HQ 544654: Dutiability of Trial Weaving Charges as Part of the Price Actually Paid or Payable for the Imported Merchandise; Application for Further Review of Protest No. XXXX

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 544654

                                   December 23, 1991

VAL CO:R:C:V  544654 ML

CATEGORY:  Valuation

Area Director
JFK Airport Area
Jamaica, New York 11430

RE:  Dutiability of Trial Weaving Charges as Part of the Price
     Actually Paid or Payable for the Imported Merchandise;
     Application for Further Review of Protest No. XXXX

Dear Sir:

     This protest was filed against your appraisement decision in
the liquidation of an entry made by Phillips-Van Heusen Corp.,
(hereinafter referred to as the "importer") of poly/cotton fabric
woven in Japan by Toyo Menka Kaisha, Ltd., (hereinafter referred
to as the "manufacturer").

FACTS:

     According to the submission, the importer is a domestic
manufacturer and distributor of apparel, as well as, an importer
of fabric and apparel.  The imported merchandise consisted of 236
square yards of fabric woven in Japan.  The merchandise was
appraised pursuant to transaction value.  Prior to this
importation, the importer purchased samples and swatches of
fabric from the manufacturer for a book used to illustrate
available fabrics and patterns.  In order to create this new
fabric design, the manufacturer stops the loom and prepares a
warp beam.  The preparation of a warp beam can take as little as
a day or as much as several weeks and no goods can be produced
while the conversion takes place.  According to counsel for the
importer, the manufacturer agreed to weave the pattern if it
recovered the costs associated with stopping a loom and setting
up a new warp beam.  The newly woven fabrics were purchased in
small quantities, often with the manufacturer requiring the
importer to pay a trial weaving charge.  This charge was a
substantial sum, far in excess of the price of the fabric.  When
the subsequently ordered fabric price and the trial weaving
charge are on a single invoice, as was the case here, the trial
weaving charge is identified separately.

ISSUE:

     Whether the importer's payment to the manufacturer for trial
weaving costs was part of the "price actually paid or payable"
for the imported merchandise.

LAW AND ANALYSIS:

     Transaction value, the preferred method of appraisement, is
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 not relevant here.  This is more specifically defined
in section 402(b)(4)(A) of the TAA, as the following:

     The term "price actually paid or payable" means the total
     payment... made, or to be made, for imported merchandise by
     the buyer to, or for the benefit of, the seller.  (emphasis
     added)

     Counsel for the importer analogized the situation in the
instant case to that of Headquarters Ruling Letter (HRL) 542666,
dated January 26, 1982, (TAA #45).  The issue in that case was
whether cash payments by the importer to the exporter were part
of the "total payment... for the imported merchandise...."  The
cash payments were made to acquire facilities and equipment.  The
agreement also provided that the exporter would pay the importer
back.  Customs likened this payment to a loan, and stated that
the advance was not tied to the payment for the imported
merchandise.  Customs concluded that payments relating to the
imported merchandise would be part of the "price actually paid or
payable" while payments unrelated to the imported merchandise
would not be part of the "price actually paid or payable."  In
that case, Customs also held that whether a financial arrangement
between the buyer and seller is part of the "price actually paid
or payable" is a question of fact which must be determined on the
basis of evidence available with regard to that particular
transaction.

     Based on the evidence in this case, we do not believe the
payment made for designing swatches of fabric can be likened to a
loan and therefore, is unrelated to payments for subsequently
imported merchandise.

     Customs has held that additional payments made by the buyer
to the seller to produce or buy items such as tools and molds
necessary to produce the subject merchandise, constitutes part of
the price actually paid or payable for the imported merchandise. 
(See HRL 542 812, dated July 19, 1982; HRL 543983, dated December
2,1987)  Likewise, Customs has held that payments made to the
seller for expenses incurred for design and development are part
of the price actually paid or payable for the imported
merchandise.  In HRL 543324, dated August 8, 1984, Customs
rendered advice concerning the valuation of two product groups. 
One issue addressed involved the performance of foreign research
and development (R&D) paid for by the importer.  Part of the R&D
payments were attributable to specific products which were never
produced.  Additionally, not all of the products developed were
imported into the United States.  Customs stated that following
C.S.D. 83-3, the R&D payments were part of the price actually
paid or payable rather than assists.  We noted that transaction
value is defined as the "price actually paid or payable for
merchandise when sold for exportation to the United States" and
therefore, the dutiable amount of the R&D was limited, based on
the underscored language, to that paid for products exported to
the United States.  (See also, HRL 543983, dated December 2,
1987)

     In Internal Advice (I/A) 17/90, 544516, dated January 9,
1991, Customs considered three factual situations involving
payments from the importer to the manufacturer.  One situation
dealt with a payment made by the importer to the manufacturer for
the design and development of a prototype.  Customs found that
the prototype in that case was a necessary step in the design and
development of the subsequently imported articles based on that
prototype.  We held that the cost of the prototype was the cost
necessary to produce the subsequently imported merchandise, and
should be included in the price actually paid or payable for that
imported merchandise.

     In Generra Sportswear Co. v. United States, Slip Op. 89-
1652, dated May 22, 1990, the U.S. Court of Appeals for the
Federal Circuit affirmed the Customs position regarding the term
"for the imported merchandise" by stating:

          A permissible construction of the term "for the
          imported merchandise" does not restrict which
          components of the total payment may be included in
          transaction value.  Congress did not intend for the
          Customs Service to engage in extensive fact-finding to
          determine whether separate charges, all resulting in
          payments to the seller in connection with the purchase
          of imported merchandise, are for merchandise or for
          something else.

The court went on to say that even if a payment was for something
other than the per se value of the goods, it may properly be
included in the transaction value.  The court took a broad view
of the term "for the merchandise".

     Based on the evidence available in this transaction and
consistent with HRL 543324, I/A 17/90 and the Generra Sportswear
case, we find that the trial weaving charges are part of the
"price actually paid or payable" for the imported merchandise.

HOLDING:

     The payment made by the importer to the manufacturer for
trial weaving charges was part of the price actually paid or
payable for the subsequently imported merchandise, and therefore,
dutiable.

     Accordingly, you are hereby directed to deny the protest in
full.  A copy of this decision should be attached to the Customs
Form 19 and mailed to the protestant as part of the notice of
action on the protest.

                                   Sincerely,


                                   John Durant, Director
                                   Commercial Rulings Division