H283094

HQ H283094 August 15, 2023 OT:RR:CTF:VS H283094 RMC/JW CATEGORY: Valuation U.S. Customs & Border Protection Attn: Jason Lemieux Apparel, Footwear and Textiles Center 237 West Service Rd. Champlain, NY 12919 Re: Application for Further Review of Protest No. 0712-17-100230; Valuation of Apparel; Bona Fide Sale Dear Center Director: This is in response to the Application for Further Review (“AFR”) of Protest No. 0712-17-100230, timely filed by Sandler, Travis & Rosenberg, P.A. on behalf of the importer, Capital Garment Co. USA Inc. (“CG USA”). CG USA has asked that certain information submitted in connection with this AFR be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets will not be released to the public and will be withheld from published versions of this response. FACTS: This AFR arises out of transactions between Capital Garment Co. Inc. (“CG Canada”), an outerwear wholesaler based in Saint-Laurent, Quebec, Canada, and its related U.S. subsidiary, CG USA. While some of those transactions are not strictly at issue in this AFR, certain information available as a result of those transactions is nonetheless relevant to the question presented in this AFR. Entry of October 26, 2014 On October 26, 2014, CG USA entered a shipment of women’s outerwear, listing itself as the buyer on the entry documents and claiming the invoice price from the transaction between it and CG Canada, the seller, as the transaction value. Subsequently, on November 19, 2014, the Apparel, Footwear and Textiles Center issued a Request for Information (CBP Form 28) related to this entry. The Center requested documentation to establish that a bona fide, arm’s-length sale occurred between CG Canada and CG USA and that transaction value was the appropriate method of valuation. a. CG USA’s December 19, 2014 Response to the CBP Form 28 In its initial response, dated December 19, 2014, CG USA stated that there is “common ownership between the two companies”, i.e., CG USA and CG Canada. However, CG USA suggested that “the relationship does not influence price.” CG USA further explained its position that a bona fide sale occurred between CG Canada and itself and provided information in support of its position that transaction value was appropriate in the import transaction under consideration. Specifically, CG USA claimed that “generally speaking, the selling policy between the two companies is that of buyer and seller.” According to CG USA, the merchandise at issue in this entry consisted of closeout goods that CG Canada had agreed to sell to CG USA at the original FOB price for which CG Canada had acquired the goods from an unrelated manufacturer in China. After the goods arrived at CG USA’s contract warehouse in Massachusetts, they were subsequently sold to U.S. retailers. CG USA’s initial response further indicated that the pricing for the closeout merchandise under consideration was an exception to its normal pricing policies. CG USA stated that “[u]nder normal circumstances, for goods sold out of its Canadian inventory,” CG Canada would normally sell to CG USA at the FOB price at which CG Canada acquired the goods, plus a [ ]% markup. For goods that “are purchased by [CG] Canada that are shipped directly to the United States where CG USA is the importer of record,” pricing is based on the first sale FOB value (i.e., the price that CG Canada would pay the unrelated foreign manufacturer) plus a [ ]% markup. Finally, in cases where goods were sold for export to CG USA (presumably from China or a third country), but first held in a bonded warehouse in Montreal pending export to the United States, pricing is based on the first sale FOB value plus a [ ]% markup. Included with its initial response was information on (i) CG USA’s U.S. operations, (ii) transfer of title and risk of loss for the merchandise from CG Canada to CG USA, and (iii) proof of payment, insurance information, and other information on the subsequent transactions between CG USA and its U.S. customers. This information shows that CG USA was incorporated in the Commonwealth of Massachusetts on April 12, 1995. The address listed on the incorporation documentation provided appears to list a residence in Newton, Massachusetts as the location of the principal office. However, CG USA explained that it uses a UPS Store postbox as an address in the United States “as a convenience.” CG USA stated that it has one employee in Massachusetts who serves as the company’s treasurer and manager of U.S. operations. The employee is responsible for overseeing all of CG USA’s operations including warehousing of arriving merchandise, shipping to U.S. customers, and managing three U.S. sales representatives. The incorporation documentation lists this U.S. employee as the registered agent and secretary of CG USA, while the president, treasurer, and director have Canadian addresses. A paystub submitted with the information above indicated that the U.S. employee is paid on a biweekly basis. CG USA further explained its position that title and risk of loss transferred from CG Canada to CG USA when the goods arrived at the border in Champlain, New York. CG USA claimed that the shipping terms were Delivery Duty Unpaid (DDU). In support, CG USA provided a freight bill issued to CG Canada listing the “pick up” point as CG Canada and the “delivery” point as CG USA’s contract warehouse in New Bedford, Massachusetts. The contract warehouse is responsible for receiving, storing, picking, and shipping the merchandise to the end U.S. customer. According to CG USA, the warehouse generally has an inventory between $[ ] to $[ ]. As for proof of payment, CG USA noted that as of its December 19, 2014 response, payment for the goods at issue in the CBP Form 28 had not yet been made, but CG USA “enclosed proof of payment for earlier shipments” and provided three checks made out to CG Canada: the first dated October 15, 2014, in the amount of $[ ]; the second dated November 15, 2014, in the amount of $[ ]; and the third dated November 24, 2014, in the amount of $[ ]. Additionally, a “Memorandum of Insurance” issued by Seymour Alper, Inc. listed the period of insurance as March 30, 2014 to March 30, 2015, and those identified on the list as the insured included both CG Canada and CG USA. b. Center’s Proposed Notice of Action of January 29, 2015 After considering the information CG USA provided, the Center issued a Proposed Notice of Action (CBP Form 29) on January 29, 2015. In the notice, the Center concluded that CG USA was a selling agent for CG Canada and, therefore, that no bona fide sale had occurred between the parties. Accordingly, the Center proposed rejecting the declared transaction value. c. CG USA’s March 9, 2015 Response and Prior Disclosure In response, CG USA provided additional information and arguments on March 9, 2015. CG USA claimed that “there is no reasonable basis for a rejection of the price between the related foreign seller and U.S. importer for the closeout merchandise.” The documentation submitted to support this position included, inter alia, (1) purchase orders for closeout merchandise that CG USA issued to CG Canada, dated October 31, 2014 and November 30, 2014; (2) a pro-forma invoice issued by CG Canada to CG USA, dated October 22, 2014, (3) intercompany invoices between CG Canada and CG USA, dated October 31, 2014 and November 30, 2014, and (4) the invoices to the U.S. retailers, dated October 30, 2014 and December 18, 2014. The pro-forma invoice and the intercompany invoices all correspond directly to the purchase orders (shown through numbering annotations added by CG USA). The invoices to the U.S. retailers, which do not appear to have similar annotations from CG USA that demonstrate direct correlation, were provided by CG USA “to support the prices at which Capital USA resold the closeout

Merchandise imported into the United States is appraised for customs purposes 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 primary method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. § 1401a(b)(1) When transaction value cannot be applied, the appraised value is determined based on the other valuation methods in the order specified in 19 U.S.C. § 1401a(a). Id. At 1330. In order to use transaction value, there must be a bona fide sale for exportation to the United States. VWP of America, 175 F.3d at 1331 (citing CBP Headquarters Ruling Letter HQ 544658, dated March 26, 1991 at 3); see also Midwest-CBK LLC v. United States, 2022 Ct. Intl. Trade LEXIS 48, *17 (C.I.T. 2022) (“Appraisal on the basis of transaction value has two requirements: (1) that the merchandise is sold and (2) that the sale is for exportation to the United States.”) (citations omitted). Additionally, imported merchandise will be appraised under transaction value only if the buyer and seller are not related, or if related, either (1) the circumstances of sale indicate that the relationship did not influence the price actually paid or payable, or (2) the transaction value approximates certain test values. See 19 U.S.C. § 1401a(b)(2)(A)-(B); see also VWP of America, Inc. v. United States, 175 F.3d 1327, 1335 (Fed. Cir. 1999) (“Congress intended the two methods set forth in § 1401a(b)(2)(B) to be the exclusive means of determining the acceptability of a transaction value between related parties[.]”). More specifically, that statute provides that:The transaction value between a related buyer and seller is acceptable . . . if an examination of the circumsta