HQ 545927: AFR of Protest No. 1001-3-104301; dutiability of quotacharges; Generra; T.D. 86-56; visaed invoices

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 545927

                         January 30, 1996

VAL RR:IT:VA 545927 CRS

CATEGORY: Valuation

Area Director
U.S. Customs Service
JFK International Airport
Building #77
Jamaica, NY 11430

RE: AFR of Protest No. 1001-3-104301; dutiability of quota
charges; Generra; T.D. 86-56; visaed invoices

Dear Sir:

     This is in reply to an application for further review of the
above-referenced protest, filed by counsel Sandler, Travis &
Rosenberg on behalf of Van Mar, Inc.  (the "protestant"). 
Counsel replied to your CF-28 request for information of August
8, 1993, by letter dated September 29, 1993.  Members of my
staff, a representative from the Office of Strategic Trade and
the concerned import specialist met with counsel regarding this
matter on October 13, 1995.  Counsel subsequently filed an
additional submission under cover of a letter dated November 29,
1995.

FACTS:

     Through its agent, International Fashion of Hong Kong,
protestant contracted with Ka Wo Garments Company, a Hong Kong
supplier, for 1,000 dozen women's woven briefs.  The goods were 
manufactured in the People's Republic of China (PRC) at a factory
owned by Ka Wo and were imported into the U.S. through JFK
International Airport.  In connection with this transaction,
protestant purchased fabric and provided it free of charge it to
the manufacturer in the PRC for use in the production of the
imported merchandise.  The imported briefs were made from 65
percent nylon, 35 percent polyester, and were subject to
quota/visa category 652.

     Ka Wo produced the briefs on a CMT basis.  However, since Ka
Wo did not have access to requisite quota category, this element
of the transaction had to be obtained from another source. 
Accordingly, International Fashion purchased category 652 quota
from Mr. Liew Hun Hieng, a Hong Kong broker, and the owner of Tai
Hing Garment Factory.

     Protestant paid for the imported merchandise, including the
cost of quota, by wire transfer to International Fashion.  In
turn, International Fashion paid Ka Wo for the goods and Mr.
Liew, through Tai Hing Garment Factory, for the quota.  The file
contains a copy of the invoice from International Fashion to the
protestant, as well as copies of an invoice and a receipt from Ka
Wo to International Fashion for the cost of the goods, and an
invoice and a receipt from Tai Hing to International Fashion for
the cost of quota.

     In addition, the file contains a copy of the textile export
license, or visaed invoice, pertaining to the protested entry. 
The invoice, no. 438178 dated November 11, 1992, stamped by the
Guangdong branch of the Ministry of Foreign Economic Relations
and Trade (MOFERT), identifies the protestant as the consignee
and Guangdong Silk Import & Export Corporation as the exporter,
and describes the merchandise as 1,000 dozen "ladies 65% nylon,
35% polyester woven briefs (underwear)."  The unit price ($11.00)
and total price ($11,000.00) stated on the visaed invoice
correspond with the unit prices and total price reflected on the
invoice from International Fashion to the protestant.  The
commercial invoices indicate that the price of the merchandise
included the cost of quota ($3,000.00).

     Protestant contends that because category 652 quota was
purchased by the buyer from an unrelated third party, the
appraised value of the imported merchandise should exclude the
cost of quota.  However, your office disagrees, maintaining
instead that, based on the documentation submitted, the cost of
quota should be included in the appraised value of the imported
merchandise.  Accordingly, in addition to the documentation
submitted by the protestant, you requested copies of the certain
documents underlying the quota transaction.  Included in your
request were:  the signed contract validated by the China Textile
and Silk Garment Import/Export Commercial Association (the
"Textile Association"); documentation related to the payment of
the processing fee to the Textile Association; the winning tender
application form; and the validated textile tender quota
notification form.  These documents were not submitted.

ISSUE:

     The issue presented is whether, based on evidence that quota
payments are included in the visaed invoice price, there is any
authority for treating these amounts other than as part of the
price actually paid or payable for the imported merchandise.

LAW AND ANALYSIS:

     Initially, we note that the protest and application for
further review was timely filed under the statutory and
regulatory provisions for protests (19 U.S.C.  1514; 19 C.F.R.
pt. 174).  We also note that the issue protested is a protestable
issue (19 U.S.C.  1514).

     Merchandise imported into the United States is appraised in
accordance with section 402 of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (TAA; 19 U.S.C.  1401a). 
The preferred method of appraisement is transaction value, which
is defined as the "price actually paid or payable for merchandise
when sold for exportation to the United States," plus to the
extent not already included, certain enumerated additions to the
price actually paid or payable.  19 U.S.C.  1401a(b)(1). 
However, imported merchandise is appraised under transaction
value only if, inter alia, the buyer and seller are not related,
or if related, transaction value is found to be acceptable.  19
U.S.C.  1401a(b)(2)(A)-(B).  In the instant case, the
information submitted indicates that the buyer and seller are
unrelated and, consequently, we have assumed for purposes of this
decision that transaction value is the appropriate basis of
appraisement.

     Protestant contends that quota charges paid to acquire the
requisite quota/visa category  should not be considered part of
the price actually paid or payable for the imported merchandise
because they were paid to an unrelated third party rather than
the seller of the merchandise.  Pursuant to section 402(b)(4) of
the TAA, the term "price actually paid or payable" is defined as
"the total payment (whether direct or indirect . . .) made, for
imported merchandise by the buyer to, or for the benefit of, the
seller."  19 U.S.C.  1401a(b)(4)(A).  In Generra, 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 . . . .

905 F.2d at 380.  Moreover, the court stated that foreign sellers
must obtain quota before they can export their merchandise.  Id.
at 380.  Under Generra, it is Customs' position that all payments
to a seller are part of the price actually paid or payable for
imported merchandise.  E.g., HRL 544640 dated April 26, 1991.

     When quota payments are made to third parties unrelated to
the seller of the imported merchandise, however, Customs has held
that  the payments are not included in transaction value as part
of the price actually paid or payable.  E.g., Headquarters Ruling
Letter (HRL) 542169, dated September 18, 1980 (TAA No. 6); HRL
543540, dated June 12, 1985.  On this basis the protestant
maintains that since it acquired quota from a third party
unrelated to the seller, the amount of the payment should not be
considered part of the price actually paid or payable.  However,
regardless to whom the quota payment was made, the documentation
submitted in the instant case, specifically, the visaed invoice,
indicates that the cost of quota was included in the price of the
imported merchandise when it was sold for exportation to the U.S. 
This conclusion is supported by the Chinese governments quota
regulations.

     The regulations which govern all Chinese quota transactions
are issued and administered by the China Textile and Silk Garment
Import/Export Commercial Association (the "Textile Association")
on behalf of the Ministry of Foreign Economic Relations and Trade
(MOFERT), the agency responsible for negotiating trade policy and
quota category restraints on behalf of the Chinese government. 
In accordance with the regulations, designated quota categories
are annually opened for public tender; however, only export firms
that are members of the Textile Association and are authorized by
MOFERT to export textiles and apparel may submit tenders for
quota categories.  In order to submit a bid for quota, firms are
required to submit a standard tender application form stating,
inter alia, the classification, quota category, quantity, and
export price of the goods.  Article 7 of the regulations provides
further that successful tenderers must sign a formal business
contract with their foreign clients within three months of the
opening of tender date.  The price specified in the contract may
equal or exceed the bidding price, but cannot be less than the
bidding price.  The China Textile and Silk Garment Import/Export
Commercial Association, 1990 Textile Quota Tenders Regulations,
art. 7 (John Hu, trans.).  Once a tender contract is awarded, its
provisions may not be altered.

     Under cover of your CF 28 of August 18, 1993, you requested
certain additional information regarding the quota aspects of the
protested entry in consideration of protestant's contention that
the quota payment was not part of the price actually paid or
payable for the imported merchandise.  In particular, you
requested copies of the following documents that are required
under the Textile Association regulations:  the signed contract
validated by the Textile Association; documentation related to
the payment of the processing fee; the winning tender application
form; and the validated textile tender quota notification form. 
However, the protestant was unable to provide this information.

     Nevertheless, the visaed invoice itself unambiguously
reflects the fact that the Textile Association awarded quota and
granted export approval for the imported category 652 merchandise
on the basis of price of a price of $11,000.00.  This price
included the cost of quota.  Accordingly, it is our position,
based on the evidence submitted, in particular, the visaed
invoice, that the quota charges at issue are part of the price
actually paid or payable for the imported merchandise.

HOLDING:

     The protest should be denied in full.  Based on the evidence
presented, the quota payments at issue are part of the price
actually paid or payable for the imported merchandise and are
therefore included in transaction value.

     In accordance with section 3A(11)(b) of Customs Directive
099 3550-065, dated August 4, 1993, this decision should be
mailed by your office to the protestant no later than sixty days
from the date of this letter.  Any reliquidation of the entry in
accordance with the decision must be accomplished prior to the
mailing of the decision.  Sixty days from the date of this letter
the Office of Regulations and Rulings will take steps to make the
decision available to Customs personnel via the Customs Rulings
Module in ACS and to the public via the Diskette Subscription
Service, the Freedom of Information Act and other public access
channels.

                         Sincerely,

                         Acting Director
                         International Trade Compliance Division