Contract Clause Between Middleman and Final Customer Can't Justify First Sale, CBP Says
A contract clause between the middleman and the final customer is not proof of a bona fide sale for the purposes of determining whether a transaction is eligible for first sale treatment, CBP said in a recent ruling. Merely citing the clause within a contract does not provide actual proof of the facts of that sale or whether risk of loss and title actually transfer to the middleman before it entered into the transaction with the importer, CBP said in the Feb. 18 ruling, released by the agency April 26. The ruling was a response to an application for further review by Woodcraft Supply LLC, which contests CBP's denial of its first sale valuation of imported merchandise.
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Woodcraft says that master sales and purchase agreements signed on Sept. 30, 2019, between Woodcraft and middlemen, Shanghai Woodriver and Asia Woodriver, now serve as the basis of the transactions. Woodcraft states that it pays Shanghai Woodriver 18% over their factory cost and Asia Woodriver 12% over their factory cost, and that, under the MSPA, Woodcraft issues purchase orders to either Asia Woodriver or Shanghai Woodriver, who then select and contact manufacturers. All purchase orders are sent to Asia Woodriver and orders for Chinese-produced products are forwarded to Shanghai Woodriver while Asia Woodriver retains the remaining orders for processing in Taiwan. Both companies then place orders with appropriate factories.
Woodcraft argued in its protest that the MSPA controls when risk of loss and title transfer at each step of the transaction and thus shows that a bona fide sale is occurring between the manufacturers and the Woodriver entities. On this basis, Woodcraft argues, it is justified in claiming the first sale price for purposes of appraisement of the subject entries.
CBP disagreed. Both MSPAs are contracts between Woodcraft and a middleman, CBP said. Those contracts do not control the sale between the middleman and the manufacturer and, importantly, do not provide actual proof of the facts of that sale. Although the manufacturers are referenced in the contracts, they are not party to the contracts and the contracts do not govern the terms of transactions that would constitute bona fide first sales, CBP said. Therefore, CBP said the contracts are not sufficient proof of bona fide sales between the manufacturers and middlemen, and denied Woodcraft's protest.