Dutiability of Quota Payments Paid for the Importation of Wearing Apparel

HQ 544435 October 9, 1990 VAL CO:R:C:V 544435 ML CATEGORY: VALUATION Ellen XXXX, Esq. XXXXX P.C. XXXXX Street New York, N.Y. 10004 RE: Dutiability of Quota Payments Paid for the Importation of Wearing Apparel Dear Mrs. Rosenberg: This is in response to your letter dated December 21, 1989, requesting a prospective ruling regarding the dutiability of quota payments made by Amerex (USA) Inc. (hereinafter referred to as the "importer") in connection with the importation of wearing apparel. We regret the delay in responding to your inquiry. FACTS: The importer has entered into an agreement with Chinatex Beijing whereby approximately 6,000 dozen units of quota will be made available to him at $XX.00 per dozen. The importer has also entered into an agreement with Shanghai Garments (hereinafter referred to as the "vendor") to purchase wearing apparel. Letters of credit will be opened directly to the vendor for the purchase of the merchandise. Beijing will assign the quota allocation to the importer's designated exporter and thereafter, the importer will pay Chinatex for each dozen of quota utilized. Chinatex will give the importer an invoice reflecting the quota purchase. ISSUE: Whether the quota charges paid by the importer to an unrelated third party vendor are part of the "price actually paid or payable" for the imported merchandise? LAW AND ANALYSIS: For purposes of this response, we are assuming that transaction value, the preferred method of appraising merchandise, is applicable. Transaction value is defined in 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)) as the "price actually paid or payable" for merchandise when sold for exportation to the United States, plus certain enumerated additions not relevant here. Customs has consistently held that in cases where quota payments are paid to the seller, or a party related to the seller, the amount of the payments is part of the total payment to the seller; and thus, is included in the transaction value of the merchandise. See, Headquarters Ruling Letter (HRL) No. 542169 (TAA #6), dated September 18, 1980; HRL 543150 (TAA #14), dated January 6, 1981; and HRL 543931, dated February 22, 1988. The U.S. Court of Appeals for the Federal Circuit recently affirmed this position in Generra Sportswear Co. v. United States, Slip Op. 89-1652, dated May 22, 1990. In the instant case, however, the payments made by the buyer to an unrelated third party or to a governmental agency would not be part of the "price actually paid or payable" for the imported merchandise. HOLDING: To the extent that payments are made by the importer to an unrelated third party or to a governmental agency to supply quota, these payments would not be part of the "price actually paid or payable" for the imported merchandise. Sincerely, John Durant, Director