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HQ 546701

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December 2, 1999

VAL RR:IT:VA 546701 CRS

CATEGORY: VALUATION

Port Director
U.S. Customs Service
6747 Engle Road
Middleburg Heights, OH 441130

RE: AFR of protest no. 4103-96-1121; quota charges

Dear Sir:

This is in reply to an application for further review of protest no. 4103-96-1121, dated March 7, 1996, submitted by counsel Grunfeld, Desiderio, Lebowitz & Silverman on behalf of the protestant and importer of record, Value City Imports (the Aprotestant@), a division of Schottenstein Stores Corp. An additional submission was made under cover of a letter dated March 26, 1999. We regret the delay in responding.

FACTS:

The protested entries concern a shipment of men=s 65 percent polyester, 35 percent cotton knitted shirts imported from the People=s Republic of China. The shirts were manufactured by Jiangshu Knitting Clothes Mill/Meihua Knitting Co. Ltd., of Shanghai, with the exception of 1,098 dozen which were manufactured by Shen Zhen Di Ye Knitters Co. Ltd. In addition to the protestant and the manufacturer, three other parties were involved in the transaction: China Welfare Enterprise East China Import & Export Corporation, a seller in the People=s Republic; Real Honest Co., a Hong Kong quota broker; and Catapult/WCI Holdings, Inc., a purported buying agent.

Protestant asserts that it purchased the imported merchandise from China Welfare and that Catapult acted as its buying agent in the transaction. To this end, Catapult contracted with Jiangshu/Meihua for the purchase and manufacture of the shirts and, in a separate transaction, purchased 6,135 dozen units of quota category 638/639 from Real Honest. Protestant wired funds to Catapult for the goods and quota and Catapult, in turn, paid China Welfare and Real Honest. Based on the information presented, Real Honest is not related to China Welfare.

Two commercial invoices were included in the entry package submitted at the time of importation. The first invoice is from China Welfare to Catapult, and totals $333,867.60; the second, is from Catapult to the protestant and totals $451,721.40. Protestant submits that the first invoice (CWEE/INV215 dated July 3, 1995) documents the sale between itself and China Welfare and represents the price it paid for the imported shirts. Protestant submits that the second invoice (Catapult invoice no.1160, dated July 31, 1995), does not reflect a sale between the protestant and its agent, Catapult, but is merely a statement of Value City=s total cost in the transaction. The difference between the two invoice amounts, $117,853.80, relates to quota charges paid through Catapult to Real Honest Co. Both invoices refer to the original Value City purchase orders. Invoice no. 1160 also bears a typewritten notation indicating that price tickets valued at $0.16 per dozen were supplied by the importer free of charge.

The imported merchandise was appraised under the transaction value method on the basis of the total amount paid per invoice 1160 by the protestant to Catapult, i.e., $451,721.40, plus an addition for the value of the price tickets. As noted above, protestant contends that this amount includes quota charges of $117,853.80 and that these charges are not dutiable because they were paid to a third party unrelated to the seller of the goods. Protestant maintains that the imported merchandise should be appraised as entered, i.e., on the basis of the price paid by Value City, though its agent, Catapult, to China Welfare, which price does not include the amount of the quota payment.

In support of this view protestant has submitted the following: packing lists; visaed invoices; signed statements from the manufacturer and Real Honest acknowledging, respectively, receipt of payment for the goods and for quota; invoices from Real Honest to Catapult for the quota; copies of wire transfer requests from Catapult to its bank, Intercontinental Bank, Miami, requesting that payment be made to China Welfare and to the account of Mr. Lan Lam, of Real Honest Co., at the Hang Sen Bank, Hong Kong; and copies of payment advices from Intercontinental in favor of China Welfare and Mr. Lan Lam.

The statement from Jiangshu/Meihua, acknowledges receipt of payment for the imported merchandise in the amount of $333,867.60. The statement from the quota broker acknowledges receipt of payments for the quota in the amount of $75,753.00 and 42,100.80. The total of the quota amounts is $117,853.80. Based on the evidence submitted, the total amount paid by Catapult on behalf of Value City was $451,721.40. The wire transfer requests from Intercontinental Bank document payments of $116,565.00 to the quota broker, and $335,156.40, to China Welfare. These two amounts total to $451,721.40.

In addition, protestant has furnished a copy of a buying agency agreement between itself and Catapult, the purported agent in the instant transaction. The agreement provides that Catapult will act as the protestant=s agent in China and elsewhere, as required, for purchases of wearing apparel. The agreement enumerates the services which Catapult agreed to perform on behalf of the protestant, including facilitating the acquisition of necessary quota.

Your office contends that the imported goods should be appraised on the basis of the total amount paid by Value City, the protestant and importer of record, which price includes the amount of the quota payments. You maintain that the first sale represented by the visa and invoice from China Welfare excludes quota charges and is invalid given that Customs is of the belief that sales of third party quota are illegal in China. You also maintain that the first sale is invalid because quota allocations were not obtained in accordance with Chinese law and regulations.

ISSUE:

The issue presented is whether the amount of the quota payments is included in 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 primary method of appraisement under the TAA is transaction value, defined as the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to certain statutorily enumerated additions to the price actually paid or payable. 19 U.S.C. ' 1401a(b)(1).

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, 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). In Generra Sportswear Co. v. United States, 905 F.2d 377 (1990), the Court of Appeals for the Federal Circuit 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. Id. at 380. In conformity with Generra, it is Customs= position that there is a presumption that all payments made, directly or indirectly, by a buyer to a seller, are part of the price actually paid or payable for the imported merchandise. The presumption may be rebutted by evidence which clearly establishes that the payments are completely unrelated to the imported merchandise. Chrysler Corporation v. United States, No. 93-186, 17 CIT 1049 (1993).

However, Customs has held that quota payments made by the buyer to third parties unrelated to the seller of the imported merchandise 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. In the instant case, protestant maintains that since quota was obtained from a third party unrelated to the seller, the cost of quota should not be considered part of the price actually paid or payable for the imported merchandise. However, your office maintains that the cost of quota should be included in the transaction value of the imported merchandise because the sale of third party quota charges is illegal in China and because no information has been presented to show that quota was obtained in accordance with Chinese laws and regulations.

In the instant case, the evidence submitted includes wire transfer requests from Catapult to Intercontinental Bank, and copies of the outgoing wire transfers from Intercontinental Bank to the Hang Seng Bank Ltd, Hong Kong, and the Bank of China, Shanghai. The wire transfer payment from Intercontinental to Hang Seng reflects a payment from Catapult to the quota broker of $116,565.00; the wire transfer from Intercontinental to the Bank of China reflects a payment from catapult to China Welfare, the seller, in the amount of $335,156.40. The total of these two wire transfer payments from Catapult, as agent for Value City, was $451,721.40, which corresponds to the total amount of the payment for the imported merchandise and quota.

Based on the evidence submitted, the payment for quota was not made to the seller, nor was it made to a party related to the seller. Rather, it was made by the buyer=s agent to a third party unrelated to the seller of the imported merchandise. Accordingly, based on the evidence submitted, and in keeping with Customs= position in regard to quota payments, the quota payment at issue is not included in transaction value as part of the price actually paid or payable. Generra, 905 F.2d 377, 380 (1990); HRL 542169 dated September 18, 1980 (TAA No. 6). In this case, the transaction value of the imported merchandise is the price actually paid or payable for the shirts per the wire transfer ($335,156.40), plus amounts in respect of any additions to the price actually paid or payable, including an amount for the assist (price tickets).

HOLDING:

In conformity with the foregoing the protest should be allowed. The payment for quota was made to a third party unrelated to the seller of the imported merchandise and, therefore, is not included in transaction value.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550065, dated August 4, 1993, this decision and the Customs Form 19 are to be mailed to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entry or entries in accordance with this decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.treas.gov, through the Freedom of Information Act, and by other methods of public distribution. Sincerely,
Tomas L. Lobred
Chief, Value Branch


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