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HQ 547696

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May 18, 2001

RR:IT:VA 547696 CC

Steven S. Weiser, Esq.
Lars-Erik A. Hjelm, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P. 590 Madison Avenue
20th Floor
New York, NY 10022

RE: Dutiability of quota payments

Dear Messrs. Weiser and Hjelm:

This is in response to your letter of April 21, 2000, on behalf of the Basketball Marketing Company, Inc., d/b/a “And 1” (hereinafter “And 1), requesting a prospective ruling concerning the dutiability of quota charges for imported wearing apparel. We apologize for the delay in responding.

FACTS:

According to your submission, the transaction will involve three parties: And 1, the importer; Chia Tai Hsing Enterprises (hereinafter “CTH”), the Taiwanese manufacturer and vendor; and Fabrica De Artigos de Vestuario Wendy (hereinafter “Wendy”), the subcontractor and shipper. You state that none of the parties are related to the other, either through common ownership, control, or consanguinity, and each negotiate at arm’s length.

And 1 will first issue a purchase order for the finished wearing apparel to a Taiwanese manufacturer and vendor, CTH. CTH will then purchase all components (e.g., fabric, labels, and trim) necessary for the fabrication of the garments and cause them to be shipped to Wendy, an unrelated subcontractor in Macau. At all times, CTH will retain title to the fabric, labels and trim and Wendy will manufacture these components into finished wearing apparel.

To ensure that a validated export visa accompanies the shipment from Macau, And 1 will purchase quota from Wendy, who will issue a corresponding invoice to And 1 for such quota. Prior to the shipment of the apparel products from Macau, And 1 will pay Wendy for the quota charges via wire transfer. Pursuant to the validated export visa, Wendy will ship the finished wearing apparel directly from Macau to And 1 in the United States.

CTH will invoice And 1 for the finished apparel in accordance with And 1’s purchase order, exclusive of any quota charges. The terms of sale are FOB Macau. And 1 proposes to declare the CTH invoice price, exclusive of quota charges, as the transaction value.

ISSUE:

Whether the quota payments at issue should be included as part of the price actually paid or payable.

LAW AND ANALYSIS:

Imported merchandise is appraised in accordance with section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. § 1401a), and the preferred method of appraisement is transaction valuation. Transaction value is the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. 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.”

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. Headquarters Ruling Letter (HRL) 542169, dated September 18, 1980 (T.A.A. 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. In Generra Sportswear Company v. United States, 905 F.2d 377, 380 (Fed. Cir. 1990), 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.

Moreover, the court stated the foreign seller must obtain quota before they can export their merchandise. Id. 380. Under Generra, it is Customs’ position that all payments to a seller are presumed to be 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, Customs has held that the payments are not included in transaction value as part of the price actually paid or payable. 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.

To determine if the quota payments are part of the price actually paid or payable, we must determine who is the seller in this transaction. According to your description of the scenario, title does not pass when the components are sent from CTH to Wendy. In addition, CTH invoices And 1 for the price of the imported goods. Consequently, there appears to be no sale of the goods from CTH to Wendy. Instead, the sale of the goods is from CTH to And 1.

You state that quota payments are made by And 1 to Wendy. In addition, you have stated that Wendy is a third party unrelated to CTH. Consequently, any quota payment made is from the importer to a party unrelated to the seller. Based on the applicable law discussed above, any quota payment would not be part of the price actually paid or payable.

We note that we are assuming for purposes of this ruling that none of the parties are related to the other and each negotiate at arm’s length. In addition, we are assuming that any quota payments made by And 1 to Wendy do not inure to the benefit of CTH. Finally, we are unable to verify that quota charges are made for merchandise of Macau origin exported from Macau.

Our analysis is based on the factual situation as described by you and presents general principles of the dutiability of quota payments. Importation of the merchandise at issue is subject to any determinations that may be made by the appraising officer at the applicable port of entry based on the documentation and evidence submitted at that time. For example, the existence of quota payments and the relationship between Wendy and CTH are facts that may be verified by the appraising officer and will be based upon the totality of the evidence presented, including the entry documentation.

HOLDING:

The quota payments at issue should not be included as part of the price actually paid or payable for the imported merchandise.

19 CFR § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”

Sincerely,

Virginia L. Brown

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