Dutiability of Payments

HQ 544031 January 19, 1988 CLA-2 CO:R:C:V 544031 EK CATEGORY: Valuation Robert L. Eisen, Esq. Coudert Brothers 200 Park Avenue New York, New York 10166 RE: Dutiability of Payments Dear Mr. Eisen: This is in response to your letter of September 23, 1987, requesting a ruling as to the dutiability of payments made by your client (importer) to a foreign seller of imported merchandise. As discussed in our meeting of January 15, 1988, pursuant to section 177.7(a), Customs Regulations [19 CFR 177.7(a)], no ruling letter may be issued in regard to a completed transaction. The subject importations in question with respect to your request have in fact been completed; therefore, we can not issue a binding ruling. However, we will provide you with an informational letter regarding the issue. FACTS: You state that the importer has been purchasing merchandise produced in France and sold to the importer by a related company. The importer has been a licensee of a particular trademark. Recently, the licensor of the importer's trademark imposed a condition upon the renewal of the license which required all merchandise of the type imported to be produced in the United States. The importer agreed to this condition. You state that all pending contracts with the foreign seller have been fully honored; however, no further orders will be placed with the seller. As a result, the foreign seller has been forced to close its factory. The owner of the foreign seller (also the indirect owner of the importer) is responsible for providing compensation and benefits to the workers in France who have been terminated as a result of the factory closing. In turn, the owner has negotiated with the importer an agreement whereby the importer will contribute approximately $2 million in compensation to the foreign seller as a result of the company's decision not to place new orders with the seller. - 2 - It is your position that the payment made by the importer to the foreign seller is not to be included in the "price actually paid or payable" of previously imported merchandise (section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA)). For purposes of this ruling request, we assume that transaction value is applicable in appraising the merchandise, given the fact that the parties are related within the meaning of section 402(g) of the TAA. ISSUE: Whether the payment at issue is to be included in the "price actually paid or payable" of previously imported merchandise. LAW AND ANALYSIS: In Headquarters Ruling No. 543943 dated December 8, 1987, an importer agreed to reimburse a foreign seller for lost sales and profits due to a cancellation of a six month purchase requirement in the original contract. Subsequent to the payment of the termination fee, the importer neither purchased nor imported the product from the manufacturer in question. In that case, we ruled that the "price actually paid or payable" for merchandise imported prior to the payment of the termination fee does not include the amount representing the termination fee. If charges are incurred for termination of a contract, and merchandise is not imported to the United States as a result of the terminated contract, then payments made to the seller are not to be included in the "price actually paid or payable." See, Headquarters Ruling No. 543770 dated February 10, 1987. HOLDING: The situation presented by the importer in this case is analogous to those cited above. The only difference is that the importer is not breaching an ongoing contract and in fact has fully honored all existing contracts. This fact does not alter the conclusion that the payments are properly excluded from the "price actually paid or payable" for merchandise imported prior to the payment. Sincerely, John Durant Acting Director, Commercial Rulings Division