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HQ 544265

February 7, 1990

CLA-2 CO:R:C:V 544265 DHS

CATEGORY: VALUATION

RE: Buying Commissions

Michael R. Spano el greco, Inc.
2 Harbor Park Drive
Port Washington, New York 11050

RE: Buying Agency: 19 U.S.C. 1401a(b)

Dear Mr. Spano:

This is in response to your letter, dated November 17, 1988, and your FAX, dated November 15, 1989, 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 contemplated transactions to be entered into by your client's company. You request a binding ruling regarding the dutiability of certain commissions to be paid to a foreign company in exchange for services in aiding in the purchase of merchandise from a foreign manufacturer related to the purported agent. Please accept our apologies for the delay in responding to your inquiry.

FACTS:

You state that el greco has been utilizing the services of a company located in Brazil and the U.S. in order to perform general buying agency services. There has never been a buying agency agreement drafted between the parties. Your concern is primarily with the importation from one manufacturer who is related to the agent. You have verbally stated that the merchandise in question has been and will continue to be imported into the ports of JFK and the New York Seaport. Before obtaining knowledge of this relationship these ports have until this time treated this relationship as one of buyer and agent.

You state that the proposed agent purchased an interest in a related factory in 1983. One of the partners of the agent has been a director of quality control and a partial owner. You state however, that the proposed agent does not direct or control the manufacturer except to the extent that it requires a level of production and quality as an agent. You further state that the agent will not share the commission paid to it by the importer with the manufacturer.

The information in your letter states that the purported buying agent is to perform the services of researching the market and providing information regarding the factories which could produce the shoe; transmitting the factory(s) offer price and ex- factory date according to the importers requirements to the importer; providing market information; assisting in direct import buying activities, and collecting on occasion samples which the importer expresses an interest; accompanying the importer on visits to the factory; submitting to the importer a weekly report concerning samples requested and open order status highlighting the delays in production; arranging trips for the importer; arranging appointments for the importer with the foreign suppliers; inspecting the quality and quantity; and drafting the paperwork for the exportation of the merchandise.

The agent is to receive a 5 percent commission from the subsidiary based on the cost of merchandise delivered in Hong Kong. In the event that the merchandise is improperly manufactured the agent is not paid a commission. You state that the importer has used the services of the buying agent involving services of over 10 different Brazilian factories over the last five years. The proposed agent is not the exclusive agent of the importer, or the only agent of the importer in Brazil.

You have provided an invoice from a past transaction setting forth a price for the merchandise from the manufacturer with a separate amount indicated as the commission. You have also presented a document from the agent clarifying the agent's interest in the manufacturer and the activities performed by the agent.

ISSUES:

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

LAW AND ANALYSIS:

For the purpose of this prospective ruling request, we are assuming that transaction value will be applicable as the 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. As stated in 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 (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 business ties between the manufacturer and the agent are not necessarily determinative of the status of the commissions the importer paid the agent but the question must be determined by the full circumstances as revealed by the evidence at hand. Bushnell v. United States, C.A.D. 110 (1973). 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).

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, _CIT_, Slip Op. 88-21 (1988), Rosenthal-Netter, Inc. v. United States, _CIT_, Slip Op. 88-9 (1988).

The newly disclosed facts indicate that the agent and the manufacturer are related. The burden is therefore, on the importer to establish that the agent acted solely on behalf of the importer and that the relationship of the agent and the manufacturer does not encroach upon the principal-agent relationship. In the instant case, the services to be performed by the agent are indicative of those generally provided in a buying agency relationship. Further, you have presented evidence which supports the fact that the commissions paid to the agent by the importer have not in the past inured to the benefit of the manufacturer. You further state that the future actions of the agent will conform to the past actions of the agent.

Based upon the treatment of the past transactions by the import specialist and the information you have provided regarding the prospective transactions, the relationship in question appears to be a bona-fide buying agency. Note however, 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, the commissions to be paid to the prospective company to perform the services of assisting in the purchase of the merchandise from the foreign manufacturers appear to be bona fide buying commissions as long as the considerations discussed above are followed.

Sincerely,

John Durant, Director,

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