CLA-2 CO:R:C:V 544121 EK
District Director of Customs
El Paso, Texas
RE: Internal Advice Request
Dear Sir:
This is in response to your request for internal advice
initiated by a certain company (hereinafter referred to as
importer), regarding the dutiability of a payment made by the
importer to the unrelated foreign assembler for failing to
purchase a minimum quantity of merchandise. The merchandise was
entered pursuant to transaction value, section 402(b) of the
Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA; 19 U.S.C. 1401a(b)).
FACTS:
The importer entered into an agreement with a foreign
assembler for the production of jackets. The price per jacket
was determined to be $1.80. The importer further agreed to
purchase 340,000 units during a one year period. The agreement
stated that if the importer failed to fulfill their commitment of
340,000 jackets, the importer must pay the assembler $1.50 per
unit below the agreed amount.
At the end of the contractual period, the importer fell
short of its required minimum and became obligated to pay the
penalty.
For purposes of this internal advice request, we are
presuming that the payment at issue is not a pre-payment for
subsequent shipments of merchandise imported by the buyer.
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ISSUE:
Whether the payment made by the importer to the assembler
for failing to purchase a required minimum is included in the
transaction value of imported merchandise.
LAW AND ANALYSIS:
The primary basis of appraisement, transaction value, is
defined as the "price actually paid or payable for the imported
merchandise when sold for exportation to the United States." In
addition, section 402(b)(1)(A-E) of the TAA enumerates certain
items which are added to the price actually paid or payable.
In Headquarters Ruling No. 543445 dated October 23, 1985, a
similar payment as that described above was made by the importer
to the seller of the merchandise. In that case, however, the
agreement between the parties provided that if the buyer failed
to purchase a specified minimum quantity within a given year, an
added compensation became due. This payment was in addition to
the base selling price of the product. In that case, the term
base selling price was not a firm price but rather, it was
subject to adjustments such as the additional amount owed in the
event the minimum quantity was not purchased. The agreement
provided that the final unit purchase price for merchandise
purchased and imported was not determined until the quantity
actually purchased during the year was known.
In Headquarters Ruling No. 543770 dated February 10, 1987,
a charge for termination of a contract with no importation of
merchandise resulting was held to be excluded from transaction
value.
In the instant case, it is alleged that the price agreed to
between the parties is fixed and was not determined based upon
the quantity purchased. The additional $1.50 per unit represents
a payment made for merchandise which was not ordered and not
manufactured.
HOLDING:
In view of the foregoing, it is our conclusion that the
additional payment made cannot be construed as part of the price
actually paid or payable for merchandise previously imported into
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the United States. The payments are not encompassed by any of
the items set forth in section 402(b)(1) of the TAA which are to
be added to the price actually paid or payable.
Sincerely,
John Durant, Director
Commercial Rulings Division