VAL CO:R:C:V 544971 ILK
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RE: Dutiability of hedging costs paid by importer
Dear ---------:
This is in response to your letter of April 2, 1992
(hereinafter referred to as the "request"). On behalf of your
client ----------------------. (hereinafter referred to as the
"importer") you request a ruling regarding the dutiability of
hedging costs paid by the importer to a related foreign
manufacturer (hereinafter referred to as the "seller") or on
behalf of the seller, as well as the dutiability of hedging costs
incurred by the importer on its own behalf. According to your
letter of September 3, 1992, you have withdrawn your request that
the information supplied in the request be kept confidential and
privileged. We regret the delay in responding.
FACTS:
The importer, a U.S. corporation is anticipating importing -
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related equipment components and parts which are made in [Europe]
by the seller. In a telephone conversation with a member of my
staff, on July 17, 1992, you stated that the seller may actually
be any one of a number of related companies in Europe. The
importer anticipates that importations will be made through
various U.S. ports in 1992.
To date, the seller has been selling the merchandise in U.S.
Dollars (USD) and has met the risk of currency exchange
fluctuations by hedging the contracts, i.e. placing a forward
contract on currency. The cost to the seller of the hedging has
been included in the offered price of the merchandise, and has
been included in the value declared for duty. The seller is now
offering the importer the option of purchasing the merchandise
either in USD or in Swiss Francs (SFr). If the importer pays in
USD, as it has been doing, it will be charged a separate amount
to cover the cost of hedging. In the July 17, 1992 telephone
conversation with a member of my staff, you stated that the hedge
is entered into by the seller either with a financial institution
or in-house. In either event, the charge is passed on to the
importer by the seller. If the importer pays in SFr, the
importer hedges for its own account, in the U.S., also incurring
a fee.
You request a ruling as to the dutiability of the hedging
costs incurred by the seller and paid by the importer, and the
hedging costs incurred by the importer on its own account. It is
your position that none of the hedging costs described above are
dutiable.
ISSUE:
Whether the amounts paid by the importer for hedging costs
are included in the price actually paid or payable for the
imported merchandise.
LAW AND ANALYSIS:
Transaction value is the preferred method of appraisement,
and 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, which are not relevant
here. We are assuming for purposes of this ruling that
transaction value is the proper method of appraisement for the
imported merchandise, although we note that the importer and the
seller are related parties under section 402(g) of the TAA.
Therefore, the transfer price between the importer and the seller
is acceptable for transaction value purposes if it meets one of
the tests set out in section 402(b)(2)(B). We do not have enough
information to determine whether one of the tests has been met.
The term "price actually paid or payable" is defined in
section 402(b)(4)(A) of the TAA as the "total payment...made, or
to be made, for imported merchandise by the buyer to, or for the
benefit of, the seller." It is the position of the Customs
Service that all monies paid to the foreign seller, or a party
related to the seller, are part of the price actually paid or
payable for the merchandise under transaction value. See e.g.
Generra Sportswear Co. v. United States, 905 F.2d 377 (Fed Cir.
1990); HRL 544640 dated April 26, 1991.
The Court in Generra, specifically held that "a permissible
construction of the term `for imported merchandise' does not
restrict which components of the total payment may be included in
transaction value." Generra, 905 F.2d at 380. According to the
Court's decision in Generra, as long as a "payment was made to
the seller in exchange for merchandise sold for export to the
United States, the payment properly may be included in
transaction value, even if the payment represents something other
than the per se value of the goods." 905 F.2d at 380. In this
case hedging costs incurred by the seller alone, or by the seller
to a third party, can reasonably be concluded to be for imported
merchandise and thus part of the price actually paid or payable.
The total payment by the importer to the seller includes the
hedging costs. This position is consistent with the position
taken by Customs in HRL 542984 dated April 8, 1983 in which we
ruled that the cost of insurance premium payments which the
manufacturer was required to obtain as a condition of the sale
were part of the price actually paid or payable for the imported
merchandise.
HOLDING:
Hedging costs paid by the importer to the seller are
included in the price actually paid or payable for the imported
merchandise. With respect to the costs incurred by the importer
hedging for its own account, we agree with you that those
payments are not made to or for the benefit of the seller, and
thus are not included in the price actually paid or payable,
under the terms of section 402(b)(4) of the TAA.
Sincerely,
John Durant, Director,
Commercial Rulings Division