RR:IT:VA 546804 CRS
Area Director
U.S. Customs Service
Port of New York, JFK Area
Building # 77
Jamaica, NY 11430
RE: Internal Advice 8/97; quota charges paid to unrelated third parties not dutiable
Dear Sir:
This is in reply to your memorandum dated March 26, 1997, under cover of which you forwarded, through the Customs Information Exchange, the above referenced request for internal advice. The internal advice request was filed by Neville, Peterson & Williams on behalf of David Warren, Inc. and Rimini (the “importers”) and concerns certain quota payments made in connection with six entries of imported merchandise filed at the port of New York/JFK. We regret the delay in responding.
FACTS:
The imported merchandise consists of women’s woven dresses and jackets manufactured in the People’s Republic of China by, inter alia, Huayi Woven Decoration Factory, MingDu Fashion Co., and Shi Qiao Craft Factory (“the manufacturers”). The importers employed the services of two buying agents, Wing Wing Trading Co. Ltd. and Burda International Ltd. (the “buying agents”), to procure merchandise from the manufacturers. The buying agents are not related to the manufacturers or to the importers.
The importers placed their orders for the imported merchandise through the agents. The orders set forth the desired specifications and other pertinent information needed to manufacture the garments. The buying agents then contacted the manufacturers and placed the orders. Once the goods were produced, they were shipped to the importers through Hong Kong. In addition to commercial invoices, the imported garments were accompanied by stamped, visaed invoices which identify the garments by written description, quota category, quantity, unit price and total price. The names of the manufacturers and the importers are indicated on the visaed invoices.
In addition to procuring the merchandise, the buying agents were also responsible for obtaining the necessary quota. The required quota was therefore purchased by the buying agents from one of three Hong Kong quota brokers, Parheavy Limited, Future Fashion Trading Co. Ltd., or Oriental Trading Company. The buying agents billed the importers separately for quota and the quota invoices generated by the buying agents identify the style number of the garments, the quota category, the quantity and the unit price. Attached to each commercial invoice is a statement setting forth the amount paid for quota for the goods covered by that invoice and noting that the quota charges are not included in the invoice unit price of the garments.
Included in counsel’s submission for each of the six entries covered by the internal advice request are copies of the notice of action advising of the importers of a value advance, the entry summary, the commercial and visaed invoices, packing list, shipping documentation, country of origin declaration, quota charge statement, an invoice from the quota broker for the cost of the appropriate quota category, and bank debit notices advising that the importer’s accounts had been debited as directed for the cost of the garments and the cost of quota.
Your office takes the position that payments made to third parties for Chinese quota are dutiable. In connection with this matter you requested various information from the importers including certain documents required in order to obtain quota in China. The information requested includes such documents as a signed business contract validated by the China Textile and Silk Garment Import/Export Association, proof of payment of the required quota processing fee and a validated quota tender notification form. You note that in order for a firm to acquire quota in China it must first sign a formal business contract with a foreign purchaser. In addition, in view of the regulations and requirements governing the allocation of quota in China, you asked for an explanation as to how a quota broker in Hong Kong obtained quota.
ISSUE:
The issue presented is whether the quota charges described above are part of the price actually paid or payable for 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, 13 CIT 482 (1989), rev’d, 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. However, 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, while quota payments made by the buyer to the seller of imported merchandise, or to parties related to the seller, are dutiable, 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; HRL 546461 dated December 21, 1998.
Based on the information presented, the quota payments at issue were made to third parties unrelated to the sellers of the imported merchandise. Separate payments were made for the imported garments and the quota charges. Accordingly, it is our position that the payments are not included in transaction value as part of the price actually paid or payable for the imported merchandise.
HOLDING:
The quota payments at issue were made to third parties unrelated to the seller and are not part of the price actually paid or payable for the imported merchandise.
You are to mail this decision to the internal advice applicant no later than sixty days from the date of this letter. On that date the Office of Regulations and Rulings will make the decision available to Customs personnel and to the public via the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, through the Freedom of Information Act, and by other methods of public distribution.
Sincerely,
Thomas L. Lobred
Chief, Value Branch