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HQ 546584





September 10, 1997

RR:IT:VA 546584 KCC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
JFK Airport, Building #77
Jamaica, New York 11430

RE: Internal Advice 38/96; additions to and exclusions from the price actually paid or payable; ?402(b)(1) and (3); related parties; costs related to imported merchandise; HRLs 544638, 544482, 545157 and 544394; Chrysler Corporation v. United States; Generra Sportswear Co. v. United States

Dear Area Director:

This is in regard to your memorandum of October 30, 1996, under cover of which you forwarded a request for Internal Advice (IA 38/96), dated May 23, 1996, submitted by Coudert Brothers on behalf of Pochet of America, Inc., concerning whether certain payments constitute non-dutiable charges under ?402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. ?1401a). A memorandum from Chief, National Commodity Specialist Division, Branch 2 dated December 4, 1996, was taken into consideration in reaching this decision. We regret the delay in responding.

FACTS:

Pochet of America, Inc. ("Pochet") purchases and imports glass perfume bottles from a related foreign seller, Verreries Pochet et du Courval ("VPC"). Pochet S.A., the parent company of Pochet and VPC, obtained product liability insurance coverage in its name from Signa Insurance Company ("Signa"). The insurance policy covers product liability claims for perfume bottles imported into Canada and the United States. The cost of the insurance policy premium is 0.8% of the total sales value of the imported goods and is included in the CIF price paid by Pochet to VPC. Pochet S.A. then pays the premiums for the U.S. insurance policy to Signa. Although the insurance is obtained in the name of Pochet S.A., Pochet is an entity covered by the Policy.

ISSUE:

Whether the product liability insurance payments are part of the price actually paid or payable for the glass perfume bottles.

LAW AND ANALYSIS:

Merchandise imported into the United States is appraised in accordance with ?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 under the TAA is transaction value, defined as "the price actually paid or payable for merchandise when sold for exportation to the United States" plus the following statutory additions:

(A) the packing costs incurred by the buyer with respect to the imported merchandise;

(B) any selling commission incurred by the buyer with respect to the imported merchandise;

(C) the value, apportioned as appropriate, of any assist;

(D) any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States; and

(E) the proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.
is defined in ?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 from the country of exportation to the place of importation in the United States) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller.

Imported merchandise is appraised under transaction value only if the buyer and seller are not related, or if related, the transaction value is deemed to be acceptable. In this situation, Pochet and VPC are related pursuant to ?402(g)(1) of the TAA. related parties is acceptable only if an examination of the circumstances of the sale indicates that the relationship between the parties does not influence the price actually paid or payable, or the transaction value of imported merchandise closely approximates the transaction value of identical or similar merchandise in sales to unrelated buyers in the U.S. or the deductive or computed value for identical or similar merchandise. This ruling does not address the acceptability of transaction value.

Counsel for Pochet claims that the payments for product liability insurance should not be included in the price actually paid or payable because they do not represent one of the statutory additions to the price in ?402(b)(1) of the TAA. Citing Headquarters Ruling Letters (HRLs) 544638 dated July 1, 1991, and 544482 dated August 7, 1990, Counsel states that Customs has held that no authority exists to include expenditures in the price when they are not one of the specific statutory additions. HRL 544638 concerned whether U.S. costs for brand marketing paid by the buyer were to be added to the price actually paid or payable and HRL 544482 concerned whether advertising expenses incurred by the buyer were included in the price actually paid or payable. In both cases the advertising and marketing costs were not included in the price actually paid or payable. Additionally, both rulings hold that there is no legal authority to treat advertising and marketing expenses as part of the price actually paid or payable citing ?152.103(a)(2), Customs Regulations (19 CFR ?152.103(a)(2)) which provides in relevant part:

Activities such as advertising, undertaken by the buyer on his own account, other than those for which an adjustment is provided in ?152.103(b), will not be considered an indirect payment to the seller though they may benefit the seller. The costs of those activities will not be added to the price actually paid or payable in determining the customs value of the imported merchandise.

HRL 544638 and HRL 544482 are distinguishable from the present situation. First, 19 CFR ?152.103(a)(2) specifically provides that advertising and marketing expenses incurred by the buyer are not added to the price actually paid or payable, even if they indirectly benefit the seller. There is no statutory or regulatory provision for product liability insurance costs similar to 19 CFR ?152.103(a)(2). Additionally, the issues in HRLs 544638 and 544482 were whether advertising and marketing expenses were to be added to the price actually paid or payable. In this case, the product liability insurance payments are included in the CIF invoice price or price actually paid or payable.

In situations where a cost is included in the price actually paid or payable, we only have statutory authority to exclude:

(A) Any reasonable cost or charge that is incurred for -

(i) the construction, erection, assembly, or maintenance of, or the technical assistance provided with respect to, the merchandise after its importation into the United States; or
(ii) the transportation of the merchandise after such importation.

(B) The customs duties and other Federal taxes currently payable on the imported merchandise by reason of its importation, and any Federal excise tax on, or measured by the value of, such merchandise for which vendors in the United States are ordinarily liable.

The above costs are excluded only if they are separately identified from the price. ?402(b)(3) of the TAA. In this case, the product liability insurance payments are included in the price and we have no authority to exclude them from the price actually paid or payable. See also, HRLs 545157 dated December 21, 1993, and 544394 dated October 9, 1990, both of which held an amount for warranty costs which was included in the total payment transferred from the buyer to the seller in exchange for the imported merchandise is properly part of the price actually paid or payable, as there was no authority for excluding it from transaction value.

Additionally, Counsel states that the product liability insurance payments are unrelated to the imported merchandise and, therefore, should be excluded from dutiable value. Counsel cites Chrysler Corporation v. United States, 17 CIT 1049 (September 22, 1993), for the position that fees or payments which are independent and unrelated to the imported merchandise are not part of the price actually paid or payable. In Chrysler, 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. Therefore, the presumption that all payments made by a buyer to a seller, or a party related to the seller, are part of the price actually paid or payable, may be rebutted by evidence which clearly establishes that the payments are completely unrelated to the imported merchandise.

It is our position that the product liability insurance payments are unlike the fees in Chrysler. The product liability insurance payments are an integral part of the cost of the imported merchandise and as such are related to the imported glass perfume bottles. Each insurance payment is a percentage of the price paid for each glass container. The product liability insurance payments are not penalties as in Chrysler in which the payments were a contractual penalty for failure to purchase other goods and therefore were not related to the imported engines. We find that the payments for the product liability insurance attaches to and forms an integral part of the merchandise upon its importation. Thus, the payments are related to the imported merchandise.

Based on the above considerations, we find that the product liability insurance payments are part of the price actually paid or payable in determining transaction value of the imported glass perfume bottles.

HOLDING:

The product liability insurance payments should be included in the price actually paid or payable in determining transaction value of the imported glass perfume bottles.

This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date 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 the public via the Diskette Subscription Service, Freedom of Informational Act and other public access channels.

Sincerely,

Acting Director
International Trade Compliance

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