HQ 544082: Decision on Application for Further Review of Protest Nos. 1001-6-007729, 1001-6-005758

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 544082

                                 September 19, 1988

          CLA-2 CO:R:C:V

          CATEGORY:  Valuation    544082 EK

          Area Director of Customs
          JFK Airport Area
          Jamaica, New York

          RE:  Decision on Application for Further Review of Protest
               Nos. 1001-6-007729, 1001-6-005758

          Dear Sir:

                This is in reference to the above-noted protests filed on
          behalf of (company name) (hereinafter referred to as importer),
          in connection with the appraisement of imported merchandise
          pursuant to 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)).


          FACTS:

                The importer purchases wedding gowns from a manufacturer in
          Taiwan and imports them into the United States.  With respect to
          the entries in question, the importer purchased fabric and trim
          and resold them to the manufacturer in Taiwan at a price less
          than that paid by the importer. The Taiwanese manufacturer then
          utilized the fabric and trim in producing the final imported
          product sold to the importer.

                During the manufacturing process, it was discovered that a
          portion of the fabric was defective and could not be used to
          produce the finished garments.  Therefore, the manufacturer
          charged the importer a "waste factor" which was approximately
          equal to five or ten percent of the actual fabric cost of the
          garments.

                In addition, the manufacturer charged a financing fee to
          the importer.  This was due to the large expenditure by the
          manufacturer for the purchase of the fabric and trim in advance
          of the manufacture and shipment of the final product.  The
          importer states that it agreed to pay a 5% or 8% financing fee to
          the manufacturer.  

















                                        - 2 -


          ISSUES:

                Whether the amount paid by the importer to the manufacturer
          to account for the defective fabric previously sold to the
          manufacturer by the importer is included in the "price actually
          paid or payable" for the final imported product.

                Whether the financing fee charged by the manufacturer to
          the importer is to be included in the "price actually paid or
          payable" for the final imported product.


          LAW AND ANALYSIS:

                The preferred method of appraisement, transaction value, is
          defined in section 402(b) of the TAA as:

                . . . the price actually paid or payable for the
                merchandise when sold for exportation to the
                United States, plus amounts equal to . . . the value,
                apportioned as appropriate, of any assist. . .  .

                The fabric provided to the manufacturer by the importer at
          a reduced cost is clearly encompassed by the definition of an
          assist which includes "materials, components, parts, and similar
          items incorporated in the imported merchandise."  See, section
          402(h)(1)(A)(iii) of the TAA.  If the assist was acquired by the
          importer from an unrelated seller, the value of the assist is the
          cost of acquisition, including the transportation costs to the
          place of production.

                It is important to note that the statutory language in
          section 402(h) of the TAA which requires that the assist be
          supplied by the buyer free of charge or at a reduced cost, is met
          by the mere fact that the buyer is paying for the expense
          incurred in transporting the assist to the place of production.

                The importer states that since the defective fabric was
          discarded and never used by the manufacturer, it was not
          incorporated into the final imported product as required by the
          above definition of an assist.  Headquarters Ruling No. 543093
          dated April 30, 1984, states the following:

                . . . components which are destroyed, scrapped,
                or lost, and which are not physically incorporated
                into the imported article are not assists under the
                TAA.














                                        - 3 -


                If this were the issue presented, we could agree that the
          discarded fabric does not constitute an assist since it is not
          incorporated into the final imported product.  However, the
          Taiwanese manufacturer and the importer chose not to do business
          in this manner.  Rather than claim an allowance with respect to
          the discarded fabric in determining the value of the assist, the
          manufacturer added an amount to the "price actually paid or
          payable" by the buyer.  The manufacturer chose to recoup the loss
          of that fabric by adding a certain percentage to the price of the
          final imported product.  The fee is merely a cost of doing
          business which the manufacturer included in their price to the
          buyer.

                There is no authority in the TAA to exclude that amount
          from the "price actually paid or payable" from the buyer to, or
          for the benefit of, the seller.

                Please note that section 402(b)(1) of the TAA provides that
          the price actually paid or payable for imported merchandise shall
          be increased to reflect the value of an assist only to the extent
          that such amount is not otherwise included in the price actually
          paid or payable.  Therefore, if the manufacturer in this case is
          recouping the expense of the purchase of the fabric from the
          importer by adding that amount to the final price actually paid
          or payable, then this section applies and the value of the assist
          is not added to the price actually paid or payable since it is
          already included in the price paid.  If this is the case, then
          the same analysis described above applies in concluding that the
          addition of the "waste factor" to the price actually paid or
          payable is proper, i.e., there is no authority in the TAA to
          deduct that cost from the price paid by the buyer.

                The second issue involves the dutiability of the interest
          charges paid by the buyer to the Taiwanese manufacturer.  With
          regard to this issue, T.D. 85-111 dated July 17, 1985, is
          pertinent.  In that decision, Customs stated that interest
          payments, whether or not included in the price actually paid or
          payable for imported merchandise, should not be considered part
          of dutiable value provided the following criteria are satisfied:

                (1) The interest charges are identified separately
                    from the price actually paid or payable;

                (2) The financing arrangement in question was made in
                    writing;
















                                        - 4 -


                (3) Where required by Customs, the buyer can demonstrate
                    that
                    - the goods undergoing appraisement are actually
                      sold at the price declared as the price actually
                      paid or payable, and
                    - the claimed rate of interest does not exceed the
                      level for such transaction prevailing in the
                      country where, and at the time, when the financing
                      was provided.


                From the information that you have provided, there is
          nothing to indicate that any of the above criteria are not
          satisfied.  It appears as if there is no dispute that the
          interest charges paid by the buyer are properly excluded from the
          transaction value of the imported merchandise.


          HOLDING:

                In view of the foregoing, the protests should be denied
          with respect to the issue regarding the inclusion of the "waste
          factor" in the price actually paid or payable.  As indicated
          above, the fee is properly included in the price actually paid or
          payable.

                The protests should be granted with respect to the issue
          regarding interest charges.  The payments made by the buyer for
          the interest charges are not part of the price actually paid or
          payable.

                A copy of this decision should be attached to the Form 19,
          Notice of Action, to be sent to the protestant.

                                        Sincerely,




                                        John Durant, Director,
                                        Commercial Rulings Division