HQ 545927 - AFR of Protest No. 1001-3-104301; dutiability of quota charges; Generra; T.D. 86-56; visaed invoices - United States International Trade Commision Rulings

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HQ 545927

January 30, 1996

VAL RR:IT:VA 545927 CRS

CATEGORY: VALUATION

Area Director
U.S. Customs Service
JFK International Airport
Building #77
Jamaica, NY 11430

RE: AFR of Protest No. 1001-3-104301; dutiability of quota charges; Generra; T.D. 86-56; visaed invoices

Dear Sir:

This is in reply to an application for further review of the above-referenced protest, filed by counsel Sandler, Travis & Rosenberg on behalf of Van Mar, Inc. (the "protestant"). Counsel replied to your CF-28 request for information of August 8, 1993, by letter dated September 29, 1993. Members of my staff, a representative from the Office of Strategic Trade and the concerned import specialist met with counsel regarding this matter on October 13, 1995. Counsel subsequently filed an additional submission under cover of a letter dated November 29, 1995.

FACTS:

Through its agent, International Fashion of Hong Kong, protestant contracted with Ka Wo Garments Company, a Hong Kong supplier, for 1,000 dozen women's woven briefs. The goods were manufactured in the People's Republic of China (PRC) at a factory owned by Ka Wo and were imported into the U.S. through JFK International Airport. In connection with this transaction, protestant purchased fabric and provided it free of charge it to the manufacturer in the PRC for use in the production of the imported merchandise. The imported briefs were made from 65 percent nylon, 35 percent polyester, and were subject to quota/visa category 652.

Ka Wo produced the briefs on a CMT basis. However, since Ka Wo did not have access to requisite quota category, this element of the transaction had to be obtained from another source. Accordingly, International Fashion purchased category 652 quota from Mr. Liew Hun Hieng, a Hong Kong broker, and the owner of Tai Hing Garment Factory.

Protestant paid for the imported merchandise, including the cost of quota, by wire transfer to International Fashion. In turn, International Fashion paid Ka Wo for the goods and Mr. Liew, through Tai Hing Garment Factory, for the quota. The file contains a copy of the invoice from International Fashion to the protestant, as well as copies of an invoice and a receipt from Ka Wo to International Fashion for the cost of the goods, and an invoice and a receipt from Tai Hing to International Fashion for the cost of quota.

In addition, the file contains a copy of the textile export license, or visaed invoice, pertaining to the protested entry. The invoice, no. 438178 dated November 11, 1992, stamped by the Guangdong branch of the Ministry of Foreign Economic Relations and Trade (MOFERT), identifies the protestant as the consignee and Guangdong Silk Import & Export Corporation as the exporter, and describes the merchandise as 1,000 dozen "ladies 65% nylon, 35% polyester woven briefs (underwear)." The unit price ($11.00) and total price ($11,000.00) stated on the visaed invoice correspond with the unit prices and total price reflected on the invoice from International Fashion to the protestant. The commercial invoices indicate that the price of the merchandise included the cost of quota ($3,000.00).

Protestant contends that because category 652 quota was purchased by the buyer from an unrelated third party, the appraised value of the imported merchandise should exclude the cost of quota. However, your office disagrees, maintaining instead that, based on the documentation submitted, the cost of quota should be included in the appraised value of the imported merchandise. Accordingly, in addition to the documentation submitted by the protestant, you requested copies of the certain documents underlying the quota transaction. Included in your request were: the signed contract validated by the China Textile and Silk Garment Import/Export Commercial Association (the "Textile Association"); documentation related to the payment of the processing fee to the Textile Association; the winning tender application form; and the validated textile tender quota notification form. These documents were not submitted.

ISSUE:

The issue presented is whether, based on evidence that quota payments are included in the visaed invoice price, there is any authority for treating these amounts other than as part of the price actually paid or payable for the imported merchandise.

LAW AND ANALYSIS:

Initially, we note that the protest and application for further review was timely filed under the statutory and regulatory provisions for protests (19 U.S.C. ? 1514; 19 C.F.R. pt. 174). We also note that the issue protested is a protestable issue (19 U.S.C. ? 1514).

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 (TAA; 19 U.S.C. ? 1401a). 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 to the extent not already included, certain enumerated additions to the price actually paid or payable. 19 U.S.C. ? 1401a(b)(1). However, imported merchandise is appraised under transaction value only if, inter alia, the buyer and seller are not related, or if related, transaction value is found to be acceptable. 19 U.S.C. ? 1401a(b)(2)(A)-(B). In the instant case, the information submitted indicates that the buyer and seller are unrelated and, consequently, we have assumed for purposes of this decision that transaction value is the appropriate basis of appraisement.

Protestant contends that quota charges paid to acquire the requisite quota/visa category should not be considered part of the price actually paid or payable for the imported merchandise because they were paid to an unrelated third party rather than the seller of the merchandise. Pursuant to section 402(b)(4) of the TAA, the term "price actually paid or payable" is defined as "the total payment (whether direct or indirect . . .) made, for imported merchandise by the buyer to, or for the benefit of, the seller." 19 U.S.C. ? 1401a(b)(4)(A). In Generra, the court held in regard to quota payments that:

[a]s long as the . . . 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 focus of transaction value is the actual transaction between the buyer and seller . . . .

905 F.2d at 380. Moreover, the court stated that foreign sellers must obtain quota before they can export their merchandise. Id. at 380. Under Generra, it is Customs' position that all payments to a seller are part of the price actually paid or payable for imported merchandise. E.g., HRL 544640 dated April 26, 1991.

When quota payments are made to third parties unrelated to the seller of the imported merchandise, however, Customs has held that the payments are not included in transaction value as part of the price actually paid or payable. E.g., Headquarters Ruling Letter (HRL) 542169, dated September 18, 1980 (TAA No. 6); HRL 543540, dated June 12, 1985. On this basis the protestant maintains that since it acquired quota from a third party unrelated to the seller, the amount of the payment should not be considered part of the price actually paid or payable. However, regardless to whom the quota payment was made, the documentation submitted in the instant case, specifically, the visaed invoice, indicates that the cost of quota was included in the price of the imported merchandise when it was sold for exportation to the U.S. This conclusion is supported by the Chinese governments quota regulations.

The regulations which govern all Chinese quota transactions are issued and administered by the China Textile and Silk Garment Import/Export Commercial Association (the "Textile Association") on behalf of the Ministry of Foreign Economic Relations and Trade (MOFERT), the agency responsible for negotiating trade policy and quota category restraints on behalf of the Chinese government. In accordance with the regulations, designated quota categories are annually opened for public tender; however, only export firms that are members of the Textile Association and are authorized by MOFERT to export textiles and apparel may submit tenders for quota categories. In order to submit a bid for quota, firms are required to submit a standard tender application form stating, inter alia, the classification, quota category, quantity, and export price of the goods. Article 7 of the regulations provides further that successful tenderers must sign a formal business contract with their foreign clients within three months of the opening of tender date. The price specified in the contract may equal or exceed the bidding price, but cannot be less than the bidding price. The China Textile and Silk Garment Import/Export Commercial Association, 1990 Textile Quota Tenders Regulations, art. 7 (John Hu, trans.). Once a tender contract is awarded, its provisions may not be altered.

Under cover of your CF 28 of August 18, 1993, you requested certain additional information regarding the quota aspects of the protested entry in consideration of protestant's contention that the quota payment was not part of the price actually paid or payable for the imported merchandise. In particular, you requested copies of the following documents that are required under the Textile Association regulations: the signed contract validated by the Textile Association; documentation related to the payment of the processing fee; the winning tender application form; and the validated textile tender quota notification form. However, the protestant was unable to provide this information.

Nevertheless, the visaed invoice itself unambiguously reflects the fact that the Textile Association awarded quota and granted export approval for the imported category 652 merchandise on the basis of price of a price of $11,000.00. This price included the cost of quota. Accordingly, it is our position, based on the evidence submitted, in particular, the visaed invoice, that the quota charges at issue are part of the price actually paid or payable for the imported merchandise.

HOLDING:

The protest should be denied in full. Based on the evidence presented, the quota payments at issue are part of the price actually paid or payable for the imported merchandise and are therefore included in transaction value.

In accordance with section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to the mailing of the decision. Sixty days from the date of this letter the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access channels.

Sincerely,

Acting Director
International Trade Compliance Division

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