us-cbp-cross-rulings-hq-544060•HQ 544060: Ruling Request Regarding Foreign Currency Exchange Options
HQ 544060: Ruling Request Regarding Foreign Currency Exchange Options
us-cbp-cross-rulings-hq-544060HQ 544060: Ruling Request Regarding Foreign Currency Exchange OptionsGuidance
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 544060
January 30, 1989
CLA-2 CO:R:C:V 544060 EK
CATEGORY: Valuation
Steven H. Becker, Esq.
Coudert Brothers
200 Park Avenue
New York, New York 10166
RE: Ruling Request Regarding Foreign
Currency Exchange Options
Dear Mr. Becker:
This is in reference to your ruling request submitted on
behalf of your client (hereinafter referred to as importer). For
purposes of this ruling request, we are assuming that transaction
value 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)), is applicable as a method of appraisement. The
importer is not related to the seller within the meaning of
section 402(g) of the TAA.
FACTS:
The importer plans to import merchandise from an unrelated
Hong Kong manufacturer. Japanese piece goods will be purchased
by the manufacturer and used in producing the merchandise. The
piece goods will be selected by the importer at the time the
agreement is reached between the importer and the manufacturer
for the purchase of the finished product. The agreement between
the parties will indicate a price, in U.S. dollars, of the piece
goods and will establish a fixed price to the importer for the
finished merchandise. The agreement further provides that if at
the time of the purchase of the piece goods there has been an
increase to the seller necessary to purchase the piece goods,
then the increased cost may be passed on to the importer.
In order to protect itself against an increase in the value
of the yen as against the dollar, the importer intends to
purchase foreign currency exchange options which permits the
holder to buy, during a set period or specific date, a certain
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amount of Japanese yen at a fixed U.S. dollar price. Upon
purchase of these options, the importer has the choice of one of
two alternative scenarios.
In this first situation, the importer will transfer the
options to the seller pursuant to a written "exercise agreement"
whereby the importer would, at the request of the seller,
exercise the options by collecting from the seller and
transmitting dollars to the bank. In return, the importer would
obtain from the bank and transfer to the seller the amount of yen
due under the options.
Regarding the second scenario, the importer omits the
transfer of the options to the seller altogether. Rather, to the
extent necessary to insure that the yen/dollar exchange rate
remains fixed at the level necessary to guarantee the maintenance
of the piece goods price, the importer exchanges with the
manufacturer the yen that the importer collects by exercise of
the options.
The agreement between the parties requires that the seller
utilizes the options provided by the importer, and only to the
extent that it will benefit the importer. Any unused options
which are not utilized to obtain yen necessary to purchase the
piece goods are returned to the importer, assuming the scenario
in which the options are transferred to the seller.
ISSUE:
Whether the value of the foreign currency exchange options
is included in the transaction value of the final imported
merchandise.
LAW AND ANALYSIS:
As indicated above, we are assuming that transaction value
pursuant to section 402(b) of the TAA is applicable in appraising
the merchandise. Transaction value is defined as the "price
actually paid or payable for the merchandise when sold for
exportation to the United States . . . " , plus certain
enumerated amounts. See, section 402(b)(1) of the TAA. The term
"price actually paid or payable" is specifically defined in
section 402(b)(4)(A) as " . . . the total payment . . . made, or
to be made, for imported merchandise by the buyer to, or for the
benefit of, the seller.
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The foreign currency exchange options in question are not
payments within the meaning of section 402(b)(4)(A) of the TAA.
The options do not appear to benefit the seller of the
merchandise. The only party which derives a benefit from the
options is the buyer. The seller has agreed to accept the
options from the buyer, or the benefit derived from the options
in second scenario, and has further agreed to return any unused
portion.
The options can not be characterized as assists since they
do not fall within any of the enumerated items provided for in
section 402(h)(1)(A)(i)-(iv). In TAA #20 (Headquarters Ruling
No. 542412 dated March 27, 1983), we stated that if a cost is not
specifically included within the assist definition, it will not
be treated as an assist.
HOLDING:
The value of the foreign currency exchange options as
described herein are not part of the transaction value for the
imported merchandise.
Sincerely,
John Durant, Director,
Commercial Rulings Division
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