NEW YORK: Apparel importer SGS Sports, which uses a Canadian company to warehouse goods until a U.S. customer is found, was unable to show sufficient proof of the two companies being separate entities, U.S. Customs & Border Protection said in a recent ruling.
CBP said the goods are “not exported pursuant to a lease or similar use agreement,” and as a result, the merchandise isn’t eligible for duty-free treatment when re-entering the U.S.
Goods shipped between the U.S, and Canada are eligible for duty-free status under the North American Free Trade Agreement.
CBP made the ruling in response to an Application for Further Review filed after the agency ruled on a similar protest in 2015. SGS Sports hired new counsel at Neville Peterson and submitted some additional information, according to CBP, which said SGS buys “merchandise from unrelated foreign manufacturers and imports the merchandise into the U.S. as a consumption entry, pays duties based upon the sales transactions between it and the foreign manufacturers, and then exports the merchandise to Canada for warehousing until SGS has a customer in the U.S. who wishes to purchase the merchandise.”
The warehouse company, 147483 Canada, and SGS have different owners, though “the owner of 147483 Canada holds non-voting shares in SGS and has joint control, shared with another individual, of the entity holding the greatest number of voting shares,” according to CBP.
Under certain conditions, law allows for duty-free treatment for re-imported goods on which duty was already paid after having been exported under a lease or similar use agreements, known as bailment, CBP said.
However, CBP explained, “In order to have a valid bailment, SGS must have delivered the imported goods to the custody and control of someone else. In this case, they claim they did and that 147483 Canada is that other entity.” But, CBP added, “a fundamental requirement of a bailment is to place the merchandise within the custody of another” and “we cannot ignore the factual elements before us that point to these companies being one and the same.”
Among the evidence that the companies are the same are pictures submitted as evidence by SGS that showed the warehouse storage areas.
“We note that the photographs were printed from emails to an individual whose title is shown in an email forwarding these photographs to others,” CBP said. “This individual’s title, appearing under his name, is ‘Warehouse Manager, SGS Sports.’ This same individual executed an affidavit, submitted as Exhibit D in counsel’s submission of May 30, 2017, in which he states that he is ‘the Warehouse Manager for 147483 Canada Inc.’”
The merchandise, therefore, isn’t entitled to the duty-free treatment because, as CBP noted, “We do not believe that SGS has a valid bailment agreement as it does not entrust the merchandise into the custody of another party.”
