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HQ 544317

April 24, 1990

VAL CO:R:C:V 544317 DHS

CATEGORY: VALUATION

Robert L. Eisen, Esq.
Coudert Brothers
200 Park Avenue
New York, New York 10166

RE: Payments for the purchase of samples; 19 U.S.C. 1401a(b)

Dear Mr. Eisen:

This is in reply to your letter of March 6, 1989, regarding the effect of 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)), on certain payments contemplated to be made by Bonaventure (U.S.A.) Inc. to Bonaventure Textiles, a related Hong Kong manufacturer, for the maintenance and operation of a sample room in which samples are produced and then mutilated prior to the importation into the U.S. We regret the delay in responding.

FACTS:

You state that the importer purchases finished garments for retail sale in the U.S. from Company A, a related company, in Hong Kong. Company A is a supplier of wearing apparel manufactured by Company B. Company B is also related to the importer and located in Hong Kong.

The importer, however, obtains directly from the manufacturer a substantial number of mutilated samples solely for the purpose of soliciting orders. In order to produce samples desired by the importer, the importer provides the manufacturer with conceptual design sketches undertaken in the U.S. which illustrate desired styling effects and specifications. Actual samples are occasionally provided by the importer.

Mutilated prototype samples are shipped to the importer in mutilated condition for approval. Once approved, the importer instructs the manufacturer to produce additional samples of the prototypes in various colors in order that the importer can solicit orders.

You state that in the past, both the prototype and the modified samples were shipped to the importer in mutilated condition, and at no charge. These samples therefore, were entered in 1988 duty-free under item 860.30, Tariff Schedules of the United States (TSUS).

The manufacturer is now requesting that the importer reimburse it for the actual cost of the samples produced in 1988. It further indicates that, in the future, it would like to be reimbursed for samples on an annual basis. You state that the price charged for the samples is to be based on the following formula:

Total Cost of
Producing the Samples x Number of Samples Shipped Number of Samples to the Importer
Produced

You state that the prices to be charged for the samples will be higher than the prices charged for production merchandise, because the samples are more expensive to produce. Furthermore, the payments for the samples will have no effect on the prices established for production of goods which will be eventually imported into the U.S. The value of the samples as determined by the manufacturer based on actual costs of production, will be indicated on the commercial invoices accompanying each shipment.

Notwithstanding the possible duty-free classification of the imported merchandise, the question presented must be addressed with the presumption that all imported merchandise (including samples) must be appraised. See 19 U.S.C. 1500. Accordingly, we have approached the question presented as whether a lump-sum payment made at the end of the year which equals the amount set forth in all the commercial invoices for the year negates the amount set forth on the commercial invoice for each shipment.

ISSUE:

Whether a lump-sum payment made on an annual basis which totals the value set forth on the invoices for the individual shipments of samples made during the year negates the amount set forth on the commercial invoice for each shipment?

LAW AND ANALYSIS:

We have assumed, without deciding for purposes of this response, that the imported mutilated samples are entitled to classification under subheading 9811.00.60, of the Harmonized Tariff Schedule of the United States (HTSUS); the successor provision to item 860.30, TSUS.

As provided in section 402b of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979, (TAA: 19 U.S.C. 1401a(b)), the primary basis of appraisement is transaction value. Transaction value is defined as the "price actually paid or payable" for merchandise when sold for exportation to the United States. The term "price actually paid or payable" is defined as the following:

The term "price actually paid or payable" means the total payment ... made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

Section 152.103(a)(1) of the Customs Regulations (19 CFR 152.103(a)(1)), provides that the "price actually paid or payable":

...will be considered without regard to its method of derivation. It may be the result of discounts, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market. The word "payable" refers to a situation in which the price has been agreed upon, but actual payment has not been made at the time of importation. . . .

It is not required that the final sales price for the imported merchandise be quantified at the time of importation. In situations in which the price actually paid or payable is determined pursuant to a formula, a firm price need not be known or ascertainable at the time of importation, although it is necessary for the formula to be fixed at that time so that a final sales price can be determined at a later time on the basis of some future event or occurrence over which neither the seller nor the buyer has any control.

As long as the amounts reimbursed on an annual basis equals the sum of the invoices for the individual shipments we are of the opinion that this situation falls within section 152.103(a)(1). We hold this opinion since the price for the individual shipments of samples has been agreed upon at the time of importation even though the actual payment has not been made.

It should be noted that transaction value would not apply to this situation if the sale of, or the price actually paid or payable for, the imported samples is subject to any condition or consideration for which a value cannot be determined with respect to these samples. See, section 402(b)(2)(A)(ii) of the TAA. This point is brought to your attention because on the basis of the information furnished, we are unable to ascertain whether there is a tie-in between the sale of the samples and the garments to be imported.

This determination does not affect the appraisement of the imported garments represented by these samples. Further, we offer no opinion on whether the relationship between the parties has affected the price actually paid or payable within the meaning of section 402(b)(2)(B) for either the samples or the imported garments.

HOLDING:

Based upon the foregoing, we conclude that the amount to be paid on an annual basis which totals the value set forth on the invoices for all the individual shipments of samples during the year represents the transaction value of the imported samples.

Sincerely,

Jerry Laderberg
Acting Director

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