Dutiability of Payments Made to Obtain Quota; Deduction of International Transportation Costs; IA

HQ H028002 September 14, 2009 VAL OT:RR:CTF:VS H028002 FP CATEGORY: Valuation Area Director U.S. Customs and Border Protection Port of Newark 1100 Raymond Boulevard Newark, New Jersey 07102 RE: Dutiability of Payments Made to Obtain Quota; Deduction of International Transportation Costs; IA Dear Sir: This is in response to an internal advice regarding the dutiability of quota charges incurred by the importer. The merchandise was appraised pursuant to transaction value, 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)). The question arose as a result of a request for several post summary adjustments by All-Ways Forwarding on behalf of the importer. The adjustments seek to exclude quota payments that were previously included as part of the entered value of apparel goods in the entry documents. All-Ways submitted transaction documents, including original and revised entry forms, for the following four entries:  [XYZ-#######-#] [XYZ-#######-#] [XYZ-#######-#] [XYZ-#######-#]  FACTS: According to the information submitted, the transaction in question involved three parties: Sports Products of America, the importer (hereinafter “Sports”); Nanjing Textiles Import/Export Corporation, Ltd (hereinafter “Nanjing”), the vendor and shipper; and High Hope Int’l Group Jiangsu Woolen (hereinafter “Hope”), the subcontractor and quota broker. Sports orders finished wearing apparel products from Nanjing Amtex USA Ltd., the U.S. branch office of vendor Nanjing. Nanjing purchases all apparel products from an unrelated Chinese manufacturer, Funing Jincai Garments Co., Ltd. for shipment to Sports in the United States. To ensure that a validated export visa accompanies the shipment from China, it is claimed that Sports purchased quota from Hope. As is customary for quota brokers, Hope finds companies with excess textile export quota, allocates those companies' quota allowances to the importer's designated exporter and thereafter, bills the importer for each dozen of quota utilized. Hope furnished Sports with an invoice reflecting each quota purchase. Subsequently, importer paid Hope for the aggregated quota charges via wire transfer after receipt of the apparel products in the U.S. One quota payment dated January 30, 2008, was for $[###]. Using the validated export visas, Nanjing shipped the finished wearing apparel directly from China to Sports in the United States. Certificates of origin, showing Nanjing as the exporter and Sports as the consignee, are provided. For one of the entries at issue the total FOB Chinese port value was $[###]. Nanjing Amtex invoiced Sports $[###] (approximately $100,000 less) for the finished apparel, exclusive of any quota charges, but inclusive of $2,650 in freight charges. Initially, Sports’ broker caused the apparel products to be entered declaring a transaction value that included quota payments. Sports’ broker now proposes to correct the entry documents to declare the invoice price, exclusive of quota charges, as the transaction value. ISSUE: Whether the quota payments at issue should be included as part of the price actually paid or payable. LAW AND ANALYSIS: Imported merchandise is appraised in accordance with section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. § 1401a), and the preferred method of appraisement is transaction value. Transaction value is the "price actually paid or payable for merchandise when sold for exportation to the United States," plus five statutorily enumerated additions. The term "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as: ...the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. Customs has held that quota payments made by the buyer to a third party unrelated to the seller are not part of the price actually paid or payable. Headquarters Ruling Letter (HRL) 542169, dated September 18, 1980 (T.A.A. No. 6). Quota charges paid by the buyer to an agent are not part of the price actually paid or payable so long as the payments are not remitted, directly or indirectly, to the seller. HRL 543655, dated December 13, 1985. 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 seller 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. The court also explained that "Congress did not intend for Customs to engage in extensive fact-finding to determine whether separate charges, all resulting in payments to the seller in connection with the purchase of imported merchandise were for the merchandise or something else." When quota payments are made to third parties unrelated to the seller of the imported merchandise, Customs has held that the payments are not included in transaction value as part of the price actually paid or payable. There must be sufficient evidence to indicate that the payments do not inure to the benefit of the seller. HRL 544016, dated June 22, 1988, aff’d by HRL 544245 dated July 31, 1989. To determine if the quota payments are part of the price actually paid or payable, we must determine who is the seller in the transactions. According to the documentation submitted, Nanjing is both seller and shipper for all transactions involved. In addition, Nanjing executes all certificates of origin, single country declarations and invoices the importer for the price of the imported goods. As described above, quota payments are made by Sports to Hope. Prima facie, quota payments would appear to be made from the importer to Hope, a party unrelated to the seller. Hope, however, buys the export visas from companies with excess textile quota prior to allocating them to exports destined for Sports. After an in-depth review of the transaction documents submitted for entry [XYZ-#######-#], we found that some of the export visas were obtained from Nanjing itself. Despite Hope's certification that "no portion of the payment for quota that was received from byer [sic] inured to the benefit, directly or indirectly, of Nanjing Textiles I/E Co., Ltd." it lists Nanjing as one of the companies it obtained from and paid for export quota in the same document where it makes the negative certification. Several quota sales confirmations submitted for that entry show Nanjing as the quota seller and Hope as the quota buyer. As a result, those quota payments indirectly inure to the benefit of Nanjing, the seller of the subject merchandise. As stated above, there must be sufficient evidence to indicate that the payments do not inure to the benefit of the seller to find quota payments to be non-dutiable. Therefore, the quota payments for export visas obtained from Nanjing should be included as part of the price actually paid or payable. To avoid engaging in the extensive fact-finding that the court described in Generra, we asked All-Ways to provide entry and invoice information in a format that would allow Customs to easily determine which quota payments inured to the benefit of Nanjing. All-Ways submitted additional information on June 18, 2009. For each of the entries in question, they provided a detailed matrix that, in our view, enables the port officers to determine which quota charges are eligible to be excluded from transaction value. The transmittal letter accompanying All-Ways' June 18, 2009 submission indicated Sports' intention to withdraw the adjustment claim for entry number [XYZ-#######-#] in its entirety because Hope had acquired quota for that entry exclusively from Nanjing. It also indicated that Sports had revised its claim for entry number [XYZ-#######-#] to reflect that some quota payments were made to Nanjing. During our examination of All-Ways' June submission, a secondary issue surfaced that was not the subject of you original inquiry. We noticed that certain deductions for freight charges made on the original entry documents were solely based on handwritten annotations in the commercial invoices that purported to reflect international freight charges paid. Transportation and insurance costs pertaining to the international movement of merchandise from the country of exportation, to the extent included in the price actually paid or payable, are to be excluded from the total payment made for imported merchandise appraised under transaction value. These costs are not the estimated costs, but the actual costs paid to the freight forwarder, transport company, etc. See Treasury Decision (“T.D.”) 00-20. T.D. 00-20 provides the following with respect to evidence of actual freight costs: Customs considers actual costs to constitute those amounts ultimately paid to the international carrier, freight forwarder, insurance company or other appropriate provider of such services. Commercial documents to and from the service provider such as an invoice or written contract separately listing freight/insurance costs, a freight/insurance bill, a through bill of lading or proof of payment of the freight/insurance charges (i.e., letters of credit, checks, bank statements) are examples of some documents which typically serve as proof of such actual costs. Other types of evidence may be acceptable. Accordingly, we asked All-Ways to substantiate the freight charges. On August 26, 2009, All-Ways submitted an information package that included bills of lading and container arrival notices corresponding to each of the commercial invoices listed in the four subject entries. It is our view that the freight charges handwritten in the invoices have now been properly substantiated and that the port will be in position to determine which charges are eligible to be deducted from transaction value. We have enclosed All-Ways' June 18 and August 26, 2009, submissions for your review and further proceedings. HOLDING: For those transactions where importer has provided sufficient evidence to show that the quota payments do not inure to the benefit of the seller, we conclude that the quota payments at issue should not be included as part of the price actually paid or payable. For those transactions where the importer provided sufficient evidence to show that the international freight costs were included in the price paid by the buyer to the seller, a deduction may be made for international freight costs. Please mail this decision to the internal advice applicant no later than sixty (60) days from the date of this letter. Sixty days from the date of this letter, the Office of International Trade: Regulations and Rulings will take steps to make the public version of this decision available to CBP personnel and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Monika Brenner, Chief Valuation and Special Programs Branch Enclosures (as stated)