HQ 545663 - Inclusion of foreign warehousing costs within price actually paid or payable for merchandise; 19 U.S.C. 1401a(b); Generra Sportswear; Chrysler Corporation - United States International Trade Commision Rulings

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HQ 545663

July 14, 1995

VAL R:C:V 545663 LPF

CATEGORY: VALUATION

Leonard L. Rosenberg, Esq.
Sandler, Travis & Rosenberg, P.A.
5200 Blue Lagoon Drive
Miami, FL 33126-2022

RE: Inclusion of foreign warehousing costs within price actually paid or payable for merchandise; 19 U.S.C. 1401a(b); Generra Sportswear; Chrysler Corporation

Dear Mr. Rosenberg:

This is in response to your letters of January 14, 1994 (received by our office on June 2, 1994), December 2, 1994, and June 27, 1995, concerning the valuation of apparel imported from El Salvador. On April 3, 1995, you met with our office concerning the matter. We regret the delay in responding.

FACTS:

The importer, Intradeco, Inc., sends fabric to El Salvador for manufacturing into apparel. When the fabric and trim reach El Salvador, they are placed in a warehouse facility, located in the same commercial complex as the factory of production, where they are stored until the manufacturer is ready to move specific lots into production. The warehouse owner issues separate invoices to the importer that are paid separately from invoices issued by the manufacturer. If no warehouse costs are incurred, no money is paid to the warehouse owner. You contend that both transactions are independent of each other, that is, the costs for warehousing do not appear on the manufacturer's invoice and the costs of manufacture do not appear on the warehouse invoice.

When the factory needs a particular color of the bulk-produced fabric, and the in-factory supply has been exhausted, it sends an employee to the warehouse to obtain the additionally needed yard goods. You advise that the cost for this service is already contained within the price for production of the apparel articles. You add that although the extent of the importer's use of the warehouse may vary from time to time, this does not effect the price of the merchandise. The cost of transporting the goods to the warehouse, you explain, is included in the price the importer pays to the mill. You have submitted information indicating that warehousing costs in El Salvador range from $3.15 to $3.60 per square meter per month and that Intradeco pays $3.25 per square meter. You state that Intradeco does not pay the warehouse rent on a monthly basis depending upon, for instance, how much fabric is placed in the warehouse nor upon how many garments are produced annually, but rather pays the rent on an annual basis.

You explain that the importer is not related to either the manufacturer or the warehouse proprietor. Further, you provide that the transactions between the importer and the manufacturer as well as the importer and the warehouse are conducted at arms-length. However, you acknowledge that the manufacturer and warehouse proprietor are related in accordance with section 152.102(g), Customs Regulations (19 CFR 152.102(g)), because of common shareholders between the companies. You maintain that the factory and warehouse are two independently operated companies: one in the apparel production business and the other in the real estate business. Accordingly, the payments are made to separate legal entities, and you advise that the warehousing cost is not a requirement for the production of the goods or tied to the imported merchandise such that it must be deemed inseparable from the payments for the merchandise.

ISSUE:

Whether the foreign warehousing costs paid to the warehouse proprietor, who is related to the manufacturer/seller, are part of the price actually paid or payable for the imported merchandise.

LAW AND ANALYSIS:

The preferred method of appraisement is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus the enumerated statutory 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, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."

Two recent court cases have addressed the meaning of the term "price actually paid or payable." In Generra Sportswear Co. v. United States, 8 CAFC 132, 905 F.2d 377 (1990), the court considered whether quota charges paid to the seller on behalf of the buyer were part of the price actually paid or payable for the imported goods. In reversing the decision of the lower court, the appellate court held that the term "total payment" is all-inclusive and that "as long as the quota payment was made to the seller in exchange for merchandise sold for export to the United States, the payment properly may be included in transaction value, even if the payment represents something other than the per se value of the goods." The court also explained that it did not intend that Customs engage in extensive fact-finding to determine whether separate charges, all resulting in payments to the seller in connection with the purchase of imported merchandise, were for the merchandise or something else.

In Chrysler Corporation v. United States, Slip Op. 93-186 (Ct. Int'l Trade, decided September 22, 1993), the Court of International Trade applied the Generra standard and determined that although tooling expenses incurred for the production of the merchandise were part of the price actually paid or payable for the imported merchandise, certain shortfall and special application fees which the buyer paid to the seller were not a component of the price actually paid or payable. With regard to the latter fees, the court found that the evidence established that the fees were independent and unrelated costs assessed because the buyer failed to purchase other products from the seller and not a component of the price of the imported engines.

Accordingly, it has been our position that based on Generra, there is a presumption that all payments made by a buyer to a seller are part of the price actually paid or payable for the imported merchandise. However, this presumption may be rebutted by evidence which clearly establishes that the payments, like those in Chrysler, are completely unrelated to the imported merchandise.

It is Customs position that the Generra standard applies regardless whether payments are made directly to the seller or to a party related to the seller. This position is consistent with the definition of the "price actually paid or payable" as the total payment made directly or indirectly by the buyer to, or for the benefit of, the seller. In our opinion, payments to a party related to the seller represent indirect payments made to, or, at the very least, for the benefit of, the seller. We note that the same rebuttable presumption discussed above, that is, that such payments are part of the price actually paid or payable, would equally apply in such instances. For these reasons, numerous Customs decisions have recognized that payments made from the buyer to a party other than the seller, particularly to a party related to the seller, also may be included as part of the price actually paid or payable. See HRLs 542169, TAA No. 6, issued September 18, 1980; 542150, TAA No. 14, issued January 6, 1981; 544388, issued July 13, 1990; 544221, issued June 3, 1991; 544684, issued July 31, 1992; 557331, issued September 9, 1993; 544971, issued October 20, 1993; 544972, issued October 20, 1993; 544764, issued January 6, 1994; 545490, issued August 31, 1994; and 544694, issued February 14, 1995.

In HRL 544758, issued February 21, 1992, Customs addressed whether payments from the importer to an unrelated third party as well as to the seller (a foreign cut, make, and trim, or CMT, vendor) for pre-production warehouse strorage were part of the price actually paid or payable. In citing Generra, Customs found that in the instance when the importer paid the warehousing charges to the seller, but not to the unrelated third party, that the charges were part of the price actually paid or payable for the merchandise.

In this case, the warehousing fees are paid to a party related to the seller which "enable[s] Intradeco to have ready access to the material which is necessary to produce a garment just in time' (emphasis added)." You advise that, "the fact that these costs may be paid to an entity which is related to the entity that produces the garment should not ipso facto create a dutiable consequence." We agree and appreciate the fact that Customs should not take a "knee jerk" position concerning such matters. However, for the reasons discussed above, because sufficient information has not been presented to rebut the presumption that such payments are part of the price, Customs will consider the payments as part of the total payment for the goods and therefore, by statute, part of the dutiable value of the merchandise.

You believe that, "in the absence of information or evidence that part of the payment actually inures to the benefit of the seller as a legal entity . . . Customs should not make payments to the owner of the warehouse dutiable." However, in our opinion, such a statement overlooks the position taken by the Generra court, to wit, that Customs not engage in extensive fact finding in regard to such matters. We reiterate that the presentation of evidence by an importer or their counsel rebutting the assertion that a payment was made to or for the seller's benefit in exchange for merchandise sold for export, rather than an absence of such information, would enable Customs to find such payments non-dutiable.

Although you cite HRL 544323, issued March 8, 1990, in support of your position, we find the factual scenario addressed in that decision distinguishable from that involved in the present matter. Particularly, we note that in HRL 544323, the importer actually provided the foreign warehousing for the materials (i.e., fabric, yarn, thread, etc.) upon their arrival at the manufacturer's plant. In HRL 544323, no payments were made from the buyer/importer to the seller or a party related to the seller for such services, as is the case in the instant matter.

HOLDING:

Based on the information provided, the fees paid to the warehouse proprietor, a party related to the manufacturer/seller, are part of the price actually paid or payable for the imported merchandise.

Sincerely,

John Durant, Director
Commercial Rulings Division

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