CAFC Says Some Domestic Sales Can Qualify for Transaction Value Appraisement

Andrews, writing for the court, also held that CBP properly extended the liquidation period of the entries at issue in the customs dispute. The judge said CBP offered "good reasons" for its extension of liquidation: it conducted various rounds of audits of the entries and reviewed the audit results for accuracy and accounting standards compliance.

At issue in the case is the proper method of appraisement for various Christmas ornament entries made by importer Midwest-CBK. The ornaments at issue were imported into Canada from abroad, then shipped from Midwest's warehouse in Ontario to U.S. customers. The purchase orders given to the customers said "All prices [free on board] Buffalo, NY."

In 2013, Midwest told CBP it would enter the goods based on their "deductive value," which it then did in 2016. The agency extended the deadline for the liquidation of the entries and opened an audit to find the proper basis of valuation. By June 14, 2014, Midwest had provided CBP with all the information about the entries and the company's business that the agency had requested. CBP then wrapped up its fieldwork on Oct. 14, 2014, and issued a draft audit report on July 1, 2015, finding that transaction value, and not deductive value, was the proper basis for appraisement.

The final report came on Feb. 24, 2016, and saw CBP liquidate the goods using the original entered value plus a 75.75% upward adjustment. Midwest filed suit, arguing that CBP didn't properly extend the liquidation period, leading the goods to become deemed liquidated with a deductive value method of appraisement, and that the agency improperly decided to use transaction value.

Regarding CBP's extension of liquidation, Midwest argued that the decision to extend liquidation shouldn't be reviewed under an "abuse of discretion" standard, since CBP had all the information it needed by June 14, 2014, eliminating the "statutory condition for further extensions." The importer likened the case to Ford Motor v. U.S. in which CAFC said a decision to extend liquidation is invalid if an importer eliminates "all reasonable bases for making that decision."

However, Andrews found the facts in Ford Motor to be "readily distinguishable" from the present case. The judge said, here, unlike in Ford Motor, CBP offered good reasons for its extensions: various rounds of audits. The agency "submitted sufficient evidence into the record to demonstrate that the extension of the liquidation period was justified in this case," meaning the importer didn't eliminate all reasonable bases for the extensions, the court said.

Midwest also argued that CBP's own internal review can't form the basis of an extension of liquidation. Andrews found this claim to be "unconvincing," since the Ford Motor court held the statute doesn't require that "information justifying a delay must come from the importer." The judge added that the "rounds of internal review were reasonably necessary for the proper appraisement or classification of the merchandise involved" and were a proper basis for extending liquidation.

The importer also said the government's "proferred explanation" for the decision to extend liquidation "is untrue," though the court said the agency's explanation is "well-supported by citations to the record," unlike the claim that it's untrue.

Turning to the issue of the proper appraisement methodology, the court noted that the issue revolves around whether Midwest's goods were sold "for exportation" to the U.S., since this is a requirement for using transaction value. The importer said its goods weren't sold for exportation to the U.S. due to the existence of the "FOB Buffalo, NY" term in the purchase orders and the trade court's 1989 decision in Orbisphere v. U.S., in which the court said goods imported from Switzerland with the "free on board" condition weren't sold for export to the U.S., since the sales "were consummated within the United States."

Like CIT, the Federal Circuit said the Orbisphere case no longer applied, since it heavily rested on an earlier CIT decision, Massce v. U.S., which interpreted an older version of the transaction value statute. The old provision, Section 402(d) of the Tariff Act of 1930, said an import's export value "shall be the market value" at which such merchandise is "freely offered for sale to all purchasers in the principal markets of the country from which [it is] exported." The Trade Agreements Act amended this provision to remove "all references to foreign markets in which merchandise might be traded," CAFC noted.

As a result, since the Orbisphere decision "relied upon the Massce court's interpretation of a different term" with a "differently worded definition in a superseded statute," the Orbisphere decision is "unpersuasive," the court said. The current transaction value statute doesn't require an international sale to have occurred for an import to be considered a sale for exportation to the U.S., the court held.

As for the FOB term, the court said that since it found that a "domestic sale can serve as the basis for appraisement based on transaction value under 19 U.S.C. § 1401a(b)(1)," it didn't need to "reach the merits of this contention."

(Midwest-CBK v. United States, Fed. Cir. # 24-1142, dated 01/08/26; Judges: Sharon Prost, Tiffany Cunningham, Richard Andrews; Attorneys: Patrick Klein of Neville Peterson for plaintiff-appellant Midwest-CBK; Monica Triana for defendant-appellee U.S. government)