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HQ H010509

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June 19, 2007

OT:RR:CTF:VS H010509 KSG

CATEGORY: VALUATION

Margaret R. Polito, Esq.
Neville Peterson LLP
17 State Street-19th Floor
New York, NY 10004

RE: Dutiability of quota payments

Dear Ms. Polito:

This is in response to your request for a binding ruling dated April 17, 2007, on behalf of Wicked Fashions, Inc. concerning imported wearing apparel. The issue presented relates to the dutiability of quota payments.

FACTS:

Wicked Fashions, Inc. imports certain wearing apparel from China that is subject to quota requirements. Wicked proposes to purchase the necessary quota under one of two scenarios. In the first scenario, Wicked will place purchase orders for the merchandise directly with Chinese vendors. The purchase order price will not include quota. The invoices generated by the vendors will indicate that the price of the goods does not include quota. Wicked’s unrelated buying agent will obtain the necessary quota on Wicked’s behalf. Wicked will pay the buying agent for the quota directly; no funds for the acquisition of the quota will be sent to the vendor.

In the second scenario, Wicked will place purchase orders with the Chinese vendors and the purchase order price will not include quota. Wicked will deal with a quota broker that is unrelated to the vendors to purchase the quota; the quota broker will bill Wicked directly for the cost of the quota.

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”), codified at 19 U.S.C. 1401a and the preferred method of appraisement is transaction value. Transaction value is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for five enumerated statutory additions. 19 U.S.C. 1401a(b). The term “price actually paid or payable” is defined 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 imported merchandise by the buyer to, or for the benefit of, the seller.” 19 U.S.C. 1401a(b)(4)(A). There is a rebuttable 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. See HRL 545663, dated July 14, 1995.

In Generra Sportswear Co. v. United States, 905 F.2d 377 (Fed. Cir. 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 the merchandise sold for export to the United States, the payment properly may be included in the transaction value, even if the payment represents something other than the per se value of the goods.” The court also explained that “Congress did not intend for Customs to 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 Headquarters Ruling Letter (“HRL”) 542169, dated September 18, 1980 (TAA No.6), Customs held that quota payments made by the buyer to a third party unrelated to the seller of the merchandise were not part of the price actually paid or payable and therefore, not dutiable. Also see HRL 542150, dated January 6, 1981 (TAA No.14), and HRL 542442, dated June 11, 1981 (TAA No. 30).

In HRL 544866, dated September 29, 1993, Customs held that quota payments made by the importer to its agent were not dutiable. The importer presented evidence to demonstrate that the quota payments did not inure to the benefit of the seller. See also HRL 546804, dated May 4, 1999; HRL 547140, dated September 21, 1998; and HRL 547696, dated May 18, 2001.

In this case, we have not reviewed the transaction documents. As long as the appraising officer at the applicable port of entry is satisfied that there is sufficient documentation to indicate that the quota payments do not inure to the benefit of the seller, we find that the quota payments that are paid to either the buying agent or the quota broker would not be included as part of the price actually paid or payable for the imported merchandise.

HOLDING:

As long as the appraising officer at the applicable port of entry is satisfied that there is sufficient documentation to indicate that the quota payments do not inure to the benefit of the seller, the quota payments that are paid to either the buying agent or the quota broker would not be included as part of the price actually paid or payable for the imported merchandise.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.

Sincerely,

Monika R. Brenner
Chief, Valuation & Special Programs Branch

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