VAL CO:R:C:V 544221 ML
Area Director
Newark, New Jersey 07114
RE: Application for Further Review of Protest Nos.
XXXXX-XXX and XXX-XXXX Concerning the Dutiability of Quota
Payments
Dear Sir:
These protests were filed against your appraisement decision
in the liquidation of various entries made by Orit Imports Inc.,
and Pegasus I Sportswear Inc. The merchandise was manufactured
in Hong Kong by various manufacturers. The protestant is
disputing the dutiability of quota charges incurred by the
importers. The merchandise was appraised pursuant to transaction
value, section 402(b) of the Tariff Act of 1930, as amended by
the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)).
FACTS:
The imported merchandise in protest no. XXXX-XXXX concerns
entry XXXX and was imported by Orit Imports Inc., while protest
no. XXXX concerns entry XXXX and this merchandise was imported by
Pegasus I Sportswear Inc., (hereinafter referred to collectively
as the "importer"). The export licenses for both entries
identify Lai Sun Garment Company Limited, (hereinafter referred
to as "Lai Sun"), as both the quota holder and exporter, with
other firms as the manufacturers. Lai Sun issued the commercial
invoices and received payment for the merchandise. Lai Sun
remitted payment for the merchandise to the manufacturers. Lai
Sun also issued the commercial invoices and received payment for
the quota.
Counsel for the importer alleged that the quota holders
(Redkifree or Lai Sun) involved in both protests, were neither
related to the manufacturers, nor the importers (or their agent,
Dutton II Trading Co.). Although no evidence was submitted
regarding this point, we have assumed for purposes of issuing
this decision that to be the case.
You also stated that importer's counsel alleged that the
transactions permitted Lai Sun to retain control of its quota by
acting as third party shipper. Counsel stated that the importer
dealt directly with the manufacturers who issued order
confirmations to the importer's related agent, Dutton. Counsel
indicated that Lai Sun was not involved in production details and
that the manufacturers retained title to the goods, bore
responsibility for any problems that arose and negotiated any
price adjustments. Finally, counsel contended that an export
license identifying one party as a manufacturer and another as
quota holder was sufficient evidence to determine the dutiability
or nondutiability of quota.
ISSUE:
Whether the evidence submitted establishes that quota
payments made by the importer or his agent are not part of the
"price actually paid or payable" for the imported merchandise.
LAW AND ANALYSIS:
Transaction value is defined in section 402(b) of the TAA as
the "price actually paid or payable for the merchandise when sold
for exportation to the United States," plus certain 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.
Your office contends that while Lai Sun did not manufacture
the merchandise, it nonetheless, functioned as the seller in
these transactions. Lai Sun prepared invoices, received payment
for both the merchandise and the quota and made a partial payment
to the manufacturer for the merchandise. Other than the export
licenses and a self-serving work sheet summary of the importer's
(or his agent's), the payment, services, purchase orders and
documents (such as the contract found in Exhibit L- between Lai
Sun and Dutton which identifies Lai Sun as the seller of
garments) establish the seller of the merchandise to be Lai Sun.
Your office concluded that Lai Sun's involvement in these
transactions was not limited to merely acting as a shipper for
purposes of providing quota, and therefore, the quota charges
paid to Lai Sun form part of appraised value.
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, Headquarters Ruling Letter (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. United States, Slip
Op. 89-1652, dated May 22, 1990. On the other hand, payments
made to an unrelated third party or to a governmental agency
would not be part of the "price actually paid or payable" for the
imported merchandise.
In HRL 544016, dated June 22, 1988 and its reconsideration,
HRL 544245, dated July 31, 1989, we held that the evidence
presented supported finding that Orit Imports Inc. and Pegasus I
Sportswear Inc. made payments for quota that were properly
excluded from the transaction value of the imported merchandise.
In that case, the importer's submission established that the
seller of the merchandise received from the importer's buying
agent an amount which corresponded with the purchase order with
respect to that merchandise. The quota summary sheet submitted
indicated that payment for quota was made to a party other than
the seller. Statements from the manufacturer confirmed receipt
of the price of the merchandise exclusive of quota.
Additionally, the quota broker submitted statements establishing
its role in the transaction.
While we do not agree with the importer in the instant case,
that a presumption of nondutiability exists when the export
license issued by Hong Kong indicates one party as a quota holder
and exporter of record and another as a manufacturer, the export
license does support the importer's position that the quota
payment was made to an unrelated third party. (See HRL 543913,
dated February 22, 1988) However, as our file does not contain
any submission from counsel regarding the protested entries, we
have no evidence confirming counsel's statement that Lai Sun was
merely a third party and never had title or bore risk of loss for
the imported merchandise. Lai Sun's involvement in these
transactions extended to their every aspect and was not limited
to merely acting as a third party shipper for purposes of
providing quota as the protestant asserts. Based on the evidence
available to us, we agree with your conclusion that Lai Sun
functions as the seller of the goods notwithstanding that he did
not manufacture them.
HOLDING:
In view of the foregoing, the available evidence and the
totality of the circumstances support your position that payments
for quota made to Lai Sun would be part of the "price actually
paid or payable" for the imported merchandise and forms part of
transaction value. The transaction is governed by the
proposition that if the payments are made to the seller, or a
party related to the seller, then they are included in the
transaction value of the merchandise. Here, the functions
performed by Lai Sun establish that while Lai Sun did not
manufacture the merchandise, it was nonetheless, the seller of
the imported merchandise.
Accordingly, you are directed to deny protest nos. XXX and
XXXX unless your office had documentation comparable to that
contained in HRL's 544016 and 544245. In such case, you are
directed to grant these protests. A copy of this decision should
be attached to Form 19, notice of action, to be sent to the
protestant.
Sincerely,
John Durant, Director