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HQ 544121

June 24, 1988

CLA-2 CO:R:C:V 544121 EK

CATEGORY: VALUATION

District Director of Customs
El Paso, Texas

RE: Internal Advice Request

Dear Sir:

This is in response to your request for internal advice initiated by a certain company (hereinafter referred to as importer), regarding the dutiability of a payment made by the importer to the unrelated foreign assembler for failing to purchase a minimum quantity of merchandise. The merchandise was entered 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 importer entered into an agreement with a foreign assembler for the production of jackets. The price per jacket was determined to be $1.80. The importer further agreed to purchase 340,000 units during a one year period. The agreement stated that if the importer failed to fulfill their commitment of 340,000 jackets, the importer must pay the assembler $1.50 per unit below the agreed amount.

At the end of the contractual period, the importer fell short of its required minimum and became obligated to pay the penalty.

For purposes of this internal advice request, we are presuming that the payment at issue is not a pre-payment for subsequent shipments of merchandise imported by the buyer.

ISSUE:

Whether the payment made by the importer to the assembler for failing to purchase a required minimum is included in the transaction value of imported merchandise.

LAW AND ANALYSIS:

The primary basis of appraisement, transaction value, is defined as the "price actually paid or payable for the imported merchandise when sold for exportation to the United States." In addition, section 402(b)(1)(A-E) of the TAA enumerates certain items which are added to the price actually paid or payable.

In Headquarters Ruling No. 543445 dated October 23, 1985, a similar payment as that described above was made by the importer to the seller of the merchandise. In that case, however, the agreement between the parties provided that if the buyer failed to purchase a specified minimum quantity within a given year, an added compensation became due. This payment was in addition to the base selling price of the product. In that case, the term base selling price was not a firm price but rather, it was subject to adjustments such as the additional amount owed in the event the minimum quantity was not purchased. The agreement provided that the final unit purchase price for merchandise purchased and imported was not determined until the quantity actually purchased during the year was known.

In Headquarters Ruling No. 543770 dated February 10, 1987, a charge for termination of a contract with no importation of merchandise resulting was held to be excluded from transaction value.

In the instant case, it is alleged that the price agreed to between the parties is fixed and was not determined based upon the quantity purchased. The additional $1.50 per unit represents a payment made for merchandise which was not ordered and not manufactured.

HOLDING:

In view of the foregoing, it is our conclusion that the additional payment made cannot be construed as part of the price actually paid or payable for merchandise previously imported into
the United States. The payments are not encompassed by any of the items set forth in section 402(b)(1) of the TAA which are to be added to the price actually paid or payable.

Sincerely,

John Durant, Director
Commercial Rulings Division

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