VAL CO:R:C:V 544638 DPS
John B. Pellegrini, Esq.
Ross & Hardies
529 Fifth Avenue
New York, New York 10017-4608
RE: Effect of contributions to brand marketing expenses by
manufacturer and importer of vodka on appraised value
Dear Mr. Pellegrini:
This is in response to your letter of January 23, 1991,
requesting a ruling on behalf of Joseph E. Seagram & Sons,
Inc. ("Seagram" or the "importer"), concerning the proper
appraised value of vodka it plans to import.
FACTS:
The subject vodka is distilled in Poland and is
purchased from an unrelated vendor, Agros Foreign Trade
Enterprise ("Agros"). The Company has been importing vodka
from Agros since late 1989. The vodka is duty-free under the
Generalized System of Preferences. Counsel states that by
letter dated October 1, 1990 to the District Director at
Detroit, Michigan, the company described its arrangement to
develop, execute and share costs of a U.S. marketing plan
with Agros. Seagram asserted that the arrangement did not
affect the appraised vodka. Counsel states that the letter
to Customs in Detroit also disclosed certain assists,
requested permission to report assists annually under Section
141.86(a)(11) of the Customs Regulations, and requested that
the District Director seek internal advice in the event of
any disagreement on the issues addressed in the letter. The
District Director granted Seagram permission to report
assists annually. However, according to counsel, the
District Director declined to seek internal advice and asked
that seagram seek a ruling on the other appraisement issues.
The terms under which the subject vodka is purchased are
set forth in an agreement dated November 3, 1988 between
Seagram and Agros (the "Agreement"). The agreement is
supplemented by a royalty free trademark license executed in
favor of the Company on September 20, 1989, and a letter of
January 23, 1989 concerning development of new packaging.
Paragraph 12(b) of the Agreement requires that Seagram
develop and execute a marketing plan for the subject vodka.
The Agreement requires that the Company and Agros each make
minimum payments for brand marketing purposes each calendar
year. Brand marketing includes advertising, merchandising,
promotion, market research, public relations, testing and
similar brand building activities. It also includes
packaging changes. The brand marketing expenditure
requirements are tied to volume and decrease on a per-case
basis as volume increases. The Agreement requires that
Seagram make the expenditures and that Agros reimburse a
specified portion thereof. The Agros reimbursement is made
in the year following Seagram's expenditure.
Counsel asserts its view that neither Seagram's brand
marketing expenditures nor the reimbursement by Agros affects
the appraised value of the imported vodka, except to the
extent that the Seagram's contribution relates to packaging
changes which may be characterized as assists. Counsel
further states that transaction value is the correct basis of
appraisement, and that Seagram contributions to brand
marketing cannot be deemed part of the price actually paid or
payable for the imported merchandise since they are neither
paid to, or for the benefit of, the seller. In support of
this position, counsel argues:
The term, for the benefit of the seller, means no
more than that the buyer makes a payment to a party
other than the seller but to satisfy an obligation
of the seller. It does not cover payments made by
the buyer from which the seller could indirectly
benefit because they increase sales of the imported
product, e.g. advertising the product in the United
States. Moreover, the brand marketing expenditures
have no relation to the production or the
exportation of the imported merchandise and as such
are not made for the imported merchandise. See
Generra Sportswear Company v. United States, 905
F.2d 377 (Fed. Cir. 1990).
The only manner in which the contributions to brand
marketing expenditure by Agros could affect appraised value,
counsel argues, is if they are deemed to be a refund or
rebate of the price actually paid or payable. Counsel
further states that since these contributions are made in the
calendar year following importation, they may not reduce
appraised value.
ISSUES:
(1) Whether amounts paid by importer and foreign vendor of
Polish vodka pursuant to an agreement between them to share
extensive U.S. marketing costs, the amounts of which are
determined by the volume of product imported into and sold in
the U.S. annually, and tied to the underlying sale of the
subject polish vodka by the importer in the U.S., are part of
the price actually paid or payable for the imported
merchandise under transaction value; and
(2) If not, whether the contributions to marketing expenses
meet the criteria to be considered one of the statutory
additions to transaction value.
LAW & ANALYSIS:
Transaction value, the preferred method of appraisement
is defined in section 402(b)(1) 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" plus five enumerated statutory additions.
The term "price actually paid or payable" means the
total payment (whether direct or indirect, and
exclusive of any costs, charges, or expenses
incurred for transportation, insurance, and related
services incident to the international shipment of
the merchandise from the country of exportation to
the place of importation in the United States)
made, or to be made, for imported merchandise by
the buyer to, or for the benefit of, the seller.
402(b)(4)(A) of the Tariff Act of 1930 as amended by the
TAA. The five enumerated statutory additions to transaction
value set forth in 402(b)(1) of the Tariff Act of 1930, as
amended by the TAA are as follows:
(A) the packing costs incurred by the
buyer with respect to the imported
merchandise;
(B) any selling commission incurred by the
buyer with respect to the imported
merchandise;
(C) the value, apportioned as appropriate, of
any assist;
(D) any royalty or license fee related to the
imported merchandise that the buyer is
required to pay, directly or indirectly, as a
condition of the sale of the imported
merchandise for exportation to the United
States; and
(E) the proceeds of any subsequent resale,
disposal or use of the imported merchandise
that accrue, directly or indirectly, to the
seller.
Consistent with transaction value, we would add to the
price actually paid or payable any of the items set forth
above that are deemed to apply to the transaction.
An item is either part of the price actually paid or
payable, or it is not. In this regard, 152.103(a)(2),
Customs Regulations (19 CFR 152.103(A)(2)), provides in
pertinent part:
Activities such as advertising, undertaken by
the buyer on his own account, other than those
for which an adjustment is provided in section
152.103(b), will not be considered an indirect
payment to the seller though they may benefit
the seller. The costs of those activities
will not be added to the price actually paid
or payable in determining the customs value of
the imported merchandise.
Based on the regulation cited above, no legal authority
exists to treat these advertising expenses as part of the
"price actually paid or payable" for the imported
merchandise, provided such expenditures are, in fact, for
advertising and marketing.
With regard to expenses relating to packaging of the
imported merchandise, such expenditures clearly fall within
one of the statutory additions to transaction value set forth
in 402(b)(1)(A) (packing costs incurred by the buyer) and/or
402(b)(1)(C) (cost of assists) of the Tariff Act of 1930, as
amended by the TAA. Accordingly, these costs should be added
to the price actually paid or payable for the imported vodka.
With regard to Seagram's arrangement with Customs in Detroit
to declare assists annually, we have no comment. We only
assume that all assists and packaging costs will be declared
in accordance with all applicable regulations.
HOLDING:
Pursuant to the information presented, and assuming its
accuracy, payments for brand marketing purposes, excluding
any costs associated with packaging the subject vodka, to be
paid by Seagram, the importer, and Agros, the exporter, it is
our conclusion that other than those items which are part of
the "price actually paid or payable," no statutory authority
exists to add such brand marketing payments to the price
actually paid or payable for the merchandise.
All costs related to packaging the imported merchandise
should be considered packaging costs under 402(b)(1)(A) or
assists under 402(b)(1)(C) as appropriate, and added to the
price actually paid or payable for the subject merchandise.
Sincerely,
John Durant, Director