HQ 544866 - Dutiability of quota charges paid to an unrelated third party; price actually paid or payable; HRL 544016; HRL 544245 - United States International Trade Commision Rulings

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HQ 544866

September 29, 1993

VAL CO:R:C:V 544866 CRS

CATEGORY: VALUATION

Alan G. Lebowitz, Esq.
Grunfeld, Desiderio, Lebowitz & Silverman 12 East 49th Street
New York, NY 10017

RE: Dutiability of quota charges paid to an unrelated third party; price actually paid or payable; HRL 544016; HRL 544245

Dear Mr. Lebowitz:

This is in reply to your letter dated November 25, 1991, on dutiability of quota charges. We regret the delay in responding.

FACTS:

The importer buys children's wearing apparel from various foreign vendors, including several unrelated manufacturers in Hong Kong. The importer is related to another company through common ownership, which company in turn owns a Hong Kong buying the buyer and the agent share a common owner who controls over five percent of the stock of the two companies.

The agent contracts with unrelated Hong Kong manufacturers for the production of children's apparel. On occasion the agent supplies the necessary quota for the imported merchandise. In these instances, the agent will charge the buyer at an amount that approximates the prevailing market rate for quota. The agent will also issue the buyer a commercial invoice in an amount equal to the sum of the manufacturer's price plus the quota charge. The manufacturer will also issue an invoice, directly to the buyer, or through the agent, that reflects the f.o.b. price of the imported merchandise. It is contemplated that the buyer will open a letter of credit with the agent for the total of the quota charges and the price of the merchandise. The agent will in turn pay the manufacturer the f.o.b. price of the apparel.

The agent also performs the role of a traditional buying agent, including sourcing, inspection and export facilitation. The agent will not take title to the merchandise. You also state that it may be assumed that the agent will not have an ownership interest in any of the manufacturers that produce merchandise for the buyer.

ISSUE:

The issue presented is whether quota charges paid by the buyer to a third party unrelated to the seller, is part of the transaction value of the imported merchandise.

LAW AND ANALYSIS:

Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. ? 1401a; TAA). The preferred method of appraisement is transaction value, which is defined as "the price actually paid or payable for merchandise when sold for exportation to the United States," plus certain enumerated additions. 19 U.S.C. ? 1401a(b)(1)(A)-(E). The price actually paid or payable is defined as "the total payment (whether direct or indirect...) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller." 19 U.S.C. ? 1401a(b)(4)(A). For the purposes of this ruling we have assumed that transaction value is the appropriate basis of appraisement.

Customs has held that quota payments made by the buyer to a third party unrelated to the seller are not part of the price actually paid or payable. E.g., Headquarters Ruling Letter (HRL) 542169 dated September 18, 1980 (TAA No. 6). Quota charges paid by the buyer to an agent are not part of the price actually paid or payable so long as the payments are not remitted, directly or indirectly, to the seller. HRL 543655 dated December 13, 1985. However, there must be sufficient evidence to indicate that the payments do not inure to the benefit of the seller. HRL 544016 dated June 22, 1988, aff'd by HRL 544245 dated July 31, 1989. In HRL 544016 we stated:

A quota summary sheet has been submitted indicating that payment for quota was made to a party other than the seller. Statements from the manufacturer confirming receipt of the price of the merchandise exclusive of quota...as well as statements from the actual quota broker establishing its role in the transaction were received.

Accordingly, evidence of this type, or any other documentation that will substantiate the fact that payments to the agent do not inure to the benefit of the seller should be submitted at the time of entry.

HOLDING:

Quota payments made by the buyer to an agent are not part of the price actually paid or payable for imported apparel provided that evidence submitted at the time of importation indicates that the payments do not inure to the benefit of the seller.

Sincerely,

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