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HQ 547635





November 7, 2001

RR:IT:VA 547635 MMC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
300 S. Ferry Street
Terminal Island, CA 90731
ATT: Theresa Guerrero

RE: Sale for Export; Multi-Tiered Transaction; Quota Payments

Dear Port Director:

This is in response to a January 28, 2000 ruling request filed by counsel on behalf of Sears, Roebuck and Co., concerning the appraisement of garments imported from Hong Kong. Importations of the merchandise have already occurred; therefore we are forwarding our response to you and ask that you forward the response to counsel for Sears, Mr. Robert J. Leo, Meeks & Sheppard, 330 Madison Avenue, 39th Floor, New York, New York 10017.

In the initial submission, counsel requested confidentiality for certain information. In a February 4, 2000 letter our office requested specificity concerning the confidentiality claim. On February 10, 2000, this office received a submission containing a copy of the initial submission identifying the proposed confidential information in brackets. We grant the amended confidentiality request. Any confidential information is bracketed in this ruling and will not be disclosed in copies made available to the public.

On June 21, 2001, our office requested additional information including all available documents concerning all of the transactions involved. Information provided in the original submission as well as a July 30, 2001 reply to our additional information request has been taken into consideration in reaching this decision. We regret the delay in responding.

FACTS:

Sears (importer) is purchasing woman’s polyester/rayon suits from xxxx (middleman). The middleman then subcontracts the order to xxxxxx (factory) and other unrelated factories. Counsel claims that transaction value should be based on the sale between the middleman and the factory. However, according to counsel, the
middleman will not reveal its cost from the factory nor its contract with the factory.

Counsel suggests that the contract “would be provided to Customs by the middleman at the time of entry.”

Furthermore, the garments are subject to quota. The payment for quota charges is part of the price paid by the importer to the middleman. However the middleman does not pay quota charges to the factory. Once received from the importer, the middleman pays the quota charges to an unrelated third party quota broker. A “sample” quota broker invoice was provided.

The following documents were provided for our review:

1. A July 15, 1999 purchase contract from the middleman to the factory which does not contain prices.

2. An October 13,1999 contract/purchase order between the importer and middleman.

3. November 09, 1999 amendment to August 25, 1999 contract.

4. December 13, 1999 letter from factory to middleman.

5. February 8, 2000 middleman’s invoice to importer.

6. A February 8, 2000 packing list generated by the middleman.

7. A February 2, 2000 multiple country of origin textile declaration by the factory.

No proof of payment for either transaction was provided. No factory invoice to the middleman was provided. No additional contracts, production sheets or correspondence between the factory and middleman was provided.

ISSUES:

1) Whether transaction value should be based upon the price paid by the middleman to an unrelated factory.

2) Whether the quota payments are to be included in the price actually paid or payable.

LAW AND ANALYSIS:

Merchandise imported into the U.S. is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. § 1401a). The preferred basis of appraisement is transaction value, which is defined as the "price actually paid or payable for merchandise when sold for exportation for the United States," plus certain enumerated additions. Thus, for imported merchandise to be appraised under transaction value, it must be the subject of a bona fide sale between the buyer and seller and it must be a sale for exportation to the U.S.

In Nissho Iwai American Corp. v. United States, 16 CIT 86, 786 F. Supp. 1002 (1992), rev'd in part, 982 F.2d 505 (Fed. Cir. 1992) (Nissho Iwia) and Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993), (Synergy), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed which sale may be used as the basis of transaction value for merchandise imported into the U.S. pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman and a U.S. purchaser. In both cases the middleman was the importer of record. In each case the court held that the price paid by the middleman/importer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm’s length, free from any non-market influence and involving goods clearly destined for the U.S.

In situations where an importer requests appraisement on the basis of a sale from the foreign manufacturer to the middleman the importer must submit sufficient evidence to show that the price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must establish that it was an “arm’s length sale,” and that the goods were “clearly destined for the U.S.” at the time they were sold or contracted to be sold.

As directed by Treasury Decision 96-87, Cust. Bull 52/1, January 2, 1997, Determining Transaction Value in Multi-Tiered Transactions, the requestor must describe in detail the roles of all the various parties and furnish relevant documents pertaining to each transaction that was involved in the exportation of the merchandise to the United States. If there is more than one possible sale for exportation, information and documentation about each of them should be provided. In this case, the relevant documents (proof of payment, contracts, etc.) relating to the transaction between the factory and middleman were not included. Furthermore, terms of sale do not appear on any of the purchase orders or invoices between the factory and middleman.

The failure to provide a complete paper trail makes it impossible to determine whether the transaction between the factory and middleman constitutes a sale for exportation upon which transaction value may be based. The fact that the middleman will not supply the importer the price paid to the factory and its contract with the factory makes the transaction unacceptable for purposes of transaction value.

Thus, we conclude that transaction value cannot be based on the sale between the unrelated factories and middleman.

Dutiability of Quota

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 sellers 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.

As the quota payment was made by the importer/buyer to the seller it is included in the price actual paid or payable, which is the price paid by the importer/buyer to the middleman.

HOLDING:

Based on the fact that the importer cannot obtain the contract between the middleman and the factory as well as the price, transaction value cannot be based on the sale between the middleman and the factory. Thus transaction value is based on the transaction between the middleman and importer with the quota payments included in the price actually paid or payable.

This decision should be mailed by your office to the party requesting internal advice no later than sixty days from the date of this letter. On that date the Office of Regulations & Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act, and other public access channels.

Sincerely,

Virginia Brown
Chief, Value Branch

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