Prospective Ruling Request; M & L International

HQ 546439 September 30, 1996 RR:IT:VA 546439 EK CATEGORY: Valuation Patrick D. Gill Rode & Qualey 295 Madison Avenue New York, NY 10017 RE: Prospective Ruling Request; M & L International Dear Mr. Gill: This is in response to your letter of July 12, 1996, in which you request our advice on the valuation of merchandise imported by your client, M & L International. FACTS: You state that M & L International, an importer of garments, intends to enter into a quality assurance incentive program and pay an inspection fee in the importation of merchandise from Sri Lanka, Bangladesh, India and possibly other countries in the Far East. M & L International purchases garments from various unrelated factories and is entering into arrangements with individual employees of the factories. You indicate that the individual employee, typically a production manager, has no ownership interest in the manufacturing companies. However, M & L will pay these employees an inspection fee of $1 per dozen if M & L is satisfied upon receiving the merchandise that they are of first quality and meet specification. If non-conforming or defective merchandise is shipped, then M & L does not compensate the employees. You indicate that the quality assurance incentive and inspection fee of $1 per dozen paid to the individual production managers or employees does not inure to the benefit of the sellers. ISSUE: Whether the inspection fee is part of the price actually paid or payable in determining the transaction value of the imported garments.  - 2 - LAW AND ANALYSIS: The preferred method of appraisement, transaction value, is defined in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), as the Aprice actually paid or payable for the merchandise when sold for exportation to the United States@, plus enumerated statutory additions. The price actually paid or payable means the A total payment . . . made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller@. Customs has held that all monies paid to the foreign seller, or a party related to the seller, are part of the price actually paid or payable for the merchandise under transaction value. See, HQ 544640 dated April 26, 1991; Generra Sportswear Company vs. United States, 8 Fed. Cir. 132, 905 F.2d 377 (1990). With resect to the payments made by M & L International, Inc. to the employees of the seller, it is our conclusion that these payments are part of the price actually paid or payable in the determination of transaction value. You indicate that the payments do not inure to the benefit of the sellers. We disagree. The employees of the sellers are agents of the sellers. The payments for the quality assurance incentive and inspection fee to the employees are actually payments directly to the seller, through the agent. HOLDING: The payments for the quality assurance incentive and inspection fee paid to the employees of the sellers are direct payments made by the buyer to the seller and are part of the price actually paid or payable. Sincerely, Acting Director, International Compliance Division