importer, counsel contends appraisement is properly based on the price Donna pays the manufacturer. Counsel has submitted documents relating to the protested portion of the entry concerning the imported dresses. Counsel claims that these documents are representative of the manner in which Donna purchases women’s garments throughout Italy. According to counsel, the dresses are made to the specifications of a U.S. purchaser. Exhibit A is a confirmation letter in Italian dated September 27, 1997, from the House of Valentino in Italy, a subsidiary of the importer which operates boutiques around the world. The confirmation letter is to Donna and provides that 36 dresses were ordered, 26 of which were “round neck models with sleeve” and 10 of which were “high neck model american sleeve”. Counsel’s November 21, 1997, submission included a translation of the confirmation letter. Of those 36 dresses, it is listed that eight were intended for the U.S. market in New York, Los Angeles and Palm Beach. The remainder of the dresses were intended for destinations outside the U.S. Although the confirmation letter is characterized by counsel as a “purchase order” no prices are provided and the only identifying information which pertains to the eight dresses in question is that they are of the “round neck model” type, two in size small, three in size medium, and three in size large. The copy of the confirmation letter also includes a handwritten list of code numbers and two style numbers “Z364" (for 26 of the “round neck model” dresses) and “Z365" (for the 10 remaining “high neck model” dresses). No information is given about who handwrote in the code and style numbers, or when the numbers were handwritten in. Because the bottom of the confirmation letter concludes with the sentence: “Waiting to know the code numbers, best regards”, we assume the code and style numbers were handwritten some time after the original confirmation letter was sent.

Exhibit B is a copy of Donna’s fabric and trim purchase documentation (a fabric purchase order from Donna, fabric invoices, and a trim invoice). Exhibit C is a purchase order in Italian dated October 3, 1995, from Donna to the manufacturer for 26 dresses for style Z364. No English translation was submitted. The purchase order to the manufacturer does not give any prices nor does it indicate that any of the 26 dresses were destined for the U.S. Exhibit D is a factory invoice (number 29) for cutting and making charges dated October 31, 1995, to Donna for 36 dresses, 26 dresses of which were style Z364. A price in Lire was provided; however, there is no indication that any of the dresses were destined for the U.S. Counsel informed us by telephone that the terms of sale between Donna and the manufacturer were ex-factory. Exhibit E is counsel’s summary of the factory costs plus assists. Exhibit F is an invoice (number B2 770-6) in U.S. dollars from Donna to GFT dated October 18, 1995 for eight dresses, style Z364. No terms of sale were provided on the invoice.

In a submission dated January 30, 1997 counsel submitted two exhibits, A and B, to evidence payment. Exhibit A is a page from the importer’s bank account payment register, reflecting payment from the importer for invoice B2 7780-6. Exhibit B consists of two documents which purportedly evidence payment from Donna to the manufacturer for factory invoice 29. The first document in exhibit B is the first page of a letter in Italian from Donna to the manufacturer on Donna letterhead dated November 30, 1995. No translation was provided. The letter appears to state that Donna has paid the manufacturer for several invoiced amounts, including invoice 29. As noted above, invoice 29 included garments which were sent to the U.S. as well as to other countries. Counsel states that the second document in exhibit B indicates the disposition by the bank for payment of the total amount on invoice 29. This second document consists of one page, identified as page 12, and is on GFT SpA stationery. No information was provided concerning the nature of the complete document, to whom it was addressed or the date. The page submitted consists of a list of companies, including the manufacturer, RB, various names of banks and numbers. The list is in Italian and no further explanation is provided as to how this document evidences the disposition by the bank for payment of the total amount on invoice 29.

In counsel’s June 19, 1997, submission, a copy of a purchase order from GFT to Donna was submitted for eight dresses in style Z364. The sizes ordered are two in size 8, two in size 10, two in size 12 and two in size 14. The actual date the purchase order was issued is unknown because the copy provided is a computer reprint which identifies the date the order was reprinted and not the original order date. The copy does indicate that the shipping date was October 18, 1995, the terms of sale were “ex Italy”, and the total value of the shipment was the same as that appearing on Donna’s invoice to the importer (Exhibit F). Also included was a bill of lading showing the movement of the merchandise from the factory to Donna. During the meeting between counsel and this office on October 31, 1997, counsel was asked to provide a copy of the original purchase order with the original date appearing on the purchase order. In counsel’s subsequent November 21, 1997, submission, counsel attached a letter from the importer to counsel dated November 18, 1997, in which the importer states they were unable to find the original purchase order and could only supply the estimated dated of issuance -- July 25, 1995.

The importer alleges that the merchandise was incorrectly appraised based on the price the importer paid to Donna. Instead, the importer claims that the merchandise should have been appraised based on the cut, make and trim price Donna paid to the manufacturer to produce the garments with additions for the assists, such as the fabric and trim that Donna provided to the manufacturer.

ISSUE:

Whether the importer has demonstrated that the merchandise should be appraised on a transaction other than that between Donna and the importer?

LAW AND ANALYSIS:

As you know, merchandise imported into the U.S. is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”; 19 U.S.C. 1401a). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States”, plus certain enumerated additions. For purposes of determining transaction value in appraising imported merchandise, a sale for exportation to the U.S. must take place at some unspecified time prior to the exportation of the goods. See, Headquarters Ruling Letter (“HRL”) 545434 dated May 31, 1994.

In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), the Court reaffirmed the principle of E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that a manufacturer’s price for establishing transaction value is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. In reaffirming the McAfee standard, the court stated that in a three-tiered distribution system:

The manufacturer’s price constitutes a viable transaction value when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm’s length, in the absence of any non-market influences that affect the legitimacy of the sale price... [T]hat determination can be made on a case-by-case basis.

Id. At 509. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18, Slip Op. 93-5 (Ct. Int’l Trade January 12, 1993).

As a general matter in situations of this type, Customs presumes that the price paid by the importer is the basis of transaction value. However, in order to rebut this presumption, the importer must in accordance with the court’s standard in Nissho, provide evidence which establishes that at the time the middleman purchases, or contracted to purchase, the imported merchandise the goods were “clearly destined for export to the United States” and that the manufacturer and middleman dealt with each other at “arm’s length.”

In the instant case, the importer is claiming that under Nissho, the transaction value for the imported merchandise should be based on the transaction between Donna and the unrelated Italian manufacturer. In determining whether this claim is valid, the first question to be addressed is whether there was a bona fide sale between Donna and the manufacturer.

For Customs purposes, a “sale” is generally defined as a transfer of ownership in property from one party to another for consideration. J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139 (1974). Although J.L. Wood was decided under the prior appraisement statute, Customs recognizes this definition under the TAA. Several factors may indicate whether a bona fide sale exists between a potential seller and buyer. In determining whether property or ownership has been transferred, Customs considers whether the alleged buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, Customs may examine whether the alleged buyer paid for the goods, whether such payments are linked to specific importations of merchandise, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HRL 545705, January 27, 1995.

In determining whether there was a sale between the manufacturer and Donna, we note that while counsel claims the terms of sale are ex-factory the transaction documents between the manufacturer and Donna do not specify the terms of sale and are inconclusive with regard to passage of title and risk of loss. Counsel did provide copies of various other documents including purchase orders and invoices between Donna and the manufacturer and portions of letters from Donna to the manufacturer purportedly evidencing that payment was made for merchandise. While these documents do not definitively establish that a bona fide sales transaction occurred, we will assume for purposes of this decision, only, that there was a bona fide sale between Donna and the manufacturer.

Turning to the first part of the two-part test in Nissho, in the transaction between the manufacturer and Donna, the evidence must establish that the garments were clearly destined to the U.S. at the time they were sold to Donna. We stated in HRL 545420, dated May 31, 1995, that the following information would support a finding that the requirement has been met: (1) the factory produces the garments to fulfill a pre-existing purchase order issued by the U.S. retailer; (2) the factory places labels in the garments which identify or represent the trademarks of U.S. retailers; (3) the factory packs the garments in shipping cartons which identify the U.S. retailer, by marks and numbers, as the ultimate destination; and (4) the export licenses controlling the volume of garments shipped to the U.S. cover the specific garments. Customs also requires a copy of the factory invoice. Also see, Informed Compliance publication, “Bona Fide Sales and Sales for Exportation”, Vol 30/31 Cust. Bull. No. 52/1 (January 1997) and “Determination of Transaction Value in Multi-Tiered Transactions”, T.D. 96-87, 30/31 Cust. Bull 52/1, January 2, 1997 (requiring a complete paper trail showing the structure of the entire transaction).

As regards item (1) in the list above, counsel furnished a copy of the purchase order from the importer to Donna for eight silk dresses in style Z364, which indicates that the garments were ordered for delivery at the importer’s address in the U.S. As pointed out in the facts above, the correct date of the purchase order was not provided because the copy submitted was a computer reprint which was dated on the date of the reprint. When subsequently asked for a copy of the original purchase order, the importer was unable to locate a copy and could only estimate the order date: July 27, 1995. Additionally, the purchase order indicates that the following sizes were ordered: two in size 8, two in size 10, two in size 12 and two in size 14. The delivery terms are ex-Italy and the purchase order number and price are identified.

Counsel also submitted another document, a confirmation letter dated September 27, 1995, prepared in Italy by House of Valentino to Donna, which indicates that a worldwide order for 36 garments was ordered from Donna in sizes small, medium and large. (Counsel explained that Valentino, a subsidiary of the importer, coordinates the presentation of its collection of garments at its boutiques throughout the world.) In the confirmation letter, 26 of the garments were described as round neck models with sleeves and the remaining 10 garments were described as high neck models with American sleeves. The confirmation letter further indicates that eight of the 26 round-neck style garments were ordered for sale in three boutiques located in the U.S. The sizes indicated for the eight dresses are two small, three medium and three large. Also, as noted above in the facts, it appears that at the time the confirmation order was mailed the code and style numbers of the dresses were not known.

Also submitted was a purchase order from Donna presumably to the manufacturer dated October 3, 1995, for 26 dresses in style Z364. This purchase order does not list any price nor does it indicate that any of the 26 dresses ordered are destined for the U.S. As described in the facts, counsel also submitted copies of Donna’s fabric and trim purchase documentation; a summary of the factory costs and assists prepared by counsel; a factory invoice for cutting and making charges dated October 31, 1995, to Donna for 36 dresses, 26 of which were style Z364; and an invoice from Donna to the importer dated October 18, 1995, for eight dresses, style Z364 at the same price as that indicated on the purchase order (described above) from the importer to Donna. Documents were also submitted to try to prove that payments were made from the importer to Donna and from Donna to the manufacturer.

The evidence presented does not satisfy the criteria set forth in HRL 545420 for establishing that the goods were clearly destined for the U.S. Because the purchase order from the importer to Donna is not correctly dated we do not know if it was issued prior to the order placed by Donna to the manufacturer or the confirmation letter from the House of Valentino. Moreover, the sizes indicated on the purchase order from the importer to Donna do not correspond to the sizes listed in the confirmation letter from the House of Valentino. Further the confirmation letter does not identify the purchase order number, nor does it provide a price for the merchandise. Likewise, the purchase order issued by Donna to the factory does not provide any prices, does not cross-reference the purchase order issued by the importer to Donna and it does not indicate that any of the 26 dresses are destined for the U.S. market. Similarly, the invoice from the factory does not indicate that any of the garments were destined for the U.S. nor can it be traced back to the purchase order between the importer and Donna. As for the remaining documentation submitted, while they provide some support of the possibility of bona fide sales between the parties to the transactions, they do not establish that the goods were clearly destined for the U.S. at the time Donna placed the order with the factory.

As regards items (2) in the list referenced in conjunction with HRL 545420, it is unclear whether any labels appearing in the garments imported into the U.S. are distinct from labels appearing in garments exported to other countries. With regard to item (3), because the merchandise is not directly shipped to the U.S. from the manufacturer it is unclear whether the manufacturer packs the garments in boxes marked for the U.S. retailer. Item (4) does not apply because an export license was not required.

In addition, the evidence presented does not show a complete paper trail depicting the structure of the entire transaction as set forth in T.D. 96-87. Under the circumstances, the “clearly destined” standard in Nissho has not been satisfied. Consequently, we find that the importer has not met its burden to establish that the merchandise should be appraised on a transaction other than that between Donna and the importer.

HOLDING:

For purposes of determining transaction value based on the sale between the middleman and the manufacturer, the evidence submitted does not establish that the merchandise was clearly destined for the U.S. under the Nissho standard. Consequently, the importer has not met its burden to establish that the merchandise should be appraised on a transaction other than that between Donna and the importer.

You are directed to deny this protest. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to Protestant no later than 60 days from the date of this letter. Any reliquidation of the entries in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Acting Director
International Trade

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