HQ 0544669 - Bona Fides of a Buying Agency Where Principal Directs the Agent to Retain Title and Bear Risk of Loss for the Imported Merchandise - United States International Trade Commision Rulings

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HQ 544669
August 15, 1991

VAL CO:R:C:V 544669 ML

CATEGORY: VALUATION

RE: Bona Fides of a Buying Agency Where Principal Directs the Agent to Retain Title and Bear Risk of Loss for the Imported Merchandise

This is in response to your letter dated February 27, 1991, requesting a ruling on whether the basis of appraisement for imported merchandise will be transaction value, as represented by (hereinafter referred to as "A--"), to an unrelated foreign vendor, (hereinafter referred to as the "vendor"). You met with representatives of this office on July 17, 1991.

FACTS:

According to your letter, A--, a company incorporated in the state of New York, is owned by a group of retail department stores and specialty stores. A-- provides a number of services to the shareholder stores, one of which is foreign buying. A-- currently acts as a buying agent, with title to foreign merchandise passing from the foreign seller to the shareholder store, usually FOB-port of export. A-- arranges for transportation and acts as importer of record on behalf of most of the shareholder stores. For these services, A-- is paid a service charge of between - percent and - percent of the purchase price, generally decreasing as a shareholder store's purchases increase. This service fee has been considered a nondutiable charge.

Under the proposed agreement, A-- will continue to buy foreign merchandise after first receiving an order or other commitment from a shareholder store. The shareholder store will advance money to A-- for the purchase. According to counsel, the only difference in the duties performed by A-- under the proposed arrangement is that A-- will take title to the merchandise in the country of exportation and will retain title and risk of loss until the merchandise is delivered in the United States to the shareholder store or a domestic surface carrier acting on behalf of a shareholder store. Currently, the shareholder store is the importer of record. Under the proposed arrangement, A-- will be the importer of record in most instances with delivery of the merchandise subsequent to entry. In other instances, a shareholder store will be the importer of record, with title passing after importation but prior to the entry of the merchandise. You state that A-- will sell merchandise to shareholder stores at a price which will be the sum of the price paid to the foreign vendor, international transportation, clearance and related charges, duties and fees, and service charge or mark-up based on the services rendered by A--.

ISSUE:

Whether a buying agency relationship will remain where the principal directs it's agent to take title and risk of loss for the imported merchandise.

LAW & ANALYSIS:

Although A-- and the shareholder stores are related parties as that term is defined in 402(g) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(g)), for the purpose of this prospective ruling request, we are assuming that transaction value will be applicable as the basis of appraisement. The transaction value of imported merchandise is defined in section 402(b) of the TAA 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 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.

The position of counsel for A-- is that since A-- will take title to the imported merchandise and bear risk of loss until the merchandise is delivered to the shareholder store (or a domestic surface carrier acting on behalf of a shareholder store), the transaction value of the imported merchandise should be based on the price paid by A-- to the foreign vendor; this is the only sale for export to the United States. Counsel for A-- contends that there is a sale between A-- and the shareholder store.

As stated above, Counsel contends that the relationship between A-- and the shareholder stores will remain the same in all aspects of the transaction except that A-- will retain title and bear risk of loss. We do not find that a sale of the imported merchandise occurs simply because A-- will take title to and bear risk of loss for the imported merchandise, as directed by the shareholder stores. As before, the shareholder store will pay for the merchandise prior to its exportation to the United States, thereby furnishing consideration for the merchandise. The contemplated transactions are still controlled by the shareholder stores with A-- acting as an agent, carrying out the instructions of its principal. Given the facts as stated by counsel for A--, A-- cannot sell the merchandise to anyone other than the shareholder store who purchased and pre-paid for the imported merchandise. Clearly, the shareholder owns the goods and has control over the disposition of those goods.

As stated above, the transaction value of imported merchandise is the "price actually paid or payable for imported merchandise when sold for exportation to the United States", plus amounts enumerated in section 402(b)(1). Buying commissions are not specifically included as one of the additions to the "price actually paid or payable." 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. As stated in Headquarters Ruling Letter (HRL) 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. 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.

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 (1978); 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 637, 645 F. Supp. 957 (1986). The plaintiff bears the burden of proof to establish the existence of a bona fide agency relationship and that the charges paid were bona fide buying commissions. Monarch Luggage Company Inc., v. United States, 13 CIT , Slip Op. 88-91 (1989).

In Pier 1 Imports, Inc. v. United States, 13 CIT_, Slip Op. 89-25 (February 23, 1989), the court emphasized that control over the purchasing process was strong evidence that an agency relationship exists. The court found the manner of payment to establish that the agent purchased merchandise only at the direction of the importer. In Pier 1 , the agent did not retain the discretion to deduct commissions, freight charges, or bear the risk of loss. The importer invoiced charges separately and paid for them separately. Additionally, none of the commissions inured to the benefit of the manufacturer. The court found that the agent did not "purchase" the merchandise until after the importer ordered the merchandise, and forwarded the funds necessary for acquisition. Consequently, the agent operated only at the bequest of the importer, not autonomously. Id. at 51.

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 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 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, 12 CIT , 681 F. Supp. 875 (1988), Rosenthal- Netter,Inc. v. United States, 12 CIT , Slip Op. 88-9 (1988), 679 F. Supp. 21 (1988).

As presented, A-- currently acts as a buying agent. The only proposed change to the relationship between A-- and its principal is that A-- will now be directed by the principal to take title and bear the risk of loss for the merchandise. A-- will continue to find foreign vendors to produce the merchandise requested by the shareholder stores and arrange delivery terms pursuant to the direction of the shareholder stores. We do not find A--'s taking title to the merchandise, as directed by the principals, negates the bona fides of the agency relationship. To reiterate, the fact that A-- will take title to the merchandise for a brief time does not mean that the merchandise was sold to A--. A-- cannot sell the merchandise to anyone other than the shareholder store who purchased and pre-paid for them. The shareholder owns the goods and has control over the disposition of the goods. A-- will merely be performing two additional functions at the shareholder stores' behest.

On the basis of the information you have provided regarding the prospective transactions in question, if the actions of the parties conform to their prior arrangements with the added performance by A-- of the two functions described above, the importer will still exercise the requisite degree of control over the buying agent. Note, however, that the degree of control asserted over A-- is factually specific and could vary with each importation. The actual determination as to the existence of a buying agency will be made by the appraising officer at the applicable port of entry upon the presentation of the proper documentation as described in TAA No. 7.

HOLDING:

In view of the foregoing, it is our conclusion that a buying agency relationship will remain in effect where the only change in the relationship is that the principal will direct its agent to take title to, and bear the risk of loss for the imported merchandise.

Sincerely,

John Durant, Director
Commercial Rulings Division

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