H304154

 HQ H304154 August 5, 2020 OT:RR:CTF:VS H304154 JMV CATEGORY: Valuation Field Director New York Field Office Office of Regulatory Audit Office of Trade U.S. Customs and Border Protection One World Trade Center, Suite 50.800 New York, N.Y. 10007 RE: Protest and Application for Further Review of 2704-17-102834; Bona Fide Sale; Apparel Dear Director, This is in response to the Application for Further Review (“AFR”) of Protest No. 2704-17-102834, dated June 13, 2017, filed against Custom and Border Protection’s (“CBP”) decision to liquidate the merchandise at issue based on the average value of similar goods. The Protestant, Golden Horse Enterprise (NY), Inc. (“GHNY”), seeks liquidation of the merchandise using the transaction value of the first sale. FACTS: The protest at issue involves 174 entries of apparel imported by GHNY, which were value-advanced using the average transaction value of similar merchandise after a Regulatory Audit investigation. Based on the audit, your office states that transaction value could not be determined and that the value declared to CBP did not accurately reflect the price actually paid or payable. GHNY then filed this protest. GHNY claimed to be a U.S. based selling agent for the foreign seller and related party, Shanghai Fung’s Trading Co. Ltd. (“SF”). GHNY also claimed that it had no financial interest in the merchandise at issue. GHNY stated that SF appointed GHNY to act as its agent in sales to U.S. customers. GHNY’s responsibilities were to serve as Importer of Record, and to provide certain administrative services on SF’s behalf (coordinate deliveries; interface with customers regarding quality problems; collect sums due to SF from U.S. customers; etc.). Your office rejected the claimed transaction value because GHNY stated that the invoice the value was based on was used solely for customs purposes. According to GHNY, this value reflected the sale price between SF and an unrelated Chinese factory, plus assists. SF prepared a proforma invoice to convert the Chinese factory invoice price into U.S. dollars, and to add in the value of the assists. GHNY claimed to have properly made entry based upon the proforma price. GHNY also provided your office with a second, slightly higher free on board (“FOB”) invoice, which your office also believed to be unreliable. GHNY claimed that the second FOB invoice was used to determine the amounts of its payments back to the exporter, which GHNY stated it made in its capacity as a selling agent. However, your office stated that GHNY paid the exporter approximately $19 million, which was far in excess of the values represented in either of the two sets of commercial invoices. The audit did identify monthly payments to GHNY from SF, which were invoiced as “agency fees.” However, your office also noted that based on the documents provided during the audit period, GHNY was remitting payments to SF in amounts that were significantly less than what was collected from the U.S. customer. Your office stated that this demonstrated that GHNY is a reseller that was collecting a profit rather than an agent. Your office also stated that the entry documents further suggested that GHNY was more than just an agent. GHNY claimed that transactions between SF and its U.S. customers were conducted on a landed duty paid (“LDP”) or delivered duty paid (“DDP”) basis. Your office noted that entry documentation for this type of transaction should show the U.S. buyer as the consignee. However, the entry documents indicated that GHNY was both the importer and consignee, and the bills of lading showed GHNY as the consignee. Because your office believed that transaction value could not be determined, your office looked at the transaction value of similar merchandise. Your office stated that it would have been logistically impossible to find identical or similar values on an entry-by-entry basis when dealing with imports that extended over a period of several years. Therefore, your office ultimately calculated unit values based on the average transaction value of merchandise classified in the same Harmonized Tariff Schedule of the United States (“HTSUS”) subheading as the subject merchandise that was imported by a similar importer, M. Hidary. Your office selected M. Hidary because GHNY sold wearing apparel from China to M. Hidary in the past. Your office also believed that these prior importations by M. Hidary were more similar to the subject merchandise than imports from other apparel importers such as Nike, The Gap, etc. Your office noted that this methodology further suggested that both sets of commercial invoices provided by GHNY significantly undervalued the subject wearing apparel. GHNY protested your office’s rejection of the transaction value between SF and unrelated Chinese manufacturers. To support the assertion that CBP should accept the transaction value between between SF and the manufacturer as the basis of appraisal, GHNY provided this office with documents for one entry to serve as an illustrative example. GHNY provided the following for review: The Agency Agreement between SF and GHNY, A copy of Dreamwave LLC (“Dreamwave”) purchase order #5001023, dated August 29, 2014, A copy of SF’s purchase order to Xiangshan Jialong Garment Co. Ltd. (“Jialong”), The Jialong invoice to SF, A copy of SF’s “Costing Sheet” for material and trim provided to Jialong, A copy of the SF pro forma invoice and corresponding Entry, GHNY billing invoice to Dreamwave, Dreamwave payment for the invoice, and SF’s payment to Jialong. GHNY stated that SF owned no manufacturing facilities and used independent and unrelated subcontractors to manufacture the apparel for export to the United States. GHNY asserted that the transaction value between SF and an unrelated Chinese factory, Jialong, qualified as an acceptable basis for appraisement as it is a sale for export to the United States. However, your office found no indication of this sale in the entry documents provided. This particular entry concerned 4,950 units of toddler boy’s rash guard shirts, which were entered on October 11, 2014. The transaction was initiated when the U.S. customer of SF, Dreamwave, placed an order for 4,950 units of “Ninja Turtle Rash guard” at a cost of $1.50 per piece. The purchase order from Dreamwave indicated that the terms between the parties were LDP and the last page of the purchase order showed that the order was confirmed and accepted by SF. Upon confirming the Dreamwave order, SF placed a corresponding purchase order with the Chinese factory, Jialong, which GHNY claimed to be unrelated to any other party involved in the transaction. The order identified SF as the “Buyer,” Jialong as the “Seller,” and requested 4,950 pieces of Style no. 247009. The order specified that Jialong was to deliver the merchandise to SF at its warehouse by September 26, 2014. GHNY stated that SF provided Jialong with certain fabric and trim that were used in the manufacture of the garments. For purposes of properly declaring the full value of the merchandise to CBP, GHNY claimed that SF prepared a proforma invoice that reflected the unit price for the factory’s cut and make charge, plus assists. GHNY stated that upon collection of payment from Dreamwave, GHNY remitted funds overseas, pursuant to the instructions of SF. GHNY stated that SF instructed GHNY to retain funds to pay the following expenses in connection with the transaction: customs duties, fees and handling fees, ocean freight and GHNY office expenses. ISSUE: What is the appropriate basis of appraisal for the goods at issue? LAW AND ANALYSIS: The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. § 1401a. Transaction value of imported merchandise is the “price actually paid or payable for the merchandise when so

The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. § 1401a. Transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for five enumerated statutory additions. 19 U.S.C. § 1401a(b). 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. In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992) and Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993), the Court of Appeals for the Federal Circuit and the Court of International Trade (“CIT”), respectively, reviewed the standard for determining transaction value when there is more than one sale which may be considered as being a sale for exportation to the United States. Both cases involved a foreign manufacturer, a middleman, and a United States purchaser. In each case, the court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale conducted at arm’s length, free from any non-market influences, and involving merchandise clearly destined for export to the United States at the time of the first sale. In accordance with the Nissho Iwai and Synergy decisions, we presume that transaction value is based on the price paid by the importer. In further keeping with the courts’ holdings, we note that an importer may request appraisement based on the price paid by the middleman to the foreign manufacturer in situations where the middleman is not the importer. However