CBP Finds 'First Sale' Appraisal Acceptable for Manufacturer Sale to Middleman Company
The "first sale" between Asian jewelry manufacturers to an unrelated middleman company may be used as the transaction value for appraisal of the merchandise, which is subsequently imported through an affiliate to the middleman, said CBP in a Jan. 7 ruling. The undisclosed importer requested input from CBP on whether the transaction value could be appraised based on the "first sale." The request was submitted by lawyers at Hogan Lovells. The ruling provides insight as to the documentation necessary to show a "first sale" occurred between a manufacturer and a middleman.
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The middleman company, "a global enterprise primarily engaged in selling fashion jewelry and accessories in Europe and internationally" based outside the U.S., imports "imitation jewelry" through a U.S. affiliate that serves as the importer of record, the ruling said. Neither the company or affiliate is related to the Asian manufacturers that produce the jewelry, it said. The affiliate also does not participate in any of the negotiations with the jewelry manufacturers, the ruling said. The requestor submitted a number of documents including an invoice between the middleman and an Asian manufacturer, as well as a wire transfer confirmation from the affiliate to the middleman, the ruling said.
CBP found bona fide sales do occur between the manufacturer and middleman, based on shipping documentation that shows a Free on Board (FOB) term of sale will be used in the deal. "An FOB port of export term of sale means that risk of loss transfers from the seller to the buyer upon lading on the outgoing carrier," said CBP. In the absence of a written instruction to the contrary, it is commonly accepted that title passes simultaneously with assumption of risk of loss. In this case, the company would assume title and risk of loss from the point that the jewelry is loaded on board the vessel in the Chinese city."
The documents also clearly show the goods are destined for the U.S., said CBP. "The documents presented offer a complete paper trail of the imported merchandise showing the structure of the transactions between manufacturer and the middleman, and the middleman and the U.S. importer," the agency said. "The description of the products, quantities of the products shipped, price, and further details regarding the merchandise contained in the documents presented correspond with each other and are consistent with each other. Consequently based on the information submitted, we find that the merchandise will be clearly destined to the United States when it is sold to the middleman."
A legitimate transaction value must have been negotiated "at arm's length, free from any non-market influences," as determined in the 1991 Nissho Iwai Court of Appeals for the Federal Circuit decision on transaction value standards, said CBP. CBP presumes the subject transaction is "arm's length" "since the buyer in the first sale, is unrelated to the manufacturer/vendors of the imported merchandise," the agency said. While the importer and middleman are related, there's no reason to think the relationship affects the price paid to the manufacturer, it said. There's also no indication that there are necessary statutory additions to the price paid, CBP said. As a result, CBP finds the sale between manufacturer and middleman may be used for transaction value appraisal purposes.