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HQ 545012

October 13, 1992

VAL CO:R:C:V 545012 ILK
CATEGORY: VALUATION

District Director
Seattle District

RE: Application for Further Review of Protest No. 3001-92- 100309; dutiability of commissions paid to purported buying agent

Dear Sir:

The subject protest and application for further review concerns the appraisement of jackets imported from Hong Kong by xxxxxxxxxxxxxx Inc. (hereinafter referred to as the "importer"), and the Customs Service's decision to assess duty on commissions paid by the importer to its purported Hong Kong buying agent, xxxxxxxxxxx Ltd. (hereinafter referred to as the "agent").

FACTS:

The importer contracted with the agent to provide three styles of jackets for the importer. The importer has provided Customs with two purchase orders. The first is dated October 3, 1990 and is for three styles of jackets at the unit prices of $14.00. $17.60 and $19.00. According to the importer sample material failed to meet the Customs requirements for water resistant fabric under HTSUS 6201.93.35, which has a duty rate of 7.6%. The importer was therefore required to enter the jackets under HTSUS 6201.93.35 at a 29.6% rate of duty. In order to compensate for the increased rate of duty, the importer renegotiated the unit price of the jackets to $9.80, $12.32 and $13.30. These prices are reflected in a second purchase order to the agent dated December 13, 1990, and represent a reduction of approximately 30%. The agent's total invoice price is $24,044.30. The importer claims that it was not until the renegotiation of prices took place that it became aware that commissions paid to buying agents are not dutiable.

Two Customs Forms 28 were sent to the importer on or about November 14, 1991, requesting the invoices from the manufacturer, xxxxx xx xxx, proof of payment and the agent's commission statement. By its letter dated December 5, 1991, the importer supplied certain documents to Customs. In its letter dated December 5, 1991, the importer stated that it has never been able to obtain an invoice from the manufacturer of the merchandise since it has "no contact with them," and the importer believed that the agent and the manufacturer had a falling out over the price renegotiations.

The importer has provided a copy of a memorandum from the agent dated December 14, 1990 which identifies the services that the agent agrees to perform for the importer as its "commissioned agent." These services consist of locating a factory to produce the styles requested by the importer, communicating specifications to the factory, communicating questions and price negotiations to the importer and the factory, delivering samples of ornamentation, trim and prototypes to the importer for approval, arranging for logo of computer embroidery and screen print for approval and final production, inspection of production to assure that product is of the quality approved by importer and preparation of export documentation. The memorandum provides that the agent will charge a commission "approximately" 25% of the factory F.O.B. price of the merchandise for the foregoing services. The agent's commission invoice is dated December 31, 1990, and is for 25% of the agent's invoice price of the imported merchandise.

Customs has also been provided with a copy of an Advice of Letter of Credit Drawing and Negotiation, showing the draft amount as that for the merchandise invoice and the commission invoice, to be drawn by the agent.

By Customs Form 29, dated December 12, 1991, the importer was informed that the imported merchandise would be appraised at the total amount paid to the agent, including the "commission," since the only invoices provided to Customs were from the agent. The entry was liquidated accordingly on December 27, 1991. The Protest, filed on March 26, 1992, is accompanied by a copy of the manufacturer's invoice. The Protest states that the reason for the delay in providing the manufacturer's invoice was the dispute between the manufacturer and agent. The manufacturer's invoice is dated December 29, 1990, is in HK$, is made out to the agent but cites the importer's purchase order numbers. The invoice shows a discount amount which reflects a discount of approximately 15.35% of the total F.O.B. price. This "discount" is not explained.

According to T.D. 91-6, the quarterly rate of exchange for US$ and HK$ was 0.128279 from October 1 through December 31, 1990. The importer has not provided Customs with any other exchange rate. The manufacturer's invoice shows the jackets to be priced at HK $93.00, 119.00 and 129.00 per piece. Based on the rate of exchange, the manufacturer's invoice prices for the garments are US $11.93, 15.27 and 16.54 respectively. The manufacturer's total fob invoice price with the discount is HK $195,806.75, or based on the exchange rate, US $25,117.90.

The Customs field office has taken the position that the 25% commission exceeds the commission rate that is customary in the trade for bona fide buying agents. It is the importer's position that the agent is a buying agent, and the commission paid is non- dutiable.

ISSUE:

Whether the described services provided by the agent are those of a bona fide buying agent.

LAW AND ANALYSIS:

The services described above have long been considered characteristic of a buying agent. See e.g.., Jay-Arr Slimwear Inc. v. United States, 12 CIT 133, 681 F.Supp. 875 (1988); J.C. Penney Purchasing Corp. et al. v. United States, 80 Cust. Ct. 84, C.D. 4741, 451 F. Supp. 973 (1978). In addition, in Rosenthal- Netter, Inc. v. United States, 12 CIT 77, 679 F.Supp. 21, aff'd. 861 F.2d 261 (Fed. Cir. 1988), the court noted that the factors in deciding whether a bona fide agency relationship exists include: the right of the principal to control the agent's conduct, the transaction documents, whether the intermediary was operating an independent business primarily for its own benefits, and the existence of a buying agency agreement. We have ruled that "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." Headquarters Ruling Letter (HRL) 542141 dated September 29, 1980, also cited as TAA No. 7. Although no single factor is determinative, the primary consideration is the "right of the principal to control the agent's conduct with respect to the matters entrusted to him." J.C. Penney Purchasing Corp., 451 F.Supp. at 983.

We have stated in U.S. Customs Service General Notice, dated March 15, 1989, citing TAA No.7, that certain documents must be submitted to Customs to clearly establish the existence of a bona fide buying agency:

[A]n 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.

While the importer has provided Customs with a copy of the manufacturer's invoice, it does not establish the price actually paid or payable, or that the agent is not a seller, because the manufacturer's total F.O.B. price is different from the agent's total F.O.B. price.

The services performed by the agent are among those usually performed by a bona fide buying agent. However there are several aspects of the agent's conduct that the importer failed to control. First, the importer did not control from which factory the agent ordered the merchandise. The importer's purchase orders to the agent omit the name of any manufacturer. Therefore
the importer could not have known from which factory the agent would purchase the merchandise. In Rosenthal-Netter, supra, the Court found that the "failure to substantiate the names of manufacturers is evidence that no agency relationship existed." 679 F.Supp. at 23. Second, the importer did not control the manner of payment. The letter of credit opened by the importer to pay for the imported merchandise was made payable to the agent. The agent could also deduct its commission from the letter of credit. The Court in Rosenthal-Netter, found that "an importer's failure to control the manner of payment is a factor evidencing the nonexistence of an agency relationship." Id. Third, the importer had no contact with the actual manufacturer of the merchandise. In New Trends, Inc. v. United States, 645 F.Supp. 957 (CIT 1986), the importer's lack of involvement with the manufacturers of merchandise was an indication that there was no principal-agent relationship between the importer and the agent, but that the agent was acting as a seller of the imported merchandise. Based on the facts before us we are not satisfied that the importer has exercised the requisite degree of control over the agent.

The initial purchase order is dated October 3, 1990. There was no mention of a commission on that purchase order. The "agency agreement" is not even dated until December 14, 1990, after it was found that the merchandise would be classified under a higher rate of duty, and until after the prices of the merchandise had been renegotiated.

The appraising officer has determined that the 25% fee exceeds the commission rate that is customary in the trade for bona fide buying agents. The facts do not indicate that the extent of services provided by the agent are beyond those customarily performed by such agents.

Based on the information provided to Customs regarding the relationship between the importer, agent and seller, the totality of the evidence does not indicate that the agent was under the control of the importer and is in fact a bona fide buying agent. Therefore, we conclude that the fees to be paid to the agent do not constitute a bona fide buying commission, and are therefore included in the transaction value of the imported merchandise.

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 paid to the agent to perform the services of assisting in the purchase of the merchandise from the foreign manufacturer cannot be considered bona fide buying commissions.

Accordingly, you are directed to deny this protest. A copy
of this decision should be attached to the Customs Form 19 mailed to the protestant as part of the notice of action on the protest.

Sincerely,

John Durant, Director
Commercial Rulings Division

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