HQ 544425: Request for Prospective Ruling Dated November 27, 1989

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 544425

                        February 23, 1990

CLA-2 CO:R:C:V  544425 VLB

CATEGORY: Valuation

Leonard ------
---------, Limited
--- Seventh Avenue
New York, New York  10018

RE:  Request for Prospective Ruling Dated November 27, 1989

Dear Mr. ------:

     This is in response to your letter dated November 27, 1989,
requesting a ruling on a proposed arrangement between one of your
ladies apparel clients (hereinafter referred to as "your client")
and a major retail chain (hereinafter referred to as the "retail
purchaser").

FACTS:

     You state that your client is proposing to engage in a
transaction wherein it will take orders from a retail purchaser
and subsequently channel the orders to a manufacturer in an
unspecified non-quota foreign country (hereinafter referred to as
the "manufacturer"). In order to obtain your client's product
line at special reduced prices, the retail purchaser will fund
the purchase by issuing its own letter of credit for payment
directly to the manufacturer.  In addition, the retail purchaser
will be the importer of record and will pay all charges in
connection with the importation, e.g., manufacturer's invoice
price for the garments, freight, duties, clearance and delivery
charges.

     You have provided the following example of the transaction:

     1.  Manufacturer offers your client a sweater at $10.00
     F.O.B.

     2.  Your client offers the same sweater to the retail
     purchaser at $11.00 F.O.B.

     3.  Provided the retail purchaser issues the letter of
     credit to the manufacturer and lands the sweater
     directly.

                              - 2 -

     4.  The retail purchaser will pay duty, not on $10.00
     F.O.B., but on $11.00 F.O.B.

     5.  The manufacturer will hold the $1.00 profit to your
     client's credit [due to currency restrictions].

     6.  Your client does not wish to reveal to the retail
     purchaser the amount of profit.  The retail
     purchaser understands this and is willing to pay
     the additional duty, whatever it is.

     You further state that your client has additional on-going
business with the manufacturer.  Therefore, the extra $1.00 that
the retail purchaser has paid to the manufacturer is held as a
credit that is applied toward your client's subsequent
purchases.  You provide the following example of this proposed
transaction:

     1.  Your client has $1.00 credit with the manufacturer.

     2.  Your client orders a different sweater that has a
     $10.25 F.O.B. value.

     3.  The manufacturer requests that your client issue a
     letter of credit for only $9.25 F.O.B.

     4.  The manufacturer issues a Customs invoice for
     $10.25 F.O.B. and your client pays the duty on
     this value.

     5.  The entire transaction reflecting the $1.00
     discount will be clearly explained on the
     commercial invoice or by a statement accompanying
     it at the time of entry.

     6.  Your client through the letter of credit payment
     remits $9.25 to the manufacturer, offsetting its
     credit.


ISSUE:

     Whether the described transactions are in conformance with
Customs rules and regulations.

                              - 3 -

LAW AND ANALYSIS:

     The preferred method of appraising merchandise is
transaction value, defined in 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) as the "price actually paid or payable" for the
merchandise when sold for exportation to the United States, plus
certain enumerated additions.

     The "price actually paid or payable" is defined in section
402(b)(4)(A) of the TAA as:

     The total payment (whether direct or indirect . . .")
     made, for imported merchandise by the buyer to, or for
     the benefit of, the seller.

     In this case it appears that transaction value is the proper
appraisement method.  (In making this determination, we are
assuming that all of the parties are unrelated).  There is a sale
for exportation to the U.S. between your client and the retail
purchaser.  It is the price involved in this sale that you state
will be declared as the price actually paid or payable for the
merchandise.  Under the TAA, this is an acceptable value for the
price actually paid or payable.

     In the second transaction, your client pays the manufacturer
by issuing a letter of credit that is less than the total F.O.B
price of the goods.  The remaining amount ($1.00) is offset
against your client's credit with the manufacturer.  As stated
above, the price actually paid or payable for imported
merchandise is the total payment, whether direct or indirect by
the buyer to the seller.

     In this case the total payment that your client is making to
the manufacturer is $10.25 F.O.B.  $9.25 of this amount is a
direct payment through the letter of credit.  The remaining $1.00
is an indirect payment to the manufacturer.  Therefore, the full
amount ($10.25) is the correct amount for the price actually paid
or payable.  The full amount is the amount that you are proposing
to declare to Customs and to explain on the commercial invoice.
Therefore, this is an acceptable calculation of the price
actually paid or payable.

                              - 4 -


     Of course, if a visa is required to obtain entry of the
imported merchandise, then release of the merchandise would
depend upon presentation of all relevant documentation in
accordance with Treasury Decision 86-56.  A copy of T.D. 86-56 is
provided for your convenience.


HOLDING:

     The proposed transactions are acceptable for transaction
value purposes.



                         Sincerely,



                         John Durant, Director
                         Commercial Rulings Division