HQ 0544976 - Assists; commissions paid to an agent for procuring piece goods used in the manufacture of imported apparel; HRL 544323, HRL 544423, TAA 20 cited. - United States International Trade Commision Rulings

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HQ 544976

March 17, 1993

VAL CO:R:C:V 544976 CRS

CATEGORY: VALUATION

Sandra Liss Friedman, Esq.
Barnes, Richardson & Colburn
475 Park Avenue South
New York, NY 10016

RE: Assists; commissions paid to an agent for procuring piece goods used in the manufacture of imported apparel; HRL 544323, HRL 544423, TAA 20 cited.

Dear Ms. Friedman:

This is in reply to your letters dated April 13, 1992, and December 18, 1992, on behalf of J. Gallery Ltd. (Junior Gallery), concerning the dutiability of payments for the services of an agent in procuring assists. This matter was also discussed with members of my staff in a meeting held at Customs Headquarters on November 23, 1992.

FACTS:

Junior Gallery contemplates importing women's clothing from various manufacturers in the Orient. The garments will be made using piece goods and other materials supplied by Junior Gallery as assists. These materials will be procured for Junior Gallery through the services of an agent who will be paid a commission amounting to three percent of the f.o.b. value of the piece goods. The services to be performed by the agent will include sourcing the piece goods, maintaining quality control, and arranging the production and delivery schedules to designated factories.

You contend that the payments from Junior Gallery to its agent should be treated as nondutiable since they represent the cost of procuring assists, and thus are distinguishable from the assist or the value of the assist.

Alternatively, with regard to the payments you describe as "procurement assists," you state in your letter of December 18th:

[They] closely resemble the types of services provided by a buying agent; (sic) sourcing, negotiation of price, checking of quality control, arranging for shipment and the like. In fact, the agent/facilitator who will be hired by Gallery to source the fabric is also retained by Gallery as their buying agent for garments manufactured in Korea. The agreement with the agent for the assist procurement can be incorporated into the basic buying agency agreement as an addendum.

In view of the above, you have enquired as to the consequences for appraisement purposes if the commissions paid by your client to its agent for the procurement of fabric were to be provided for under the terms of the agency buying agreement relating to the purchase of the finished garments, viz. whether these payments would be non-dutiable?

ISSUE:

The issue presented is whether commissions paid by a principal to an agent for procuring piece goods (assists) used in the manufacture of imported apparel form part of the cost of the assists such that they are included in the appraised value of the imported merchandise.

LAW AND ANALYSIS:

For the purposes of this ruling request we have assumed that transaction value is the appropriate basis of appraisement of the merchandise in question. Transaction value is defined in section 402(b)(1) of the 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 imported merchandise when sold for exportation to the United States, plus five enumerated statutory additions, including the value, apportioned as appropriate, of any assist. 19 U.S.C. 1401a(b)(1)(C).

Section 402(h) of the TAA (19 U.S.C. 1401a(h)) provides in pertinent part:

The term "assist" means any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise:

(i) Materials, components, parts and similar items used in the production of the imported merchandise....

Through its agent, Junior Gallery intends to provide materials and parts, specifically piece goods, to the manufacturers of the apparel it contemplates importing. The piece goods therefore constitute assists within the meaning of 19 U.S.C. 1401a(h)(i).

Section 152.103(d), Customs Regulations (19 CFR 152.103(d)), provides in relevant part:

If the value of an assist is to be added to the price actually paid or payable...the district director shall determine the value of the assist and apportion that value to the price of the imported merchandise in the following manner:

(1) If the assist consists of materials, components, parts, or similar items incorporated in the imported merchandise, or items consumed in the production of the imported merchandise, acquired by the buyer from an unrelated seller, the value of the assist is the cost of acquisition.

Accordingly, the value of the assists furnished by Junior Gallery to unrelated sellers should be based on the cost of acquisition pursuant to 19 CFR 152.103(d).

In support of your client's position that the three percent commission for locating sources of piece goods is non-dutiable, you cite TAA 20 (Headquarters Ruling Letter (HRL) 542412 dated March 27, 1981). In TAA 20 the issue was whether certain costs incurred in procuring an assist, specifically purchasing, receiving inspection, warehousing and transportation expenses, formed part of the cost of acquiring an assist. With regard to the cost of an assist we stated:

In our opinion, the cost of acquiring an assist is limited to the purchase price, if purchased from an unrelated party. Accordingly, the cost of procuring the assist is not to be included in its value. Neither are receiving inspection and warehousing costs. Actual transportation costs are part of the value of an assist.

Based on this ruling, HRL 542367 dated June 18, 1981, held that procurement expenses connected with the inspection and selection of fabric furnished as an assist by an importer to a manufacturer were not to be included as part of the cost of acquiring the fabric.

Nevertheless, in HRL 544323 dated March 8, 1990, it was determined the term "procurement assist" was not defined in the TAA, and that consequently, the proper inquiry was whether certain costs were assists or part of the value of assists as defined in 402(h)(1)(A) of the TAA. Subsequently, in HRL 544423 dated June 3, 1991, this office addressed the issue of whether commissions paid to a buying agent for obtaining piece goods supplied to apparel manufacturers and used in the production of imported garments should be considered part of the cost of the assist. Having first determined that a bona fide agency relationship did not exist we held that commissions paid by an importer to an "agent" for procuring materials (piece goods) to be incorporated into imported merchandise, i.e., assists, were part of the cost of acquiring the assist and were therefore dutiable.

Customs continues to adhere to its position as expressed in HRL 544423; accordingly, commissions paid by Junior Gallery to an agent for procuring assists are part of the cost of acquiring an assist and should be added to the price actually paid or payable.

However, you have also asked what the duty consequences for commissions paid by Junior Gallery would be if the agent's role in procuring fabric assists were incorporated as part of the buying agency agreement related to the purchase of finished garments. Assuming the existence of a bona fide buying agency, it is Customs' view that the commissions would be non-dutiable. Please note, however, that this advice is provided for your information only, pursuant to 177.1(d)(2), Customs Regulations (19 CFR 177.1(d)(2)), and does not constitute a ruling letter under 19 CFR 177.9.

HOLDING:

Commissions contemplated by Junior Gallery as payments to an agent for services rendered in sourcing piece goods (assists) on behalf of manufacturers of imported women's garments are properly considered as part of the cost of acquiring the assists and would therefore be added to the price actually paid or payable for the imported merchandise.

Sincerely,

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