H334534

H334534 March 19, 2025 OT:RR:CTF:VS H334534 JMV/AP CATEGORY: Valuation Center Director Electronics Center of Excellence and Expertise U.S. Customs and Border Protection Los Angeles Service Port 301 E. Ocean Blvd. Long Beach, CA 90802 RE: Application for Further Review of Protest No. 2720-23-104963; E-cigarettes; Valuation under 19 U.S.C. § 1401a Dear Center Director: This is in response to the Application for Further Review (“AFR”) of Protest No. 2720- 23-104963, timely filed on behalf of the importer Flumgio Technology Limited (the “protestant”) concerning the appraisement of electronic cigarettes under 19 U.S.C. § 1401a. On December 23, 2024, importer’s counsel notified our office that the importer was no longer interested in holding a meeting on this matter. FACTS: From August 18, 2022 to October 27, 2022, the importer filed multiple entries of filled disposable electronic cigarettes marketed under the brand name “Flum.”1 pre- The importer, located in Hong Kong, China, purchased the goods from Hong Kong Senran Technology Co. Ltd. (“Senran” or “manufacturer”), also located in Hong Kong. The merchandise was shipped from China and South Korea. The consignee was the final U.S. customer. All parties were unrelated. According to the protest, the importer advised the manufacturer that the goods were destined for the United States and the manufacturer coordinated the logistics of shipping the subject goods to the United States with Free on Board (“FOB”) terms of sale, which are specific to ocean and inland waterway transport, and are not applicable for air transport. The importer asserts that it was never in possession of the goods. 1 For more information, see https://flumgio.com/ (last visited Mar. 5, 2025). When the importer was ready to place an order, it used group chats in WeChat to convey the product description, quantity and terms of a transaction. Price negotiations were usually verbal, but payments between business users were made through WeChat-linked bank accounts. After the importer and the manufacturer agreed on the value of the goods and terms of sale, the manufacturer produced the goods for the importer and generated a proforma invoice. On December 19, 2022, U.S. Customs and Border Protection (“CBP”) issued a Request for Information (CBP Form 28) requesting for 122 entries “legible and clear Entry packet, Invoices, Product details and clear Product description/literature.” On January 13, 2023, the importer, through its customs broker, notified the Electronics Center of Excellence and Expertise (“CEE”) in writing that “all Flum shipments contain[ed] the same products” and supplied product descriptions and pictures of Flum disposable e-cigarettes. On January 30, 2023, CBP issued a Notice of Action (CBP Form 29) reclassifying all declared items as e-cigarettes under subheading2 8543.40.0040, Harmonized Tariff Schedule of the United States Annotated (“HTSUSA”), which was subject to additional 25 percent duties under subheading 9903.88.02, HTSUS. The notice also notified the importer that the merchandise should be appraised based on the “wholesale value per piece net packed” and that “[i]tems were also found to be misdescribed on the commercial invoices of some of the entries. They were reclassified as atomizer devices.” On March 7, 2025, the CEE explained that the prices listed on the entry summary package invoices ($1.52 per device) were undervalued and determined the proper values based on the number of puffs each device contained. The appraised value was $3.83 per disposable small vape (up to 2500 puff average) and $6.18 per disposable large vape (5000 plus puff average). If the CEE was unable to determine the number of puffs, it used the lowest value of $3.83 per atomizer. The importer now asserts that the custom broker’s response resulted from miscommunication caused by a language barrier, and in addition to e-cigarettes five of the entries also included promotional items such as “carton, postcards, stickers, key chains, hats, brochures, t-shirts, pens, clothing articles, canvas bags, clothes, and lanyards.” However, the importer did not prove that these items were part of the shipments. The importer provided images, WeChat order screenshots, bank wire transfers, pro forma invoices, commercial invoices, packing lists, air waybills, cargo release results, and a signed letter outlining the supply and purchase practices of the importer implemented after the entries subject to this Protest/AFR were filed. ISSUE: What is the proper method of appraisement for the entered merchandise? 2 Subheading 8543.40.0040, HTSUSA, provides for “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof: Electronic cigarettes and similar personal electric vaporizing devices: Other.” 2 LAW AND ANALYSIS: This matter is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed on June 26, 2023, within 180 days of liquidation for the first entry on January 27, 2023. 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. 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 VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the court 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. Id. (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, 505 F.2d 1400, 1406 (1974)). No single factor is decisive in determining whether a bona fide sale has occurred. CBP makes each determination on a case-by-case basis and will consider such factors as whether the purported buyer assumed the risk of loss and acquired title to the imported merchandise. Since the importer and the manufacturer are unrelated, the sale between them is presumed to be at arm’s length. Further, the importer has shown that the sale between itself and the manufacturer is a sale for export to the United States since the goods were shipped directly from China and Korea to the United States. Thus, the transaction meets the requirement of being an arm’s length transaction for goods clearly destined to the United States for purposes of transaction value. However, we must also consider whether a bona fide sale occurs. Several factors may indicate that a bona fide sale exists between the purported buyer and seller. In determining whether property or ownership has been transferred, CBP considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, CBP may examine whether the purported buyer paid for the goods and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. See Headquarters’ Ruling Letter (“HQ”) 545474, dated Aug. 25, 1995 (examining the circumstances of the transaction when considering whether the parties functioned as buyer and seller). We find that the importer has not sufficiently demonstrated that it was not functioning as a buyer and seller with the manufacturer. While the importer provid

This matter is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed on June 26, 2023, within 180 days of liquidation for the first entry on January 27, 2023. 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. 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 VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the court 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. Id. (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, 505 F.2d 1400, 1406 (1974)). No single factor is decisive in determining whether a bona fide sale has occurred. CBP makes each determination on a case-by-case basis and will consider such factors as whether the purported buyer assumed the risk of loss and acquired title to the imported merchandise. Since the importer and the manufacturer are unrelated, the sale between them is presumed to be at arm’s length. Further, the importer has shown that the sale between itself and the manufacturer is a sale for export to the United States since the goods w