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HQ 544221


June 3, 1991
VAL CO:R:C:V 544221 ML

CATEGORY: VALUATION

Area Director
Newark, New Jersey 07114

RE: Application for Further Review of Protest Nos. XXXXX-XXX and XXX-XXXX Concerning the Dutiability of Quota Payments

Dear Sir:

These protests were filed against your appraisement decision in the liquidation of various entries made by Orit Imports Inc., and Pegasus I Sportswear Inc. The merchandise was manufactured in Hong Kong by various manufacturers. The protestant is disputing the dutiability of quota charges incurred by the importers. The merchandise was appraised 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 imported merchandise in protest no. XXXX-XXXX concerns entry XXXX and was imported by Orit Imports Inc., while protest no. XXXX concerns entry XXXX and this merchandise was imported by Pegasus I Sportswear Inc., (hereinafter referred to collectively as the "importer"). The export licenses for both entries identify Lai Sun Garment Company Limited, (hereinafter referred to as "Lai Sun"), as both the quota holder and exporter, with other firms as the manufacturers. Lai Sun issued the commercial invoices and received payment for the merchandise. Lai Sun remitted payment for the merchandise to the manufacturers. Lai Sun also issued the commercial invoices and received payment for the quota.

Counsel for the importer alleged that the quota holders (Redkifree or Lai Sun) involved in both protests, were neither related to the manufacturers, nor the importers (or their agent, Dutton II Trading Co.). Although no evidence was submitted regarding this point, we have assumed for purposes of issuing this decision that to be the case.

You also stated that importer's counsel alleged that the transactions permitted Lai Sun to retain control of its quota by acting as third party shipper. Counsel stated that the importer dealt directly with the manufacturers who issued order confirmations to the importer's related agent, Dutton. Counsel indicated that Lai Sun was not involved in production details and that the manufacturers retained title to the goods, bore responsibility for any problems that arose and negotiated any price adjustments. Finally, counsel contended that an export license identifying one party as a manufacturer and another as quota holder was sufficient evidence to determine the dutiability or nondutiability of quota.

ISSUE:

Whether the evidence submitted establishes that quota payments made by the importer or his agent are not part of the "price actually paid or payable" for the imported merchandise.

LAW AND ANALYSIS:

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 certain enumerated additions. The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as "the total payment (whether direct or indirect...) made, for the imported merchandise by the buyer to, or for the benefit of, the seller." There is no dispute that transaction value is the proper method of appraisement for the merchandise.

Your office contends that while Lai Sun did not manufacture the merchandise, it nonetheless, functioned as the seller in these transactions. Lai Sun prepared invoices, received payment for both the merchandise and the quota and made a partial payment to the manufacturer for the merchandise. Other than the export licenses and a self-serving work sheet summary of the importer's (or his agent's), the payment, services, purchase orders and documents (such as the contract found in Exhibit L- between Lai Sun and Dutton which identifies Lai Sun as the seller of garments) establish the seller of the merchandise to be Lai Sun. Your office concluded that Lai Sun's involvement in these transactions was not limited to merely acting as a shipper for purposes of providing quota, and therefore, the quota charges paid to Lai Sun form part of appraised value.

Customs has consistently held that in cases where quota payments are paid to the seller, or a party related to the seller, the amount of the payments is part of the total payment to the seller; and thus, is included in the transaction value of the merchandise. See, Headquarters Ruling Letter (HRL) 542169 (TAA#6), dated September 18, 1980; HRL 542150 (TAA#14), dated January 6, 1981; and HRL 543913, dated February 22,1988. The U.S. Court of Appeals for the Federal Circuit recently affirmed this position in Generra Sportswear Co. v. United States, Slip Op. 89-1652, dated May 22, 1990. On the other hand, payments made to an unrelated third party or to a governmental agency would not be part of the "price actually paid or payable" for the imported merchandise.

In HRL 544016, dated June 22, 1988 and its reconsideration, HRL 544245, dated July 31, 1989, we held that the evidence presented supported finding that Orit Imports Inc. and Pegasus I Sportswear Inc. made payments for quota that were properly excluded from the transaction value of the imported merchandise. In that case, the importer's submission established that the seller of the merchandise received from the importer's buying agent an amount which corresponded with the purchase order with respect to that merchandise. The quota summary sheet submitted indicated that payment for quota was made to a party other than the seller. Statements from the manufacturer confirmed receipt of the price of the merchandise exclusive of quota. Additionally, the quota broker submitted statements establishing its role in the transaction.

While we do not agree with the importer in the instant case, that a presumption of nondutiability exists when the export license issued by Hong Kong indicates one party as a quota holder and exporter of record and another as a manufacturer, the export license does support the importer's position that the quota payment was made to an unrelated third party. (See HRL 543913, dated February 22, 1988) However, as our file does not contain any submission from counsel regarding the protested entries, we have no evidence confirming counsel's statement that Lai Sun was merely a third party and never had title or bore risk of loss for the imported merchandise. Lai Sun's involvement in these transactions extended to their every aspect and was not limited to merely acting as a third party shipper for purposes of providing quota as the protestant asserts. Based on the evidence available to us, we agree with your conclusion that Lai Sun functions as the seller of the goods notwithstanding that he did not manufacture them.

HOLDING:

In view of the foregoing, the available evidence and the totality of the circumstances support your position that payments for quota made to Lai Sun would be part of the "price actually paid or payable" for the imported merchandise and forms part of transaction value. The transaction is governed by the proposition that if the payments are made to the seller, or a party related to the seller, then they are included in the transaction value of the merchandise. Here, the functions performed by Lai Sun establish that while Lai Sun did not manufacture the merchandise, it was nonetheless, the seller of the imported merchandise.

Accordingly, you are directed to deny protest nos. XXX and XXXX unless your office had documentation comparable to that contained in HRL's 544016 and 544245. In such case, you are directed to grant these protests. A copy of this decision should be attached to Form 19, notice of action, to be sent to the protestant.

Sincerely,

John Durant, Director

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