RR:IT:VA 546683 AJS
Port Director
U.S. Customs Service
610 S. Canal Street
Chicago, Illinois 60607
Attn: Director, Trade Compliance
RE: Application for Further Review of Protest No. 3901-96-102876;
Dutiability of Quota Charges; HRL 542169; HRL 543655;
Generra Sportswear Company v. U.S.; HRL 544640; HRL 544016; HRL
544245; HRL 546409; HRL 546343.
Dear Sir:
This is in response to the application for further review of
the above-referenced protest, received on December 11, 1996. The
protest was filed on behalf of I.K.L. International, Inc., the
importer of record, against your decision in the liquidation of
various entries consisting of ladies blouses. We apologize for
the delay in our response.
FACTS:
The importer, I.K.L., and its buying agent, Gerencia Co.,
Ltd., are related to one another by virtue of overlapping
interests. The protestant states that Gerencia provides routine
buying services to I.K.L. and a written buying agency agreement
submitted to Customs is in effect. The protestant also states
that Customs has always treated Gerencia as a bona fide buying
agent.
Both I.K.L. and its agent are related to one of the
manufacturers for the subject merchandise, Covo Knitters Ltd.
("Covo"), which produces garments for I.K.L. in the United
States. I.K.L. purchases approximately 10-15% of its product
from Covo in Asia. One of the entries forwarded to this office
listed Covo as the exporter but not as the manufacturer.
I.K.L. utilizes its buying agent, Gerencia, to secure quota.
The protestant states that Gerencia's mark-up (or loss) on quota
does not affect its buying agency responsibilities to procure the
merchandise itself.
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The protestant states that Covo may provide quota to I.K.L.
in instances where Covo is not the seller/manufacturer of the
merchandise. In such case, Covo is the quota holder and, like
many other quota resources, may act as a third-party shipper
rather than transferring quota to the actual factory or seller.
The protestant states that the "third party shippers" are not the
actual "sellers" of the merchandise.
Counsel for the protestant has submitted documentation
attempting to establish the non-dutiability of the subject quota
charges. For example, we have examined the documentation
submitted with the entry, dated June 10, 1996, on the attachment
to the Customs Form (CF) 19. We note that this entry does not
involve Covo either as the manufacturer or as the "third party
shipper". Rather, it shows the manufacturer as Tom Tack Knitting
FTY Ltd and the "third party shipper" as Euroworld Ltd. The
example documentation consists of the following:
The Entry Summary, Custom Form (CF) 7501, indicating that
the date of entry is June 7, 1996, I.K.L. is the importer of
record, 5 cartons of or 30 dozen ladies garments were entered,
the country of origin of the merchandise is Hong Kong, and the
entered value including the quota charge.
An entry invoice (no. G/7377), dated June 4, 1996, for 5
cartons or 360 pieces of ladies blouses on the buying agent's
(i.e., Gerencia) letterhead identifying the price paid for the merchandise excluding quota ("ex-quota"), and the
manufacturer/seller (i.e., Tom Tack Knitting FTY Ltd.)
Bank documentation from I.K.L., the drawee, to Gerencia for
payment of the price of the merchandise (ex-quota). The price
and G/7377 is handwritten on the document.
A quota charge statement, dated June 4, 1996, for invoice
G7377 indicating the price per dozen paid separately by I.K.L.
to Gerencia for quota, and identifying the third- party
shipper/quota holder (i.e., Euroworld Ltd.)
A debit note, dated June 4, 1996, for invoice no. G/7377,
from Gerencia to I.K.L. charging I.K.L. for the quota charge,
for 360 pieces of ladies blouses per dozen.
An export license dated May 25, 1996, indicating the export
of 5 cartons of ladies blouses by the exporter/third party
shipper (i.e., Euroworld), for the consignee (i.e., I.K.L.), from
the manufacturer/seller of the merchandise.
A third party shipper's invoice dated June 12, 1996, to
Gerencia for 5 cartons of ladies blouses for I.K.L. The
invoice separately itemizes and totals the price paid for the merchandise and the quota charge amount.
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A check, dated August 14, 1996, from Gerencia to the third
party shipper for the entire invoice amount including quota
charges. A receipt, dated August 16, 1996, to Gerencia for
payment of the invoice price. A payment voucher, dated August
14, 1996, from Gerencia with the third party shipper listed
as payee for the invoice.
A seller/manufacturer's invoice, dated June 3, 1996, to the
third party shipper (quota holder) for 360 pieces of ladies
blouses for the account of I.K.L. with the "ex-quota" price for the merchandise.
A check, dated August 20, 1996, from the third party shipper
to the seller/manufacturer for the price of the merchandise in
the seller/manufacturer's invoice. A receipt, dated August 20,
1996, from the seller/manufacturer for the same price with the
invoice number referenced.
An agreement, dated February 7, 1996, between Gerencia and
the Renfrew Trading Co. (i.e., the quota broker) to provide
quota for the category number required for ladies blouses in
1996. Four debit notes, dated either February 7 or May 13, 1996,
referencing the agreement, from the quota broker to Gerencia
for handling charges of textile exports for the category
number of ladies blouses for 1996.
The Customs Service assessed duty on quota payments made by
the importer to its related buying agent in connection with the
acquisition of third party quota for the subject wearing apparel.
Counsel for the protestant asserts that the quota payments were
not paid to the seller or a party related to the seller, and thus
are non-dutiable third party quota charges.
ISSUE:
Whether the subject quota charges may be included in the
price actually paid or payable as part of the transaction value
of the imported merchandise.
LAW AND ANALYSIS:
Initially, we note that this protest was timely filed
pursuant to 19 U.S.C. 1514(c)(3)(A). The subject entries were
liquidated from September 13 through October 18, 1996. The CF 19
was not dated but the protest module of the Automated Commercial
System (ACS) indicates that the protest was filed on December 11,
1996.
The preferred method of appraisement is transaction value
which is defined by section 402(b)(1) of the Tariff Act of 1930,
as amended by the Trade Agreements Act of 1979 (TAA, 19 U.S.C.
1401a(b)), as the "price actually paid or payable for the
merchandise when sold for
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exportation to the United States . . .", plus certain additions
specified in section 402(b)(1)(A) through (E). The term "price
actually paid or payable" is defined as the "total payment
(whether direct or indirect . . .) made, or to be made, for
imported merchandise by the buyer to, or for the benefit of, the
seller."
For purposes of this decision, we have assumed that
transaction value is the appropriate basis of appraisement.
Customs has held that quota payments made by the buyer to a
third party unrelated to the seller are not part of the price
actually paid or payable. Headquarters Ruling Letter (HRL)
542169 (September 18, 1980)(TAA No. 6). Quota charges paid by
the buyer to an agent are not part of the price actually paid or
payable so long as the payments are not remitted, directly or
indirectly, to the seller. HRL 543655 (December 13, 1985). In
Generra Sportswear Company v. United States, 905 F.2d 377 (Fed.
Cir. 1990), the court held in regard to quota payments that:
[a]s long as the . . . payments were 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 focus of transaction value is the actual
transaction between the buyer and seller . . .
905 F.2d at 380. Moreover, the court stated the foreign seller
must obtain quota before they can export their merchandise. Id.
at 380. Under Generra, it is Customs' position that all payments
to a seller are presumed to be part of the price paid or payable
for imported merchandise. HRL 544640 (April 26, 1991).
When quota payments are made to third parties unrelated to
the seller of the imported merchandise, however, Customs has held
that the payments are not included in transaction value as part
of the price actually paid or payable. However, there must be
sufficient evidence to indicate that the payments do not inure to
the benefit of the seller. HRL 544016 (June 22, 1988), aff'd HRL
544245 (July 31, 1989).
The CF 6445A cited HRL 546343 (May 22, 1996) in support of
Customs position that the quota charges paid for the merchandise
are part of the dutiable value. That decision pertained to a
protest filed by I.K.L. regarding the appraisement of sweaters it
purchased from its related party Covo. In that ruling, Customs
held that quota charges were dutiable when they "are either paid
directly to the seller of the merchandise, through the buying
agent, or the quota charges are remitted to a party related to
the seller (the buying agent). Either way, the quota charges are
part of the price actually paid or payable for the imported
sweaters." In that case, no documentation was provided
supporting the position that the quota payments were made to a
third party unrelated to the seller and the protest was denied.
In this protest, documentation has been provided attempting to
establish that fact. Therefore, the conclusion reached in HQ
546343 is not dispositive in this case.
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However, in HRL 546409 (July 9, 1997), Customs ruled on an
issue similar to the subject protest. In that ruling, Customs
stated the issue that must be resolved is who was the seller of
the imported merchandise and did it receive any of the quota
payments. Customs further stated that in determining who was the
seller of the imported merchandise, Customs must consider the
information contained on the transaction documents.
In HRL 546409 the following transaction documents were
provided. The importer's agent issued a purchase order to the
third party shipper who then issued a purchase order to the
manufacturer. A purchase order contract between the agent and
third party shipper referred to
the shipper as the vendor. There was a purchase order contract
between the third party shipper and manufacturer for the
merchandise. The manufacturer's invoices indicated that the
merchandise was for the account and risk of the third party
shipper. In addition, there was a statement from the
manufacturer which indicated that it received payment of the
contractual price (ex-quota) from the third party shipper.
Similarly, the visa invoice from the Hong Kong government
specified the third party shipper as the exporter, the importer
as consignee and the manufacturer as such. Based on the
transaction documents, Customs concluded that the third party
shipper purchased the merchandise from the manufacturer and then
resold it to the importer for exportation to the U.S.
Consequently, Customs stated that the third party shipper was
engaged in a sale for exportation of the imported merchandise,
and for appraisement purposes, it was the seller of the imported
merchandise. Because the third party shipper was the seller of
the importer merchandise and it received the quota payments, the
payments were part of the transaction value of the merchandise.
In the subject protest, the importer's buying agent received
an invoice for the merchandise and quota charges from the third
party shipper, and paid for such invoice. The manufacturer's
invoice specifies that the merchandise was for the third party
shipper, for the account of the importer. The manufacturer
received the ex-quota payment only for the merchandise. The
export license from the Hong Kong government specifies the third
party shipper as the exporter, the importer as consignee and the
manufacturer as such. The importer received from its agent a
separate invoice for the merchandise ex-quota and a separate
debit note for the quota charges, and paid for both items. Based
on these similar transaction documents to those discussed in HRL
546409, we also conclude that the third party shipper bought the
merchandise from the manufacturer and then resold it to the
importer for exportation to the U.S. Consequently as concluded
above, the third party shipper was engaged in a sale for
exportation of the imported merchandise, and for appraisement
purposes, it was the seller of the imported merchandise.
Therefore, due to the fact that the third party shipper was the
seller of the imported merchandise and it received the quota
payments, the payments were part of the transaction value of the
merchandise.
The protestant asserts that the quota payments are not part
of transaction value because the third party shipper is not the
seller of the merchandise. As quota holder seeking renumeration
only for the use of his quota, the protestant asserts that the
third party shipper makes no mark-up
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on the merchandise. As stated previously, however, we concluded
that the third party shipper is the seller. A similar argument
was also presented in HRL 546409. In that case, Customs did not
agree with the contention that the third party shipper could not
be the seller because it did not mark-up the price of the
merchandise. For Customs purposes, a "sale" generally is defined
as a transfer of ownership in property from one party to another
for consideration. J.L. Wood v. United States, 62 CCPA 25, 33;
C.A.D. 1139 (1974). In HRL 546409, Customs was presented with no
authority to establish a requirement that a seller must mark-up
the price of the merchandise that it buys and resells. In this
case, no such authority has been provided either. HRL 546409
relied on the manufacturer's invoice and third party shipper's
purchase order which indicated that the shipper took title to the
merchandise. In this case, the manufacturer's invoice and check
from the third party shipper for the invoice also indicates that
the third party shipper paid for and took title to the
merchandise. In addition in HRL 546409, the agent and third
party shipper entered into contracts for the purchase of the
imported merchandise which referred to the shipper as vendor. In
this case, the third party shipper issued an invoice in its own
name to the importer's agent for the merchandise. Therefore, we
find HRL 546409 instructive for determining that the third party
shipper may still be the seller of merchandise even if it makes
no mark-up on such merchandise.
HOLDING:
The protest should be denied. The quota charge in the
example entry should be included in the price actually paid or
payable as part of the transaction value of the imported
merchandise. Your office should review the remaining entries
contained in this protest to determine if the relevant
documentation warrants the same conclusion.
In accordance with Section 3A(11)(b) of Customs Directive
099 3550-065, dated August 4, 1993, Subject: Revised protest
Directive, this decision should be mailed by your office to the
protestant no later than 60 days from the date of this letter.
Any reliquidation of the entry in accordance with this decision
must be accomplished prior to mailing of this decision. Sixty
days from the date of the decision, the Office of Regulations and
Rulings will take steps to make the decision available to Customs
personnel via the Customs Rulings Module in ACS and the public
via Diskette Subscription Service, Freedom of Information Act and
other public access channels.
Sincerely,
Acting Director,
International Trade Compliance Division