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HQ 545362

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May 31, 1994

VAL CO:R:C:V 545362 RSD

CATEGORY: VALUATION

Holly Brown
Import Specialist
Nordstrom, Inc.
A/P Import Office
1321 2nd Avenue
Seattle, Washington 98101

RE: Request for a ruling on whether a potential agent in Mexico would be considered a buying agent

Dear Ms. Brown:

This is in response to your letter dated June 21, 1993, regarding whether an agent you are considering doing business with in Mexico would be considered a buying or selling agent. Accompanying your ruling request were copies of a questionnaire that you sent to the agent and other correspondence between the agent and you. No proposed agreements or contracts between you and the agent were submitted. We regret the delay in responding to your letter.

FACTS:

Nordstrom is a major U.S. retailer, who is interested in establishing a relationship with an agent in Mexico. Although Nordstrom presently has no agents in Mexico, it has been contacted by Grupo LPO Internacional about establishing an agency relationship.

In a letter to Nordstrom dated April 26, 1993, Grupo stated that it is a corporation in Mexico, which runs a trading-exporting program for assorted foreign accounts. Grupo has set up a showroom where products from assorted vendors in Mexico can be displayed. It has also created a warehouse and a packing/ shipping/quality control inspection operation with a staff to monitor all orders, mark merchandise for export with "Made in Mexico" stickers and SKU numbers, and to pack merchandise to meet the specifications of the U.S. market for reshipping. Their staff monitors all transactions until merchandise is shipped and received by their clients.

Grupo also monitors production by visiting factories to check on quality control, and to ensure timely delivery of merchandise. It will also negotiate prices for its clients. In order to reduce costs, Grupo consolidates all purchase orders by using a single invoice/paperwork package. For its services, Grupo takes a 10% commission on top of the purchase and charges $250 for the loading of a container. Expenses such as phone/fax communication and packages sent via courier are also billed to their clients.

Grupo filled out a questionnaire at the request of Nordstrom. In this questionnaire, Grupo indicated that "the agent is closely related to the vendors (Bubble Glass, Wrought Iron, Tin, Wood Furniture, Ceramic ETC) as Grupo LPO is able to finance orders thru special credits granted to us. Accounts if so desired, pay an interest of 9-10% annually. We are important to vendors due to volume carried thru us."

On the questionnaire Grupo also indicated that payments for merchandise will be made by check or wire directly to Grupo LPO Internacional and that no payments will made to vendors. All commercial invoices will be created by Grupo. Grupo will also assume the risk for defects in merchandise as they check products prior to shipment. However, Grupo pointed out that it was not responsible for damage and shortage. The buyer or Grupo will determine where merchandise will be manufactured. In addition, according to their response on the questionnaire, Nordstrom could not purchase the exact same merchandise directly through the vendor or another agent as all merchandise must be purchased through Grupo. Under Grupo's agreements with vendors, merchandise is shown to their accounts first and to give exclusives when the volume is important. Merchandise could be designed by Nordstrom or Grupo according to the style carried by the account and the vendors do their own designing as well. In response to a question as to whether it was a selling or a buying agency, Grupo explained that it is a selling agency because it gathers products from assorted vendors depending on the necessities of each account.

In a letter Grupo to Nordstrom dated June 4, 1993, Grupo stated that it was not possible to issue checks in the vendors' name because the invoices come from Grupo and not the vendors. They further mentioned that 50-60% of the vendors get financing from Grupo LPO to produce purchase orders. In this letter, Grupo revised its previous answer and said that it was a buying agent working for a "company" in the US.

ISSUE:

Would any potential relationship between Grupo LPO Internacional and Nordstrom qualify as bona fide buying agency relationship?

LAW AND ANALYSIS:

For the purpose of this prospective ruling request, we are assuming that transaction value will be applicable as the basis of appraisement.

Transaction value is defined in section 402(b)(1) of the TAA. This section provides, in the pertinent part, that the transaction value of imported merchandise is "the price actually paid or payable for merchandise when sold for exportation to the United States," plus amount for the items enumerated in section 402(b)(1). Buying commissions are not specifically included as one of the additions to the "price actually paid or payable." The "price actually paid or payable: is more specifically defined in section 402(b)(4)(A) 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.

It is clear from the statutory language that in order to establish transaction value one must know the identity of the seller and the amount actually paid or payable to him. As stated in Headquarters Ruling Letter (HRL) 542141 (TAA #7), dated September 29, 1980, "...an 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. Furthermore, 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.

In order to view the relationship of the parties as a bona fide buying agency, Customs must examine all the relevant factors. J.C. Penney Purchasing Corporation et al. v. United States, 80 Cust. Ct. 84, C.D. 4741 (1978), 451 F.Supp 973 (1978); United States v. Knit Wits (Wiley) et al., 62 Cust. Ct. 1008, A.R.D. 251 (1969). The primary consideration, however, "is the right of the principal to control the agent's conduct with respect to the matters entrusted to him." Dorf Int'l Inc., et al v. United States, 61 Cust. Ct. 604, A.R.D. 245, 291 F.Supp. 690 (1968). The degree of discretion granted to the agent is an important factor. New Trends Inc. v. United States, 10 CIT 637, 645 F.Supp. 957 (1986). The plaintiff bears the burden of proof to establish the existence of a bona fide buying commission. Monarch Luggage Company Inc., v. United States, 13 CIT_, Slip Op. 88-91 (1989).

The Court of International Trade in the case of New Trends Inc., supra, set forth several factors upon which to determine the existence of a bona fide buying agency. These factors include: whether the agent's actions are primarily for the benefit of the importer, or for himself; whether the agent is fully responsible for handling or shipping the merchandise and for absorbing the costs of shipping and handling as part of its commission; whether the language used on commercial invoices is consistent with the principal-agent relationship whether the agent bears the risk of loss for damaged, lost or defective merchandise; and whether the agent is financially detached from the manufacturer of the merchandise.

In Jay-Arr Slimwear Inc., v. United States, 12 CIT----, 681 F.Supp 875 (1988), the Court of International Trade cited examples of services which are characteristic of those rendered by a buying agent. These services include compiling market information, gathering samples, translating, placing orders based on the buyer's instructions, procuring the merchandise, assisting in factory negotiation, inspecting and packing merchandise and arranging for shipment and payment.

Evidence submitted to Customs must clearly establish the fact of a bona fide buying agency. Headquarters Ruling Letter (HRL) 544610 dated February 23, 1991. Moreover, "an invoice or other documentation from the actual foreign seller to the agent [is] required to established that the agent is not a seller and to determine the price actually paid or payable to the seller." HRL 542141 dated September 29, 1980, also cited as TAA No.7.

In this case, the evidence submitted is insufficient to support a finding that Grupo would be a bona fide buying agent. There is no evidence that Nordstrom would or have the right to exert any control over Grupo's activities. Without such evidence it cannot be established that Grupo will act as a bona fide buying agent for Nordstrom. We note it appears that Grupo would have a closer relationship with the sellers of merchandise than it would have with buyers such as Nordstrom. For example, Grupo indicated on Nordstrom's questionnaire that it is closely related to the vendors and is able to finance purchase orders through special credits. These financing arrangements that Grupo offers show that it has a special relationship with vendors and that it is not working solely on behalf of the buyers.

In addition, Grupo indicated that it assumes the risk for defects in merchandise. We also note that purchases must be made through Grupo and that the buyer cannot buy directly from the vendors. Grupo also mentioned that it has an agreement with vendors that their products are shown Grupo's accounts first. It is also significant that Grupo may be designing certain merchandise and selecting where goods are manufactured. As such,
it is not clear for whom Grupo would be working, and therefore, it does not appear that an agency relationship would be established between Grupo and Nordstrom.

We find also that the method of paying the agent's commission, would not be sufficient to establish a bona fide buying commission. There would be no separate invoicing of the commission, as Grupo will be putting both the selling price and the commission on the same invoice. Consequently, we are not satisfied that the agent's commission would be sufficiently separate from the price actually paid or payable for the imported merchandise. See HRL 544668 July 15, 1991.

HOLDING:

Based on the information submitted, it is our conclusion any commissions paid to Grupo for the services it performs in purchasing merchandise in Mexico would not be considered bona fide buying commissions and would constitute part of the price actually paid or payable for the imported merchandise pursuant to 19 U.S.C. § 1401a(b).

Sincerely,

John Durant, Director

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