HQ 544940: The proper rate of exchange of currency: contract rate vs. official rate

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                          HQ 544940
                         May 13, 1992
VAL CO:R:C:V  544940 ILK

CATEGORY:  Valuation

District Director of Customs
423 Canal St.
New Orleans, LA  70130

Re:  The proper rate of exchange of currency: contract rate vs.
     official rate

Dear Madam:

     This is in response to your request for internal advice
dated January 23, 1992, concerning the appraisement of
merchandise, the price of which is arrived at by use of a
contractual rate of currency exchange.

FACTS:

     xxxxxxxxxx xxxxxxx, Ltd., UK (hereinafter referred to as
"the seller") and xxxxx xxxxx xx xxxxx xxxxxxx, Incorporated
(hereinafter referred to as "the importer") have entered into a
distributorship agreement.  Both the seller and importer are
subsidiaries of xxxx xxxxx UK, Ltd., and are thus related. 
Pursuant to the distributorship agreement the importer purchases
vehicle parts from the seller in U.K. pounds at a fixed exchange
rate.  

     Pursuant to the Currency provisions of the distributorship
agreement, the seller and importer negotiate an exchange rate
each year, covering a period of twelve months or more.  The
present rate of $1.58 has been in effect since 1990.  According
to the importer, this practice locks in the importer's purchase
cost at a fixed rate and transfers currency fluctuation risks to
the seller.  The seller then invoices the importer in U.K.
pounds, with a note on the invoice stating "Converted to U.S.
dollars at $1.58 to the pound (followed by the invoice value in
dollars)."  The importer pays the seller in U.S. dollars.  The
importer intends to continue this practice in the future.  The
$1.58 fixed rate was scheduled to be reviewed in January, 1992,
at which time either it was to be extended for another year or a
new fixed rate was to go into effect for 1992.  The importer is
prepared to provide its customs brokers with letters certifying
the existence of a negotiated fixed rate and its duration.


ISSUE:

     Whether the merchandise may be appraised under transaction
value using the contractually fixed currency exchange rate.

LAW AND ANALYSIS:

     The preferred method of appraisement is transaction value
which is defined by section 402(b)(1) of the Trade Agreements Act
of 1979, (19 U.S.C. 1401a(b)(1)) as "the price actually paid or
payable for the merchandise when sold for exportation to the
United States..." plus certain specified additions.  In this
case, the invoiced price in U.K. pounds converted to U.S. dollars
represents the price actually paid or payable, and is
ascertainable at the time of importation.  Therefore, it is not
necessary to determine whether at the time of exportation there
is in place a set formula to establish the price paid or payable.

     This issue was addressed in Headquarters Ruling Letter (HRL)
543437 dated May 17, 1985.  In HRL 543437 the importer had the
option of paying the Canadian seller in either Canadian or U.S.
currency.  The merchandise was invoiced in Canadian currency.  If
Canadian currency was chosen, that amount, converted to U.S.
dollars in accordance with sections 159.31-38 of the Customs
Regulations, constituted the price actually paid or payable.  If
U.S. currency was chosen the price was determined by applying the
seller's weekly fixed rate of exchange, which was specified in
the invoice.  HRL 543437 specifically ruled that transaction
value looks to "the price actually paid or payable for the
merchandise when sold for exportation to the United States"
(emphasis supplied), thus conversions to U.S. dollars are not
required to be made in accordance with sections 159.31-38 of the
Customs Regulations when payments are made in U.S. dollars.  With
regard to converting the Canadian currency invoice price to U.S.
dollars, Customs ruled that:

     If, at the time of entry, the purchaser has paid or
     intends to pay for a particular shipment in United
     States currency, then that amount calculated in
     accordance with your client's fixed rate of exchange,
     constitutes the price actually paid or payable.

     Based on the foregoing, conversion of the invoice price from
U.K. pounds to U.S. dollars pursuant to the currency provision of
the distributorship agreement in the instant case is allowable,
and the invoice price in U.K. pounds, converted into U.S. dollars
in accordance with the fixed exchange rate and paid in U.S.
dollars, constitutes the price actually paid or payable.  

     This ruling makes no determination pertaining to the
reasonableness of the fixed exchange rate or the appropriateness
of transaction value in this case.  The parties are related,
therefore pursuant to section 402(b)(2)(B) of the TAA,
transaction value is acceptable only if an examination of the
circumstances of the sale indicates that the relationship between
the buyer and seller did not influence the price actually paid or
payable or if the transaction value closely approximates the
transaction value of identical or similar merchandise in sales to
unrelated buyers in the United States or the deductive or
computed value for identical or similar merchandise.

HOLDING:

     The invoice price in U.K. pounds, converted to U.S. dollars
in accordance with the contractually fixed exchange rate, when
payment is made in U.S. dollars, is the price actually paid or
payable for the imported parts. 
     

                              Sincerely,


                              John Durant, Director
                              Commercial Rulings Division




cc:  Chief, National Import Specialist Branch 1
     New York Seaport