HQ 544121: Internal Advice Request

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 544121

                                    June 24, 1988

          CLA-2 CO:R:C:V   544121 EK


          CATEGORY:  Valuation

          District Director of Customs
          El Paso, Texas

          RE:  Internal Advice Request

          Dear Sir:

                This is in response to your request for internal advice
          initiated by a certain company (hereinafter referred to as
          importer), regarding the dutiability of a payment made by the
          importer to the unrelated foreign assembler for failing to
          purchase a minimum quantity of merchandise.  The merchandise was
          entered 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)).


          FACTS:

                The importer entered into an agreement with a foreign
          assembler for the production of jackets.  The price per jacket
          was determined to be $1.80.  The importer further agreed to
          purchase 340,000 units during a one year period.  The agreement
          stated that if the importer failed to fulfill their commitment of
          340,000 jackets, the importer must pay the assembler $1.50 per
          unit below the agreed amount.

                At the end of the contractual period, the importer fell
          short of its required minimum and became obligated to pay the
          penalty.

                For purposes of this internal advice request, we are
          presuming that the payment at issue is not a pre-payment for
          subsequent shipments of merchandise imported by the buyer.
          




















                                        - 2 -


          ISSUE:

                Whether the payment made by the importer to the assembler
          for failing to purchase a required minimum is included in the
          transaction value of imported merchandise.


          LAW AND ANALYSIS:

                The primary basis of appraisement, transaction value, is
          defined as the "price actually paid or payable for the imported
          merchandise when sold for exportation to the United States."  In
          addition, section 402(b)(1)(A-E) of the TAA enumerates certain
          items which are added to the price actually paid or payable.

                In Headquarters Ruling No. 543445 dated October 23, 1985, a
          similar payment as that described above was made by the importer
          to the seller of the merchandise.  In that case, however, the
          agreement between the parties provided that if the buyer failed
          to purchase a specified minimum quantity within a given year, an
          added compensation became due.  This payment was in addition to
          the base selling price of the product.  In that case, the term
          base selling price was not a firm price but rather, it was
          subject to adjustments such as the additional amount owed in the
          event the minimum quantity was not purchased.  The agreement
          provided that the final unit purchase price for merchandise
          purchased and imported was not determined until the quantity
          actually purchased during the year was known.

                In Headquarters Ruling No. 543770 dated February 10, 1987,
          a charge for termination of a contract with no importation of
          merchandise resulting was held to be excluded from transaction
          value.

                In the instant case, it is alleged that the price agreed to
          between the parties is fixed and was not determined based upon
          the quantity purchased.  The additional $1.50 per unit represents
          a payment made for merchandise which was not ordered and not
          manufactured.


          HOLDING:

                In view of the foregoing, it is our conclusion that the
          additional payment made cannot be construed as part of the price
          actually paid or payable for merchandise previously imported into















                                        - 3 -


          the United States.  The payments are not encompassed by any of
          the items set forth in section 402(b)(1) of the TAA which are to
          be added to the price actually paid or payable.

                                        Sincerely,



                                        John Durant, Director
                                        Commercial Rulings Division