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HQ 545661




March 3, 1995

VAL CO:R:C:V 545661 CRS

CATEGORY: VALUATION

District Director
U.S. Customs Service
P.O. Box 37260
Milwaukee, WI 53237-0260

RE: AFR of Protest No. 3701-93-100148; buying commissions; selling commissions; seller and purported agent are related

Dear Madam:

This is in reply to your memorandum of May 23, 1994, under cover of which you forwarded an application for further review of the above-referenced protest, filed December 13, 1993, by counsel Hodes & Pilon, on behalf of Weyco Group, Inc., formerly Weyenburg Shoe Manufacturing Co (hereinafter "Weyco). A meeting was held with counsel at Customs Headquarters on November 1, 1994. We regret the delay in responding.

FACTS:

Weyco has protested the classification and appraisement of men's shoes with outer soles of rubber and uppers of textile materials. The classification issue turns on the appraisement of the merchandise. If the shoes are valued at not over $3.00 per pair, as protestant Weyco contends, the shoes are classifiable in subheading 6404.19.50, Harmonized Tariff Schedule of the United States Annotated (HTSUSA); but if the shoes are valued at over $3.00 per pair but not over $6.50 per pair, they are classifiable in subheading 6404.19.70, HTSUSA.

The shoes at issue in the instant protest were manufactured in the People's Republic of China; however, Weyco did not purchase the shoes from the manufacturer(s). Instead, through the services of an agent, Jimlar Corporation, a New York corporation with an office in Hong Kong, Weyco bought the shoes from Stratosphere Investments. Ltd., a Hong Kong corporation. Jimlar and Stratosphere are related: Jimlar owns 50 percent of the stock in Stratosphere, and Mr. Laurence Tarica, the president of Jimlar, holds the balance. Jimlar and Stratosphere share the same Hong Kong address and use the same letterhead stationery. Moreover, the same person, Mr. Thomas Bailey, represents both companies in Hong Kong.

Weyco paid for the shoes by letter of credit in favor of Stratosphere, the seller. However, in addition to the FOB Dalian, China, price of $2.99 per pair of shoes, Weyco paid Jimlar a commission equal to ten percent of the purchase price. Commission payments were made separately pursuant to commission invoices from Jimlar. Counsel for Weyco contends that the Weyco-Jimlar relationship is that of principal and agent and that the commission payments to Jimlar constitute bona fide buying commissions. In support of this counsel maintains that although there was no buying agency agreement between the parties, Jimlar nevertheless performed the functions of a buying agent and was under Weyco's control at all times.

In this respect counsel states that Weyco issued purchase orders which did not become final unless and until Weyco received and approved samples and fit trials. Furthermore, the receipt and approval of samples and fit trials were the means by which Weyco was able to select the factory which produced the imported merchandise, thereby avoiding the need for company representatives to visit China. Once a style was chosen, Weyco retained control over the ordering process; Jimlar had no authority to vary the terms of Weyco's purchase order, e.g., in regard to price, quantity, color, date and terms of delivery. Jimlar never took title to the shoes and never assumed risk of loss. Counsel also notes that Weyco could have ordered the shoes directly from the factory had it so wished. Finally, counsel states that Jimlar was subject to Weyco's control in respect of shipment and required Weyco's approval to make alternative arrangements.

In contrast, your office maintains that Jimlar acted as a selling agent for Stratosphere rather than as a buying agent for Weyco. In support of this you cite the fact that Weyco did not actively select, visit or communicate with the factories that manufactured the shoes but simply relied on samples supplied by Jimlar. Moreover, you advise that Weyco's vice president for purchasing was unable to identify any of the factories that produced the shoes, never visited the factories and was unable to recall who negotiated prices with the factories although nominally this would have been his responsibility. In addition, there are no invoices from the factories or other documentation that would indicate that Weyco had any direct contact with the factories. Indeed, there is no evidence that the factories knew that, as alleged, Weyco was buying directly, but merely that Weyco was the ultimate consignee. Pro forma invoices issued to Weyco on joint Jimlar/Stratosphere letterhead made no mention of the factories and the prices reflected on these invoices were Stratosphere's rather than the manufacturers's. Furthermore, although Weyco's vice president advised that the company's normal way of doing business was to issue letters of credit directly to the seller/manufacturer, all letters of credit in the instant case were issued in favor of Stratosphere.

In addition to the fact that Jimlar is related to Stratosphere, shares offices and stationery with Stratosphere, and is represented in Hong Kong by the same person, Jimlar also trades for its own account. It has two brand names of its own: American Eagle and R.J. Colt. Finally, there is no written buying agency agreement between Weyco and Jimlar.

The protested entries were liquidated more than one year after the date of entry of the merchandise. Protestant Weyco was informed of the extensions by notices which advised that additional time was required to process the transactions. Counsel alleges that the extensions were invalid and that the entries should therefore have been deemed liquidated as entered.

ISSUES:

The issues presented are: (1) whether the amounts paid to Jimlar by Weyco constitute bona fide buying commissions such that the payments are not included in the appraised value of the imported merchandise; and (2) whether liquidation of the protested entries was properly extended.

LAW AND ANALYSIS:

Initially, we note that the protest and application for further review was timely filed under the statutory and regulatory provisions for protests (19 U.S.C. ? 1514; 19 C.F.R. part 174). We also note that the issues protested are protestable issues (19 U.S.C. ? 1514).

Value

Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. ? 1401a). The preferred method of appraisement under the TAA is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus five enumerated additions including any selling commissions incurred by the buyer with respect to the imported merchandise. 19 U.S.C. ? 1401a(b)(1).

Pursuant to section 402(b)(4) of the TAA, the term "price actually paid or payable" is defined in pertinent part 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. 19 U.S.C. ? 1401a(b)(4). Bona fide buying commissions, however, are not an addition to the price actually paid or payable. Pier 1 Imports, Inc. v. United States, 708 F. Supp. 351, 354, 13 CIT 161, 164 (1989); Rosenthal-Netter, Inc. v. United States, 679 F. Supp. 21, 23, 12 CIT 77, 78 (1988); Jay-Arr Slimwear, Inc v. United States, 681 F. Supp. 875, 878, 12 CIT 133, 136 (1988).

The existence of a bona fide buying commission depends upon the relevant factors of the individual case. E.g., J.C. Penney Purchasing Corp. v. United States, 451 F. Supp. 973, 983 (Cust. Ct. 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, 679 F. Supp. 21, 23; New Trends, Inc. v. United States, 645 F. Supp. 957, 960, 10 CIT 637 (1986).

In determining whether an agency relationship exists, the primary consideration is the right of the principal to control the agent's conduct with respect to those matters entrusted to the agent. J.C. Penney, 451 F. Supp. 973, 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 examined such factors as: the transaction documents; whether the purported agent's actions were primarily for the benefit of the principal; whether the importer could have purchased the merchandise 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, 679 F. Supp. 21, 23 (1988); New Trends, 645 F. Supp. 957, 960-962.

In the instant protest, the evidence submitted indicates that Weyco did little to control the actions of its purported agent, Jimlar. For example, Weyco representatives did not know the names of the factories that produced the merchandise, did not visit the factories and did not know who actually negotiated the prices of the merchandise with the factories. Rosenthal-Netter, 679 F. Supp. at 23-24. Furthermore, Stratosphere/Jimlar purchased the protested merchandise at one price, but resold it to Weyco at a higher price. Weyco therefore failed to exercise control over Jimlar, and by reselling the merchandise at a higher price, Jimlar did not act primarily for the benefit of its purported principal.

However, control is but one aspect of an agency relationship. Id. At 25. Here, the alleged agent and the seller are also related. While such a relationship does not preclude the existence of a bona fide buying agency, it nevertheless subjects the transaction to closer scrutiny. Headquarters Ruling Letter (HRL) 544657 dated July 1, 1991; HRL 542756 dated May 13, 1992. The evidence submitted indicates that the relationship between Jimlar and Stratosphere was very close. The same person represented both companies; the companies shared the same offices and on occasion, used a joint letterhead in their correspondence. Moreover, Jimlar trades for its own account. Finally, protestant's claim that Jimlar was Weyco's agent is not supported by the existence of a buying agency agreement. Accordingly, in view of the evidence presented it is our position that Jimlar did not act as a buying agent for Weyco and that the commissions paid to Jimlar did not constitute bona fide buying commissions. Instead, we find that Jimlar acted as a selling agent for its related company, Stratosphere, and that the commissions paid by Weyco to Jimlar were selling commissions.

Entry

Section 504(a), Tariff Act of 1930, as amended (19 U.S.C. ? 1504(a) Supp. 1993), provides that if Customs fails to liquidate an entry within one year from the date of entry or final withdrawal from warehouse, that entry is deemed liquidated at the rate of duty, value, quantity, and amount of duties asserted at the time of entry by the importer. See, American Permac, Inc. v. United States, 10 CIT 535, 642 F.Supp. 1187, 1195 n. 12 (1986) ("The amount of duties asserted at the time of entry by the importer', within the meaning of section 1504(a) and (d), is not what the importer desires to assert upon entry, but what the importer is required by Customs officers to assert when filing the entry summary.). See also, 19 C.F.R. ? 159.11(a) and ? 159.12(f); Detroit Zoological Society v. United States, 10 CIT 133, 630 F.Supp. 1350, 1355 n.9 (1986).

However, under 19 U.S.C. ? 1504(b) (as amended by Pub. L. 103-182, 107 Stat. 2057), Customs may extend the one-year liquidation period by providing notice to the importer and the surety on one of the following two grounds: (1) if "information needed for the proper appraisement or classification of the merchandise, or for insuring compliance with applicable law, is not available to the Customs Service"; or (2) if "the importer of record requests such extension and shows good cause therefor." Section 159.12(e), Customs Regulations (19 C.F.R. ? 159.12(e)), states that extensions may be granted by the District Director for a total not to exceed three years. Therefore, liquidation of an entry must take place within four years from the time of entry unless the liquidation continues to be suspended by court order or if required by statute.

Counsel for protestant Weyco alleges that the entries deemed liquidated by operation of law because the reason given for the extensions was invalid under 19 U.S.C. ? 1504(b). The stock language of the notices notwithstanding, the reason for the extension of liquidation was to obtain additional information needed for the proper appraisement and classification of the merchandise. This represents a valid reason for extending the liquidation period. Accordingly, we find protestant's argument to be without merit.

HOLDING:

The protest should be denied in full. The payments made by Weyco to Jimlar constitute selling commissions rather than bona fide buying commissions. The commissions were properly included in transaction value as an addition to the price actually paid or payable. Liquidation of the entries was properly extended.

In accordance with section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to the mailing of the decision. Sixty days from the date of this letter 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, the Freedom of Information Act and other public access channels.

Sincerely,


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