tor, Trade OperationsU.S. Customs and Border ProtectionMiami International Airport6601 NW 25th StreetRoom 272Miami, Florida 33122

HQ H060455 October 7, 2009 OT:RR:CTF:VS HO60455 RSD CATEGORY: VALUATION Assistant Port Director, Trade Operations U.S. Customs and Border Protection Miami International Airport 6601 NW 25th StreetRoom 272Miami, Florida 33122 Dear Assistant Port Director: This is in response to your memorandum dated April 13, 2009, concerning a request for internal advice regarding the acceptability of documentation that Intradeco Apparel Incorporated (Intradeco) submitted as evidence of the amounts paid for freight and insurance charges pertaining to the international movement of wearing apparel imported into the United States. A telephone conference was conducted with an official from Intradeco and its attorney on July 27, 2009. Counsel submitted a supplemental submission dated September 17, 2009. FACTS: Intradeco is an importer and distributor of textiles and wearing apparel. On February 20, 2007, the Office of Regulatory Audit in Plantation, Florida began fieldwork for a Focused Assessment (FA) Pre-Assessment Survey (PAS) of Intradeco’s importation activity. During its review, the Office of Regulatory Audit determined that the proper basis of appraisement for the wearing apparel that Intradeco imported was transaction value pursuant to Section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreement Act of 1979. However, the review disclosed that Intradeco had improperly deducted the “estimated” freight and insurance costs for wearing apparel that it purchased and imported into the United States from two of its vendors, World Dynasty and Goldsmen Investment Limited. On July 16, 2007, Intradeco’s counsel filed a claim for a prior disclosure on behalf of Intradeco stating that the entered value of certain wearing apparel that Intradeco imported from China was incorrect due to the amount deducted for non-dutiable charges was too large. Two vendors (World Dynasty and Goldsmen Investment Limited) shipped the garments to the United States which were entered through the ports of Miami, Florida and Long Beach, California. The terms of sale for the merchandise were either CFR (cost and freight) or CIF (cost, insurance and freight). However, the deductions taken for freight and insurance chares did not represent the amount actually paid by the vendors for these items. Intradeco subsequently tendered $163,066.77 in additional duties and interest. As evidence of the amounts paid for freight and insurance costs, the company submitted copies of International Freight Forwarding Special Invoices prepared for the Chinese taxation authorities. In a letter dated December 21, 2007, additional information was provided relating to Intradeco’s claim for prior disclosure. The December 21, 2007, disclosure supplement also noted that in a few cases, the original invoices described the terms of sale as cost, insurance, and freight (CIF) when in fact the terms of sale were cost and freight (CFR). Therefore, for some shipments, insurance was improperly deducted as a non-dutiable charge. A corrected invoice was provided that showed the correct terms of sale, and the disclosure and tender included a correction for these erroneous deductions. The company submitted invoices uniformly prepared by Chinese taxation authorities governed by the Regulations of the People’s Republic of China on International Maritime Transportation. According to Article 25 of this regulation, the document is an invoice prepared by the Chinese taxation authorities to be given to the payer in the case of freight collection and other related fees. These special taxation invoices were written in Chinese and Intradeco requested an extension of time to submit the record due to the prolonged process of obtaining the translation. The audit review determined that the International Freight Special Invoices prepared by the Chinese taxation authorities were not convincing or sufficient evidence of the “actual” freight and/or insurance costs. Intradeco disagreed with the audit findings that the International Freight Forwarding Special Invoices did not adequately substantiate the actual freight and insurance costs. Intradeco has requested your office seek internal advice from the CBP Office of Regulations and Rulings with regard to the acceptability of the International Freight Forwarding Special invoice as evidence of the amount paid of freight and insurance charges pertaining to the international shipment of its imported garments. In the supplemental submission of September 17, 2009, counsel reiterated the points that were raised in its prior submission and offered a further explanation of the International Freight Special Invoices from an attorney in the firm’s office in Beijing. In addition, counsel claims that Intradeco was able to obtain actual payment records for a few shipments. For certain shipments, counsel claims that the debit advices and other documents obtained from the shipper’s bank show the actual payment of the freight charges. Two debit advices were contained in the supplemental submission. ISSUE: Whether the charges claimed for international freight and insurance costs may be deducted from the price actually paid or payable for the imported wearing apparel? LAW AND ANALYSIS: The preferred method of appraisement is transaction value which is defined by section 402(b)(1) of the TAA (19 U.S.C. § 1401a(b)) as "the price actually paid or payable for the merchandise when sold for exportation to the United States..." plus certain additions specified in section 402(b)(1) (A) through (E). The term "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as: ...the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. Transportation and insurance costs pertaining to the international movement of merchandise from the country of exportation, to the extent included in the price actually paid or payable, are to be excluded from the total payment made for imported merchandise appraised under transaction value. These costs are not the estimated costs, but the actual costs paid to the freight forwarder, transport company, etc. See Treasury Decision ("T.D.") 00-20. T.D. 00-20 provides the following with respect to evidence of actual freight costs: Customs considers actual costs to constitute those amounts ultimately paid to the international carrier, freight forwarder, insurance company or other appropriate provider of such services. Commercial documents to and from the service provider such as an invoice or written contract separately listing freight/insurance costs, a freight/insurance bill, a through bill of lading or proof of payment of the freight/insurance charges (i.e., letters of credit, checks, bank statements) are examples of some documents which typically serve as proof of such actual costs. Other types of evidence may be acceptable. In Headquarters Ruling Letter ("HQ") 544538, December 17, 1992, U.S. Customs and Border Protection ("CBP") acknowledged that pursuant to section 402(b)(4)(A) of the TAA the cost of international transportation is to be excluded from the price actually paid or payable for imported merchandise. However, CBP explained that in determining the cost of the international transportation or freight, it always looked to documentation from the freight company, as opposed to the documentation between the buyer and the seller, which often contains estimated transportation costs or charges. In essence, CBP requires documentation from the freight company because the actual cost, and not the estimated charges, for the freight is the amount that CBP excludes from the price actually paid or payable. In HQ H023812, dated April 4, 2008, the importer submitted a sea waybill and the international carrier’s invoice as evidence of actual freight costs. While these two documents listed the freight charges, we noted that these documents did not enable CBP to ascertain the party that paid the freight costs. The sea waybill did not indicate that freight was prepaid which we noted typically means payment by the shipper. The waybill identified the freight forwarder as the shipper and made no reference to the seller. The freight invoice was in Chinese, so we were unable to determine to whom it was issued. Efforts to obtain proof of payment of the freight charges and to verify that the buyer did pay a DDP price were unsuccessful. Without this information, we were unable verify that the transaction in question was made pursuant to DDP terms, with international freight charge included in the price for the goods. Accordingly, CBP ruled that the importer could not make a deduction for international freight costs. In this instance, Intradeco concedes that it made errors in deducting the incorrect amounts for international freight and insurance. It claims that for shipments under review from the two vendors in question, the error was that the actual cost of freight and insurance was not identified on the bills of lading, and the deductions from the invoice value to arrive at entered value were based on charges shown on the commercial invoice that were estimated by the vendor. As a result, the amounts deducted at entry differed from the amounts actually paid by the shippers. In order to support the actual costs of freight and insurance, Intradeco requested from documentation from the vendors of actual amount paid for freight and insurance. The vendors provided for each shipment a copy of the “International Freight Forwarders Special Invoice” that Intradeco claims indicates the actual cost of the freight for shipping the merchandise and that the vendor’s stamp or “chop” on the invoices is an indication that the invoice have been paid. According to Intradeco’s counsel, the Chinese Embassy advised that this is the document used in China for freight transactions. Intradeco was further advised to have the vendors contact the tax agency in China for written confirmation. Unfortunately, the agency would not as a government entity be able to provide a written confirmation on behalf of the government, but indicated that the form is a public document under Chinese law. The invoices submitted by the Intradeco are governed by the Regulations of the People’s of China on International Maritime Transportation. According to Article 25 of this regulation, the document is an invoice prepared by the Chinese taxation authorities to be given to the payer in the case of freight collection and other related fees. The information on the form is placed there by a shipping agent and submitted by the Chinese taxing authority. In the case at hand, the main documentation presented to establish the actual freight costs are the International Freight Forwarders Special Invoices. Unlike the original invoices that accompanied the entries, these new invoices purport to show the actual freight charges incurred for the shipment of merchandise to the United States. However, no bills of lading or invoices from the carrier or freight forwarder have been submitted for CBP’s review. Thus, no evidence has been presented from the carrier or the freight forwarder regarding the actual freight charges incurred by the shipper in transporting the merchandise from China to the United States. As we explained in HQ W548519 dated September 20, 2004, CBP has always looked to documentation from the freight company, when determining actual freight charges. We have reviewed the supplemental submission from counsel, and believe that the special freight invoices have been inadequately explained. We are unclear who prepares the special freight invoices, the Chinese Government or the freight forwarders, and as such we have not been able to discern what the requirements for filling out these forms are. It is also not clear who supplies the underlying information for filling out the forms regarding the freight costs. Although counsel indicates that the stamp present on the special freight invoices indicates payment was made, we do not know if this payment was for the international freight charges or the taxes that the Chinese government assesses on the freight costs. It is also not clear whether the special freight invoices are issued with regard to one shipment or several shipments. Most significantly the importer did not furnish any verification from the Chinese government or any other component authority to establish that the submitted special freight invoices were actual valid documents and that the information contained on them is reliable. We do not believe that statements of an attorney located in counsel’s Beijing office without any supporting documentation should be given a great deal of weight in determining whether the special freight invoices indicate the actual international freight costs of shipping the merchandise to the United States. In our judgment, because the international freight forwarders special invoices were not prepared by the freight company that transported merchandise and they have not been adequately explained, they are not sufficiently reliable to substantiate the amount of the payments that were actually made to the freight company for the purposes of transporting the imported merchandise internationally. Therefore, we do not find the submitted international freight forwarder special invoices to be sufficient evidence of the actual freight costs. Similarly, the invoices for insurance costs were not prepared by the insurance company that insured the cargo, and no evidence was presented to establish the amount actually paid for insuring the imported merchandise. Additionally, in the supplemental submission, counsel presented debit advices from the shipper’s bank for several shipments. Counsel claims that the debit advices and other documents are proof of the actual payment of the freight costs. However, because the submitted sample debit advices were written in Chinese and were not translated into English, it is impossible to verify whether the debit advices show the actual payments of the international freight charges incurred by the shipper for shipping the merchandise to the United States. Consequently, we find that the freight costs and insurance may not be deducted from the price actually paid or payable. HOLDING: Insufficient evidence exists to establish the actual international freight and insurance costs. Consequently, the international freight and insurance costs may not be deducted from the price actually paid or payable. Please promptly provide a copy of this ruling to the internal advice requester. Sixty days from the date of this ruling the office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch