Appraisement of garments; price actually paid or payable

HQ 545172 May 6, 1993 VAL CO:R:C:V 545172 ILK CATEGORY: Valuation RE: Appraisement of garments; price actually paid or payable Dear : This is in response to your letter of November 19, 1992 (hereinafter referred to as the "request"), in which you request a ruling regarding the appraisement of merchandise imported by xxxxxxx (hereinafter referred to as the "importer"), for which the invoice price does not include any fabric costs. FACTS: The importer's unrelated factory in Hong Kong purchased fabric from an Italian mill unrelated to the importer at a CIF price. The fabric was found to be unacceptable due to color shade and in settlement the factory was able to recover from the Italian mill the entire CIF price paid for the fabric. The mill preferred to leave the fabric in Hong Kong, for the factory to dispose of, due to the expense that would have been involved in returning the fabric to Italy. As a result, the factory owned the fabric without having incurred any cost. The importer agreed to purchase approximately 650 garments for importation into the U.S. for sale in its "sell off" stores. The factory will invoice the importer for its complete cost (including costs, profit, overhead, etc.) in producing the garments, which will not include any fabric cost. It is your position that the merchandise should be appraised under transaction value. ISSUE: Whether the absence of material costs in an arms-length transaction precludes appraisement under transaction value. LAW AND ANALYSIS: The preferred method of appraisement is transaction value which is defined by 402(b)(1) 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 the merchandise when sold for exportation to the United States..." plus certain additions specified in 402(b)(1) (A) through (E). Section 402(b)(2)(A) describes the circumstances under which transaction value can be used to appraise merchandise: (i) there are no restrictions on the disposition or use of the imported merchandise by the buyer other than restrictions that...; (ii) the sale of, or the price actually paid or payable for, the imported merchandise is not subject to any condition or consideration for which a value cannot be determined with respect to the imported merchandise; (iii) no part of the proceeds of any subsequent resale, disposal, or use of the imported merchandise by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment therefor can be made under paragraph (1)(E); and (iv) the buyer and seller are not related, or the buyer and seller are related but the transaction value is acceptable, for purposes of this subsection, under subparagraph (B). None of the foregoing circumstances preclude appraisement under transaction value in this case, therefore the merchandise can be appraised under transaction value which is based on the price actually paid or payable for the imported merchandise. The term "price actually paid or payable" is defined in TAA 402(b)(4)(A) as: ...the total payment (whether direct or indirect...) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. The additions specified in 402(b)(1)(A)-(E) must be made to the price actually paid or payable in determining the transaction value of imported merchandise. Of those, only (D) is potentially applicable here with respect to the fabric, as it provides that "the value, apportioned as appropriate, of any assist" shall be added to the price actually paid or payable. An assist is defined in 402(h)(1)(A) in relevant part as: ...any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise: (i) Materials, components, parts, and similar items incorporated in the imported merchandise... Although the fabric was supplied free of charge, it was not supplied by the importer, the "buyer" here, or a party related to the buyer. Therefore the value of the fabric is not required to be added to the price actually paid or payable as an assist. In this case, the merchandise should be appraised under transaction value, based upon the invoice price of the imported merchandise, plus any additions required to be added pursuant to 402(b)(1)(A)-(E). HOLDING: Under the circumstances for this particular transaction, where all parties are clearly unrelated, the imported merchandise for which material was obtained at no cost to the seller and for which the invoice price does not reflect any cost for such material, can be appraised under transaction value. Where the material was not provided directly or indirectly by the buyer, the value of such material is not required to be added to the price actually paid or payable as an assist. Sincerely, John Durant, Director Commercial Rulings Division