RR:IT:VA 547140 RC
Mr. Michael McKenna
Expeditors Consulting Services, LLC
999 Third Street, Suite 4401
Seattle, Washington 98104
RE: Price actually paid or payable; quota charges
Dear Mr. McKenna:
This is in response to your letter dated July 21, 1998, on behalf of your client, XXXXX (importer), requesting a prospective ruling regarding the inclusion of quota charges in the transaction value of imported wearing apparel. Our response incorporates additional information disclosed by your staff in telephone conversations on August 10, and September 3, 1998. Your request for confidential treatment of certain information identified in your request has been granted. Accordingly, the highlighted information will be deleted from the public version of this ruling.
FACTS:
The importer intends to purchase its quota merchandise from YYYYY, a Cayman Island trading company (seller). The seller takes orders from the importer, translates the product information, and communicates it to the factory in China. In addition, the seller arranges for the purchase of fabric and trim for the factory. The seller invoices the importer one FOB price which includes the cost of the fabric and trim, factory labor, overhead, and profit. The importer and the seller are unrelated parties, and transaction value is the method of appraisement for these transactions.
The importer will purchase quota for the merchandise directly from a quota broker. The seller will provide the importer with information on the market price of quota as well as actual price quotes from various quota brokers. The importer will approve a price quote and subsequently receive an invoice from the quota broker. The quota broker will assign the quota allocation to the seller, who will serve as the importer’s designated exporter. The importer will pay the quota broker for the cost of the quota via wire transfer.
The importer, the seller, the factory, and the quota broker are all unrelated parties. Notwithstanding, the seller does have some limited involvement in the quota transaction between the importer and the quota broker. The seller is responsible for supplying the importer with information on the market price of quota, and provides the importer with verbal price quotes for
quota from quota brokers. However, the seller is not compensated for these activities by the quota broker. The importer does pay the seller for its role in coordinating the quota transaction, but this payment is separate and apart from the payment for actual quota. For purposes of this decision, we assume that this payment to the seller is part of the price actually paid or payable for the imported merchandise.
The submitted pro forma documents consist of a purchase order, #4020, from the importer to the seller; a corresponding invoice, referring to purchase order #4020, from the seller to the importer; a purchase order for quota, referencing purchase order #4020Q, from the importer to a quota broker; a corresponding quota invoice, referencing purchase order #4020Q, from the quota broker to the importer; a letter of credit, in the amount specified on the corresponding quota invoice, drawn on the importer to benefit the quota broker; an affidavit to be signed by a representative of the seller attesting to the company’s role as the “seller” of the merchandise covered by a given invoice, that the invoice unit price does not include an amount for export quota charges, and that as the seller, the company has not and will not receive any payment for quota charges for the merchandise covered by said invoice from the importer or any other party; an affidavit to be signed by a representative of the quota broker attesting to the company’s receipt of payment for quota in a specified amount covered by a given invoice and that the quota broker has not and will not remit any portion of the quota payment to the named seller of the merchandise covered by said invoice.
The importer proposes to submit, at the time of entry, a quota charge statement from the seller verifying that it has not received payment for quota and will not receive such payment. In addition, the importer will submit a statement from the quota broker verifying that it has received payment for quota and that it will not remit any portion to the seller.
ISSUE:
Whether, under the facts presented, the quota charges paid to a third party unrelated to the seller should be included in the transaction value of the imported merchandise.
LAW AND ANALYSIS:
As you know 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 (TAA: 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation for the United States,” plus certain enumerated additions. For purposes of determining transaction value in appraising imported merchandise, a sale for exportation to the United States must take place at some unspecified time prior to the exportation of the goods.
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. See, HRL 545015, dated August 3, 1993; HRL 544866, dated September 29, 1993; HRL 544435, dated October 9, 1990; HRL 543655, dated December 13, 1985.
In the above contemplated transactions, the importer enters into an arrangement for the purchase of quota with an unrelated third party quota broker. The quota broker invoices the importer for the cost of the quota, and the importer remits the full payment for the quota to the quota broker. The importer makes payments for the quota purchase directly to said quota broker via wire transfer. You indicate that the importer does not make any payment to the seller for the cost of quota, and the quota broker does not remit any portion of the quota payments to the seller. You also indicate that the quota broker does not make payments to the seller in any form. Based on these representations and assuming the Cayman Island company is the seller, it appears that no portion of the quota payment accrues to the seller, either directly or indirectly.
At the time of entry, there must be sufficient documentation to indicate that the quota payments that do not inure to the benefit of the seller. See, HRL 544866, dated September 29, 1993; HRL 544016, dated June 22, 1988, aff’d by HRL 544245, dated July 31, 1989. Although the submitted pro forma invoices are consistent with your claim that the Cayman Island company is the seller, we note that the submitted documents do not include the factory and visaed invoices. Without these important transaction documents, along with actual transaction documents, we cannot make a definite finding concerning who is the seller in the described transactions and thus, whether the quota payments made to the quota broker are not dutiable. Assuming that the actual transaction documents, including the factory and visaed invoices support a finding that the Cayman Island company is the seller and that the quota payments do not inure to the seller, then the quota payments are not part of the price actually paid or payable. As indicated above, payments to the seller for its role in coordinating the quota transaction are assumed to be part of the price actually paid or payable of the imported merchandise.
This ruling applies only to the importation of wearing apparel from China, pursuant to the pro forma transaction documents submitted.
HOLDING:
If the actual transaction documents support the facts alleged in this ruling, then the quota charges at issue are not included in the transaction value of the imported merchandise.
Sincerely,
Acting Director
International Trade Compliance Division