H307028

HQ H307028 February 2, 2021 OT:RR:CTF:VS H307028 AP CATEGORY: Valuation Center Director Apparel, Footwear and Textiles CEE 200 East Bay Street Charleston, South Carolina 29401 Attn.: Robert O’Brien, Import Specialist RE: Application for Further Review of Protest Number 2704-18-101531; “First Sale” Appraisement; Multi-Tiered Transaction Dear Center Director: The following is our decision regarding the Application for Further Review (“AFR”) of Protest Number 2704-18-101531, timely filed on September 19, 2018, on behalf of [ ] (“U.S. importer and protestant”). The importer contests U.S. Customs and Border Protection’s (“CBP”) denial of its “first sale” valuation of the imported apparel. A conference with the importer’s counsel was held on June 10, 2020, and additional documentation was received on June 11, 2020, and on July 30, 2020. The importer, through its counsel, 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 and all attachments to this AFR and additional documentation, forwarded to our office, will not be released to the public and will be withheld from published version of this decision. FACTS: In the instant multi-tiered transaction, the U.S. importer purchased apparel from its related middleman vendor [ ] located in Singapore, which in turn, purchased the goods from the unrelated foreign seller/factory [ ] in China. [ ] in Singapore served as a buying agent for the middleman [ ]. The terms of the sale between the importer and the middleman were Free on Board (“FOB”) Ningbo, China. The terms of the sale between the foreign supplier and the middleman were also FOB Ningbo, China. The importer informs that no assists or statutory additions were provided. The importer ordered the merchandise from the middleman, specifying the factory in China [ ] as the foreign supplier. Protestant served both as the importer of record and the ultimate consignee, declaring the price between the foreign seller and the middleman under the transaction value method of appraisement. At liquidation, CBP advanced the value of the subject entry based on the sale from the middleman to the importer. The merchandise covered by this entry was a partial shipment of the goods ordered. The entry was filed on January 2, 2016, and was liquidated on March 23, 2018. The importer provided the following documentation to support its claim that the merchandise should be appraised based on the sale between the middleman and the foreign supplier: May 21, 2015 PO No. 4500209619 ($252,659.22); May 27, 2015 PO No. 4500210040 ($50,049.70); and June 15, 2015 PO No. 4500212266 ($128,614.50) issued by the importer to the middleman for various styles of apparel. The terms of sale are FOB Port of Ningbo, China. The factory [ ] is listed as the foreign vendor and goods supplier. May 21, 2015 PO No. 15-C[ ]I-1072-1 ($240,627.84); May 27, 2015 PO No. 15-C[ ]I-1125-1 ($47,666.40); and June 15, 2015 PO No. 15-G[ ]I-1149-1 ($122,490.00) issued by the middleman to the foreign supplier for various styles of apparel. The importer is listed as the buyer on these POs and [ ] is listed as buying agent for the middleman. The POs reference PO Nos. 4500209619, 4500210040 and 4500212266 issued by the importer. Per PO No. 15-G[ ]I-1149-1, “Premium of product liability insurance on FOB price will be covered by Li & Fung Group at vendor’s expense.” The total listed product liability insurance amount is $306.23. The Terms and Conditions of the Sale (exhibit 3) provide that, “Risk of loss of or any damage to any of the Goods and title thereto shall pass to the Buyer according to the Contract. At no time does the Buying Agent take any title to the Goods.” The importer is listed as the buyer. The Contract is defined as including the Terms and Conditions and the relevant Placement Memorandum and purchase orders, which define both the terms of the sale between the buyer and the middleman and the middleman and the foreign supplier as FOB Port of Ningbo, China. May 21, 2015 Placement Memorandum No. 15-C[ ]I-1072-1 ($240,627.84); May 27, 2015 Placement Memorandum No. 15-C[ ]I-1125-1 ($47,666.40); and June 15, 2015 Placement Memorandum No. 15-G[ ]I-1149-1 ($122,490.00) from the middleman. The middleman is listed as the buyer. The listed terms of sale are “FOB CNNGB-Sea-Ning Bo.” December 18, 2015 Invoice No. YF15-GBG-S1204 from the foreign supplier to the middleman for 16,776 apparel sets for a partial shipment of the goods ordered in the amount of $55,149.84. The invoice references the importer’s PO Nos. 4500209619, 4500210040 and 4500212266, and identifies the importer as the U.S. consignee. Los Angeles is listed as the final destination and Ningdo in China is listed as the port of loading. The terms of sale are FOB Ningbo, China. [ ] is listed as the buying agent for the middleman. December 18, 2015 Invoice No. CU1C/151026 from the middleman to the importer for a partial shipment of the goods ordered in the amount of $57,907.33. The invoice references Placement Memorandum 15-C[ ]I-1072-1, 15-C[ ]I-1125-1, and 15-G[ ]I-1149-1 as well as PO Nos. 4500209619, 4500210040 and 4500212266 from the importer. The terms of sale are FOB Ningbo, China. December 18, 2015 Waybill No. NB[ ]010327 for the shipment of 698 cartons to the U.S. PO Nos. 4500209619, 4500210040, and 4500212266 are referenced. The port of loading is Ningbo, China and the port of discharge is Los Angeles, CA. The Packing List generated on December 18, 2015, is also included. The Packing List states that the factory/foreign supplier [ ] is the shipper and the importer serves as the consignee. Proof of June 28, 2016 payment between the importer and the middleman in the amount of $57,907.33 in satisfaction of Invoice No. CU1C/151026 from the middleman dated December 19, 2015. The middleman’s buying agent is listed as the beneficiary. Proof of May 7, 2016 payment between the middleman and the factory/foreign supplier [ ] in the amount of $546,980.16 in satisfaction of, among others, December 19, 2015 Invoice No. YF15-GBG-S1204 from the factory/foreign supplier to the middleman for $55,149.84. Payment executed by the middleman’s buying agent. December 29, 2015 Entry Summary (CBP Form 7501) for the entry reflects the value from Invoice No. YF15-GBGS1204 from the factory/foreign supplier to the middleman for a total of $55,149.84. The protestant is listed as the importer of record. China is listed as the exporting country. December 29, 2015 duty deduction summary from the importer detailing the $480.16 of non-dutiable charges associated with the international transportation of the imported merchandise. After our June 10, 2020 conference, the importer, through its counsel, submitted the following additional documentation: Buying agency agreement effective as of June 29, 2014, between the importer and its buying agent. Per the agreement, [ ] is a “non-exclusive buying agent” for the purchase of products “from manufacturers and all other sources of supply” in selected territories to include China, Singapore, and Hong Kong. The middleman acts as a principal and may source from third parties if it sources [ ] from its buying agent. The buying agent assists the middleman in the selection of vendors and in the negotiation of the most favorable prices. According to the agency agreement, the buying agent is “a corporation duly organized, validly existing and in good standing under the laws of the Republic of Singapore.” The agreement was signed for and on behalf of the middleman and the agent without a date next to each signature and did not include the name and title of the individual who signed on behalf of the buying agent. Annual Report from the middleman for the financial period from January 1, 2015 to March 31, 2016 (“2016 PwC Report), prepared by PriceW

Initially, we note that the matter protested is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed, within 180 days of liquidation for entry made on March 23, 2018. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further Review of this protest is properly accorded to the importer pursuant to 19 C.F.R. § 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon.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, codified at 19 U.S.C. § 1401a. The primary method of appraisement is transaction value. For purposes of this ruling, we accept that transaction value is the proper method of appraisement for the imported merchandise. Transaction value is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus certain statutorily enumerated additions under 19 U.S.C. § 1401a(b)(1)(A)-(E). Unless there is a bona fide sale of merchandise for exportation to the United States, the transaction value method cannot be used.In Nissho Iwai Am. Corp. v United States, 982 F.2d 505 (Fed. Cir. 1992), the court reviewed the standard for determining transaction value in a multi-tiered transaction. The court case involved a foreign manufacturer, a middleman, and a U.S. purchaser. The court held that the price paid by the middleman to the foreign manufacturer was the proper basis for transaction value. The court stated that in order for the foreign manufacturer’s price to be a valid transaction value, the transaction between the foreign manufacturer and the middleman needed to be a sale negotiated at “arm’s length” that was free from any non-market influences, and involved goods clearly destined for exportation to the