Before Michel, Schall, and Gajarsa, Circuit Judges.
The opinion of the court was delivered by: Schall, Circuit Judge.
Appealed form: United States Court of International Trade Senior Judge R. Kenton Musgrave
Victor Woolen Products of America, Inc. ("VWPA") appeals the decision of the United States Court of International Trade in VWP of America, Inc. v. United States, 980 F. Supp. 1280 (Ct. Int'l Trade 1997). In its decision, the court upheld the determination of the United States Customs Service ("Customs") that woolen melton fabrics imported by VWPA from Canada should be appraised based on the price paid for the fabrics by customers of VWPA in the United States. Customs rejected the contention of VWPA that the fabrics should be appraised based on the price paid for them by VWPA to its supplier and parent company, Victor Woolen Products, Ltd. of Quebec, Canada ("VWPC"). The statute that governs the valuation of imported merchandise for purposes of appraisal by Customs is 19 U.S.C. § 1401a. *fn1 Because the Court of International Trade erred in its analysis of the pertinent requirements of § 1401a and because it failed to make necessary findings of fact, we vacate and remand.
Imported merchandise must be appraised so that the final amount of duty to be paid on the merchandise can be fixed and entries of the merchandise can be liquidated. 19 U.S.C. § 1500. By law, Customs is required to appraise imported merchandise in the manner set forth in 19 U.S.C. § 1401a. See 19 U.S.C. § 1500(a). Section 1401a(a)(1) sets forth one primary method of valuation and five secondary methods. The primary method of valuation is the "transaction value" of the merchandise provided for under 19 U.S.C. § 1401a(b)(1). Id. § 1401a(a)(1)(A). Under § 1401a(b)(1), "[t]ransaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain specified amounts. If transaction value, as defined in § 1401a(b)(1), cannot be determined or cannot be used, then Customs must appraise the imported merchandise by looking to the secondary valuation methods in the order listed in § 1401a(a)(1) until an appraisal is obtained. See id. § 1401a(a)(1).
The statute provides that the transaction value between a related buyer and seller may only be used to appraise imported merchandise when certain conditions are met.
"The transaction value between a related buyer and seller is acceptable . . . if an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between such buyer and seller did not influence the price actually paid or payable; or if the transaction value of the imported merchandise closely approximates- ((i) the transaction value of identical merchandise, or of similar merchandise, in sales to unrelated buyers in the United States; or *
"(ii) the deductive value or computed value for identical merchandise or similar merchandise; but only if each value referred to in clause (i) or (ii) that is used for comparison relates to merchandise that was exported to the United States at or about the same time as the imported merchandise." 19 U.S.C. § 1401a(b)(2)(B).
The persons and entities who are deemed "related" for purposes of the statute are listed in 19 U.S.C. § 1401a(g)(1). A corporation and its wholly-owned subsidiary are related parties. See id. § 1401a(g)(1)(F).
The merchandise at issue in this case is melton fabric manufactured by VWPC and imported into the United States between November of 1992 and January of 1993 by VWPA. See VWP of America, Inc. v. United States, 980 F. Supp. at 1282. Melton is a heavy woolen fabric with a smooth finish that is used primarily in the apparel industry for articles such as varsity jackets. Such jackets, which have melton wool bodies with leather sleeves, frequently are worn by high school athletes.
VWPA is VWPC's wholly-owned U.S. subsidiary. It is a Delaware corporation. In November of 1989, it became the exclusive U.S. distributor and importer of melton fabrics produced by VWPC. See id. Typically, in a three-tier transaction, VWPA purchased the fabrics from VWPC and then sold them to U.S. buyers. See id. From 1989 to 1991, the terms of sale between VWPC and VWPA and between VWPA and its U.S. customers were F.O.B. the Canadian factory. See id. Under these terms, VWPA took legal title to, but not physical possession of, the merchandise prior to its sale to U.S. buyers. The U.S. buyers took physical possession of the merchandise at VWPC's loading dock in Canada. During this period, a third party, Concept III, served as the U.S. sales agent for VWPA. See id.
In 1990, Customs initiated an audit of the transactions between VWPC and VWPA. See id. This audit resulted in the issuance of Customs Headquarters Ruling Letter No. HQ 544658 (Mar. 26, 1991). In that ruling, Customs asserted that "there must be a bona fide sale of the imported merchandise to be appraised under transaction value." Id. at 3. Customs determined that there were no bona fide sales between VWPC and VWPA. See id. at 5. It reasoned that because sales from VWPC to VWPA were F.O.B. the Canadian factory, and because sales from VWPA to the U.S. buyers were F.O.B. the Canadian factory, risk of loss never passed to VWPA, but instead passed directly from VWPC to the U.S. buyers. See id. Because title passed directly from VWPC to U.S. buyers, Customs determined that the prices paid by U.S. buyers constituted the proper basis for transaction value. See id.
In 1991, VWPA changed the terms of sale for its U.S. customers to F.O.B. Jackman, Maine, or other U.S. port of entry. The terms of sale between VWPC and VWPA, however, remained F.O.B. the Canadian factory. See VWP, 980 F. Supp. at 1282. Under these new terms, VWPA was required to transport the melton fabrics from VWPC's loading dock in Canada to a U.S. port of entry. During this time, Concept III continued to serve as VWPA's U.S. sales agent.
In due course, VWPA asked Customs to reconsider its 1991 ruling. See id. Customs did so and concluded that transactions between VWPC and VWPA under the new terms of sale constituted bona fide sales. See HQ 544745, at 5 (Feb. 19, 1992). Nonetheless, Customs reaffirmed its original determination that the melton fabrics should be valued based on the sales price between VWPA and its U.S. buyers. Customs reasoned that it was sales to those buyers that most directly caused the fabrics to be exported to the United States. See id. at 7. Accordingly, Customs liquidated the merchandise based on the price charged by VWPA to its U.S. buyers. VWPA filed a protest on May 5, 1993, which was denied on August 8, 1993.
On December 16, 1993, VWPA brought an action in the Court of International Trade, pursuant to 28 U.S.C. § 1581(a), contesting the denial of its protest of Customs' valuation determination. VWPA asserted that the melton fabrics should have been appraised based on the sales price between VWPC and VWPA. In making this argument, VWPA did not claim that the circumstances of the sales between VWPC and VWPA indicated that the relationship between VWPC had not influenced the prices paid by VWPA for the melton fabrics. See 19 U.S.C. § 1401a(b)(2)(B). Rather, VWPA argued that sales prices between VWPC and VWPA constituted acceptable transaction values under § 1401a(b)(2)(B)(i) because they closely approximated the sales prices of identical or similar merchandise sold by Cookshiretex, a Canadian supplier of melton fabrics, to Lou Levy & Sons ("Levy"), a U.S. corporation. In the alternative, it argued that the VWPC-VWPA sales prices constituted acceptable transaction values under § 1401a(b)(2)(B)(ii) because they closely approximated the deductive or computed value for identical or similar merchandise.
Following a trial, the Court of International Trade held that the subject entries were correctly valued by Customs based upon the price between VWPA and its customers in the United States. The court therefore upheld Customs' rejection of VWPA's protest. The court based its decision on the Conclusion that the transactions between VWPC and VWPA were not sales for exportation to the United States for purposes of 19 U.S.C. § 1401a(b)(1). See VWP, 980 F. Supp. at 1286-87.
In its decision, the court stated that its first inquiry was to ascertain which transactions directly caused importation of the melton fabrics into the United States. See id. at 1283. The court observed that "[e]mbedded" in this inquiry was a determination of whether the transactions between VWPC and VWPA were "arm's length" bona fide sales. Id. at 1283-84. Starting from the premise that "transaction value [under 19 U.S.C. § 1401a(a)(1)(A)] cannot be based on a transaction that is found not be a sale," id. at 1284, the court concluded that the transactions between VWPC and VWPA were not bona fide sales. See id. at 1286. The court reached this Conclusion because it determined that the melton fabric produced by VWPC "was not freely sold or offered for sale to all of those who cared to buy it in the U.S. market in the ordinary course of trade." Id. at 1285. The court found that this was the case because, "[i]n order for U.S. customers to obtain the melton fabric produced by VWPC, purchases would have to be made with VWPA or its agent Concept III." Id. The court based its use of the test of "freely sold or offered for sale" upon the decision of the Court of Customs and Patent Appeals in United States v. Getz Brothers & Co., 5 CCPA 11 (1967), a case decided under sections 402(b) and 402a(d) of the Tariff Act of 1930, 46 Stat. 708, as amended by the Customs Simplification Act of 1956, 70 Stat. 943 (commonly referred to as the "export value statute"). See 19 U.S.C. § 1402(d) (1964).
In finding the absence of an arm's length bona fide sale, the court also relied upon the decision of the Court of Customs and Patent Appeals in Chr. Bjelland & Co., Inc. v. United States, 52 CCPA 38 (1965). In Bjelland, another case decided under the export value statute, the court set forth various factors to be examined in determining whether transactions between a seller and a purchaser are at arm's length. *fn2 The Court of International Trade determined that application of the Bjelland factors resulted in "a formidable showing that the transaction[s] between VWPC and VWPA [were] not concluded at arm's length." VWP, 980 F. Supp. at 1285. In that regard, the court focused on VWPA's minimal presence in the United States and the finding that VWPA accepted prices dictated by VWPC. See id. at 1285-86. According to the court, VWPA was "merely a U.S. agent or alter ego for VWPC." Id. at 1285. Thus, the court found that VWPC and VWPA were "one and the same for purposes of administration of the import statutes implicated here." Id. at 1286. Accordingly, the court reasoned, valuation of the melton fabrics should be based on the value of sales between VWPA and its U.S. customers. See id. In other words, the court concluded that a sale of melton fabrics by VWPC to VWPA could not establish a transaction value for the fabrics for purposes of 19 U.S.C. § 1401a(a)(1)(A) because in fact there was no such sale. In the court's view, a sale did not occur until VWPA sold the fabrics to one of its U.S. customers.
The court then went on to decide whether, as VWPA argued, sales by VWPC to VWPA could serve as the basis for appraising the melton fabrics because the value of those sales approximated "the transaction value of identical merchandise, or of similar merchandise, in sales to unrelated buyers in the United States," as contemplated by 19 U.S.C. § 1401a(b)(2)(B)(i). In that regard, the court considered the evidence offered by VWPA relating to the Cookshiretex-Levy transactions. See id. at 1287. The court concluded that, as far as the Cookshiretex-Levy transactions were concerned, VWPA had failed to provide a sufficient showing that expenses such as packing costs, sales commissions, assists, royalties, and rebates were properly taken into account in calculating Levy's transaction costs. See id. The court therefore held that even if VWPC's sales to VWPA could be viewed as constituting "sales for exportation to the United States" and therefore could form the basis for a transaction value under 19 U.S.C. § 1401a(a)(1)(A), that transaction value could not be used for purposes of appraising the melton fabrics because the requisite comparison with the transaction value of identical or similar merchandise required under § 1401a(b)(2)(B)(i) could not be performed. See id.
Finally, in a like vein, the court rejected VWPA's alternative argument that the prices used in transactions between VWPC and VWPA could serve as the appraised value of the melton fabrics because those prices closely approximated "the deductive value or computed value for identical merchandise or similar merchandise," as set forth in 19 U.S.C. § 1401a(b)(2)(B)(ii). On this point, VWPA presented evidence relating to the deductive value of the melton fabrics manufactured by VWPC. The court found, however, that the deductive values advanced by VWPA were based on suspect figures and inconsistent allocations of costs. See id. at 1288. Accordingly, it concluded that the deductive values submitted ...