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HQ 544482
August 7, 1990

VAL CO:R:C:V 544482 ML

CATEGORY: VALUATION

District Director
Los Angeles, California

RE: Application for Further Review of Protest

Dear Sir:

This protest was filed against your decision in the California, Inc., a distributor of --------- Vodka. The merchandise was appraised 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 ---------- Corporation is the exclusive importer of ---- ----- Vodka into the United States (hereinafter referred to as an unrelated party, is one of the importer's appointed distributors (hereinafter referred to as the "distributor"). The vodka was appraised at the invoice prices less an 8% discount from the FOB price which was allowed by the manufacturer as an advertising allowance. A minimum amount to be expended on advertising is specifically enumerated in the contract between the manufacturer and the importer. The importer claims the advertising allowance is a general expense of the manufacturer and as such, is includable in the price actually paid or payable for appraisement under transaction value. With the addition of an 8% advertising allowance, the imported vodka would qualify for a significantly lower duty rate.

The protestant is the distributor of the vodka for which the importer has exclusive rights to importation. The distributor paid $53.22 for the 80 proof 1 liter size and $42.25 for the 750ML size. All orders by the distributor were placed directly with the importer and not the manufacturer. Title and ownership rights were transferred to the distributor at FOB shipping point, with the distributor responsible for overseas insurance.

ISSUE:

Whether the manufacturer's advertising allowances are part of the price actually paid or payable for imported merchandise valued under transaction value?

LAW AND ANALYSIS:

The primary basis of appraisement is transaction value. Transaction value is defined as the "price actually paid or payable" for imported merchandise when sold for exportation to the United States, plus certain enumerated additions. This is more specifically defined in section 402(b)(4)(A) of the Trade Agreements Act of 1979, (TAA; 19 U.S.C. 1401a(B)(4)(A)), as the following:

The term "price actually paid or payable" means the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

The protestant argues that an advertising cost incurred by the importer is part of the "price actually paid or payable" for the imported merchandise. He argues that this cost was a general business expense of the manufacturer and was passed along to the importer as a condition of sale. We do not agree. Our position has consistently been that there is no authority under the above-cited definition to impute items to the "price actually paid or payable." An item is either part of the price or it is not. In this regard, section 152.103(a)(2), Customs Regulations (19 CFR 152.103(A)(2)), provides in relevant part:

"Activities such as advertising, undertaken by the buyer on his own account, other than those for which an adjustment is provided in section 152.103(b), will not be considered an indirect payment to the seller though they may benefit the seller. The costs of those activities will not be added to the price actually paid or payable in determining the customs value of the imported merchandise." (emphasis added)

Accordingly, no legal authority exists to treat these advertising expenses as part of the "price actually paid or payable" for the imported merchandise.

HOLDING:

In light of the foregoing, it is our conclusion that other than those items which are part of the "price actually paid or payable", no authority exists to make any additional inclusions to the cost of the merchandise.

You are directed to deny this protest. A copy of this decision should be attached to Form 19, Notice of Action, to be sent to the protestant.

Sincerely,

John Durant, Director
Commercial Rulings Division

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