H316932

HQ H316932 August 5, 2021 OT:RR:CTF:VS H316932 RMC CATEGORY: Valuation Center Director Apparel, Footwear and Textiles Center U.S. Customs and Border Protection 237 West Service Rd. Champlain, NY 12919 Attn: Jason Lemieux RE: Application for Further Review of Protest No. 2704-21-150962; Sale for Export; Apparel Dear Center Director: This is in response to the Application for Further Review (“AFR”) of Protest No. 2704-21-150962, timely filed by [ ] (“Protestant”), on January 26, 2021, contesting the appraised value of apparel imported from China. You have asked that certain information submitted in connection with this ruling request 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 ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this decision. FACTS: The Protestant is a trading company registered in Hong Kong and a non-resident importer in the United States. According to the information provided, the Protestant works with commissioned agents in the United States to solicit orders for various apparel products. The Protestant then contracts with a suitable vendor in China to procure the goods. On June 29, 2020, the Protestant entered the merchandise subject to this protest, which consists of various girls’ garments. It based the declared value of the merchandise on the price actually paid or payable to [ ] (“Vendor”), its Chinese vendor. On July 20, 2020, the Apparel, Footwear and Textiles Center issued a U.S. Customs and Border Protection (“CBP”) Form 28 (Request for Information) seeking documents relevant to the valuation of the merchandise (such as the purchase order, commercial invoice, and proof of payment) as well as the classification of the merchandise (such as digital photos of the merchandise, sketches, or samples). On August 17, 2020, the Protestant provided a short narrative response to the Center’s inquiries but did not provide any further underlying documentation. CBP Form 29 (Notice of Action – Taken), dated August 27, 2020, the Center determined that the sale for export between the Protestant and its U.S. customer, and not between the Vendor and the Protestant. Accordingly, the Center advanced the value of the merchandise to reflect the price paid by the Protestant’s U.S. customer. In this AFR, the Protestant contends that the Center has incorrectly based the value of the imported merchandise on a purely domestic sale between the Protestant and its U.S. customer. According to the Protestant, the underlying documentation demonstrates that it was a bona fide buyer that bore title and risk of loss from the time that the goods were entered in the United States until delivery to the U.S. customer. The Protestant therefore points to the sale between the Vendor and itself as the relevant “sale for export” and argues that the entered value was correct. In support of its position, the Protestant provided a complete paper trail for the transaction under consideration. The purchase orders/master cut tickets between the U.S. customer and the Protestant indicate that on January 8, 2020, the U.S. customer submitted a series of orders for various apparel goods (indicated by purchase order numbers 55211, 55212, 55126, 55127, 55128, 55129, 55158). The purchase orders list the Protestant as the “Vendor” and the shipping terms as LDP. The purchase orders stipulate that the merchandise is required to comply with both state and federal laws per the Consumer Product Safety Improvement Act and California Proposition 65 requirements for hazardous chemicals. On January 10, 2020, the Protestant submitted a purchase order to the Vendor for the same merchandise under the same purchase order numbers on FOB (Shanghai) terms. On June 10, 2020, a Bank of China (Hong Kong) “customer advice of outward remittance” referencing the purchase orders listed above shows a payment from the Protestant to the Vendor in the amount indicated in the purchase orders between the Protestant and the Vendor, which matches the declared value listed on the entry summary. According to the Protestant, no sales contracts exist for the transactions at issue and the full contractual terms are set forth in the various purchase orders. A bill of lading dated June 17, 2020, lists the Vendor as the shipper, the Protestant as the consignee, and the U.S. customer as the notify party. The port of loading is Shanghai, and the port of discharge is Los Angeles. The Protestant states that once CBP released the goods, they were delivered to the U.S. customer’s warehouse in California. In addition to the issue of identifying which transaction constitutes the sale for export to the United States, this case also raises questions about whether additional charges that the Protestant incurred in connection with the imported merchandise should be included in the price actually paid or payable or added as an addition. Specifically, the Protestant paid commissions to its U.S. sales agents and additional sums to third parties for quality control inspections, fabric testing, and social compliance testing. Regarding the commissions, the Protestant provided copies of the commission agreement, invoice for the commissions for the orders covered by this AFR, and proof of payment. The commission agreement provides that the Protestant contracts with [ ] (“Agent”) to be its “business representative in the USA market from the date of Jan 1st 2020 to December 31st 2020.” Among the Agent’s responsibilities and services are to “provide expansion and service for the current clients”—namely, the U.S. buyer in this case. As compensation, the Agent earns a sales commission that “will not exceed $1.00 per unit” for sales to the U.S. buyer. The Agent’s invoice dated June 20, 2020, identifies the purchase orders listed above, a commission of $0.80 per unit, and a total commission amount for the covered orders. A “customer advice of outward remittance” from Bank of China (Hong Kong) shows a matching payment from the Protestant to the Agent’s Los Angeles bank account. The Protestant also hired an employee to inspect cut panel, screen, embroidery, and sample garments before samples were sent to the U.S. customer for its approval. The Protestant provided an employment contract indicating that this individual was hired on a full-time basis to conduct these quality-control inspections in mainland China for all orders destined for the U.S. customer. The employee’s compensation takes the form of a monthly salary, which was substantiated with bank records indicating a payment to the inspector in the amount listed in the employment contract. Additionally, the Protestant hired Bureau Veritas to carry out a final inspection on the merchandise before shipment to the United States. An invoice dated May 27, 2020, from Bureau Veritas Hong Kong Limited to the Protestant lists the service request as “final random inspection” for the purchase orders listed above to take place on June 5, 2020. Bank records indicate that a payment matching the invoice amount was made to Bureau Veritas on June 3, 2020. Lastly, the Protestant also hired Bureau Veritas to carry out “social compliance testing,” which it describes as ensuring that the fabric used to produce the merchandise complies with the Consumer Product Safety Improvement Act in the United States. To substantiate these costs, the Protestant provided an invoice from Bureau Veritas Consumer Products Services (Shanghai) to the Protestant listing each style of garment and the corresponding inspection fee, as well as bank records showing a payment to Bureau Veritas on May 27, 2020, for the total amount invoiced for social compliance testing. ISSUES: Whether transaction value should be based on the alleged sale between the foreign vendor and the importer, rather th

Sale for Export to the United States 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). Here, the Protestant contends that the price it paid to the Vendor constitutes an acceptable transaction value for the entries at issue. Conversely, the Center believes that the transaction value should be based on the price actually paid or payable by the Protestant’s U.S. customers. Under 19 U.S.C. § 1401a, we must first determine whether the Vendor “sold” the merchandise to the Protestant and, if so, whether that sale was “for exportation to the United States.” If that is the case, and all other statutory requirements are met, the Protestant may base transaction value on the price actually paid or payable to the Vendor.In order for transaction value to be used as a method of appraisement, there must be a bona fide sale between the buyer and seller. 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 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). Several factors may indicate that a bona fide sale exists between the purported buyer and seller. In determining whether property o