RE: Internal Advice Request; Valuation of Crop Bailing Products; Related Parties

HQ H360736 August 14, 2026 OT:RR:CTF:VS H360736 AP CATEGORY: Valuation enter Director C Apparel, Footwear and Textiles CEE U.S. Customs and Border Protection 1100 Raymond Blvd. Newark, NJ 07102 RE: Internal Advice Request; Valuation of Crop Bailing Products; Related Parties Dear Center Director: issions filed This is in response to a letter dated May 29, 2020 and supplemental subm through May 1, 2026, on behalf of Cordex North America, Inc. (“Cordex NA” or “U.S. importer”), seeking a prospective ruling concerning the proper appraisement of net wrap, polypropylene baler twine and sisal bale binder (collectively “crop bailing products”) produced in and imported from Portugal. As entries have been filed since 2016, this prospective ruling request will be processed as an internal advice decision. On March 26, 2025, our office, together with U.S. Customs and Border Protection’s (“CBP”) Trade Regulatory Audit (“TRA”) and the iles Center of Excellence and Expertise (“CEE”), held a conference Apparel, Footwear and Text with importer’s counsel. The importer requested that certain information submitted in connection with this request as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. be treated § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets in italics and all attachments to this request will not be released to the public and will be withheld from published versions of this decision. FACTS: The U.S. importer’s parent company, Cordex SGPS, known as the Cordex Group, is rope, headquartered in Portugal and engages in the manufacture and distribution of cord, twine, and related products intended for agricultural, aquatic and various industrial uses. The U.S. importer serves as the North American master distributor for the Cordex Group’s cordage business. During the years 2016 to 2021, the U.S. importer purchased net wrap, polypropylene baler twine and sisal bale binder from its related Portuguese manufacturers, Cordex – Companhia Industrial Textil, S.A. (“Cordex CIT”) and Cordenet - Produtora de Redes Agricolas, S.A.
1 (“Cordenet”) who did not sell to unrelated buyers in the United States. After a restructuring in 2022, Cordex CIT and Cordenet now operate as one entity under the name Cordex CIT, and the U.S. importer Cordex NA purchases net wrap, polypropylene baler twine and sisal bale binder from Cordex CIT. The U.S. importer’s primary responsibilities in the North American market include local market research and marketing campaigns, local sales, placement of orders with the manufacturer, and warehousing and stock management of purchased merchandise in the United States until customers are ready for delivery. The importer entered 1,920 bales of baler twine (gross weight 20,095 kg) with a total entered value of $[X] (approximately $[X] per kilogram) on February 17, 2016, the selected walkthrough entry. Both the purchase order from the U.S. importer and the invoice from the manufacturer Cordex CIT showed 1,920 bales of baler twine. According to the invoice from Cordex CIT, the Delivered Duty Paid (“DDP”) value of the bales was $[X] and the free on board (“FOB”) value was $[X]. Freight and Clearance charges were deducted from the DDP value to arrive at the FOB value reported to CBP. The terms of the sale were “DDP [X].” The risk of loss transferred from the manufacturer to the importer when the goods were available for unloading at the U.S. port. The importer paid the full amount to the manufacturer over two wire transfers initiated on June 3, 2016. The first wire payment was released on June 8, 2016, and a second wire transfer payment on June 9, 2016. The sea waybill revealed that the port of loading was “[X], Portugal” and the port of discharge was “[X], U.S.” TRA conducted an audit for this entry and the other entries filed from January 1, 2016 through December 31, 2016, and concluded that “Cordex was unable to substantiate the circumstances of sale test, specifically arm’s length transaction between related parties” and recommended that Cordex seek guidance from our office regarding the appropriate basis of appraisement of the imported merchandise. As part of this internal advice request, the U.S. importer submitted distribution agreements between Cordex CIT and itself, and between Cordenet and itself effective October 1, 2010, and transfer pricing reports for itself, Cordenet and Cordex CIT for fiscal year 2016 prepared by PricewaterhouseCoopers (“PwC”) in Portugal. Pursuant to the supplied Distribution Agreements with Cordex CIT and Cordenet, the goods are shipped per orders placed by the U.S. importer, which set forth the product type and quantity, as well as the desired delivery date. The U.S. importer may cancel or reschedule orders. The purchase price between the U.S. importer and the Portuguese manufacturer is set at the beginning of the products campaign season, which runs from October to September. The prices are determined based on the total budgeted production costs to which is added a targeted arm’s length margin as determined by Cordex Group’s sales teams and agreed with the U.S. importer on a yearly basis and delivery costs. The “Total Budgeted Production Costs” are “all normal and necessary cost of goods and operating expenses of [Cordex CIT and Cordenet] in connection with the manufacture of the Products.” The “Targeted Arm’s Length Margin” are the “targeted gross margins determined by [the manufacturers’] sales team which are benchmarked on an annual basis against margins earned by other companies selling similar goods.” The manufacturers invoice the U.S. importer for the purchase price amount when products are shipped. The U.S. importer pays the full amount of the purchase price on May 31 of each year, unless otherwise agreed by the parties, and payment 1 The importer purchased net wrap from Cordenet and polypropylene baler twine and sisal bale binder from Cordex CIT. Cordenet was dedicated to the production of natural and synthetic yarns and ropes while Cordex CIT was dedicated to the production of agricultural mesh. 2
is made by direct bank transfer to the payee’s bank account or by debit or credit to the party’s intercompany account. The PwC Transfer Pricing Study for the U.S. importer for fiscal year 2016 evaluated the arm length’s nature of the U.S. importer Cordex NA’s intercompany transactions with Cordenet/Cordex CIT. The analysis was based on the Organization for Economic Cooperation and Development (“OECD”) Guidelines and was not binding upon the tax authorities or the courts. The agreed upon Incoterms between the U.S. importer and the two Portuguese manufacturers in 2016 were DDP. The pricing methodology used was a resale price minus a gross margin of at least 7 percent for the distribution company. The arm’s length range of the gross adjusted margin achieved by Cordex CIT with 27 “independent master distributors” engaged in in the manufacture of cordage, rope, twine and netting was [X] percent to [X] percent, with a median of [X] percent. The lower quartile was [X] percent and the upper quartile was [X] percent. The gross adjusted margin of the U.S. importer in operations with Cordex CIT was [X] percent and was outside the inter-quartile range. The arm’s length range of the gross adjusted margin achieved by Cordenet with 27 “independent master distributors” engaged in manufacture of cordage, rope, twine and netting was [X] percent to [X] percent, with a median of [X] percent. The lower quartile was [X] percent and the upper quartile was [X] percent. The gross adjusted margin of the U.S. importer in the operations with Cordenet was [X] percent and was outside the inter-quartile range. In its supplemented arm’s length analysis submitted on November 9, 2023, the importer identified eight comparable companies in Portugal engaged in the manufacture of cordage and twine related to agriculture business. Full cost mark up (“FCM”) (defined as the operating profit/loss over total production costs) was selected as the appropriate profit level indicator (“PLI”). Cordenet’s FCM of [X] percent and Cordex CIT’s FCM of [X] percent in 2016 were above the inter-quartile range of [X] percent to [X] percent for the same year. The U.S. importer notes that Cordenet’s net wrap is a “novel product with unique capabilities that currently commands substantial market demand and is subject to less competition in the market than the more routine products manufactured and sold by Cordex CIT, therefore, Cordenet can earn a higher margin for this product than Cordex CIT earns for its products” and cordage and twine manufacturing specifically geared for agriculture is a “highly competitive niche market with a small number of prominent players.” The U.S. importer does not have an Advance Pricing Agreement (“APA”) with the Internal Revenue Service (“IRS”). During the March 26, 2025 conference, CBP notified the importer, through its counsel, that the merchandise may not be appraised using transaction value because the sale between the related parties was not at arm’s length based on the submitted documentation. On May 1, 2026, the importer provided additional documentation seeking to appraise the merchandise under computed value. The importer submitted an audited financial statement for 2024 reflecting that the manufacturer Cordex CIT realized €[X] in sales in 2024 in connection with its global production. The manufacturer’s global sales included the cost of goods sold (€[X]) and fabrication, general expenses and profit (€[X]). The cost of goods sold included the manufacturer’s raw materials acquisition costs. The fabrication, general expenses and profit included the manufacturer’s manufacturing costs and sales, general and administrative expenses 3
(“SGA”) incorporating depreciation and amortization expense, sales costs, general and administrative costs, and operating profits. According to the audited financial statement, the manufacturer realized a [X] percent operating profit in 2024 and the U.S. importer Cordex NA imported approximately [X] percent of the product (€[X]) Cordex CIT manufactured. For purposes of illustration, the importer has provided the bill of materials and invoices from raw materials in connection with the production of baler twine manufactured by Cordex CIT and imported by the U.S. importer Cordex NA in 2024. The total raw material costs for the imported baler twine were €[X]/unit, the manufacturing costs, general expenses and profit per kilogram amounted to €[X]/unit or approximately [X] percent above raw material costs, and the total unit price was €[X] (approximately $[X]). According to the importation date provided by the importer, the total entered value declared on March 2, 2024 for [X] kg of baler twine was $[X] and the computed value was $[X]. The importer provided importation data for 2023 and 2024 including the entry number, export date, entry date, entry line, entered value, quantity, unit of measure, original duty, computed value per kilogram in Euro, total computed value in Euro, CBP quarterly exchange rate, and computed value in USD. The importer was not a participant in CBP’s Reconciliation Program during 2016-2024 and did not flag the entries for reconciliation at the time. The importer has since joined CBP’s Reconciliation Program. ISSUE: What is the proper appraisement method for the subject merchandise? LAW AND ANALYSIS: Merchandise imported into the United States is appraised for customs purposes in accordance with Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a). The primary method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. § 1401a(b)(1). When transaction value cannot be applied, the appraised value is determined based on the other valuation methods in the order specified in 19 U.S.C. § 1401a(a). To use transaction value, there must be a bona fide sale for exportation to the United States. Here, TRA, the CEE, and the importer agree that a bona fide sale exists between the related parties. The merchandise was shipped directly from Portugal to the United States. Consideration was exchanged for the merchandise being sold. A review of the terms of sale and the evidence presented in the submission indicate that title to the merchandise and risk of loss shifted from the manufacturer to the U.S. importer when the goods were unloaded at the U.S. port. Since there is no mention regarding the passage of title, title passed with the risk of loss based on the Incoterms. See Headquarters Ruling Letter (“HQ”) H268741, dated Feb. 27, 2018. The first wire payment was released on June 8, 2016, and a second wire transfer payment on June 9, 2016. 4
Special rules apply when the buyer and seller are related parties, as defined in 19 U.S.C. § 1401a(g), to ensure that the relationship between the parties does not affect the price. Transaction value between a related buyer and seller is acceptable only if the transaction satisfies one of two tests: (1) circumstances of sale, or (2) test values. See 19 U.S.C. § 1401a(b)(2)(B). “Test values” refer to values previously determined pursuant to actual appraisements of imported merchandise. In this instance, all parties agree that the transactions involve related parties. No information is available regarding previously accepted test values. Thus, the “circumstances of the sale” approach must be used to determine the acceptability of transaction value. Under the “circumstances of the sale” test, CBP looks for evidence showing that the parties’ relationship did not affect the price paid or payable. All relevant aspects of the transaction are analyzed including the way the buyer and seller organize their commercial relations and the way in which the price was determined. The regulations, as set out in 19 C.F.R. § 152.103(l), provide three illustrative examples that demonstrate that a relationship did not influence the price: (i) the price was settled in a manner consistent with the normal pricing practices of the industry in question; (ii) the price was settled in a manner consistent with the way the seller settles prices for sales to buyers who are not related to it; or (iii) the price is adequate to ensure recovery of all costs plus a profit that is equivalent to the firm’s overall profit realized over a representative period of time in sales of merchandise of the same class or kind. These are examples to illustrate situations where the relationship has not influenced the price, and other factors may be considered based on the totality of the information including the way in which the importer and the related manufacturers organize their commercial relations and the way in which the price was arrived at. See HQ H219515, dated Oct. 11, 2012. The U.S. importer claims that its pricing practices are based on the pricing practices of the industry. The U.S. importer asserts that the cordage and twine industry, specifically for agriculture, is a niche market with few prominent players and CBP should consider the totality of the circumstances and especially that in a down year a seller that takes on more risk is likely to experience a larger hit to their margins, but in a good year they are also more likely to experience higher profits. The importer has selected unrelated companies engaged in the manufacture of cordage, rope, twine and netting, and compared the net cost plus margins (“NCPM”) of Cordex CIT and Cordenet in relation to these companies. Cordenet earned an NCPM of [X] percent and Cordex CIT earned an NCPM of [X] percent, which were above the higher interquartile range of [X] percent earned by manufacturers of similar products in the same industry. The importer also states that in addition to the benchmarking results in the transfer pricing study, the terms of the distribution agreements and terms of the transactions further indicate that the importer and the two related manufacturers engaged in commercial activities as if they were unrelated and consistent with the normal practices within the industry. For instance, goods were shipped pursuant to orders placed by the importer setting forth the product type and quantities, the manufacturers bore the transportation and handling costs and the transportation insurance, the importer bore full market risk, credit risk and inventory risk, the manufacturers invoiced the U.S. importer upon shipment of the goods and paid consideration. The importer argues that even if CBP finds that the evidence provided does not squarely fit into the normal pricing practices analysis (or any of the other illustrative examples), all evidence, when considered in conjunction, should lead CBP to determine that the sales were at arm’s length. 5
Information provided to CBP in a transfer pricing study may be relevant in examining the application of the circumstances of the sale, but the weight to be given this information will vary depending on the level of detail provided by the study. A significant factor is whether the transfer pricing study has been reviewed and approved by the IRS. Whether products covered by the study are comparable to the imported products at issue is another important consideration. The methodology selected for use in a transfer pricing study is also relevant. Even though transfer pricing studies by themselves are not sufficient to show that a related party transaction value is acceptable for customs purposes, the underlying facts and the conclusions reached in transfer pricing studies may contain relevant information in analyzing the circumstances of the sales. Thus, while the evidence presented by the importer is not entirely objective and cannot sustain a claim under a “pricing practices of the industry analysis,” it may be considered evidence under the totality of the circumstances. Here, the products sold by the comparable companies are of the same class or kind. However, the U.S. importer’s adjusted margins with Cordex CIT/Cordenet were outside the inter-quartile range. The fact that the margins were above the arm’s length range indicates that prices were not consistent with how the industry sets its prices. Consequently, we find that the sales price will be considered to be influenced by the relationship for purposes of the circumstances of the sale test, and transaction value is not the proper method of appraisement. When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. See 19 U.S.C. § 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); the deductive value (19 U.S.C. § 1401a(d)); the computed value (19 U.S.C. § 1401a(e)); and the "fallback" method (19 U.S.C. § 1401a(f)). The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that being appraised. See 19 U.S.C. § 1401a(c). This method of appraisement is unavailable. The next method of appraisement is deductive value. Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the U.S. in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, or before the close of the 90th day after the date of importation. See 19 U.S.C. § 1401a(d)(2)(A)(i)- (ii). However, at the time of entry, an importer may elect to reverse the order of appraisement under deductive and computed value. See 19 U.S.C. § 1401a(a)(2) and 19 CFR § 152.101(c). Here, the U.S. importer has elected to apply the computed value method before the deductive value method. Under the computed value method, merchandise is appraised on the basis of the material and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. 6
Title 19 U.S.C. § 1401a(e) provides the following regarding computed value: (1) The computed value of imported merchandise is the sum of— (A) the cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise; (B) an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the United States; (C) any assist, if its value is not included under subparagraph (A) or (B); and (D) the packing costs. (2) For purposes of paragraph (1)— (A) the cost or value of materials under paragraph (1)(A) shall not include the amount of any internal tax imposed by the country of exportation that is directly applicable to the materials or their disposition if the tax is remitted or refunded upon the exportation of the merchandise in the production of which the materials were used; and (B) the amount for profit and general expenses under paragraph (1)(B) shall be based upon the producer’s profits and expenses, unless the producer’s profits and expenses are inconsistent with those usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by producers in the country of exportation for export to the United States, in which case the amount under paragraph (1)(B) shall be based on the usual profit and general expenses of such producers in such sales, as determined from sufficient information. The amount for general expenses and profit is considered as a whole. Section 152.106(c) of the CBP Regulations (19 C.F.R. § 152.106(c)) provides: Profit and general expenses. The amount for profit and general expenses will be taken as a whole. If the producer’s profit figure is low and general expenses high, those figures taken together nevertheless may be consistent with those usually reflected in sales of imported merchandise of the same class or kind. The Statement of Administrative Action (“SAA”), adopted by Congress, provides that with respect to computed value: The cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise will be determined on the basis of information supplied by, or on behalf of, the producer and will be based upon the commercial accounts of the producer, if such accounts are consistent with the generally accepted accounting principles applied in the country where the goods are produced. The “amount for profit and general expenses” will be determined on the basis of information supplied by, or on behalf of, the producer and will be based upon the commercial accounts of the producer, provided that such accounts are consistent with the generally accepted accounting principles applied in the country where the goods are produced and unless the figures provided are inconsistent with those usually reflected in sales, of merchandise of the same class 7
or kind as the imported merchandise, that are made by producers in the country of exportation for export to the United States. The computed value proposed by the U.S. importer includes the manufacturer’s raw material acquisition costs, the manufacturing costs, and SGA expenses including depreciation and amortization expense, sales costs, general and administrative costs, and operating profits. There is no evidence to indicate that the amount for profit and general expenses recorded on the foreign manufacturer’s records is inconsistent with the amount equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise. The total entered value for the baler twine declared on March 2, 2024 was $[X] (€[X] unit price equivalent to $[X]) and the proposed computed value is the same. The unit price for the baler twine included the total raw material costs (€[X]/unit) and the manufacturing costs, general expenses and profit per kilogram (€[X]/unit). For comparison purposes, the entered value of the baler twine, which was declared on February 17, 2016, was $[X] (approximately $[X] per kilogram). The importer should be prepared to provide to the CEE upon request documentation supporting the computed value method of appraisement for all suspended entries filed since 2016 consistent with 19 C.F.R. § 141.88. Since deductive value is unavailable, in instances where computed value cannot be used, appraisal under the fallback method under 19 U.S.C. § 1401a(f) using a modified computed value may be appropriate. HOLDING: Based on the information presented, we find that the U.S. importer may use computed value as an appropriate basis of appraisement provided the necessary information can be obtained for all suspended entries since 2016. The importer must be prepared to provide to the CEE upon request documentation which supports appraisement under the computed value method for all entries upon request. In instances where the CEE disagrees with the proposed computed values, the CEE may appraise the merchandise under the fallback method using a modified computed value. You are instructed to provide this decision to the internal advice requester, through its counsel, no later than sixty (60) days from the date of the decision. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System (“CROSS”) at https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution. Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch Cc: Karen Matei Supervisory Import Specialist, Team DBH 8
Apparel, Footwear and Textiles Center (AFT CEE) U.S. Customs and Border Protection Field Director Office of Trade, Trade Regulatory Audit U.S. Customs and Border Protection 200 Chestnut St., Suite 401 Philadelphia, PA 19106 9