CBP Rules Price Paid by Manufacturers to Middleman Eligible for First Sale

First sale appraisement is permissible in a hypothetical transaction including a sale between a middleman and two manufacturers, CBP ruled on Jan. 2. The sales involve first aid bags made by one manufacturer, related accessories made by another manufacturer, a middleman and the importer, CBP said in HQ H284207. A lawyer with Akin Gump requested the prospective ruling on behalf of the importer, the name of which was kept confidential.

Specifically, the importer asked for input from CBP over whether it can use the sales prices that the middleman pays to the manufacturers in China as the transaction value, CBP said. As described, the middleman, "who has the authority to negotiate with suppliers," would select suppliers and then issue purchase orders to the manufacturers, CBP said. The importer wouldn't be involved in the negotiations with the manufacturers or work directly with "these entities or communicate with them in any way," CBP said. None of the parties is related, CBP said.

The middleman would also create specification sheets, subject to the importer's review and approval, to provide the manufacturers information about the order. Next, the middleman will invoice the importer for the merchandise and the manufacturers separately invoice the middleman. "Payment will be achieved by separate, direct payments," CBP said. The goods will go directly from China to the U.S., with the middleman retaining title during shipment. The importer will arrange freight and act as the importer of record.

The title and risk of loss for the merchandise will shift from the manufacturers to the middleman "when the merchandise arrives at the port of exportation in China," CBP said. The Sales Terms and Conditions require that title and risk of loss for the goods will transfer to the importer “upon receipt and acceptance of the products at the Importer’s distribution center” in California. The scenario and sample transaction documents show that "a bona-fide sale will occur in the proposed transaction," it said.

It's also required for first sale eligibility that the merchandise be clearly destined to the U.S., the agency said. In this case, "the bill of lading provided for the sample transactions demonstrates direct shipment from Yantian, China, to Los Angeles," CBP said. "The transaction documents provide no indication that the goods are diverted from their final destination in the" U.S. As a result, the price paid between the manufacturers and the middleman "may serve as the basis of appraisement under the transaction value method of appraisement."