HQ 545253 - Application for Further Review of Protest No. 2809-92-101859; Proper Transaction Value of Imported Merchandise; Dutiability of Commissions - United States International Trade Commision Rulings

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HQ 545253

August 10, 1994

VAL CO:R:C:V 545253 LPF

CATEGORY: VALUATION

District Director
U.S. Customs Service
555 Battery Street
San Francisco, CA 94111

RE: Application for Further Review of Protest No. 2809-92-101859; Proper Transaction Value of Imported Merchandise; Dutiability of Commissions

Dear Sir:

This is a decision on an application for further review of a protest filed October 29, 1992, against your decision concerning the valuation of backpacking and camping tents. The entry was liquidated on September 18, 1992. We regret the delay in responding.

FACTS:

On June 2, 1992, The North Face ("North Face"), a U.S. corporation, made entry for backpacking and camping tents at San Francisco, CA. The Entry Summary (Customs Form 7501) indicates $26,280 as the value determined by Customs. The file includes a copy of an invoice dated May 8, 1992, from Odyssey International Limited ("Odyssey") to North Face for 50 cartons of backpacking and camping tents at a total of $26,280. Also included is an invoice dated May 5, 1992, from the factory in Hong Kong, Tanaway Industries Ltd. ("Tanaway"), to Odyssey for 500 tents at a total of $21,500. A copy of the buying agency agreement entered into on April 16, 1992, between North Face and Odyssey was submitted. Your office points out that Odyssey owns North Face and requires that North Face use its services as an overseas buying agent and pay a seven percent buying commission. It is your understanding that prior to Odyssey's acquisition of North Face, the latter paid an unrelated agent a seven percent commission.

You appraised the merchandise at $26,280, the price from Odyssey to North Face. The protestant claims that the appraised value should be the FOB price from Tanaway to Odyssey. North Face claims that the value determined by Customs includes a seven percent buying commission paid to Odyssey pursuant to the buying agency agreement. Based on these claims, the protestant requests that the entry be reliquidated with a refund to North Face for
the alleged overpayment of $93.27 representing a seven percent buying commission paid to Odyssey.

ISSUE:

Based on the facts presented, whether the protestant has proven the existence of a bona fide agency relationship and, if not, what sale is the sale for exportation for purposes of determining the transaction value of the merchandise.

LAW AND ANALYSIS:

As you are aware, the preferred method of appraisement is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus enumerated additions.

The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as the "total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."

The existence of a bona fide buying commission depends on the relevant factors in light of the individual case. See J.C. Penney Purchasing Corp. v. United States, 80 Cust. Ct. 84, 95, C.D. 4741, 451 F. Supp. 973, 983 (1978). The importer has the burden of proving the existence of a bona fide agency relationship and that the payments to the agent constitute bona fide buying commissions. Rosenthal-Netter, Inc. v. United States, 12 CIT 77, 78, 679 F. Supp. 21, 23 (1988); New Trends, Inc. v. United States, 10 CIT 637, 640, 645 F. Supp. 957, 960 (1986).

In determining whether an agency relationship exists, the primary consideration has been the right of the principal to control the agent's conduct with respect to those matters entrusted to the agent. J.C. Penney, 80 Cust. Ct. at 95, 451 F. Supp. at 983. The existence of a buying agency agreement has been viewed as supporting the existence of a buying agency relationship. Dorco Imports v. United States, 67 Cust. Ct. 503, 512, R.D. 11753 (1971). In addition, the courts have considered such factors as: whether the purported agent's actions were primarily for the benefit of the principal; whether the principal or the agent was responsible for the shipping and handling and the costs thereof; whether the importer could have purchased
directly from the manufacturers without employing an agent; whether the intermediary was operating an independent business, primarily for its own benefit; and whether the purported agent was financially detached from the manufacturer of the merchandise. Rosenthal-Netter, 12 CIT at 79, 679 F. Supp. at 23; New Trends, 10 CIT at 640-644, 645 F. Supp. at 960-962.

The submitted buying agency agreement supports the existence of a buying agency relationship. On the contrary, the fact that Odyssey requires North Face to use its services and that the difference between the Tanaway-Odyssey and Odyssey-North Face sales prices reflects more than seven percent of the manufacturer's invoiced amount (the Tanaway-Odyssey invoice) may indicate that Odyssey is not a bona fide buying agent. It appears from the information provided that the importer has not met its burden of proving the existence of a bona fide agency relationship. If your office has determined that Odyssey is not a valid buying agent, but a middleman, the decisions reached in Nissho Iwai American Corp. v. United States, 786 F. Supp. 1002 (CIT 1992) rev'd 982 F.2d 505 (Fed. Cir. 1992) and Synergy Sport International, Ltd., v. United States, Slip. Op. 93-5 (Ct. Int'l Trade, decided January 12, 1993) become relevant.

In Nissho Iwai and Synergy, the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman, and a U.S. purchaser. In both cases the middleman was the importer of record. In each case the court held that the price paid by the middleman/importer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm's length free from any nonmarket influences and involving goods clearly destined for export to the United States.

Likewise, we note that in the context of filing an entry, via Customs Form (CF) 7501, an importer is required to make a value declaration. As indicated by the language of the CF 7501 and the language of the valuation statute, there is a presumption that such transaction value is based on the price paid by the importer.

In keeping with the courts' respective holdings and our own precedent, we will continue to presume that an importer's declared transaction value is based on the price the importer paid. In further keeping with the courts' holdings, we note that in those situations where an importer requests appraisement based on the price paid by the middleman to the foreign manufacturer (and the importer is not the middleman), the importer may do so. However, it will be the importer's responsibility to show that such price is acceptable under the standard set forth in Nissho

Iwai and Synergy. That is, the importer must present sufficient evidence that the sale was an "arm's length sale," and that it was "a sale for export to the United States," within the meaning of 19 U.S.C. 1401a(b).

In this case, North Face is the importer and, therefore, based on the presumption explained above, the appraising officer correctly based the transaction value of the imported merchandise on the price that North Face paid to Odyssey. With regard to whether transaction value may be based on the transaction between Odyssey and the foreign manufacturer, we note that it is not clear from the evidence included in the file that such transaction was "a sale for export to the United States" (i.e., that at the time Odyssey purchased, or contracted to purchase, the imported goods, they were "clearly destined for the United States") or was an "arm's length sale" within the standard set forth by the court. Consequently, we cannot make a determination that the transaction value of the imported merchandise should be based on the sale between Odyssey and Tanaway, the foreign manufacturer. On the other hand, we assume that the sale between Odyssey and North Face is acceptable as an "arm's length sale" as articulated by the Nissho Iwai court.

HOLDING:

Based on the evidence submitted, and for the reasons cited above, the appraising officer correctly based the transaction value of the imported merchandise on the price paid by the importer, North Face, to Odyssey. Furthermore, the protestant has not met its burden of proving the existence of a bona fide agency relationship.

You are directed to deny the protest. A copy of this decision with the Form 19 should be sent to the protestant.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS, and to the public via the Diskette Subscription Service, Lexis, the Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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