HQ 0544419 - Decision on Application for Further Review of Protest No. 3701-89-000036 on Dutiability of Commissions - United States International Trade Commision Rulings

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HQ 544419

July 12, 1990

VAL CO:R:C:V 544419 ML

Category: VALUATION

District Director
Milwaukee, Wis. 53204

RE: Decision on Application for Further Review of Protest No. 3701-89-000036 on Dutiability of Commissions

Dear Sir:

This protest was filed against your decision in the dutiability of a commission paid by -------------- Company to an agent, ---------------, to purchase clothing. The merchandise was appraised under section 402 (b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b); TAA).

FACTS:

The importer contracted with an unrelated agent to purchase goods in Asia. On behalf of and at the specific direction of the importer, the agent placed orders with unrelated manufacturers and sellers. For this service the importer paid them a commission not to exceed 8%. Pursuant to their agreement, the agent transmitted purchasers' packing instructions to the manufacturer; inspected or caused the inspection of the finished goods at the factories or before shipment to insure compliance with the purchasers specifications and purchase orders, and arranged for transportation in the most expeditious and economical manner.

Additionally, the agent was to make every effort to supply the importer with complete documentation relating to the price actually paid or payable for the merchandise. The title to said merchandise vested in the importer immediately upon delivery by the manufacturer, FOB shipping point.

The importer and agent further agreed that no portion of the agents' commission shall be remitted either directly or indirectly to the manufacturer or other seller.

ISSUE:

Are the activities performed by an agent sufficient to conclude that a buying agency exists?

LAW AND ANALYSIS:

For purposes of this protest review, we are assuming that value was the applicable 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)(A). Since buying commissions are not specifically included in section 402(b)(1), they are not to be added to the price actually paid or payable. The "price actually paid or payable" is more specifically defined in section

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.

To establish transaction value, it is necessary to know the identity of the seller and the amount actually paid or payable to him. As stated in Headquarters Ruling Letter (HRL) No. 542141 (TAA #7), dated September 29, 1980, "an invoice or other documentation from the actual foreign seller to the agent would be required to establish that the agent is not a seller and to determine the price actually paid or payable to the seller. Additionally, 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."

Court cases such as Jay-Arr Slimwear Inc. v. United States, 12 CIT _, 681 F.Supp. 875, 878 (1988), stressed that having legal authority to act as buying agent and acting as buying agent were two different matters and that the Customs Service was entitled to examine evidence which proved the latter. 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 Customs Ct. 1008, A.R.D. 251 (1969). The primary consideration, however, "is 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 Customs Ct. 604, A.R.D. 245, 291 F. Supp. 690 (1968). The degree of discretion granted the agent is an important factor. The fact that an importer has an opportunity to purchase merchandise directly, without being required to seek the assistance of an intervening party, has been held to support the existence of an agency relationship. United States v. Alfred Kohlberg, Inc., 27 CCPA 223, 237, C.A.D. 88 (1940). The fact that the importer actually visited factories and participated in negotiations with the factory has also been accorded significance by the courts in finding the existence of an agency relationship.

J.C. Penney Purchasing Corp. v. United States, 451 F. Supp. 973, 983. Similarly, a factor which negates the existence of an agency relationship is the lack of control over the choice of factories. See B & W Wholesale, 58 CCPA at 95, 436 F.2d at 1402; J.C. Penney, 80 Cust. Ct. at 95-96, 451 F. Supp. at 983-84. In the instant case, the importer is unable to purchase merchandise directly, as the agent will not reveal his sources for the manufacture of merchandise. He is, therefore, unable to purchase his merchandise without the assistance of an intervening party. Without knowing who the manufacturers are, he clearly cannot visit factories and participate in price negotiations directly.

An invoice or other documentation from the actual foreign seller to the buying agent is required in order to establish that the agent is not a seller and to determine the price actually paid or payable to the seller. Headquarters Ruling Letter (HRL) No. 543625 dated February 4, 1986; 543821 dated October 29, 1986...87, 122. The court in B & W Wholesale, 58 CCPA at 95-96, 436 F. 2d at 1402 stated that where a buyer exercises no control over the manner in which the agent performs his duties, a bona fide buying agency cannot be established. In New Trends Inc. v. United States, 10 CIT 637, 645 F. Supp. 957 (1986), the court held that no agency relationship existed because the alleged agent retained a great deal of discretion and authority in the purchasing process. 10 CIT at 641, 645 F. Supp. at 960. Specifically, no instructions were given as to how the goods were to be handled or shipped. Id.

The totality of the evidence must demonstrate that the purported agent is in fact a buying agent and not a selling agent or an independent seller. HRL Nos. 543625, and 543821. The Court in J.C. Penney Purchasing Corporation, supra., stated that no single factor was determinative in establishing the existence of a bona fide buying agency relationship. The existence of such a relationship must be ascertained by examining all relevant factors and each case is governed by its own particular facts.

In New Trends Inc., supra, the Court of International Trade set forth several factors upon which to determine the existence of a bona fide buying agency. These factors include: whether the agent's 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 manufacturer of the merchandise. The inquiry does not end here, however. To be exempt from dutiable value, the importer must additionally show that "none of the commission inures to the benefit of the manufacturer." J.C. Penney, 80 Cust. Ct. at 97, 451 F. Supp. at 984; See also, Manhattan Novelty Corp., 63 Cust. Ct. at 702; Nelson Bead Co., 42 CCPA at 183; United States v. Knit Wits (Wiley), 62 Cust. Ct. 850, 854-55, R.D. 11640 (1969); New Trends Inc., 10 CIT 637, 643, 645 F.Supp. 957, 962 (1986), Rosenthal- Netter, Inc. v. United States, 12 CIT , Slip Op. 88-9 (1988).

Under the facts provided, the importer does not have control over the actions of his agent. The importer merely tells his agent what he wants and the agent goes out and finds a manufacturer who can meet the importers demands. The agent makes it clear that he does not wish to reveal his sources for the manufacture of the requisite items, yet the agency agreement between the two parties states that the agent will assist the purchaser on buying trips. Additionally, since the importer does not meet the manufacturers, it is unclear just whom the agent is working for or even if the manufacturer is aware of any agency agreement.

As it is unclear just whom the agent is primarily working for and no way for the importer to purchase merchandise directly, the agents actions do not support the notion of an agency relationship.

HOLDING:

As no single factor is determinative as to whether a buying agency exists, the relationship must be judged by the entire factual situation. It is our conclusion that the commissions to be paid to the agent to perform the services of assisting in the purchase of the merchandise from the foreign manufacturers cannot be considered bona fide buying commissions as long as the considerations discussed exist.

Accordingly, you are directed to deny this protest. A copy of this decision should be attached to Customs Form 19, Notice of Action, to be sent to the protestant.

Sincerely,

John Durant, Director
Commercial Rulings Division

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