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HQ 563551

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October 12, 2006

VAL RR:CTF:VS 563551 DCC

CATEGORY: VALUATION

Ms. Carol Beaul
Intelli Trade Inc.
5405 Eglinton Avenue West, Suite 100
Etobicoke, Ontario M9C 5K6
Canada

RE: Sale for Export

Dear Ms. Beaul:

This letter is in response to your letter dated September 6, 2006, requesting an advance ruling letter on behalf of Creative Education of Canada, Inc. (“CEC”). Your request concerns the proper method of appraisement for imported merchandise. We also received a letter from CEC dated May 9, 2006.

FACTS:

CEC sells children’s dress-up products to toy stores and toy distributors throughout the United States and Canada. In addition, CEC sells merchandise directly to U.S. and Canadian customers through on-line Internet sales. In addition to manufacturing products in Canada, CEC purchases merchandise from DSL Toys (PVT) Ltd. (“DSL”), located in Sri Lanka, for resale in Canada and the United States.

The market in which CEC sells its merchandise requires short turnaround to fulfill orders. CEC sells to small specialty stores that typically place orders just before their busiest times between the Halloween and Christmas seasons. In addition, because most of CEC’s customers are small businesses, they place frequent orders in small quantities. Consequently, CEC’s customers are unable to purchase merchandise directly from many manufacturers that only sell large quantity orders and require several months lead time.

Currently, DSL ships merchandise to CEC’s warehouse located in Toronto, Canada. Merchandise bound for the U.S. market transits in-bond to CEC’s warehouse in Toronto where it is destuffed, stored and subsequently forwarded to CEC’s warehouse located in Kimball, Michigan. The merchandise is stored at CEC’s Kimball warehouse until CEC receives an order from one of its U.S. customers.

CEC purchases merchandise from DSL on an FOB basis, and uses the price paid to determine the entered value under the transaction value method of appraisement.

CEC plans to reorganize its logistics operations to consolidate its warehousing operations at a single facility. Instead of transferring the DSL merchandise to its Kimball warehouse, CEC proposes to store all of its merchandise at its warehouse in Toronto. CEC plans to designate a portion of its Canadian warehouse as a bonded facility, which would then be used to store the DSL merchandise until shipment to customers in the United States. CEC states that the terms of sale for the DSL merchandise will continue to be FOB Columbo, Sri Lanka regardless of whether the merchandise is destined for the U.S. or Canadian market. You claim that the sale between DSL and CEC will still provide an appropriate value for appraising the merchandise under the transaction value method of appraisement.

ISSUE:

Whether the transaction value method of appraisement may be used when merchandise is exported from Sri Lanka to Canada where it is stored in a bonded warehouse until resold and shipped to a U.S. customer.

LAW AND ANALYSIS:

Section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreement Act of 1979 (TAA; 19 U.S.C. 1401a) provides, in pertinent part, that the transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States,” plus enumerated additions. In order for imported merchandise to be appraised under the transaction value method it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States. The “price actually paid or payable” is defined in section 402(b)(4)(A) of the TAA as:

The total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise. . .) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of the seller.

CEC intends to change the way it imports goods from Sri Lanka to the United States. According to your submission, CEC plans to begin shipping Sri Lankan merchandise intended for the U.S. market to its warehouse located in Toronto, where it will be packaged for shipment to the United States to fill an existing order, or stored in a warehouse until resold to a customer in the United States. You claim that CEC will use special procedures to ensure that the merchandise from Sri Lanka is segregated from goods destined for the Canadian market. Specifically, you state that CEC will issue separate purchase orders and use distinct product codes for merchandise destined for the United States and Canada. You further state that the U.S. destined products will be stored in a bonded warehouse until they are ready for shipment to the U.S. customer.

CBP has previously addressed the question of whether merchandise is clearly destined for export to the United States. These rulings indicate that CBP will generally presume that there is no sale for export when merchandise is not shipped directly to the United States. See Headquarters Ruling Letter (“HRL”) 542310, dated May 22, 1981 (no sale for exportation to the United States when drill bits manufactured in Italy were stored in France for an indefinite period); HRL 542962, dated December 29, 1982 (no sale for exportation when motorcycle purchased in Japan for the purpose of being used for an extended period overseas before being imported); and HRL 547197, dated August 22, 2000 (no sale for exportation when vehicles were used in Europe for up to twelve months after the sale from the manufacturer).

The presumption that merchandise shipped to an intermediate country is not sold for export to the United States may be rebutted by sufficient evidence to show that the merchandise is clearly destined for the United States at the time of the sale from the producer. For example, in HRL 545254, dated November 22, 1994, CBP determined that there was a sale for export to the United States when goods were shipped from China to Canada and then from Canada to the United States. In that case, the importer was able to demonstrate that the quantity and description of goods shipped from China to Canada matched exactly the quantity and description of goods shipped from Canada to the United States.

In the instant case, we find that the proposed transaction fails to overcome the presumption that the merchandise shipped from Sri Lanka to an intermediate country is not a sale for exportation to the United States. You state that some of the merchandise will be stored in CEC’s inventory in Canada until ordered by a U.S. customer. Under this arrangement, some of the Sri Lankan merchandise allegedly destined for the United States will be stored in CEC’s Canadian warehouse indefinitely until CEC receives an order from a U.S. customer. Clearly, under these circumstances, there will be no sale for exportation to the United States at the time the merchandise is shipped from Sri Lanka. Furthermore, we note that the Sri Lankan merchandise that is intended to be sold in the United States is identical to the merchandise sold in Canada. Although CEC plans to use different product codes to indicate which goods are for the U.S. market, the fact that CEC sells the same merchandise in the United States and Canada creates a contingency of diversion for the goods to be resold in Canada. Given these facts, we find that the subject merchandise is not destined for the United States when it is exported from Sri Lanka to Canada.

HOLDING:

Based on the information submitted, we find that goods exported from Sri Lanka to Canada, which are not the subject of a sale to a U.S. customer at the time of exportation, are not sold for export to the United States and, hence, may not be appraised under the transaction value method. Should CEC decide to store merchandise from Sri Lanka until it is resold to a customer in the United States, that merchandise must be appraised according to one of the alternative methods of appraisement in the valuation hierarchy described in 19 U.S.C. 1401a.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.

Sincerely,

Monika R. Brenner, Chief
Valuation and Special Programs Branch

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