Sales From Canadian Warehouse to US Customers Are for Export, Despite US Sales Force, CIT Rules

The Court of International Trade ruled in a May 20 opinion that sales from a Canadian warehouse to U.S. customers are "sales for export to the U.S." rather than "domestic sales," in a May 20 slip opinion by Judge Jennifer Choe-Groves. The opinion granted a Nov. 19 motion for summary judgment by DOJ (see 2111220057) that argued plaintiff Midwest-CBK's sales were exports to the U.S. at the time of sale (Midwest-CBK, LLC v. United States, CIT Consol. #17-00154).

Originally, Midwest was a Minnesota-based company that imported merchandise from foreign suppliers, selling it to U.S. customers. In 2009 and 2012, though, Midwest then merged with CBK Holdings Group and was acquired by a Canadian investing group. After this acquisition, Midwest reallocated its inventory and warehousing to Canada, leasing storage space from other companies owned by the investing group.

From this point on, Midwest would buy merchandise from foreign suppliers who would then ship the goods to Canada. Then, when an order from a U.S. customer was made, the goods would be shipped via third-party overland truck to the U.S. The present issue concerns how to value the imported merchandise brought in from Canada. Midwest filed its case to argue that CBP incorrectly used a "transaction value" to appraise the goods and that Customs should accept its original appraisal, which used deductive value since no foreign sale for export actually occurred (see 2111080068).

Choe-Groves decided to split the case into two parts: one to find out whether the goods were sales for export to the U.S. and whether the entries became deemed liquidated, and the other to find the proper method of valuing the merchandise. In her May 20 opinion, the judge settled the first phase, finding that the sales were in fact for export.

When goods are "clearly destined" for the U.S., the sale meets the requirements of "for exportation to the U.S," the decision said. The sales requests were accessed and reviewed by Midwest CBP's order processing department in Canada. Employees in Canada confirmed the availability of merchandise located in the Canadian warehouse, then collected, packaged and prepared the goods for shipment to U.S. customers. Merchandise was transported from Canada to Buffalo, New York, where it was then delivered to domestic carriers for distribution. The reality of the transaction, according to the opinion, "establishes that the subject merchandise was based in Canada ... [and] was clearly destined for the U.S. the time of sale."

CIT also ruled against Midwest-CBK's argument that the entries should have deemed liquidated because CBP did not have a good reason for extending liquidation. Though the Midwest-CBK provided all information requested by the agency prior to the extension of liquidation, and the agency only relied on information provided prior to the extension, CBP was in the midst of an audit related to the valuation issue when it requested the extension. "Because Customs had a reasonable basis for extending liquidation in order to complete the audit process, ensure its accuracy, and comply with established standards, the Court concludes that Customs acted in accordance with the law and did not abuse its discretion," the decision said.