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HQ 545595

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April 26, 1995

VAL R:C:V 545595 IOR

CATEGORY: VALUATION

District Director
Los Angeles, California

RE: Application for Further Review of Protest No. 2704-94-100369; transaction value of imported merchandise; sale for exportation

Dear Sir:

The subject protest and application for further review is against your decision regarding the proper transaction value of men's and boys' wearing apparel imported by xxxx xxxxxxxx xxxxxxxx, xxx. (hereinafter referred to as the "protestant"). The protest was timely filed on February 2, 1994. The file was received in Headquarters on March 21, 1994. We regret the delay in responding.

FACTS:

This protest concerns six entries of men's and boys' wearing apparel made from June 17, 1993 through June 28, 1993. The merchandise was purchased by xxx Inc. (hereinafter referred to as "CAS"), a U.S. corporation, from Jaiddex Develop Corp. (hereinafter referred to as the "middleman") through CAS' agent Dragon Union Limited (hereinafter referred to as the "agent"). The merchandise was purchased for the protestant. The entry includes a notice from CAS confirming that CAS transfers the merchandise to the protestant prior to customs clearance. The merchandise was appraised under transaction value based on the price CAS paid the middleman. The protest asserts that the merchandise should have been appraised based on the invoice price from the manufacturer, Tex Jean Garments Corp. (hereinafter referred to as the "manufacturer") to the middleman.

Tai-Develop Textile Co. (hereinafter referred to as "TDT") is another party involved in the subject transactions. According to the protestant, TDT subcontracted the manufacture of the apparel to the manufacturer. The agent, middleman, TDT, and manufacturer are all Taiwanese companies. The entries contain invoices from the manufacturer to the middleman, invoices from the middleman to CAS and textile export visa/invoices of Taiwan from TDT to CAS. The invoices from the manufacturer to the middleman and the visa/invoices from TDT to CAS are for the same amount. The protestant's September 14, 1993 response to Customs Form 28 (CF 28) requesting information documenting the sale between the manufacturer and middleman, contains a record of payment by the protestant to the middleman, and "foreign exchange bought memos" issued by The Shanghai Commercial & Savings Bank, Ltd. identifying only TDT. The response also contains purchase orders issued by the middleman indicating TDT as the "maker," the agent's confirmations to CAS and a statement from the middleman. According to the middleman's statement, the manufacturer produced the subject merchandise and is an independent entity, TDT subcontracted the apparel order to the manufacturer and there is no "partnership" between the middleman and the manufacturer, and all transactions are negotiated on an arms-length basis.

You take the position that the protestant has not provided documents supporting the existence of an independent sale and payment between the manufacturer and the middleman.

ISSUE:

Whether protestant has established that transaction value for the imported merchandise should be based on the alleged sale between the middleman and the manufacturer.

LAW AND ANALYSIS:

The method of appraisement for the imported merchandise is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus enumerated additions. The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as "the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."

In Nissho Iwai American Corp. v. United States, No. 92- 1239, slip op. (Fed. Cir. Dec. 28, 1992) and Synergy Sport International, Ltd. v. United States, No. 93-5, slip op. (Ct. Int'l. Trade Jan. 12, 1993), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman and a U.S. purchaser. In both cases the middleman was the importer of record. In each case the court held that the price paid by the middleman/importer 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 negotiated at arm's length, free from any nonmarket influences and involving goods clearly destined for the United States.

Likewise, we note that in the context of filing an entry, Customs Form 7501, an importer is required to make a value declaration. As indicated by the language of CF 7501 and the language of the valuation statute, there is a presumption that such transaction value is based on the price paid by the importer. In this regard, field instructions dated March 8, 1993 from the Director of Trade Operations, provide that where an importer requests appraisement based on the price paid by the middleman to the foreign manufacturer (and the importer is not the middleman), the importer may do so. However, it is the importer's responsibility to show that such price is acceptable under the standards set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the sale was at "arm's length," and that the goods sold were "clearly destined for the United States," within the meaning of 19 U.S.C. 1401a(b).

In this case, CAS is the importer and, therefore, based on the above-noted presumption, the appraising officer correctly based the transaction value of the imported merchandise on the price that CAS paid to the middleman. With regard to whether or not transaction value may be based on the transaction between the middleman and the manufacturer, we note that it is not clear from the evidence presented whether there was a sale between the manufacturer and the middleman or between TDT and the middleman. In either case, the protestant has not provided sufficient information to establish either potential sale.

HOLDING:

Since the protestant has not provided sufficient information to establish either potential sale to the middleman, we are unable to confirm that a sale for exportation existed other than the sale from the middleman to CAS. Accordingly, the appraising officer correctly based the transaction value of the imported merchandise on the price paid by CAS to the middleman.

Consistent with the decision set forth above, you are hereby directed to deny the subject protest. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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