VAL R:C:V 545663 LPF
Leonard L. Rosenberg, Esq.
Sandler, Travis & Rosenberg, P.A.
5200 Blue Lagoon Drive
Miami, FL 33126-2022
RE: Inclusion of foreign warehousing costs within price actually paid or payable for merchandise; 19 U.S.C. 1401a(b); Generra Sportswear; Chrysler Corporation
Dear Mr. Rosenberg:
This is in response to your letters of January 14, 1994
(received by our office on June 2, 1994), December 2, 1994, and
June 27, 1995, concerning the valuation of apparel imported from
El Salvador. On April 3, 1995, you met with our office
concerning the matter. We regret the delay in responding.
FACTS:
The importer, Intradeco, Inc., sends fabric to El Salvador
for manufacturing into apparel. When the fabric and trim reach
El Salvador, they are placed in a warehouse facility, located in
the same commercial complex as the factory of production, where
they are stored until the manufacturer is ready to move specific
lots into production. The warehouse owner issues separate
invoices to the importer that are paid separately from invoices
issued by the manufacturer. If no warehouse costs are incurred,
no money is paid to the warehouse owner. You contend that both
transactions are independent of each other, that is, the costs
for warehousing do not appear on the manufacturer's invoice and
the costs of manufacture do not appear on the warehouse invoice.
When the factory needs a particular color of the bulk-produced fabric, and the in-factory supply has been exhausted, it
sends an employee to the warehouse to obtain the additionally
needed yard goods. You advise that the cost for this service is
already contained within the price for production of the apparel
articles. You add that although the extent of the importer's use
of the warehouse may vary from time to time, this does not effect
the price of the merchandise. The cost of transporting the goods
to the warehouse, you explain, is included in the price the
importer pays to the mill. You have submitted information
indicating that warehousing costs in El Salvador range from $3.15
to $3.60 per square meter per month and that Intradeco pays $3.25
per square meter. You state that Intradeco does not pay the
warehouse rent on a monthly basis depending upon, for instance,
how much fabric is placed in the warehouse nor upon how many
garments are produced annually, but rather pays the rent on an
annual basis.
You explain that the importer is not related to either the
manufacturer or the warehouse proprietor. Further, you provide
that the transactions between the importer and the manufacturer
as well as the importer and the warehouse are conducted at arms-length. However, you acknowledge that the manufacturer and
warehouse proprietor are related in accordance with section
152.102(g), Customs Regulations (19 CFR 152.102(g)), because of
common shareholders between the companies. You maintain that the
factory and warehouse are two independently operated companies:
one in the apparel production business and the other in the real
estate business. Accordingly, the payments are made to separate
legal entities, and you advise that the warehousing cost is not a
requirement for the production of the goods or tied to the
imported merchandise such that it must be deemed inseparable from
the payments for the merchandise.
ISSUE:
Whether the foreign warehousing costs paid to the warehouse
proprietor, who is related to the manufacturer/seller, are part
of the price actually paid or payable for the imported
merchandise.
LAW AND ANALYSIS:
The preferred method of appraisement is transaction value
pursuant to section 402(b) of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C.
1401a. Section 402(b)(1) of the TAA provides, in pertinent part,
that the transaction value of imported merchandise is the "price
actually paid or payable for the merchandise when sold for
exportation to the United States" plus the enumerated statutory
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, and exclusive of any costs, charges, or expenses
incurred for transportation, insurance, and related services
incident to the international shipment of the merchandise...)
made, or to be made, for the imported merchandise by the buyer
to, or for the benefit of, the seller."
Two recent court cases have addressed the meaning of the term
"price actually paid or payable." In Generra Sportswear Co. v.
United States, 8 CAFC 132, 905 F.2d 377 (1990), the court
considered whether quota charges paid to the seller on behalf of
the buyer were part of the price actually paid or payable for the
imported goods. In reversing the decision of the lower court,
the appellate court held that the term "total payment" is all-inclusive and that "as long as the quota 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." The court also explained that it did
not intend that Customs engage in extensive fact-finding to
determine whether separate charges, all resulting in payments to
the seller in connection with the purchase of imported
merchandise, were for the merchandise or something else.
In Chrysler Corporation v. United States, Slip Op. 93-186
(Ct. Int'l Trade, decided September 22, 1993), the Court of
International Trade applied the Generra standard and determined
that although tooling expenses incurred for the production of the
merchandise were part of the price actually paid or payable for
the imported merchandise, certain shortfall and special
application fees which the buyer paid to the seller were not a
component of the price actually paid or payable. With regard to
the latter fees, the court found that the evidence established
that the fees were independent and unrelated costs assessed
because the buyer failed to purchase other products from the
seller and not a component of the price of the imported engines.
Accordingly, it has been our position that based on Generra,
there is a presumption that all payments made by a buyer to a
seller are part of the price actually paid or payable for the
imported merchandise. However, this presumption may be rebutted
by evidence which clearly establishes that the payments, like
those in Chrysler, are completely unrelated to the imported
merchandise.
It is Customs position that the Generra standard applies
regardless whether payments are made directly to the seller or to
a party related to the seller. This position is consistent with
the definition of the "price actually paid or payable" as the
total payment made directly or indirectly by the buyer to, or for
the benefit of, the seller. In our opinion, payments to a party
related to the seller represent indirect payments made to, or, at
the very least, for the benefit of, the seller. We note that the
same rebuttable presumption discussed above, that is, that such
payments are part of the price actually paid or payable, would
equally apply in such instances. For these reasons, numerous
Customs decisions have recognized that payments made from the
buyer to a party other than the seller, particularly to a party
related to the seller, also may be included as part of the price
actually paid or payable. See HRLs 542169, TAA No. 6, issued
September 18, 1980; 542150, TAA No. 14, issued January 6, 1981;
544388, issued July 13, 1990; 544221, issued June 3, 1991;
544684, issued July 31, 1992; 557331, issued September 9, 1993;
544971, issued October 20, 1993; 544972, issued October 20, 1993;
544764, issued January 6, 1994; 545490, issued August 31, 1994;
and 544694, issued February 14, 1995.
In HRL 544758, issued February 21, 1992, Customs addressed
whether payments from the importer to an unrelated third party as
well as to the seller (a foreign cut, make, and trim, or CMT,
vendor) for pre-production warehouse strorage were part of the
price actually paid or payable. In citing Generra, Customs found
that in the instance when the importer paid the warehousing
charges to the seller, but not to the unrelated third party, that
the charges were part of the price actually paid or payable for
the merchandise.
In this case, the warehousing fees are paid to a party
related to the seller which "enable[s] Intradeco to have ready
access to the material which is necessary to produce a garment
just in time' (emphasis added)." You advise that, "the fact
that these costs may be paid to an entity which is related to the
entity that produces the garment should not ipso facto create a
dutiable consequence." We agree and appreciate the fact that
Customs should not take a "knee jerk" position concerning such
matters. However, for the reasons discussed above, because
sufficient information has not been presented to rebut the
presumption that such payments are part of the price, Customs
will consider the payments as part of the total payment for the
goods and therefore, by statute, part of the dutiable value of
the merchandise.
You believe that, "in the absence of information or evidence
that part of the payment actually inures to the benefit of the
seller as a legal entity . . . Customs should not make payments
to the owner of the warehouse dutiable." However, in our
opinion, such a statement overlooks the position taken by the
Generra court, to wit, that Customs not engage in extensive fact
finding in regard to such matters. We reiterate that the
presentation of evidence by an importer or their counsel
rebutting the assertion that a payment was made to or for the
seller's benefit in exchange for merchandise sold for export,
rather than an absence of such information, would enable Customs
to find such payments non-dutiable.
Although you cite HRL 544323, issued March 8, 1990, in
support of your position, we find the factual scenario addressed
in that decision distinguishable from that involved in the
present matter. Particularly, we note that in HRL 544323, the
importer actually provided the foreign warehousing for the
materials (i.e., fabric, yarn, thread, etc.) upon their arrival
at the manufacturer's plant. In HRL 544323, no payments were
made from the buyer/importer to the seller or a party related to
the seller for such services, as is the case in the instant
matter.
HOLDING:
Based on the information provided, the fees paid to the
warehouse proprietor, a party related to the manufacturer/seller,
are part of the price actually paid or payable for the imported
merchandise.
Sincerely,
John Durant, Director
Commercial Rulings Division