H307026

HQ H307026 July 2, 2021 OT:RR:CTF:VS H307026 JMV CATEGORY: VALUATION Center Director Apparel, Footwear and Textile Center of Excellence CBP San Francisco Field Office 555 Battery St, Room 433 San Francisco, CA 94111 RE: Application for Further Review and Protest No. 0712-19-100276; Valuation of apparel This is in response to the Application for Further Review (“AFR”) of Protest No. 0712-19-100276, timely filed by Alston & Bird LLP on behalf of their client GRG USA LLC (“GRG”). This AFR concerns the proper method of appraisement under 19 U.S.C. § 1401a of apparel imported from Canada. GRG protests the Port’s decision that the imported merchandise should be appraised based on the price between GRG and its U.S. customers. FACTS: The parties involved in the transaction at issue are GRG, the importer of record, and Montreal-based Groupe Dynamite Inc. (“GDI”), the Canadian seller and GRG’s parent company. GRG is a company incorporated in Delaware that operates 94 retail stores nationwide and employs over 1,000 U.S. workers. GDI is a fashion retailer with two teen fashion brands, Garage and Dynamite. GDI sources apparel products from unrelated suppliers in Canada and other countries and sells them in Canada and the United States. The merchandise in the protested entry is apparel that GRG purchased from GDI and imported from Canada to the United States in July 2018. GRG states that it bought the merchandise from GDI on Ex-Works sales terms. The merchandise was shipped from Montreal and entered the United States through the Port of Champlain, New York destined for various GRG retail stores across the country. GRG declared a total entered value of $130,324 and duty amount of $18,757.73. In April 2019, CBP found that the related party sales price was not an acceptable transaction value. CBP advanced the value of the merchandise at liquidation at a value approximating the merchandise’s U.S. retail sale price and calculated a duty amount of $82,909.23. GRG is protesting this decision arguing that the subject merchandise should be valued according to the sales price between GRG and GDI or, alternatively, under the deductive value method. To supports its argument, GRG provided the following: Proforma invoices and proofs of payment, Shipping manifest, Shipping invoices and proofs of payment, Cargo insurance policy and proofs of payment, An insurance policy for retail locations, An Inventory Supply Agreement between GRG and GDI, A list of sales managers and directors in the United States, Email communications about U.S. store operations, Financial statements, Tax Filings, Paystubs for GRG employees, A lease for a GRG retail location, An agreement with JPMorgan Chase for merchant payment processing services, A Management Agreement between GRG and GDI and proofs of payment, and Deductive value calculations. The pro forma invoice issued by GDI to GRG dated July 31, 2018, shows GDI is identified as the “Exporter” and GRG is identified as the “Buyer.” The pro-forma invoice provides for the Ex-Works sales term by specifying “Terms – Plant” and “U.S. Duty, MPF and/or Brokerage fees for [account] of Buyer.” GRG states that it paid the freight and insurance from the Montreal warehouse to GRG’s U.S. stores, and provided an invoice from and payment to the freight service provider, and an invoice from and payment to the insurance broker. GRG also provided a cargo insurance policy that lists both GDI and GRG as the insured. Sales GRG states that GDI and GRG have entered into an Inventory Supply Agreement that serves as an overarching supply contract between the parties. The Inventory Supply Agreement states that the title of the goods is transferred from GDI to GRG upon delivery of the products to GRG. The Inventory Supply Agreement also provides that the purchase price to be paid by GRG “shall be equal to the Supplier’s landed cost at its distribution center, plus a margin to be agreed by the parties from time to time.” GRG must pay GDI within 45 days from the date of receipt of GDI’s invoice and GDI may consolidate monthly invoices to facilitate administration of payments by GRG. In addition, GRG is responsible for any costs and expenses associated with returning products to GDI. The Inventory Supply Agreement also states that GRG “shall purchase exclusively from the supplier,” and that: The Supplier will place orders of products for sale at retail for [GRG] based on [GRG’s] needs and taking into account availability of products, [GDI’s] commercial criteria, specific products’ and/or stores’ actual or expected sales performance or for any other reason determined by the Supplier, acting reasonably. . . . The Customer acknowledges that new products may be developed rapidly during a season by the Supplier and/or its affiliates and sold to the Customer from time to time during seasons based on the same criteria as above. . . . The Supplier reserves the right to amend, increase or otherwise modify or place additional orders of products intended for the Customer's stores based on the Customer’s needs and new product availabilities or actual and expected sales trends variances. Management GDI and GRG share many officers and GDI performs many administrative functions on behalf of GRG pursuant to their Management Agreement. According to this agreement, GDI is responsible for the following functions: store operation support, loss prevention policy and surveillance, call center (customer and store services), finance and administration, human resources, information technology, real estate management (leasing, construction, and maintenance) legal support, executive team, and warehousing and distribution to stores. The management agreement states: “The services to be provided by [GDI] to GRG comprise all such services normally associated with a head office of a national brand retail chain . . .” Therefore, all these functions are conducted in Canada, where the parent company, GDI is located. In exchange, GRG reimburses GDI for a percentage of all GDI’s administrative costs that is attributable to U.S. retail operations. The management Agreement requires that GDI invoice GRG for the services monthly and GRG pay GDI 30 days after invoicing. The Management Agreement further provides that it does not grant authority for either party to act for the other party in agency or other capacity. GRG provided records reflecting the invoicing by GDI and payment by GRG for the administrative services GDI provided GRG during the time the merchandise at issue was sold. Regarding U.S. operations, GRG has sales managers physically present in the United States who manage the U.S. retail sales operation. GRG has two Regional Sales Directors, eight District Sales Managers and a Store Manager for each of the 94 retail stores. The Regional Sales Directors are located in New Jersey and California. GRG states that Regional Sales Directors’ responsibilities include developing sales strategy and plans, analyzing and determining product mix, assortment, and inventory levels in the stores. The District Sales Managers are in regular contact with GDI to discuss inventory demand, marketing, sales forecasts, product pricing, product assortment and other sales operations. GRG states that it acts as an independent legal entity and enters into contracts with third parties in connection with the operation of its business and resale of the merchandise in the United States. GRG maintains that it leases and pays for an insurance policy for each store. GRG also provided a Payment Services Agreement, which shows that GRG entered into an agreement with JPMorgan Chase for merchant payment processing services. GRG also stated that it maintains financial and accounting records separately from GDI. GRG files its own tax returns in the United States and GDI files its tax returns in Canada. GRG has bank accounts with Bank of America and Harris Bank which are separate from GDI’s account with Bank of Montreal. GRG’s payments to GDI are tran

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, then the appraised value is determined based on the other valuation methods in the order specified in 19 U.S.C. § 1401a(a).To use transaction value, there must be a bona fide sale for exportation to the United States. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed.Cir. 1999), the Court of Appeals for the Federal Circuit found that the term “sold” for purposes of 19 U.S.C. § 1401a(b)(1) means a transfer of title from one party to another for consideration (citing J.L. Wood v. United States, 62 CCPA, 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). Several factors are relied on to determine whether a bona fide sale exists. See Headquarters Ruling Letter (“HQ”) 546067, dated Oct. 31, 1996. No single factor is decisive in determining whether a bona fide sale has occurred. See HQ 548239, dated June 5, 2003. CBP will consider such factors as whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. Also, CBP may examine whether the purported buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as a buyer and a seller. See HQ H005222, dated June 13, 2007.Finally, pursuant to CBP’s Informed Compliance Publication, entitled “Bona Fide Sales and Sales for Exportation,” CBP will consider whether the buyer provided or could pr