HQ 0544082 - Decision on Application for Further Review of Protest Nos. 1001-6-007729, 1001-6-005758 - United States International Trade Commision Rulings

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HQ 544082

September 19, 1988

CLA-2 CO:R:C:V

CATEGORY: VALUATION

Area Director of Customs
JFK Airport Area
Jamaica, New York

RE: Decision on Application for Further Review of Protest Nos. 1001-6-007729, 1001-6-005758

Dear Sir:

This is in reference to the above-noted protests filed on behalf of (company name) (hereinafter referred to as importer), in connection with the appraisement of imported merchandise 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)).

FACTS:

The importer purchases wedding gowns from a manufacturer in Taiwan and imports them into the United States. With respect to the entries in question, the importer purchased fabric and trim and resold them to the manufacturer in Taiwan at a price less than that paid by the importer. The Taiwanese manufacturer then utilized the fabric and trim in producing the final imported product sold to the importer.

During the manufacturing process, it was discovered that a portion of the fabric was defective and could not be used to produce the finished garments. Therefore, the manufacturer charged the importer a "waste factor" which was approximately equal to five or ten percent of the actual fabric cost of the garments.

In addition, the manufacturer charged a financing fee to the importer. This was due to the large expenditure by the manufacturer for the purchase of the fabric and trim in advance of the manufacture and shipment of the final product. The importer states that it agreed to pay a 5% or 8% financing fee to the manufacturer.

ISSUES:

Whether the amount paid by the importer to the manufacturer to account for the defective fabric previously sold to the manufacturer by the importer is included in the "price actually paid or payable" for the final imported product.

Whether the financing fee charged by the manufacturer to the importer is to be included in the "price actually paid or payable" for the final imported product.

LAW AND ANALYSIS:

The preferred method of appraisement, 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 amounts equal to . . . the value, apportioned as appropriate, of any assist. . . .

The fabric provided to the manufacturer by the importer at a reduced cost is clearly encompassed by the definition of an assist which includes "materials, components, parts, and similar items incorporated in the imported merchandise." See, section 402(h)(1)(A)(iii) of the TAA. If the assist was acquired by the importer from an unrelated seller, the value of the assist is the cost of acquisition, including the transportation costs to the place of production.

It is important to note that the statutory language in section 402(h) of the TAA which requires that the assist be supplied by the buyer free of charge or at a reduced cost, is met by the mere fact that the buyer is paying for the expense incurred in transporting the assist to the place of production.

The importer states that since the defective fabric was discarded and never used by the manufacturer, it was not incorporated into the final imported product as required by the above definition of an assist. Headquarters Ruling No. 543093 dated April 30, 1984, states the following:

. . . components which are destroyed, scrapped, or lost, and which are not physically incorporated into the imported article are not assists under the TAA.

If this were the issue presented, we could agree that the discarded fabric does not constitute an assist since it is not incorporated into the final imported product. However, the Taiwanese manufacturer and the importer chose not to do business in this manner. Rather than claim an allowance with respect to the discarded fabric in determining the value of the assist, the manufacturer added an amount to the "price actually paid or payable" by the buyer. The manufacturer chose to recoup the loss of that fabric by adding a certain percentage to the price of the final imported product. The fee is merely a cost of doing business which the manufacturer included in their price to the buyer.

There is no authority in the TAA to exclude that amount from the "price actually paid or payable" from the buyer to, or for the benefit of, the seller.

Please note that section 402(b)(1) of the TAA provides that the price actually paid or payable for imported merchandise shall be increased to reflect the value of an assist only to the extent that such amount is not otherwise included in the price actually paid or payable. Therefore, if the manufacturer in this case is recouping the expense of the purchase of the fabric from the importer by adding that amount to the final price actually paid or payable, then this section applies and the value of the assist is not added to the price actually paid or payable since it is already included in the price paid. If this is the case, then the same analysis described above applies in concluding that the addition of the "waste factor" to the price actually paid or payable is proper, i.e., there is no authority in the TAA to deduct that cost from the price paid by the buyer.

The second issue involves the dutiability of the interest charges paid by the buyer to the Taiwanese manufacturer. With regard to this issue, T.D. 85-111 dated July 17, 1985, is pertinent. In that decision, Customs stated that interest payments, whether or not included in the price actually paid or payable for imported merchandise, should not be considered part of dutiable value provided the following criteria are satisfied:

(1) The interest charges are identified separately from the price actually paid or payable;

(2) The financing arrangement in question was made in writing;

(3) Where required by Customs, the buyer can demonstrate that
- the goods undergoing appraisement are actually sold at the price declared as the price actually paid or payable, and
- the claimed rate of interest does not exceed the level for such transaction prevailing in the country where, and at the time, when the financing was provided.

From the information that you have provided, there is nothing to indicate that any of the above criteria are not satisfied. It appears as if there is no dispute that the interest charges paid by the buyer are properly excluded from the transaction value of the imported merchandise.

HOLDING:

In view of the foregoing, the protests should be denied with respect to the issue regarding the inclusion of the "waste factor" in the price actually paid or payable. As indicated above, the fee is properly included in the price actually paid or payable.

The protests should be granted with respect to the issue regarding interest charges. The payments made by the buyer for the interest charges are not part of the price actually paid or payable.

A copy of this decision should be attached to the Form 19, Notice of Action, to be sent to the protestant.

Sincerely,

John Durant, Director,

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