Contract Shows Entries Not 'for Export' to US, Canadian Firm Says

Canada-based Midwest-CBK's sales to U.S. customers weren't "for export" to the U.S. and therefore don't have a "transaction value" for the assignment of import duties, the company told the U.S. Court of Appeals for the Federal Circuit. Filing a reply brief on July 19, Midwest-CBK said the goods should have been "appraised via deductive value" and that its goods were deemed liquidated since CBP didn't have an adequate basis to extend the liquidation of its entries (Midwest-CBK v. United States, Fed. Cir. # 24-1142).

Midwest-CBK said it had been based in Minnesota until it was bought by Canadian investors that moved its merchandise into a Canadian warehouse (see 2205200032). After that, the company would buy goods from foreign suppliers that would then ship them to Canada. Then, when an order from a U.S. customer was made, the goods would be shipped by a third-party truck to the U.S.

But the company argued that its sales are domestic, saying that the use of the term "free on board" shows that the sales were domestic. The Court of International noted that "free on board" is a method of shipment where goods are delivered at a designated location at which legal title and risk passes from seller to buyer.

The government argued that "these shipping terms are not dispositive of the question. If they were, an importer could effectively circumvent the parameters of 19 U.S.C. § 1401a by selecting a particular method of shipment, which is not how Congress intended the valuation statute to operate" (see 2406110059).

In response, Midwest-CBK said the parties didn't agree that the goods were for export to the U.S. When negotiating a contract of sale, the parties discuss terms incidental to an international sale, including which party bears the costs for freight charges and customs duties. "That was not done here," the brief said.

In this case, the parties contracted for Midwest-CBK to sell the goods to its customers "only after the importation process is completed and the goods have arrived in the United States for delivery 'F.O.B. Buffalo, New York' in accordance with the terms of the" New York Uniform Commercial Code. This sale, "by Customs' own admission, cannot be a sale 'for export to the United States,'" the brief said.

CBP here looks to "rewrite Midwest’s contracts of sales to its customers, discarding the UCC terms and inferring an international sales agreement where none exists," the company said. The agency can't do this, nor can it ask the Federal Circuit to do so, Midwest-CBK argued.

The transaction value statute requires CBP to "examine the circumstances of a sales contract, as agreed to by the parties, and to give effect to the parties’ expressed intent," the company said. Here, Midwest-CBK and its customers explicitly defined the terms of their sales, leaving no gaps for CBP to fill, the brief said.

Midwest-CBK also argued that its goods were deemed liquidated and should be assessed via deductive value. The company itself never asked for the extension, and CBP must show that it lacked the information it needed for a proper appraisement of the entries in order for the agency's liquidation extension to be valid. CBP said it needed the additional time since it was difficult to find the proper basis of appraisement and that it needed various analysis and approval of work papers and audit reports by different groups within CBP.

The brief said "such internal deliberations hardly constitute 'information,'" and the agency "can hardly [say] that such work was" needed for the proper appraisement of Midwest-CBK's goods. Midwest-CBK said CBP had all the information it claimed to need to appraise the merchandise and did nothing with it for 15 months. Then, the agency decided to use the "uplift formula" to appraise the goods at issue and didn't even use the audit report it took 15 months to create.

The U.S. asked the appellate court to find that its liquidation extensions were presumed correct since CBP lacked the audit report information. Midwest-CBK said it's "at a loss -- as should the Court be -- to understand how the 'need for extensions' based on completion of an audit report is entitled to the statutory presumption of correctness, when the entries were liquidated based on an entirely different basis.”