HQ 0224532 - Franchises issued to other Customs brokers; 19 U.S.C. 1641; C.S.D. 79-111; power of attorney; "Position Statement on Relationships Between Customs Brokers"; 19 CFR 111.30(c); 19 CFR 143.1; Automated broker interface. - United States International Trade Commision Rulings

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HQ 224532

September 28, 1993

BRO-3-02-CO:R:C:E 224532 AJS

CATEGORY: BROKERS

Mr. Jonathan M. Fee
Grunfeld, Desiderio, Lebowitz & Silverman 1201 West Peachtree Street, N.E.
Suite 4860
Atlanta, GA 30309

RE: Franchises issued to other Customs brokers; 19 U.S.C. 1641; C.S.D. 79-111; power of attorney; "Position Statement on Relationships Between Customs Brokers"; 19 CFR 111.30(c); 19 CFR 143.1; Automated broker interface.

Dear Mr. Fee:

This is in reply to your letters of February 25 and May 5, 1993, on behalf of your client, the Wilmington Shipping Company (WSC), regarding the granting of franchises.

FACTS:

WSC is a licensed Customs broker and operates under the fictitious name "Southern Oversees Corporation". WSC proposes to offer and enter into franchises as a franchisor with other separately licensed Customs brokers. WSC and its franchisees intend to use the name "Southern Overseas" as a fictitious name and as a service mark under a franchise agreement. This request does not seek permission to use this fictitious name, but only that WSC and its franchisees may conduct Customs business under a common fictitious name. Each franchisee will use the service mark on stationary, invoices and other business documents. Each franchisee will obtain powers of attorney from its customers in its own name, with a notation showing that the franchisee is doing business under the fictitious name, and will use its own name in conjunction with the fictitious name in executing Customs documents. These powers of attorney will contain a clause authorizing the appointee to execute and issue, on the customer's behalf, powers of attorney to other brokers in
other ports and districts. The power of attorney executed by the first broker in this arrangement will create an agency relationship between the customer and the second broker, and the second broker will be directly accountable to the customer in the performance of Customs brokerage services.

Each franchisee will exercise supervision and control of its Customs business in each district in which it maintains a permit, and will in all other respects separately and independently meet Customs requirements for conducting Customs business as a licensed broker.

WSC also intends to provide communications facilities and data processing services to its franchises which are substantially similar to facilities and services provided by Automated Broker Interface (ABI) service bureaus.

ISSUE:

Whether WSC may enter into franchises as a franchisor with other Customs brokers under the facts described above.

Whether WSC and its franchisees may conduct Customs business under a common fictitious name and service mark, as separate and independent licensed Customs brokers.

Whether WSC may provide communications facilities and data processing services to its franchisees substantially similar to facilities provided by ABI services bureaus.

LAW AND ANALYSIS:

19 U.S.C. 1641(a) states the term "customs broker" means any person granted a Customs broker's license under subsection (b) of this section. Section 1641(b)(2) & (3) provide for the granting of a Customs broker's license to certain individuals, corporations, associations or partner- ships. Section 1641(b)(1) provides that no person may conduct Customs business (other than solely on behalf of that person) unless that person holds a valid Customs broker's license. Section 1641(a)(2) states the term "customs business" means those activities involving transactions with the Customs Service concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by the Customs Service upon merchandise by reason of its importation, or the refund, rebate, or drawback thereof. In this instance, WSC intends to enter into franchise agreements with other Customs brokers. Each
franchisee will be required, as a condition of the franchis- ing agreement, to maintain its separate existence as a licensed Customs broker, and to retain direct accountability for the discharge of its duties and responsibilities as a Customs broker. Accordingly, the franchise agreement does not appear to violate the above portion of the Customs Regulations.

19 U.S.C. 1641(b)(4) provides that a Customs broker shall exercise responsible supervision and control over the Customs business that it conducts. 19 CFR 111.11(d) states the term "responsible supervision and control" means that degree of supervision and control necessary to ensure that the employee provides substantially the same quality of service in handling customs transactions that the licensed broker is required to provide. Furthermore, this section provides:

While the determination of what is necessary to maintain responsible supervision and control will vary depending upon the circumstances in each instance, factors which Customs will consider include, but are not limited to: The frequency of visits to offices of the licensee by the licensed broker(s); the training required of employees; the volume and type of business of the licensee; the reject rate for the various custom transactions; the maintenance of current editions of the Customs Regulations, Harmonized Tariff Schedule of the United States, and Customs issuances; the availability of the licensed broker(s) for consultation with the employee(s) when necessary; the frequency of audits and reviews by the licensed broker(s) of the customs transactions handled by the employee(s): and any circumstances which indicates whether a licensed broker of the firm has a real interest in the firm's operation.

Each franchisee will exercise supervision and control of its Customs business in each district in which it maintains a permit. Therefore, the franchise agreement also does not appear to violate this portion of the Customs Regulations.

In Customs Service Decision (C.S.D.) 79-111 we addressed the situation of whether an importer may issue a power of attorney to a broker (broker A) that would empower that broker to issue, on the importer's behalf, powers of attorney to other brokers in other ports. These other brokers had the same relationship to the importer as does broker A, and will bill and be paid by the importer directly and not through
broker A. We ruled that this relationship was permissible under the Customs Regulations. Our rationale was based on the view that the brokers appointed by broker A would not be subagents of the principal (i.e., the importer) because the importer's power of attorney to broker A would specifically authorize broker A to appoint these other brokers and because these other brokers, once appointed, would act solely on account of the importer and bear no agency relationship to broker A.

Customs position in C.S.D. 79-111 was affirmed in a "Position Statement on Relationships Between Customs Brokers" published in 54 Fed. Reg. 13136 (March 30, 1989). Customs stated that "unless a bona fide employer-employee relation- ship exists, a licensed Customs broker cannot conduct Customs business for another licensed broker's client." Customs further stated that "[a]lternatively, C.S.D. 79-111 can be used since the relevant broker-client relationship is between the broker who is actually performing the work for the client and the broker who is responsible for that performance." The position is this statement was held to apply to the conduct of all Customs business by a license broker.

In this instance, powers of attorney obtained by WSC and individual franchisees from their customers will contain a clause authorizing the appointee to execute and issue, on the customer's behalf, powers of attorney to other brokers in other ports and districts. This type of power of attorney would be permissible as long as each franchisee has the same relationship to the other franchisees' customers as the other franchisee, and each franchisee bills and is paid by the customer directly and not through WSC or another franchisee.

Your request seeks acknowledgement that, provided the ruling is not inconsistent with any provisions of the proposed Customs Modernization and Informed Compliance Act (ACT), WSC and its franchisees may alter their relationships or practices in any manner that may be permitted under the Act without affecting the binding effect of this ruling. We see no reason why this type of acknowledgement would be necessary. If the ACT becomes law, any applicable provisions would be binding on both Customs, WSC and its franchisees.
In addition, any portion of this ruling which is not inconsistent with the ACT would remain binding on Customs, WSC and its franchisees. Consequently in accordance with 19 CFR 177.7(a), your request for an acknowledgement on the possible effect of unenacted legislation is denied.

19 CFR 111.30(c) provides that a broker who changes his name, or who proposes to operate under a trade or fictitious name in one or more States within the district in which he
has been granted a permit and is authorized by State law to do so, shall submit evidence of his authority to use such name. Furthermore, the name shall not be used until the approval of the Commissioner has been received. In the case of a trade or fictitious name, the broker shall affix his own name in conjunction with each signature of the trade or fictitious name when signing Customs documents.

WSC and its franchisees intend to use a common fictitious name and service mark to conduct Customs business. Each franchisee will use the mark on stationary, invoices and other business documents, but would affix its own name in conjunction with each signature of the service mark when signing Customs documents. Powers of attorney obtained by the franchisee from its customers will also show the franchisee's true name as the appointee thereunder with the notation showing that the franchisee was doing business under the service mark. Therefore, the franchise agreement does not appear to violate this portion of the Customs Regulations.

WSC intends to provide communications facilities and data processing services to its franchises which are substantially similar to facilities and services provided by ABI service bureaus. 19 CFR 143.1 states that ABI is a module of the Customs Automated Commercial System (ACS) which allows participants to transmit data electronically to Customs through ABI and to receive transmissions through ACS. Its purposes are to improve administrative efficiency, enhance enforcement of Customs and related laws, lower costs and expedite the release of cargo. Section 143.1(a) allows Customs brokers to participate in ABI. Section 143.1(c) defines an ABI service bureau as "an individual, partnership, association or corporation which provides communications facilities and data processing services for brokers and importers, but which does not engage in the conduct of customs business . . .", and states that such persons may participate in ABI.

Your request asserts that implicit in section 143.1(c) is the recognition that services provided by an ABI service bureau are not Customs business, and that unlicensed persons (i.e., non- brokers) may offer those services. Your request then argues that if unlicensed persons may offer those services, licensed persons should be allowed to offer the same services in districts where they do not maintain permits. We agree that WSC may perform ABI services for its franchisees. Inasmuch as Customs brokers are permitted to participate in ABI, and WSC would not be engaged in the
conduct of Customs business for its franchisees but merely providing communications and data processing services for other brokers, this portion of the franchise agreement does not appear to violate the Customs Regulations.

HOLDING:

WSC may enter into franchise agreements with other Customs brokers under the above described facts.

WSC and its franchisees may conduct Customs business under a common fictitious name and service mark, as separate and independent licensed Customs brokers.

WSC may provide communication facilities and data processing services to its franchisees substantially similar to facilities and services provided by ABI service bureaus.

Sincerely,

John Durant, Director

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