CBP Says Textile Distributor May Use First Sale from Manufacturer for Valuation

A U.S. textile distributor may use the first sale transaction between a related company and the manufacturer for valuation purposes, CBP said in an Oct. 9 prospective ruling (here). The distributor, Portwest LLC, asked CBP whether it could use the sale between Portwest Limited, a foreign parent company, and the manufacturer in China for appraisement. The company also sought CBP input on whether logos, designs and third-party testing should be considered as assists in the transaction value.

Portwest Limited, the parent company, will have the merchandise produced and shipped by the manufacturer in China. The U.S. subsidiary, Portwest LLC, will then handle the distribution, the company said. Portwest plans to submit a wide range of documentation to prove the legitimacy of the first sale. The documentation will include a purchase order between the two Portwest companies, a purchase order from the Portwest Limited to the Chinese manufacturer, a packing list summary from the Chinese manufacturer indicating the merchandise is destined for Portwest LLC at its address in Kentucky, a bill of lading showing the Chinese manufacturer as the shipper, Portwest LLC as the consignee and Portwest Limited as the “Notify Party/Intermediate Consignee,” and CBP forms 3461 and 7501 showing Portwest LLC as the ultimate consignee and importer of record.

Based on past court decisions and CBP precedent, its up to the importer to prove that a first sale price is acceptable, said CBP. While there are no supplier contracts between the Portwest parent and the manufacturer, the company's lawyer points out that the distribution agreement between the Portwest companies requires that "Risk of loss and title shall pass to the Distributor in accordance with the Incoterms set forth in the Sales documentation.” Since "there is no contract between Portwest Limited and the manufacturer with only the sales documentation to reflect the terms, and the Distribution Agreement clearly expresses an intent in that agreement to have risk of loss and title pass in accordance with the Incoterms, counsel asserts the same intent applies in the sale between Portwest Limited and the Chinese manufacturer," said the ruling. "Accepting counsel’s assertion that title and risk of loss pass together based on the applicable Incoterms in the documents, Portwest Limited assumes title and risk of loss when the goods are loaded at Qingdao headed for the" U.S., said CBP.

The sample documentation would be enough to support use of the first sale between Portwest Limited and the manufacturers, said CBP. "As the parties are unrelated, the sale between them is presumed to be at arm’s length," said CBP. "The documentation shows that the merchandise is clearly destined for the United States as it is shipped directly from the manufacturer to the U.S. subsidiary in Kentucky. In addition, the documentation indicates that the merchandise must comply with certain U.S. standards and requirements."

CBP also found that logos and designs provided to the manufacturer by Portwest Limited are to be considered dutiable as assists. The company may use a three-year averaging method to apportion the assist costs, the agency said. Third-party testing of fabric samples from the manufacturer, though, does not meet the definition of an assist and is not dutiable, said CBP.