VAL CO:R:C:V 544866 CRS
Alan G. Lebowitz, Esq.
Grunfeld, Desiderio, Lebowitz & Silverman
12 East 49th Street
New York, NY 10017
RE: Dutiability of quota charges paid to an unrelated third
party; price actually paid or payable; HRL 544016; HRL 544245
Dear Mr. Lebowitz:
This is in reply to your letter dated November 25, 1991, on
behalf of ************************ (the "buyer"), concerning the
dutiability of quota charges. We regret the delay in responding.
FACTS:
The importer buys children's wearing apparel from various
foreign vendors, including several unrelated manufacturers in
Hong Kong. The importer is related to another company through
common ownership, which company in turn owns a Hong Kong buying
office, **************************** (the "agent"). As a result,
the buyer and the agent share a common owner who controls over
five percent of the stock of the two companies.
The agent contracts with unrelated Hong Kong manufacturers
for the production of children's apparel. On occasion the agent
supplies the necessary quota for the imported merchandise. In
these instances, the agent will charge the buyer at an amount
that approximates the prevailing market rate for quota. The
agent will also issue the buyer a commercial invoice in an amount
equal to the sum of the manufacturer's price plus the quota
charge. The manufacturer will also issue an invoice, directly to
the buyer, or through the agent, that reflects the f.o.b. price
of the imported merchandise. It is contemplated that the buyer
will open a letter of credit with the agent for the total of the
quota charges and the price of the merchandise. The agent will
in turn pay the manufacturer the f.o.b. price of the apparel.
The agent also performs the role of a traditional buying
agent, including sourcing, inspection and export facilitation.
The agent will not take title to the merchandise. You also state
that it may be assumed that the agent will not have an ownership
interest in any of the manufacturers that produce merchandise for
the buyer.
ISSUE:
The issue presented is whether quota charges paid by the
buyer to a third party unrelated to the seller, is part of the
transaction value of the imported merchandise.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised in
accordance with section 402 of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (19 U.S.C. 1401a; TAA).
The preferred method of appraisement is transaction value, which
is defined as "the price actually paid or payable for merchandise
when sold for exportation to the United States," plus certain
enumerated additions. 19 U.S.C. 1401a(b)(1)(A)-(E). The 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."
19 U.S.C. 1401a(b)(4)(A). For the purposes of this ruling 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. E.g., Headquarters Ruling Letter (HRL)
542169 dated 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 dated December 13, 1985.
However, there must be sufficient evidence to indicate that
the payments do not inure to the benefit of the seller. HRL
544016 dated June 22, 1988, aff'd by HRL 544245 dated July 31,
1989. In HRL 544016 we stated:
A quota summary sheet has been submitted indicating
that payment for quota was made to a party other than
the seller. Statements from the manufacturer
confirming receipt of the price of the merchandise
exclusive of quota...as well as statements from the
actual quota broker establishing its role in the
transaction were received.
Accordingly, evidence of this type, or any other documentation
that will substantiate the fact that payments to the agent do not
inure to the benefit of the seller should be submitted at the
time of entry.
HOLDING:
Quota payments made by the buyer to an agent are not part of
the price actually paid or payable for imported apparel provided
that evidence submitted at the time of importation indicates that
the payments do not inure to the benefit of the seller.
Sincerely,
John Durant, Director
Commercial Rulings Division