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HQ 547531

May 5, 2000

RR:IT:VA 547531 NL

CATEGORY : Valuation

Donald S. Stein, Esq.
Manatt, Phelps & Phillips, LLP
1501 M Street, N.W., Suite 700
Washington, D.C. 20005

RE : Request for Reconsideration of HRL 547055 (June 6, 1999)

Dear Mr. Stein:

This is in reply to your submission dated September 28, 1999, requesting reconsideration of Headquarters Ruling Letter 547055 dated June 6, 1999. This office held a conference with you on December 9, 1999. We also have received and considered a supplemental submission dated February 1, 2000.

The ruling in question concerns certain importations of apparel from Hong Kong by Tarrant Apparel Group (Tarrant), d.b.a. Fashion Resource. Exportation of the goods from Hong Kong is subject to quantitative limitations. Parties in Hong Kong are eligible to supply quota provided they satisfy a sufficient number of the Quota Supply Condition (QSC) requirements established by Hong Kong authorities. Briefly, the QSCs include requirements to: receive the order; receive payment; produce or supply raw materials; contract for manufacture; make payment to the factory; or arrange for export. The QSCs evidently are designed to ensure that a party supplying quota participates to some degree in the export transaction.

As described in HRL 547055, Tarrant’s transactions, for which you sought a prospective binding ruling, were structured so that third-party suppliers of quota could satisfy Hong Kong’s QSCs. HRL 547055 examined these transactional arrangements, and in particular certain payments to third parties for quota, in relation to established principles of valuation under section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a).

In the ruling this office concluded that as proposed, and as proposed to be supported by trade documentation, the payments for quota are to be considered part of the price paid or payable for the merchandise when sold for exportation by the quota holder. That is to say, the ruling concluded that in meeting the Hong Kong QSCs, the quota holder also qualifies as the seller of the apparel for the purposes of section 402. The original ruling request and the instant request for reconsideration urge Customs to disregard certain aspects of the supporting documentation as not representative of the reality of the transaction. In so doing you would have Customs conclude that the third party quota holders are limited purpose agents rather than sellers, with the consequence that payments to them for quota are not part of the price paid or payable for the merchandise.

Upon review of the facts and arguments presented in the submissions of September 28, 1999 and February 1, 2000, and presented at the December 9, 1999 conference, it is our position that HRL 547055 was correctly decided. Based on the evidence submitted we have no alternative but to treat third party quota holders as sellers of the merchandise for the purposes of section 402. In consequence, under the principle of Generra Sportswear Co, v, United States, 8 CAFC 132, 905 F.2d 377 (1990), payments to such persons for quota are presumptively part of the total payment for the merchandise.

Upon reconsideration this office adheres to the findings set forth in HRL 547055.


Sandra L. Bell
Director, International Trade Compliance Division

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