CBP Finds Importer Unable to Prove Itself as Separate From Canadian Warehousing Company

An apparel importer that uses a Canadian company to warehouse goods until a U.S. customer is found was unable to show sufficient proof of the two companies being separate entities, CBP said in a Dec. 12 ruling. The agency said in HQ H276403 that the goods are "not exported pursuant to a lease or similar use agreement." As a result, the merchandise isn't eligible for duty-free treatment when re-entering the U.S., CBP said.

CBP made the ruling in response to an Application for Further Review filed after the agency ruled on a similar protest in 2015. The company, SGS Sports, hired new counsel at Neville Peterson and submitted some additional information, CBP said. SGS buys "merchandise from unrelated foreign manufacturers and imports the merchandise into the U.S. as a consumption entry, pays duties based upon the sales transactions between it and the foreign manufacturers, and then exports the merchandise to Canada for warehousing until SGS has a customer in the U.S. who wishes to purchase the merchandise," CBP said.

The warehouse company, 147483 Canada, and SGS have different owners, though "the owner of 147483 Canada holds non-voting shares in SGS and has joint control, shared with another individual, of the entity holding the greatest number of voting shares, i.e., the controlling shares of the company," CBP said. Under certain conditions, subheading 9801.00.20 allows for duty-free treatment for re-imported goods on which duty was already paid "after having been exported under lease or similar use agreements," CBP said. Based on previous rulings, CBP considers "bailment" to qualify for a similar use agreement.

While SGS argued that the transaction amounts to bailment, CBP took issue with that argument. "In order to have a valid bailment, SGS must have delivered the imported goods to the custody and control of someone else," CBP said. "In this case, they claim they did and that 147483 Canada is that other entity." But "a fundamental requirement of a bailment is to place the merchandise within the custody of another" and "we cannot ignore the factual elements before us that point to these companies being one and the same," CBP said.

Among the evidence that the companies are the same entity are pictures submitted as evidence by SGS that showed the warehouse storage areas. "We note that the photographs were printed from emails to an individual whose title is shown in an email forwarding these photographs to others," CBP said. "This individual’s title, appearing under his name, is 'Warehouse Manager, SGS Sports.' This same individual executed an affidavit, submitted as Exhibit D in counsel’s submission of May 30, 2017, in which he states that he is 'the Warehouse Manager for 147483 Canada Inc.'" The merchandise isn't entitled to the duty-free treatment because "we do not believe that SGS has a valid bailment agreement as it does not entrust the merchandise into the custody of another party," the agency said.