HQ 545657: Application for Further Review of Protest No. 1001-93-106220; transaction value of imported merchandise; sale for exportation

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 545657
                           May 5, 1995

VAL R:C:V  545657 IOR

CATEGORY:  Valuation

Area Director
Kennedy Airport Area

RE:  Application for Further Review of Protest No. 1001-93-106220; 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 ladies' wearing apparel imported by Bernard Chaus Inc.
(hereinafter referred to as  the "protestant").  The protest was timely filed on September 7, 1993. 
The file was received in Headquarters on March 24, 1994.  We regret the delay in responding.

FACTS:

     This protest concerns two entries of ladies' wearing apparel imported by the protestant. 
The merchandise was purchased from Formostar Garment Co., Ltd. (Hereinafter referred to as
the "middleman") of Taiwan.  The merchandise was manufactured by Formostar Garment (Phil.)
Co., Inc. (hereinafter referred to as the "manufacturer") of the Philippines.  The merchandise was
appraised under transaction value, based on the price paid by the protestant to the middleman. 
The protestant takes the position that the transaction value of the merchandise should have been
based on the price paid by the middleman to the manufacturer.

     In support of the protest, the protestant has submitted invoices from the middleman to the
protestant and visaed invoices from the manufacturer to the protestant.  No invoices, purchase
orders, contracts, etc. between the manufacturer and the middleman were submitted.  According
to the entry documents, the protestant is the importer of record.

ISSUE:

     Whether the 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
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 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, the protestant 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 the protestant 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.  The protestant has provided no information to
establish a sale between the manufacturer and middleman.  The invoice issued by the manufacturer
in the Phillippines is a document used to obtain the appropriate textile export license.  Even
assuming there was a sale, no evidence was presented that it was at arm's length.

HOLDING:

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


cc:  Regional Commissioner of Customs
     c/o Protest and Control Section