August 4, Via Electronic Mail

Transcription

1 August 4, 2014 Via Electronic Mail Richard DiNucci, Assistant Commissioner Office of International Trade US Customs and Border Protection 1300 Pennsylvania Avenue Washington, DC RE: First Sale Documentation The United States Fashion Industry Association ( USFIA ) submits the following comments on the proposed changes to Informed Compliance Publication, Bona Fide Sales & Sales for Exportation to the United States (August 2005) (the "ICP"). USFIA represents textile and apparel brands, retailers, importers, and wholesalers based in the United States and doing business globally. Founded in 1989 as the United States Association of Importers of Textiles & Apparel with the goal of eliminating the global apparel quota system, USFIA now works to eliminate the tariff and non-tariff barriers that impede the industry s ability to trade freely and create economic opportunities in the United States and abroad. USFIA members routinely rely on the first sale principle in making entry. As such, USFIA is very interested in ensuring that any changes to the ICP, or to U.S. Customs and Border Protection ("CBP") policy with respect to first sale appraisements, do not create unnecessary or unreasonable barriers to relying on that approach. 1. Statutory Authority USFIA's initial concern is with respect to whether CBP has the authority to require the documents listed in the proposed Appendix to the ICP. The ICP cites a number of statutes and regulations as support for the requirements. However, a review of the legislation as well as the regulations indicates that there is no reference to a foreign seller or middleman. The references are to owners, importers, entry filers, consignees and the like. USFIA appreciates that even without a legal obligation to provide these documents; the failure to provide them or an alternative could result in CBP denying a first sale appraisement. Nevertheless, it would be useful to understand clearly the legal authority under which CBP might request these documents. USFIA s basic comment is that the proposed changes are somewhat imprecise and may leave many with the impression that the documents listed in the Appendix are always required to establish the validity of a first sale transaction. It is also possible that some could misinterpret

2 the changes to mean that an importer who does not review the middleman's books and records, including financial statements, charts of account, etc. would have failed to exercise reasonable care. That is certainly not the case and the ICP must make this clear. This is crucial in view of the August 12, 2002 memorandum (APP-1:FO:TP:CC:SM), Valuation Claims Based on Multi-Tiered Sales, which states that reasonable care requires following guidance provided in the ICP. 2. Clarification Is Needed To Explain that the Appendix Is Only Appropriate in the Audit Context USFIA understands that the primary thrust of these changes is to ensure that in the course of an audit, requests by Regulatory Audit for the types of documents listed in the Appendix will not be met with a response by the importer or its representative that it was not aware that these documents could be requested. Indeed, it is USFIA's understanding that the impetus for the changes was such a circumstance. Accordingly, it would be useful for the ICP to make that point clear. In particular, the ICP should contain language that makes it clear that these documents should not be a part of a routine request for information - CBP Form 28. Given the thrust of many of the documents listed in the Appendix, it is apparent that the primary concern is with first sale transactions where the middleman-buyer and the manufacturer-seller are related. USFIA suggests that the ICP include a statement to this effect. In addition, the ICP should be clear that the mere presence of a document in the Appendix does not mean that it is relevant in every review of a first sale transaction. This comment is based on experience with document requests to establish that imported textiles and apparel were manufactured in the country declared at entry. The Headquarters Office created a list of documents which might be required to establish origin. This was similar in approach to the Appendix. USFIA members collective experience is that port officials invariably requested all of the documents listed rather than tailoring the request to specific circumstances. USFIA would like to avoid reliving that experience and believes that an admonition to that effect in the ICP will make it less likely that the production documentation pattern will be repeated. As noted above, USFIA understands that the documents described in the proposed changes to the ICP are limited to the audit context. The ICP should include an unambiguous statement to that effect. It should also state that the documents: 1) Shall not be requested by Port officials in a CBP Form 28 or otherwise; 2) Are not required to support a ruling request on a protest; 3) Need not be reviewed by importers in order to exercise reasonable care; and, 4) Are not a1a documents. 3. Issues Raised When Middleman and Manufacturer Are Related Parties The Appendix includes a number of documents which appear to be relevant only in a circumstance where the middleman and the manufacturer are related parties. These documents include 16, 17, 21, and 23. USFIA suggests that the ICP identify that these specifications apply to

3 related parties situations. Alternatively, the Appendix can be divided into sections one of which would be limited to transactions where the middleman and the manufacturer are related. The issue of related parties raises another concern. Many USFIA members who rely on the first sale principle recognize that there are additional issues when the middleman and manufacturer are related parties. Accordingly, many USFIA members engage third parties law firms and accounting firms to review the financial statements and books and records of the middleman and the manufacturer to ensure that there is a reasonable basis on which to conclude that the relationship did not affect the price. Where a third party review has been performed, it would be reasonable for CBP, and consistent with a risk analysis approach, to obtain access to the review as an alternative to access to the manufacturer's or the middleman's books and records. With the review, Regulatory Audit can determine whether a further review is necessary or whether access to specific documents rather than the entire panoply of the foreign books and records is necessary. This approach may alleviate concerns by foreign middlemen and manufacturers who are reluctant to turn over their books and records to representatives of a foreign government without some assurance that the financial information will be maintained in confidence. A statement in the ICP to that effect could alleviate some of this concern. In some cases, certain of the middleman-seller s financial information will be public. The ICP should state that whenever possible, publically available data will be used. Finally, the Possible Solutions listed in connection with HQ H include reference to a transfer pricing study. The solutions also refer to the all costs plus profit test. While the implication is that these are alternatives adding or between the two will eliminate any possible confusion. 4. Non-Related Parties USFIA suggests that the ICP acknowledge that where the manufacturer-seller and the middleman-buyer are not related, the T.D documents (purchase order, invoice and proof of payment) will be sufficient in the absence of a particularized need for supporting documentation. 5. Additional Comments on Items Listed in the Draft Appendix The following are USFIA's additional comments and observations on specific documents listed in the Appendix. 5. Commercial invoices (manufacturers, subcontractors, middlemen, vendors, ultimate consignees, and agents, and assist providers, as applicable).

4 Under what circumstance would Regulatory Audit have a legitimate reason to look at invoices issued by an ultimate consignee? 7. Transportation Records/Freight records from the supplier of assists to the manufacturer as well as the foreign entry summary for importation of the materials, if applicable. It is difficult to envision a circumstance where the manufacturer's transportation and entry records for materials would be relevant in a valuation inquiry. 8. Insurance for the imported merchandise from the factory door to the port of importation, including proof of payment (provide copy of letter of credit, wire transfer, and bank statement showing the actual debit for the payment as well as any additional banking documentation concerning the payment). Insurance information appears to be relevant only in CIF transactions, terms not much used in general and less likely to be used in a movement from the factory to the port. Is there a specific circumstance when this information is relevant? 9. Inventory records for the receipt of goods into inventory, including the middleman s inventory and storage of merchandise prior to importation, as applicable. How are inventory records relevant to a first sale review? 12. Form 7501 and invoices for any other merchandise paid for in conjunction with any bulk payment. The transaction at issue is the one between the middleman-buyer, and the manufacturer-seller. Payments made by the importer to the middleman are not relevant. 14. Importer s accounting and financial records, including the audited financial statements (including any notes and supporting schedules), trial balance, general ledger, cash disbursement and purchase journals (showing transaction level detail) for applicable period, supporting the price actually paid or payable and all information relating to statutory additions. The Appendix relates to first sale, please advise upon what circumstances the importer's records are relevant. 16. Manufacturer s accounting and financial records including, the audited financial statements (including any notes and supporting schedules), trial balance, general ledger, cash disbursement and purchase journals (showing transaction level detail) for applicable period supporting the price actually paid or payable and all information relating to statutory additions. These records could be relevant where the middleman and manufacturer are related parties. Otherwise, they are not relevant. This should he made clear. The same comment applies to 17, 21, and 23.

5 20. Records related to the manufacture, design, unique specifications or characteristics of the merchandise (labels, logos, stock numbers, bar codes, unique marks and markings, warranties, certifications). This information might be relevant for a classification inquiry, but has no obvious connection to a first sale review. The same observation applies to 22. How are marketing studies relevant? 24. Financial and accounting records (financial statements; tax returns; chart of accounts; general ledger account activity; production records; labor, materials, and overhead expense records; bills of materials; inventory records; selling, general and administrative expense records; etc.) This specification is redundant and should be deleted. 29. Invoice and proof of payment for hangers, if applicable. There is no logical reason to single out hangers. Conclusion USFIA appreciates the opportunity to comment on these important matters and urges that the final version of the ICP reflect its views. We look forward to working with you on this matter in the coming months, and continuing our dialogue. With best regards, Julia K. Hughes President United States Fashion Industry Association (USFIA)