H326891

HQ H326891 May 29, 2024 OT:RR:CTF:VS HQ H326891 UBB/AMW CATEGORY: Valuation Center Director Agriculture and Prepared Products CEE U.S. Customs and Border Protection 301 E. Ocean Bl., Fl. 14 Long Beach, CA 90802-4826 Attn: Carl Vickerson, Senior Import Specialist RE: Application for Further Review of Protest No. 130322103681; Green Food Ingredients LLC; “First Sale” Appraisement; Multi-Tiered Transaction Dear Center Director, This is in reference to the Application for Further Review (“AFR”) of Protest No. 130322103681, timely filed on July 7, 2022, on behalf of Green Food Ingredients LLC (“Green Food” or “the protestant”), concerning the appraisement of certain dehydrated garlic products. FACTS: Green Food is a U.S. importer of dehydrated garlic from China. Green Food, along with a related company that is not the subject of this protest, Lunong Ingredients LLC, imported dehydrated garlic from two related Chinese sellers, Jinxiang Lunong Agricultural Trading Co., LTD (“Jinxiang”) and Shandong Lunong Food Technology Co., LTD (“Shandong”). The importations that are the subject of this protest and AFR were sold by Jinxiang. Both Jinxiang and Shandong are owned/affiliated to an owner of Green Food. The subject merchandise was sold and shipped directly to McCormick & Co. (“McCormick”), an unrelated party, or to a warehouse designated by McCormick. The entry subject to this protest was also the subject of a “quick response” audit by U.S. Customs and Border Protection’s (“CBP”) Trade Regulatory Audit (“Regulatory Audit” or “CBP auditors”). The audit concluded in September 2022 and determined Green Food’s entries (including the entry subject to this protest) were undervalued, resulting in an underpayment of duties, Merchandise Processing Fees (“MPF”), and Harbor Maintenance Fees (“HMF”). Before the audit was finalized, Green Food filed this protest. According to the protestant, Green Food and Jinxiang are “wholly separate” corporations and Green Food’s manager and part-owner in the United States has significant amount of autonomy to handle imports, sales, travel, and to seek and engage customers. Green Food has not provided any documentary evidence to support this statement. Indeed, the manager and part owner of both Green Food and Jinxiang, Xian Shao, is the same individual who signed Green Food’s invoices to McCormick. Green Food claims that pricing generally quoted to the ultimate customer is based upon Green Food’s own understanding of factory prices. The U.S. customer then issues a purchase order to Green Food and Green Food transfers the purchase order to Jinxiang to process the sale. Green Food has provided copies of the purchase orders at issue in this matter. They are issued by McCormick to Green Food, note a direct shipment to McCormick and a “ZDP Prepaid-Destination (CPT)” term of delivery. In the protest, Green Food states that, “[i]f profits are not high enough for Green Food, the price can be negotiated[,]” however it is unclear from this statement whether this refers to a price being negotiated with Jinxiang or with McCormick (the U.S. buyer). Nevertheless, Green Food also states that the “pricing process may be somewhat affected by the relationship of the parties, but this is common in related-party sales.” Based upon information and documents shared with Regulatory Audit, it appears that once a shipment is ready, Jinxiang ships the merchandise, ostensibly to Green Food at its U.S. address, although the notify party is Green Food’s customs broker, who receives the merchandise and arranges shipment within the United States to the merchandise’s destination as determined by McCormick. At no point does the merchandise enter a warehouse managed or paid for by Green Food. Green Food has provided a series of documents to support the stated transaction. Together with its entry, Green Food submitted the following: Two commercial invoices dated June 1, 2018, issued by Jinxiang to Green Food in Burr Ridge, IL (“original invoices”), both dated July 23, 2018, showing a CIF (cost, insurance, freight) term of sale (Qingdao to Baltimore) for two totes of roasted garlic granules (21,229 kg and 24,495 kg respectively, for a total of 45,724 kg) at a cost of $38,212.20 and $44,091, respectively, for a total of $82,303.20). The invoice also noted a freight cost of $12,475 and insurance expenses of $271.60; Insurance documents covering the delivery to the Port of Baltimore, showing the payor and insured as Jinxiang, which corroborates that Jinxiang paid for the insurance but does not corroborate the amount of the premium, listing it only “as arranged”; A packing list that shows two totes of 36 sacks each of roasted garlic granules for a total gross weight of 47,486 kg; A bill of lading showing the shipper as Jinxiang, the consignee as Green Food, and the notify party as Green Food’s customs broker, port of loading Qingdao and port of delivery Baltimore, showing a total of 72 packages of roasted garlic granules for a gross weight of 47,486 kg and noting “freight prepaid”; and An invoice from Green Food’s customs broker, including the original entry documents showing duties, HMF and MPF paid on behalf of Green Food (the Importer of Record, or “IOR”). During the audit, Green Food supplied the following additional documentation, which also relates to the subject entry: Adjusted post-entry invoices dated July 23, 2018, (“adjusted invoice”) between Jinxiang and Green Food in Burr Ridge, IL, for two orders of granulated garlic (lot number LN18148) both showing a “DDP A&S” total price. The first invoice (No. 00138056) for 54,000 lbs (approx. 24,493 kg) for a total amount of $86,243.40. The second invoice (No. 00138057) for 46,800 lbs (approx. 21,228 kg) for a total amount of $64,462.32; Invoices dated July 23, 2018, sent by Green Food to McCormick, for two orders of granulated garlic both showing a “DDP A&S” total price. The first invoice (No. 00188082) for 54,000 lbs (approx. 24,493 kg) for a total amount of $102,060. The second invoice (No. 00188083) for 46,800 lbs (approx. 21,228 kg) for a total amount of $76,284; Purchase orders from McCormick to Green Food, for two orders of granulated garlic (noting manufacturer Lunong Ingredients LLC) for direct shipment to McCormick’s consignee, A&S Services Group, LLC in Cockeysville, MD. The first (No. 4501651654) for 54,000 lbs of granulated garlic and a quoted price of $102,060. The second (No. 4501652777) for 46,800 lbs of granulated garlic and a quoted price of $76,284; and Documents showing inland freight and delivery from Baltimore port to McCormick’s designated warehouse (i.e., the A&S warehouse in Cockeysville, MD), arranged by Green Food’s customs broker. Green Food, through its customs broker, entered the subject merchandise on the basis of the original invoice, paying duties and fees on that basis. In their protest, Green Food claims that this invoice was an “estimated amount required to be received by Jinxiang from Green Food in order to ensure economic viability.” According to Green Food, Jinxiang “incorrectly understood that because of the relationship of the parties, no strict requirements were applied to this initial, estimated cost allocation.” After the arrival of the shipment, Jinxiang sent Green Food an adjusted invoice “designed to include a further-evaluated price that includes all raw materials, production costs, freight, profit and other relevant outlays.” Once Green Food received payment from McCormick, it “wired the appropriate payment to China based on the adjusted invoice.” Green Food did not provide proof of payment, either from McCormick to Green Food, or from Green Food to Jinxiang as part of this protest. Green Food did provide proof of lump sum payments to Jinxiang as part of its audit response, however CBP auditors were not provided with a direct tie to the proof of payment for the adjusted invoices at issue in this transaction (or the two other transactions that are the subject of protests sus

Initially, we note that the matter 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. 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 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).Whether there was a Bona Fide Sale Between Jinxiang and Green Food?In Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F. 2d 505 (Fed. Cir. 1992), and Synergy Sport International, Ltd. v. United States, Slip Op. 93-5 (CIT Jan 12, 1993), the Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, reviewed the standard for determining transaction value when there is more than one sale which may be considered as being for exportation to the United States. Both cases involved a foreign manufacturer, a middleman, and a U.S. purchaser. In each case, the court held that the price paid by the middleman/importer to the manufacturer was the proper basis for tra