Importer Says Goods From Canadian Warehouse 'Domestic Sales,' Transaction Value Unavailable

An importer says CBP is incorrectly using a purported “transaction value” to appraise its imports of domestically sold goods from a Canadian warehouse, and that CBP should accept its original appraisal using deductive value because no foreign sale for exportation occurred.

In its Oct. 29 reply brief to DOJ’s motion for judgment in the case, Midwest-CBK says CBP improperly applied an “uplift” to over 500 of its entries based on its estimation of undervaluation taken from the company’s financial statements, and called it transaction value. But transaction value is derived from the price paid or payable, which is not what CBP did, the importer said. And in any case, the sales to its U.S. customers were purely domestic and transaction value cannot be applied to the entries, it said.

“Plaintiff’s U.S. sales force took orders from U.S. customers for delivery of the goods in the U.S., using the terms ‘F.O.B. Buffalo, New York, as defined in the New York Uniform Commercial Code,’” Midwest-CBK said in the brief. “The sales were effected, and title transferred to Midwest-CBK’s customers, when Midwest-CBK delivered the goods to the customers’ designated carriers in Buffalo, New York.”

“The customers were charged in U.S. currency; they provided States’ sales tax waivers to Plaintiff; and they made payment for the goods to Plaintiff in the U.S.,” Midwest-CBK said.

In its motion for judgment, DOJ said transaction value was appropriate because the sales to U.S. customers were sales for exportation, despite Midwest-CBK’s protestations to the contrary. “The record shows that, after production [in China], Midwest transported the merchandise to Canada for storage. While in storage, Midwest executed the sale of the merchandise to customers in the United States, and then exported the merchandise from Canada to the United States in fulfillment of those sales,” DOJ said in the motion. “The undisputed facts show that at the time of entry the merchandise was labeled and clearly intended for delivery to a particular U.S. customer on the basis of the sale to the customer.”

But just because the goods were in Canada does not mean the sales were for exportation, Midwest-CBK replied. “A domestic sale is not transformed into a ‘sale for exportation’ simply because, at the time the contract is made, the subject goods are (unbeknownst to the buyer) located outside the U.S.,” it said “Nor is the sale a ‘sale for exportation to the United States’ simply because, prior to delivery of the goods to the buyer at a domestic location, the seller had arranged the importation of the goods, payment of applicable Customs duties, and satisfaction of import formalities.”

CBP ended up applying a 75.75% upward adjustment to the values declared by Midwest-CBK, which was the agency’s estimate of the amount of undervaluation that resulted from the importer’s valuation method. CBP arrived at that number based on Midwest-CBK’s 2013 financials, “using the income on sales of all merchandise entered into the United States, subtracting non-dutiable costs identified on the financial statements.”

Even if the goods were sales for exportation, that is not transaction value, Midwest-CBK said. Transaction value is based on the price paid or payable, not financial statements, it said. And CBP’s value calculation “seeks to include in dutiable value the general expenses which Midwest-CBK incurs in marketing the goods in the U.S. (which includes the costs of its U.S. headquarters offices, showrooms and a 300-person salaried U.S. sales staff) and its U.S. sales profits. These are not included in any basis of appraisement allowed under 19 U.S.C. § 1401a,” Midwest CBK said.

Essentially, CBP proposes to use a “fallback method” of valuation. To do that, “it would first need to determine that none of the preceding bases of valuation in the statutory hierarchy are unavailable,” Midwest-CBK said. “However, deductive value under 19 U.S.C. § 1401a(d) is available, and was used here.”