H332358

H332358 June 4, 2025 OT:RR:CTF:VS H332358 RRB CATEGORY: Valuation Center Director Apparel, Footwear & Textiles Center U.S. Customs and Border Protection 4813 Pacific Hwy E Fife, WA 98424 Attn: Angela Hultz, Supervisory Import Specialist; Stephen Bono, Import Specialist RE: Application for Further Review of Protest No. 4601-23-134023; Dreamwear Inc.; First Sale Valuation Dear Center Director, This is in response to the Application for Further Review (“AFR”) of Protest No. 4601-23-134023, timely filed on February 27, 2023, by Sharretts, Paley, Carter & Blauvelt, P.C., on behalf of their client, Dreamwear Inc. (“Protestant” or “Dreamwear”), contesting U.S. Customs and Border Protection’s (“CBP”) decision to deny Dreamwear’s “first sale” valuation of the imported merchandise. In response to our office’s request for supplementary information regarding Dreamwear’s claims, Dreamwear submitted additional supporting documentation on October 1, 2024, and October 15, 2024. Pursuant to Dreamwear’s request, our office held a teleconference meeting on March 26, 2025, with Dreamwear and their counsel. Subsequent to this teleconference, on April 29, 2025, counsel for Dreamwear provided additional supporting documentation. Lastly, in response to our request for a more detailed organizational chart concerning the related parties, counsel for Dreamwear provided an explanation via email, dated May 12, 2025, regarding how the middleman vendor and factory seller are related. Our response considers all of the information presented in the above-referenced submissions and meeting. We further note that this protest has been designated as a lead protest, with one other protest pending under this protest. FACTS: The lead protest concerns two entries of clothing that were entered on August 21, 2020, and September 25, 2020, by Dreamwear, and liquidated on September 2, 2022. The entries at issue all involve clothing produced in China and were subject to multi-tiered transactions. The importer, Dreamwear, purchases clothing from a “middleman” vendor, Lucky Zone Development Limited (“Lucky Zone”). Lucky Zone does not manufacture the clothing items, but places orders with a related factory seller, DongGuan Lucky Zone Garments and Accessories Co. Ltd. (“DongGuan Lucky Zone”). Lucky Zone and DongGuan Lucky Zone are related parties. Counsel states that the underlying transactions between the middleman vendor and the related factory seller involve raw material assists (fabric, trims, and packaging) provided by Lucky Zone to DongGuan Lucky Zone free of charge. Counsel claims that the first sale valuation of the entries at issue based upon the sales price between Dreamwear’s middleman vendor, Lucky Zone, and DongGuan Lucky Zone, should have been used. CBP determined that because Dreamwear’s multi-tiered import transactions did not meet the requirements of Treasury Decision (“T.D.”) 96-87, dated January 2, 1997, the first sale entry line items should have been entered at the price actually paid or payable between the importer and middleman vendor, not based on the sales prices between the middleman and the factory related to the middleman. In support of this protest, Counsel provided various documents concerning two representative transactions from 2020 with Lucky Zone as the middleman vendor and DongGuan Lucky Zone as the related factory seller. Some of the specific documents are: • An organizational chart identifying Lucky Zone as the middleman vendor and DongGuan Lucky Zone as the related factory seller; • Documents, much of which were initially not translated into English1, in support of Dreamwear’s claim that the protested entries included two bona fide sales for export to the United States, including the following: o Dreamwear’s purchase orders to the middleman vendor, Lucky Zone, for the underlying merchandise, under “FOB Shenzen” sales terms. o Lucky Zone’s purchase orders to DongGuan Lucky Zone on an ex-factory basis. o Invoices from DongGuan Lucky Zone to Lucky Zone on an ex-factory basis, along with packing lists and a transaction value worksheet highlighting the subject styles at issue. Counsel claims that the transaction value worksheet 1 In response to our request for translated documents, on October 15, 2024, Dreamwear submitted what it claims were translated versions of its earlier documentary evidence. However, these documents were either only partially translated, were incoherent, or did not identify the proper parties as alleged in the subject protest. Subsequently, on April 29, 2025, Dreamwear submitted what it avers are professionally translated versions of its documentary evidence. 2 summarizes the first cost transaction and confirms that the underlying transactions involved raw material assists (fabric, trims, and packaging) provided by Lucky Zone to DongGuan Lucky Zone free of charge. The purchase terms between Lucky Zone and DongGuan Lucky Zone to produce the apparel were “CMT,” which requires that Lucky Zone supply and deliver all the fabric, trim, and materials directly to DongGuan Lucky Zone. o Invoices from Lucky Zone to Dreamwear. To confirm the accuracy of the assist costs declared at time of entry, as reflected on the transaction value worksheet used at that time, counsel provided Lucky Zone’s purchase, payment, and receiving records associated with these expenses.2 In support of its claims of a bona fide sale between Lucky Zone as the middleman vendor and DongGuan Lucky Zone as the related factory seller, counsel provided proof of payment from Lucky Zone to DongGuan Lucky Zone. Counsel also provided Lucky Zone’s ledger recordings for the underlying sales to support its claim of a bona fide sale between Lucky Zone and DongGuan Lucky Zone.3 To show that there were no additional expenses that should have been included in the first sale cost, counsel provided a copy of Lucky Zone’s chart of accounts. To confirm that there were two independent sales at arm’s length, counsel provided Lucky Zone and DongGuan Lucky Zone’s audited 2019 and 2020 profit and loss statements for its revenue from orders from Dreamwear. Counsel asserts that this documentation demonstrates that the factory realized a gross margin each year sufficient to recover all of its costs plus a profit. Based on the foregoing, the Protestant asserts that this documentation demonstrates the legitimacy of its first sale claims because it confirms that: 1) the goods were purchased via bona fide sales between the factory and middleman vendor and the middleman vendor and Dreamwear, respectively; 2) the underlying goods were clearly destined for the United States; 3) all transactions were at an arm’s length; and 4) there is no evidence that the first sale transactions were subject to any non-market influences. ISSUE: 2 In response to our August 30, 2024, request for translated documents, on October 15, 2024, Dreamwear submitted what it claims were translated versions of its earlier documentary evidence. However, these documents were either only partially translated, were incoherent, or did not identify the proper parties as alleged in the subject protest. Subsequently, on April 29, 2025, Dreamwear submitted what it avers are professionally translated versions of this documentation. 3 In response to our August 30, 2024, request for translated documents, on October 15, 2024, Dreamwear submitted what it claims were translated versions of its earlier documentary evidence. However, these documents were either only partially translated, were incoherent, or did not identify the proper parties as alleged in the subject protest. Subsequently, on April 29, 2025, Dreamwear submitted what it avers are professionally translated versions of this documentation. 3 Whether the Protestant submitted sufficient evidence to support the use of transaction value of the entered merchandise based upon the sales between the middleman vendor and its related factory seller under the “first sale” principle of appraisement set forth i

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 (TAA; 19 U.S.C. § 1401a). The preferred 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 certain statutory additions. 19 U.S.C. § 1401a(b)(1). In accordance with 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, 17 C.I.T. 18 (1993), appraisement of imported merchandise based on a bona fide sale of goods for export to the United States, prior to the last sale for export to the United States, is a legitimate basis of appraisal and CBP will appraise merchandise for which a “first sale” claim is made when it meets the requirements for such appraisement. In Nissho Iwai, the Court of Appeals for the Federal Circuit 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. The case involved a foreign manufacturer, a middleman, and a United States purchaser. The court held that the price paid by the middleman to the manufacturer was the proper basis for transaction value. The court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm’s length, free from any non-market influences, and involving goods clearly destined for the United States. See also, Synergy, supra. The importer claims that the merchandise at issue should be appraised based upon the transaction value of the sales between its middleman vendor, Lucky Zone, and Lucky Zone’s related factory seller, DongGuan Lucky Zone. We note that although an importer may request appraisement based on the price paid by a middleman to a fo