HQ 0544060 - Ruling Request Regarding Foreign - United States International Trade Commision Rulings

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HQ 544060

January 30, 1989

CLA-2 CO:R:C:V 544060 EK

CATEGORY: VALUATION

Steven H. Becker, Esq.
Coudert Brothers
200 Park Avenue
New York, New York 10166

RE: Ruling Request Regarding Foreign
Currency Exchange Options

Dear Mr. Becker:

This is in reference to your ruling request submitted on behalf of your client (hereinafter referred to as importer). For purposes of this ruling request, we are assuming that transaction value pursuant to 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)), is applicable as a method of appraisement. The importer is not related to the seller within the meaning of section 402(g) of the TAA.

FACTS:

The importer plans to import merchandise from an unrelated Hong Kong manufacturer. Japanese piece goods will be purchased by the manufacturer and used in producing the merchandise. The piece goods will be selected by the importer at the time the agreement is reached between the importer and the manufacturer for the purchase of the finished product. The agreement between the parties will indicate a price, in U.S. dollars, of the piece goods and will establish a fixed price to the importer for the finished merchandise. The agreement further provides that if at the time of the purchase of the piece goods there has been an increase to the seller necessary to purchase the piece goods, then the increased cost may be passed on to the importer.

In order to protect itself against an increase in the value of the yen as against the dollar, the importer intends to purchase foreign currency exchange options which permits the holder to buy, during a set period or specific date, a certain
amount of Japanese yen at a fixed U.S. dollar price. Upon purchase of these options, the importer has the choice of one of two alternative scenarios.

In this first situation, the importer will transfer the options to the seller pursuant to a written "exercise agreement" whereby the importer would, at the request of the seller, exercise the options by collecting from the seller and transmitting dollars to the bank. In return, the importer would obtain from the bank and transfer to the seller the amount of yen due under the options.

Regarding the second scenario, the importer omits the transfer of the options to the seller altogether. Rather, to the extent necessary to insure that the yen/dollar exchange rate remains fixed at the level necessary to guarantee the maintenance of the piece goods price, the importer exchanges with the manufacturer the yen that the importer collects by exercise of the options.

The agreement between the parties requires that the seller utilizes the options provided by the importer, and only to the extent that it will benefit the importer. Any unused options which are not utilized to obtain yen necessary to purchase the piece goods are returned to the importer, assuming the scenario in which the options are transferred to the seller.

ISSUE:

Whether the value of the foreign currency exchange options is included in the transaction value of the final imported merchandise.

LAW AND ANALYSIS:

As indicated above, we are assuming that transaction value pursuant to section 402(b) of the TAA is applicable in appraising the merchandise. Transaction value is defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States . . . " , plus certain enumerated amounts. See, section 402(b)(1) of the TAA. The term "price actually paid or payable" is specifically defined in section 402(b)(4)(A) as " . . . the total payment . . . made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

The foreign currency exchange options in question are not payments within the meaning of section 402(b)(4)(A) of the TAA. The options do not appear to benefit the seller of the merchandise. The only party which derives a benefit from the options is the buyer. The seller has agreed to accept the options from the buyer, or the benefit derived from the options in second scenario, and has further agreed to return any unused portion.

The options can not be characterized as assists since they do not fall within any of the enumerated items provided for in section 402(h)(1)(A)(i)-(iv). In TAA #20 (Headquarters Ruling No. 542412 dated March 27, 1983), we stated that if a cost is not specifically included within the assist definition, it will not be treated as an assist.

HOLDING:

The value of the foreign currency exchange options as described herein are not part of the transaction value for the imported merchandise.

Sincerely,

John Durant, Director,

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