HQ 0544234 - Tariff Act of 1930 - United States International Trade Commision Rulings

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HQ 544234

January 24, 1989

CLA-2 CO:R:C:V 544234 DHS

CATEGORY: VALUATION

John B. Pellegrini, Esq.
Ross & Hardies
529 Fifth Avenue
New York, New York 10017-4608

RE: Tariff Act of 1930

Dear Mr. Pellegrini:

This is in reference to your letter of August 23, 1988, regarding the effect of 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)), on certain contemplated transactions to be entered into by your company. You request a binding ruling regarding the dutiability of certain commissions to be paid to a related foreign company in exchange for services in aiding in the purchase of merchandise from foreign manufacturers.

FACTS:

You state that your client, Reebok International, Ltd. (the company), is contemplating developing a wholly-owned subsidiary agent to perform the functions generally performed by an exclusive buying agent. These services include: identifying new manufacturers; arranging for the manufacture of products; surveying the potential markets; providing quality control services; providing quality assurance and other technical services; aiding the manufacturers of products in correcting manufacturing problems by providing technical advice; providing guidance to the manufacturers to acquire raw materials; arranging for the necessary documentation for the shipment of the products; arranging for shipping, insurance, export control and customs services and proper quota for export to the country of destination. Each activity performed by the agent is to be in a manner directed by the principal and in the best interest of the principal.

The commissions to be received by the agent will be 7.2 percent of the sellers' ex-factory prices. The principal will reimburse the agent for any expenses other than those required under the agreement. Any duties performed by a sub-agent are to be at the expense of the agent. Title and risk of loss will pass to the principal in accordance with an FOB contract. No sample documentation has been provided, although a draft buying agency
agreement has been submitted.

The merchandise purchased through the agent will be invoiced to the Company by sellers and payment will be made by letter of credit opened by or on behalf of the Company. At entry, the merchandise will be accompanied by the sellers' invoices, which we assume will reflect a FOB sale.

ISSUE:

Are commissions to be paid in exchange for a related corporation's services in the purchase of merchandise from foreign manufacturers considered a buying commission?

LAW AND ANALYSIS:

For purposes of this prospective ruling request, we are assuming that transaction value will be applicable as a basis of appraisement.

Transaction value is defined in section 402(b)(1) of the TAA. This section provides, in pertinent part, that the transaction value of imported merchandise is the price actually paid or payable for the merchandise plus amounts for the items enumerated in section 402(b)(1). Buying commissions are not specifically included as one of the additions to the "price actually paid or payable". The "price actually paid or payable" is more specifically defined in section 402(b)(4)(a) as:

The total payment (whether direct or indirect...) 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). The fact that the firms are related does not preclude a buyer-agent relationship.

The Restatement (Second) of Agency section 14K (1958) defined an agent as:

One who contracts to acquire property from a third person and convey it to another is the agent of
the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself.

In order 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).

The Court of International Trade in the case of New Trends Inc., supra, set forth several factors upon which to determine the existence of a bona fide buying agency. These factors include: whether the agents actions are primarily for the benefit of the importer, or for himself; whether the agent is fully responsible for handling or shipping the merchandise and for absorbing the costs of shipping and handling as part of its commission; whether the language used on the commercial invoices is consistent with the principal-agent relationship; whether the agent bears the risk of loss for damaged, lost or defective merchandise; and whether the agent is financially detached from the manufacturers of the merchandise.

The above-stated factors have been determining factors applied by the courts to deny the existence of a buying agency relationship in New Trends, Inc., supra, Jay-Arr Slimwear Inc. v. United States, _CIT_, Slip Op. 88-21 (1988), Rosenthal- Netter, Inc. v. United States, _CIT_, Slip Op. 88-9 (1988).

On the basis of the information you have provided regarding the prospective transactions in question, if the actions of the parties conform to the terms of the buying agency agreement and those outlined in your letter and set forth above, the Company will exercise the requisite degree of control over the agent. Therefore, we conclude that the commissions to be paid to the agent constitute bona fide buying commissions and will not have to be included in the determination of the transaction value.

HOLDING:

In view of the foregoing, it is our conclusion that the commissions to be paid to the agent to perform the services of assisting in the purchase of merchandise from the foreign manufacturers are to be considered bona fide buying commissions; and therefore, not to be added to the price actually paid or payable.

Sincerely,

John Durant, Director

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