H321162

HQ H321162 February 18, 2022 OT:RR:CTF:VS H321162 UBB CATEGORY: Valuation Center Director Machinery Center of Excellence and Expertise 109 Shiloh Dr. Suite 300 Laredo, TX 78045 RE: Application for Further Review of Protest No. 4103-21-102401; Woodcraft Supply, LLC; First sale valuation Dear Center Director, The following is our decision regarding the Application for Further Review (“AFR”) of Protest No. 4103-21-102401, timely filed on February 1, 2021, on behalf of Woodcraft Supply, LLC (“Woodcraft” or “the protestant”). The importer contests U.S. Customs and Border Protection’s (“CBP”) denial of its “first sale” valuation of the imported merchandise. FACTS: This protest concerns fifteen entries made by Woodcraft during the period of September 13, 2019 and January 15, 2020. The protest was timely filed. The transactions at issue are similar to those which were the subject of Headquarters Ruling (“HQ”) H303114 (May 23, 2019). The facts in this protest are essentially identical to those presented by this importer in the advance ruling request. As in HQ H303114, the importer, Woodcraft, operates woodworking specialty retail stores across the United States. It has two trading partners: Asia Woodriver in Taiwan and Shanghai Woodriver in China. Asia Woodriver and Shanghai Woodriver (collectively, the “Woodriver entities”) are related; however, neither is related to Woodcraft. Woodcraft, Asia Woodriver and Shanghai Woodriver are not related to any of the manufacturers from whom Woodcraft’s imported products are sourced. The importer states that the manufacturers are selected solely by Asia Woodriver or Shanghai Woodriver without input from Woodcraft; Woodcraft never deals directly with the factories. In HQ H303114, we summarized the transactions between Woodcraft, the Woodriver entities and the unrelated manufacturers; the transactions underlying this protest are essentially identical. However, in this protest, Woodcraft states that while individual purchase orders originally served as the purchase contract (including at the time that HQ H303114 was issued), the Master Sales and Purchase Agreements (“MSPA”) signed on September 30, 2019, between Woodcraft and Shanghai Woodriver and between Woodcraft and Asia Woodriver now serve as the basis of the transactions. In their protest memo, Woodcraft states that the MSPA memorializes a long-standing verbal agreement between the parties that governs their transactions, and pursuant to which Woodcraft pays Shanghai Woodriver 18% over their factory cost and Asia Woodriver 12% over their factory cost. Thus, under the MSPA, Woodcraft still issues purchase orders to either Asia Woodriver or Shanghai Woodriver, who then select and contact the manufacturer. All purchase orders are sent to Asia Woodriver, and Asia Woodriver coordinates the purchase orders for both companies. The orders for Chinese produced products are forwarded to Shanghai Woodriver, while Asia Woodriver retains the remaining orders for processing in Taiwan. Both companies then place orders with appropriate factories. When the orders are ready to be shipped, Asia Woodriver coordinates the items and ships them from Taiwan, whereas the Chinese produced goods are shipped directly from the manufacturer in China to the freight forwarder. The commercial invoices for shipments from Asia Woodriver and Shanghai Woodriver are created through the Asia Woodriver location. In its protest memo, Woodcraft acknowledges that in HQ H303114, CBP ruled Woodcraft had not sufficiently demonstrated that the Woodriver entities and the manufacturers/factories functioned as buyers and sellers. Specifically, CBP found that the documentation provided did not show when risk of loss or title transferred from the manufacturer/factory to either Asia Woodriver or Shanghai Woodriver. To support their position, Woodcraft provided the following documents: a purchase order from Woodcraft to Shanghai Woodriver, a purchase order from Shanghai Woodriver to the manufacturer, an invoice from the manufacturer to Shanghai Woodriver, proof of payment from Shanghai Woodriver to the manufacturer, a commercial invoice from Shanghai Woodriver to Woodcraft, proof of payment from Woodcraft to Shanghai Woodriver, and a Bill of Lading. Subsequent to HQ H303114, each of the Woodriver entities entered into an MSPA with Woodcraft Supply, in order to “put their existing verbal agreements into written agreements which evidences and confirms that the relationship between the Woodriver companies and the various manufacturers is that of a buyer and seller and that a bona fide sale occurs between these parties.” This is the additional piece of evidence Woodcraft presents in this case as proof of the entire transaction, from manufacturer to middleman (one of the Woodriver entities) to Woodcraft, the importer. In addition, Woodcraft has provided entry documents, freight documents (issued by the freight expeditor to Woodcraft), invoices from the respective Woodriver entity to Woodcraft, packing lists (showing the responsible Woodriver entity) and bills of lading for each of the protested entries. Noting that “CBP has already determined that the merchandise is clearly destined for the US [sic] at the time of first sale, and that the first sale price is at arm’s length, the focus of this narrative will be to show that a bona fide sale is occurring between the manufacturer to the middleman.” Woodcraft argues that the MSPA controls when risk of loss and title transfer at each step of the transaction and thus shows that a bona fide sale is occurring between the manufacturers and the Woodriver entities. On this basis, Woodcraft argues it is justified in claiming the first sale price for purposes of appraisement of the subject entries and requests a refund of duties paid totaling $59,940.95. ISSUE: Whether the transactions at issue in the protest may be appraised using the transaction value between the foreign manufacturer and Woodriver as a bona fide sale for export to the United States. 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 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 wher

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