VAL CO:R:C:V 544388 VLB
District Director
U.S. Customhouse
1 East Bay Street
Savannah, Georgia 31401
RE: Application for Further Review of Protest No. 1704-8-8800125
Concerning Dutiability of Payments Made to Obtain
Corrected Quota
Dear Sir:
The above-referenced protest, filed by -------------
(hereinafter referred to as "the importer"), contests the
classification of garments imported in late 1987, and early 1988.
In addition, the importer protests your decision to include
payments for the correct quota category in the price actually
paid or payable.
FACTS:
The lengthy history of this case began in September 1987.
At that time, the importer submitted samples of swimwear to the
Port of New York and requested a binding ruling on the
classification of the merchandise. By letter dated November 3,
1987, the Customs Area Director for the New York Seaport, stated
that all of the submitted samples were considered to be shorts
and not swimwear. As a result, the merchandise would be subject
to quota category 347.
Subsequently, on December 18, 1987, the importer and its
counsel met with personnel from the Office of Regulations and
Rulings to discuss the ruling issued by the Area Director for
the New York Seaport. The importer stated that at that meeting
the Customs Service personnel indicated that they also considered
the sample garments to be shorts and not swimwear.
After this meeting the importer communicated with its
suppliers concerning the need to obtain quota category 347 for
the merchandise (shorts/swimwear) that had already been ordered.
The suppliers advised the importer that to secure the change in
the quota category, it would be necessary to charge an additional
$25.00 or $26.00 per dozen. The importer agreed to pay the
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additional amount. The merchandise was later entered into the
U.S. as shorts under category 347 and an additional $26.00 was
added to the price actually paid or payable for the merchandise.
However, shortly thereafter, on January 28, 1988, the U.S.
Court of International Trade decided the case of Hamco Apparel,
Inc. v. U.S., Slip Op. 88-12, 12 CIT (1988). In Hamco, the
court held that the proper classification of garments similar to
the importer's garments was as swimwear and not as shorts. The
result of this holding was that the merchandise fell under quota
category 359, not category 347.
As a result of the Hampco decision, Customs Headquarters
reversed the prior New York ruling and issued Headquarters Letter
Ruling (HRL) 081447, dated March 21, 1988, holding that the
importer's styles 2M717, 2M768, 2M769, 2M724, 2M773, and 2M774,
were swimwear and fell under quota category 359, not category
347.
After this ruling was issued, the importer requested that
Customs transfer the quota reported under category 347 to
category 359. By letter dated August 18, 1988, William D.
Slyne, the Director of Regulatory Trade Programs Branch, Office
of Trade Operations, agreed that the adjustments to the quota
categories should be made.
ISSUES:
1) Whether the merchandise was classified properly as
shorts.
2) Whether the additional payments for the correct quota
were part of the price actually paid or payable for the imported
merchandise.
LAW AND ANALYSIS:
The first issue involves the proper classification of the
merchandise. In HRL 081447 discussed previously, Customs reached
the following conclusion:
Styles 2M769, 2M774, 2M724 and 2M717 are classified
under the provision for men's or boys' wearing apparel,
not ornamented, of cotton, in item 381.6585, Tariff
Schedules of the United States Annotated (TSUSA),
dutiable at the rate of 8 percent ad valorem. Textile
and apparel category 359 applies to merchandise covered
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by this item number. Styles 2M768 and 2M773, are
classified under the provision for men's or boys'
wearing apparel, ornamented, of cotton, in item
381.0890, TSUSA, dutiable at the rate of 14 percent ad
valorem Textile and apparel category 359 applies to the
merchandise covered by this item number. . . The
proposed Harmonized Tariff Schedule of the United
States Annotated (HTSUSA) provision applicable to the
above-referenced merchandise (Styles 2M768, 2M773,
2M769, 2M774, 2M724, and 2M717) is subheading
6211.11.2010, which provides for men's swimwear, of
cotton, dutiable at the rate of 8 percent ad valorem,
with textile and apparel category 359.
This ruling clearly states Customs position on the
classification issues in this case. Therefore, the protests
covering entries that were not liquidated in a manner consistent
with HRL 081447 should be granted.
The second issue involves the appraisement of the
merchandise. As you know, transaction value, the preferred
method of appraisement, is defined in section 402(b) of the
Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (19 U.S.C. 1401a(b)); TAA) as the "price actually paid or
payable" for the merchandise when sold for exportation to the
U.S., plus enumerated additions.
The "price actually paid or payable" is defined in section
402(b)(4)(A) of the TAA as "the total payment (whether direct or
indirect. . .) made, for the imported merchandise by the buyer
to, or for the benefit of, the seller." There is no dispute that
transaction value is the proper method of appraisement for the
merchandise at issue.
There is no dispute that transaction value is the proper
method of appraisement in this case. However, you and the
importer disagree on whether the importer's payments for the
quota that was correct at the time, are included in the price
actually paid or payable for the imported merchandise. Customs
has consistently held that in cases where quota payments are paid
to the seller, or a party related to the seller, the amount of
the payments is part of the total payment to the seller; and
thus, is included in the transaction value of the merchandise.
See, HRL 542169 (TAA #6), dated September 18, 1980; HRL 542150
(TAA #14), dated January 6, 1981; and HRL 543913, dated February
22, 1988. The U.S. Court of Appeals for the Federal Circuit
recently affirmed this position in Generra Sportswear Co. v.
U.S., Slip Op. 89-1652, dated May 22, 1990.
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In the present case, the importer agreed to pay the
additional amounts for the shorts quota while the goods in the
production phase, prior to exportation. Therefore, the payments
for the purchase of the shorts quota were included in the "price
actually paid or payable for the merchandise when sold for
exportation to the U.S." (emphasis added). In addition, the
payments were made to the seller. As a result, the payments must
be included in the transaction value of the merchandise.
In a recent telephone conversation with a member of my
staff, the importer's counsel cited HRL 544220, dated January 22,
1990, as support for the argument that payments for corrected
quota are not included in the transaction value of the
merchandise. In HRL 544220, the merchandise was entered under
the incorrect quota category. Thus, subsequent to importation,
the importer paid the seller to obtain the correct quota.
Customs held that in that case, the payments were post
importation charges that were made after the merchandise had been
sold for exportation to the U.S.
As previously discussed, the payments in the present case
were agreed to prior to the exportation of the merchandise.
Therefore, HRL 544220 does not apply to this case.
HOLDINGS:
(1) The merchandise should be classified in a manner
consistent with HRL 081447.
(2) The payments for the corrected quota were agreed to
prior to the exportation of the merchandise. Therefore, the
payments are included in the "price actually paid or payable for
the merchandise when sold for exportation to the U.S. As a
result, the amount of the payments is included in the transaction
value of the merchandise.
You are directed to grant the protest on the classification
issue and deny the protest on the valuation issue. A copy of
this decision should be attached to Form 19, Notice of Action, to
be sent to the protestant.
Sincerely,
John Durant, Director,
Commercial Rulings Division