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HQ 113894

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June 20, 1997

BRO-2-01-RR:IT:EC 113894 CC

CATEGORY: ENTRY

Kathleen M. Murphy, Esq.
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, IL 60661-3693

RE: Right to Make Entry; 19 U.S.C. ? 1484

Dear Ms. Murphy:

This is in response to your letter of April 2, 1997, requesting a ruling whether a company you represent has the right to make entry in certain transactions.

FACTS:

According to your submissions, your client is a privately-owned Delaware corporation (hereinafter The Company) that is 100% owned by trusts of a family (hereinafter the Family Ownership Group). Currently a division of the Company, VCI, is responsible for entering merchandise imported by the Company.

VCDS is a publicly owned Ohio corporation that is a subsidiary of the Company. The Family Ownership Group, through the Company and its affiliates, owns 68.4% of the outstanding shares of VCDS.

ELLLC, an Ohio limited liability company, is a majority controlled subsidiary of the Company.

AEO is a publicly owned Ohio corporation that is controlled by the Family Ownership Group, since it owns a majority of the outstanding stock.

PLP is an Ohio limited partnership. The general partner is a company that is 100% owned by the Family Ownership Group. The limited partners are 82% owned by the Family Ownership Group. PLP acts principally as a buying agent for the Company's related companies.

According to your submissions, VCI will be responsible for entering merchandise into the U.S. for the related companies. In a meeting with Customs and in a supplemental submission, you provided additional information concerning VCI's role. You describe two categories of transactions in which VCI is involved.

The first category of transactions you designate VCI as a purchaser. You state for purchases of what is designated as hard goods (which include dishware, figurines, kitchenware, grills, small furniture items, etc.), VCI and one of the related companies, hereinafter referred to as the customer, negotiate an arm's length price at which the customer will purchase hard goods from VCI. You state that from VCI's perspective, an acceptable negotiated price is based on its anticipated cost of buying the goods from an overseas supplier (including any buying agency commissions paid by VCI), transportation costs (shipping, insurance, handling, etc.), U.S. import duties, fees, and broker's charges, and VCI's profit. From the customer's perspective, the negotiated price must yield an acceptable percentage markup to its ultimate retail price. You refer to the negotiated price as the "fixed price" of the goods.

After VCI and its customer agree to a fixed price of the goods, VCI's customer issues a purchase order and VCI opens a letter of credit in favor of the foreign manufacturer. When the goods are ready to be shipped, the foreign manufacturer invoices VCI for the sale of the goods. VCI obtains ocean insurance for the goods and bears the risk of loss for the goods. In addition, either VCI or its bank is named as the consignee on the bill of lading. After importation the goods are resold by VCI, which invoices the merchandise to its customer at the fixed price previously agreed to by VCI and the customer. The customer's books and records reflect VCI as the seller of the merchandise. VCI's profit is the difference between the fixed price and all costs incurred by VCI in delivering the goods to the customer. In these transactions, VCI is the primary insured and bears risk of loss until the merchandise has been sold to VCI's customer. In some situations, VCI may utilize the services of an unrelated buying agent to purchase imported goods.

In the second category of transactions you designate VCI as an agent. These transactions involve primarily what is designated as soft goods (which include wearing apparel, toys, luggage, and sporting goods), for which VCI is not the actual purchaser of the imported goods. Instead, you state, VCI acts as a commissioned agent for a related company. In these transactions, the placement of an order and payment of the foreign manufacturer is made by the particular related company and the commercial invoice reflects a sale to that company, not to VCI. Also, you state that in these transactions it is the related company that is the primary insured, and therefore, it, and not VCI, bears the risk of loss to the merchandise.

VCI prepares the letter of credit application, signs the application as the related company's designee, and makes any necessary subsequent amendments of the letter of credit. It also will transmit communications between the related company and the overseas supplier from time to time. In addition, VCI arranges for the international shipment, freight insurance coverage, Customs clearance, and delivery of the goods to the related company (VCI pays these costs directly and subsequently is reimbursed by its customer through a rebilling procedure). VCI is named as the consignee on the bill of lading and is also responsible for issuing a certification to the foreign manufacturer stating that the goods are in compliance with U.S. marking laws. VCI receives and examines a production line sample of the merchandise and issues a certification that the merchandise has been correctly classified under the Harmonized Tariff Schedule of the United States (HTSUS) and any necessary quota category has been applied for importation into the United States. When necessary, VCI also conducts line reviews and obtains binding rulings on products that will be imported into the United States. Finally, VCI authorizes payment under the letter of credit to the foreign manufacturer (although the related company is the applicant and payor under the letter of credit). In exchange for these services, VCI is paid a commission by the related company equal to one percent of the invoice value of the goods. It does not receive any compensation from the seller of the merchandise.

ISSUE:

Whether VCI has the right to make entry under 19 U.S.C.

LAW AND ANALYSIS:

Section 484 of the Tariff Act of 1930, as amended (19 U.S.C. record" may make entry. 19 U.S.C. ? 1484(a)(2)(B) provides that parties qualified as an importer of record are the owner or purchaser of the merchandise, or when appropriately designated by the owner, purchaser or consignee of the merchandise, a person holding a valid license under section 1641 (a licensed Customs broker).

Owner or purchaser is defined in Customs Directive 3530-02, dated November 6, 1984, entitled "Right to Make Entry" as the following:

... any party with a financial interest in a transaction, including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent, a person or firm who imports on consignment, a person or firm who imports under loan or lease, a person or firm who imports for exhibition at a trade fair, a person or firm who imports goods for repair or alteration or further fabrication, etc. Any such owner or purchaser may make entry on his own behalf or may designate a licensed customhouse broker to make entry on his behalf and may be shown as the importer of record on the CF 7501. The terms "owner" or "purchaser" would not include a "nominal consignee" who effectively, possesses no other right, title, or interest in the goods except as he possessed under a bill of lading, air waybill, or other shipping document.

For the first category of transactions, VCI would be considered to be a purchaser based on your submissions. VCI buys the goods from a foreign supplier and resells them to its customer. In addition, VCI insures the goods and bears the risk of loss until they are delivered to its customer. Based on your submissions we conclude that VCI has title to the goods until they are sold to its customer. In application of Customs Directive 3530-02, VCI has a financial interest in the goods and is an owner or purchaser. Consequently, VCI would have the right to make entry for the first category of transactions.

For the second category of transactions, you claim that VCI is acting as a buyer's agent. The primary consideration in determining the existence of an agency relationship is the "right of the principal to control the agent's conduct with respect to the matters entrusted to him." Rosenthal-Netter, Inc. v. United States, 12 CIT 77, 79, 679 F. Supp. 21, 23 (1988). Significant factors illustrative of a buyer agency relationship include: 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 associated costs; 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. See Rosenthal-Netter, supra, and New Trends Inc. v. United States, 10 CIT 637, 645 F. Supp. 957 (1986). See, also, Headquarters Ruling (HQ) 223016, dated June 27, 1991; HQ 224636, dated August 28, 1993; and HQ 225332, dated October 12, 1994.

Based on the preceding factors, in HQ 225332 we found that a company, acting on behalf of U.S. flower wholesalers, was a buying agent and thus had the right to make entry on the wholesalers' behalf. The company was an agent in the purchase, shipment, clearance, and delivery of fresh-cut flowers. Approval of pricing, delivery and any other terms rested with the wholesalers, who also bore the shipping costs. In return for its services as an agent, the company received a one percent commission.

In the present case, the orders are made by related companies, which are invoiced for the goods. VCI does not act as a seller of the goods, nor does it receive any compensation from the seller. The related companies bear the risk of loss of the goods. Finally, VCI is paid a commission by the related company equal to one percent of the invoice value of the goods. Based on the these factors and the above precedent, we find that VCI is a buying agent in this second category of transactions and has sufficient financial interest to have the right to make entry.

HOLDING:

VCI has the right to make entry under 19 U.S.C. ? 1484 in the above-described transactions.

Sincerely,

Jerry Laderberg

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