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HQ 547729




September 20, 2002

RR:IT:VA 547729 CC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
New York/JFK Area
Building #77

Jamaica, NY 11430

RE: Application for further review of Protest No. 1001-99-106058; sale for exportation; assembly operations; 19 CFR § 152.103(a)(3)

Dear Madam:

The above-referenced protest was forwarded to this office for further review. We have considered the facts and issues raised, and our decision follows. We regret the delay in responding.

FACTS:

The merchandise at issue is men’s and women’s wearing apparel imported from the Dominican Republic. The protest consists of 8 entries made from August 27, 1998, to February 1, 1999.

The importer of record for the subject entries was Bibong Apparel Corp., a U.S. corporation (hereafter “Bibong U.S.”). Bibong U.S. imported the subject merchandise from its related supplier in the Dominican Republic, Bibong Apparel Corp. (hereafter “Bibong D.R.”), which was the manufacturer. You state that Bibong U.S. owns controlling interest in Bibong D.R.

The ultimate consignees/U.S. customers issued purchase orders to Bibong U.S., which supplied to Bibong D.R. fabric cut in the United States or cut and assembled fabric sourced outside of the U.S. In some cases, it appears that the U.S. customer paid for the fabric. When U.S. fabric was supplied, entry was made under subheading 9802.00.8065 of the Harmonized Tariff Schedule of the United States (HTSUS). The declared value of the subject merchandise consisted of Bibong D.R.’s assembly charge (based on the charge for cut-make-trim processing and inclusive of the factory’s profit), the cost of the components, and “dutiable southbound freight.” The price the U.S. customer paid Bibong U.S. was based on a 15 percent markup from the factory’s charge (Bibong D.R.) to Bibong U.S. The charge from the factory to Bibong U.S. was based on the total processing costs (i.e., assembly or cutting plus assembly, trim, and packaging) and overhead costs for the processing of the merchandise, including a profit component.

You issued a Notice of Action, Customs Form (CF) 29, dated June 24, 1999, for the subject entries, stating that the merchandise was entered at the “Manufacturers list price” and value advancing the merchandise “at the entered value plus 15% mark-up to the Ultimate Consignee.”

All of the subject entries were liquidated on October 1, 1999, except for one entry, which was liquidated on September 17, 1999. All of the entries were liquidated with the inclusion of the 15% percent markup. The protest was timely filed on December 14, 1999.

You issued a Request for Information, CF 28, to Bibong U.S. on February 3, 2000, for the following information: proof of payment for fabric and piece goods, and purchase orders to the ultimate consignee. Bibong U.S. responded in a letter dated March 6, 2000, and submitted the following documents: invoices for fabric showing the sale of fabric from a third party to the ultimate consignee with shipment to Bibong D.R.; invoices for trim showing the sale of trim from a third party to Bibong U.S. with shipment to the Dominican Republic; proof of payment for trim purchased by Bibong U.S.; and purchase orders/cutting tickets from the ultimate consignees to Bibong U.S.

The protestant claims that the proper method to appraise the subject merchandise is transaction value between Bibong D.R. and Bibong U.S. The protestant argues that the price charged from Bibong D.R. to Bibong U.S. includes a profit component “which is consistent with industry norms for CMT operations, where there is a relatively low risk in taking orders.” In addition, there is no principal/agency relationship between Bibong D.R. and Bibong U.S., which acts as a seller in its own right and not as an agent. Finally, the protestant states that there is no valid basis for Customs to add the 15% markup. If transaction value is rejected, then an alternate basis, such as deductive value or computed value, must be employed. You claim that Bibong U.S. acted as a selling agent for Bibong D.R., and therefore, the 15% markup was a dutiable selling commission.

Finally, the protestant claims that two of the entries should be deemed liquidated at the rate of duty, value, and amount of duties asserted at the time of entry by the importer because those entries were liquidated more than one year after the date of entry.

ISSUE:

Whether Bibong U.S. acted as a selling agent for its related party assembler/manufacturer of the subject merchandise or as the buyer of the imported merchandise.

LAW AND ANALYSIS:

Concerning the protestant’s claim that two entries should be deemed liquidated, section 504 of the Tariff Act of 1930, as amended (19 U.S.C. §1504) provides, in pertinent part, that an entry of merchandise not liquidated within one year from the date of entry of such merchandise shall be deemed liquidated (19 U.S.C. §1504(a)). Subsection (b) of section 1504 provides an exception: the period in which to liquidate an entry may be extended by giving notice of such extension to the importer, if, (among other reasons) information needed for the proper appraisement of the merchandise is not available to the appropriate customs officer (19 U.S.C. §1504(b)). As stated in 19 C.F.R. §159.12(b), if the port director extends the time for liquidation as provided above, he is required to promptly notify the importer, his agent, and surety that the time has been extended.

For the two entries at issue, there was a valid reason to extend liquidation pursuant to 19 U.S.C. §1504(b): information was needed by the port to properly appraise the merchandise. In addition, according to Customs’ electronic entry data collection system (ACS), notices of extension of liquidation for the protested entries were timely sent to the protestant (and its surety) as required by 19 C.F.R. §159.12(b). Consequently, the protestant’s claim that two entries should be deemed liquidated pursuant to 19 U.S.C. §1504(a) is denied.

Merchandise imported into the United States 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 valuation, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions, including selling commissions incurred by the buyer. 19 U.S.C. § 1401a(b)(1).

In determining whether a bona fide sale takes place between a potential buyer and seller of imported merchandise, no single factor is determinative. Rather, the relationship is to be ascertained by an overall view of the entire situation, with the result in each case governed by the facts and circumstances of the case itself. Dorf International, Inc. v. United States, 61 Cust. Ct. 604, A.R.D. 245 (1968). Customs recognized the term "sale," as articulated in the case of J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139, 505 F.2d 1400, 1406 (1974), to be defined as: the transfer of property from one party to another for consideration.

However, several factors may indicate whether a bona fide sale exists between a potential buyer and producer. In determining whether property or ownership has been transferred, Customs considers whether the potential buyer has assumed risk of loss and acquired title to the imported merchandise. In addition, Customs may examine whether the potential buyer paid for the goods, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller.

In determining whether the relationship of the parties to the transaction in question is that of a buyer/seller, where the parties maintain an independence in their dealings, as opposed to that of a principal-agent, where the former controls the actions of the latter, Customs will consider whether the potential buyer:
a. provides (or could provide) instructions to the seller; b. was free to sell the items at any price he or she desired; c. selected (or could select) his or her own customers without consulting the seller; and d. could order the imported merchandise and have it delivered for his or her own inventory.

There are a number of factors that indicate that U.S. Bibong is acting as an independent buyer rather than as a selling agent. There is no agency agreement involving U.S. Bibong, nor is it referred to as an agent in any of the documentation before us. In addition, the terms of sale on the commercial invoices is “FOB Dominican Republic.” These invoices state that the merchandise is “For Account & Risk of” Bibong U.S. Thus the terms of sale indicate that the risk of loss passed to Bibong U.S. once the goods were loaded in the Dominican Republic for export to the U.S. The commercial invoices also list an amount payable for the goods. The facts as presented by both you and the protestant make it clear that Bibong D.R. is the seller of the goods. Since, as stated above, the commercial invoices state that they are for the account of Bibong U.S., Bibong U.S. is thus the buyer. Although we have no proof of payment before us, the commercial invoices thus indicate that there was consideration paid for the transfer of goods from Bibong D.R. to Bibong U.S. Also, none of the four factors listed above indicate that Bibong U.S. is acting as a selling agent rather than as a buyer. Finally, in order to find that Bibong U.S. acted as a selling agent, there must have been sales from Bibong D.R. to the U.S. purchasers. We have no evidence before us that consideration passed from the U.S. customers to Bibong D.R., and therefore we have no evidence that such sales took place. Consequently, based on the foregoing, we find that Bibong U.S. acted as a buyer and not as a selling agent.

Since there was a sale for exportation from Bibong D.R. to Bibong U.S., transaction value should be used to appraise the merchandise unless there is a factor present that according to the value statute would not permit the use of transaction value. Bibong D.R. and Bibong U.S. are related parties. When parties are related, section 402(b)(2)(B) of the TAA (19 U.S.C. § 1401a(b)(2)(B)) provides that transaction value is acceptable only if an examination of the circumstances of the sale indicates that the relationship between the buyer and seller did not influence the price actually paid or payable or if the transaction value of the imported merchandise closely approximates the transaction value of identical or similar merchandise in sales to unrelated buyers in the U.S. or the deductive or computed value for identical or similar merchandise. The protestant states that the price charged from Bibong D.R. to Bibong U.S. includes a profit component “which is consistent with industry norms for CMT operations, where there is a relatively low risk in taking orders.” Besides this statement, we have no other information present, nor did you request any from the protestant, concerning whether the relationship between Bibong D.R. and Bibong U.S. influenced the price. Consequently, for purposes of this decision, we must assume that the relationship between these parties did not influence the price, and therefore transaction value is acceptable.

Another issue present is whether the price paid from Bibong U.S. to Bibong D.R. is acceptable under the transaction value method when fabric was supplied to Bibong D.R. and essentially that company’s activities were assembly operations. Concerning assembly operations, section 152.103(a)(3) of the Customs Regulations (19 CFR § 152.103(a)(3)) provides the following:

The price actually paid or payable may represent an amount for the assembly of imported merchandise in which the seller has no interest other than as the assembler. The price actually paid or payable in that case will be calculated by the addition of the value of the components and required adjustments to form the basis for the transaction value.

Thus, although Bibong D.R. is essentially an assembler, transaction value may be used to appraise the subject merchandise pursuant to 19 CFR § 152.103(a)(3). In addition, pursuant to that regulation, we have found that components and materials are assists, and the value of the assist would include the price paid for the components supplied without charge by the importer to the assembler, and costs incurred in shipping the components to the country of assembly an related costs. See Headquarters Ruling Letter (HRL) 543872, dated March 5, 1987. The price declared by Bibong U.S. appears to include the cost of assembly, the cost for the fabric assists, and the cost for “southbound freight,” which we assume is the cost of transporting the fabric to the Dominican Republic for assembly. Consequently, the price declared by Bibong U.S. appears to be consistent with 19 CFR § 152.103(a)(3).

Finally, the transactions contained in this protest appear analogous to shelter operations, described in T.D. 90-42. Shelter operations were described in T.D. 90-42, as follows:

A “shelter” operation may involve a U.S. corporation which is established for the sole purpose of facilitating assembly operations for third party clients in the U.S. The U.S. shelter company establishes a related or makes arrangements with an unrelated Mexican company to perform the assembly operations, arrange for the Mexican labor, receive orders from third-party clients (unrelated), and facilitate the entry of the assembled merchandise. The third-party U.S. clients normally provide, without charge, the materials (components) to be assembled, the production equipment to be used, and production supervision. The U.S. shelter corporation usually is the importer of record, and submits to Customs an “invoice” between the related and unrelated Mexican assembler and the shelter. The invoice between the shelter company and the unrelated third-party clients, which includes the shelter’s markup, usually is not submitted to Customs. There may be many variations of the above.

T.D 90-42 states that when a shelter operation is present, the use of transaction value is appropriate in application of 19 CFR § 152.103(a)(3). If the shelter and assembler are related, transaction value must be acceptable under section 402(b)(2)(B) of the TAA, that is the relationship between the buyer and seller did not influence the price. Also, T.D. 90-42 states that in the context of 19 CFR § 152.103(a)(3), the materials and components are treated as assists under the authority of section 402(h)(1)(A) of the TAA (19 CFR § 1401a(h)(1)(A), regardless of which party supplies the materials or components. The declared value for the subject entries is consistent with how merchandise subject to shelter operations is appraised pursuant to T.D. 90-42.

Based on the foregoing, we find that Bibong U.S. was not a selling agent for Bibong D.R., but was the buyer of the imported merchandise. Transaction value was the proper method of appraisement in application of 19 CFR § 152.103(a)(3).

HOLDING:

Bibong U.S. acted as the buyer of the imported merchandise rather than as a selling agent for its related party assembler/manufacturer, and therefore transaction value was the appropriate method of valuation, in application of 19 CFR § 152.103(a)(3). Consequently, the protest should be GRANTED.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.

Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Virginia L. Brown

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