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HQ 543990

March 25, 1988

CLA-2 CO:R:CV:V 543990 DH

CATEGORY: VALUATION

Peter S. Herrick, Esq.
Herrick & Larsen
2945 S. Miami Avenue
Miami, Florida 33129

RE: Non-dutiable buying commission

Dear Mr. Herrick:

This is in response to your letters of July 15, 1987, February 9, 1988 and March 10, 1988, requesting a ruling as to whether a change in the importer's name and a change in the amount and manner of determining the commission to be paid to an agent will revise the conclusion drawn in Headquarters Ruling Letter (HRL) 543461, dated March 1, 1985.

FACTS:

In HRL 543461, we held that the price of footwear imported directly from El Salvador to the United States, which the distributor negotiated with the manufacturer on the importer's behalf, and which the importer accepted prior to exportation, to represent the transaction value. We further held that the $2.00 per pair which the distributor invoiced either separately or as a separate item on the sales invoice was a non-dutiable buying commission.

ISSUE:

Are commissions to be paid to an exclusive distributor of the manufacturer considered buying commissions?

LAW AND ANALYSIS:

As you know, transaction value is defined in section 402, Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a), as the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts for the items specifically enumerated in section 402(b)(1) of the TAA. Although selling commissions are one of the items listed therein, buying commissions are not included as an item to be added to the price actually paid or payable. The term "price actually paid or payable" is defined in section 402(b)(4)(A) as:

..the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

It is clear from the statutory language that in order to establish transaction value one must know the identity of the seller and the amount actually paid or payable to him. Whether or not the purported agent is the seller is to be determined by the documents presented. Furthermore, the totality of the evidence must demonstrate that the purported agent is in fact a bona fide buying agent and not a selling agent or an independent seller. See TAA No.7, dated September 29, 1980 (542141).

In order to continue to view the relationship of the parties as a bona fide buying agency, Customs must examine all the relevant factors. J. C. Penney Purchasing Corporation et al. v. United States, 80 Cust. Ct. 84, C.D. 4741 (1978), 451 F. Supp. 973 (1983): United States v. Knit Wits (Wiley) et al., 62 Cust Ct. 1008, A.R.D. 251 (1969). The primary consideration, however, "is the right of the principal to control the agent's conduct with respect to the matters entrusted to him." Dorf Int'l, Inc., et al. v. United States, 61 Cust. Ct. 604, A.R.D. 245, 291 F. Supp. 690 (1968). The degree of discretion granted the agent is an important factor. New Trends Inc. v. United States, 10 CIT_, 645 F. Supp. 957 (1986).

In reviewing HRL 543461, we note several factors which impact negatively on the conclusion reached in the previous decision. The establishment of the distributor as the exclusive world-wide distributor of the manufacturer's product is tantamount to the establishment of the distributor as a selling agent. On the basis of the information furnished, we are of the opinion that the importer (subdistributor) does not exercise the requisite control over the distributor to establish a buying agency relationship. The importer can not negotiate directly with the manufacturer or purchase directly from the manufacturer but must deal solely with the distributor. Additionally, it is the complete discretion of the distributor to accept the order of the importer. Based on these facts, the distributor appears to work for the manufacturer and/or seller. Accordingly, you should have been previously advised that the services of the distributor were those of a selling commissionaire and that such services were dutiable.

HOLDING:

We, therefore, are compelled to revoke, pursuant to section 177.9(d), Customs Regulations (19 CFR 177.9(d)), the portion of HRL 543461 that addresses the commissions paid to the distributor, since the conclusion found in that ruling was in error.

Accordingly, the commissions paid to the distributor are to be considered selling commissions; therefore, they are dutiable under section 402(b)(1) of the TAA. This ruling will become effective upon the issuance of this letter.

Sincerely,

John Durant

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