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HQ 546583

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December 2, 1997

RR:IT:VA 546583 KCC

CATEGORY: VALUATION

William J. Maloney
Rode & Qualey
295 Madison Avenue
New York, NY 10017

RE: Related parties; ?402(g)(1)(C); one person member of the board of directors of importer and supplier; ?402(g)(1)(G); control

Dear Mr. Maloney:

This is in regard to your letter dated December 6, 1996, on behalf of IFT International, Inc. You request a ruling concerning whether IFT International, Inc. is related to one of its suppliers, [xxxxxxxxxxxxx], pursuant to ?402(g)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. ?1401a(g)(1)). Additional submissions dated July 22, and 24, and September 18, 1997, were taken into consideration in reaching this decision. We regret the delay in responding to your request.

In your ruling request, you sought confidential treatment with regard to the names of your client's supplier and the supplier's parent. For the reasons set forth in your submission, your request is granted. We have excised, in the public version of this decision, the bracketed confidential information below.

FACTS:

IFT International, Inc. ("IFT") is an importer of women's wearing apparel. IFT purchases the apparel from manufacturers located in Italy who have been licensed by designers to produce particular fashion lines. The wearing apparel is imported principally through New York. IFT generally employs sales agents who assist in soliciting orders from customers. The sales agents receive a commission based on a percentage of the net sales price collected by IFT.

You state that IFT is presently entering merchandise purchased from [xxxxxxxxxxxxxx] ("the supplier") and is declaring a relationship for Customs entry purposes. In your December 6, 1996, letter you stated that the supplier was a wholly owned subsidiary of [xxxxxxxxxxxxxxxxxxxxxxxxx] ("Company X"). However, in your July 24, 1997, submission, you state that Company X no longer owns or has a financial interest in the supplier. You submitted a letter from Company X to IFT stating that neither Company X or the supplier own shares of stock or have any financial interest in one another. Company X has a 20% interest in IFT which you state is non-controlling. You state that there is no control, contractual or otherwise, exercised by Company X over the operations of IFT. Additionally, Company X's 20% interest in IFT is strictly financial and Company X is not the largest shareholder of IFT. Neither the supplier or IFT own shares in the other. In your July 22, 1997, submission you state that a member of the board of directors of IFT is now on the board of directors of the supplier. However, pursuant to your July 24th submission, in approximately three weeks, this person will no longer be on both the supplier and IFT's board of directors. This person will remain a member of the board of directors of IFT, but will only be an employee of the supplier. You request that we address both of these situations in our response.

ISSUE:

Is the importer, IFT International Inc., related to its supplier pursuant to ?402(g) of the TAA?

LAW AND ANALYSIS:

?402(g)(1) of the TAA sets forth the definition of the term "related persons" and provides, in relevant part, that the following shall be treated as persons who are related:

(A) Members of the same family, including brothers and sisters (whether by whole or half blood), spouse, ancestors, and lineal descendants.

(B) Any officer or director of an organization and such organization.

(C) An officer or director of an organization and an officer or director of another organization, if each such individual is also an officer or director in the other organization.

(D) Partners.

(E) Employer and employee.

(F) Any person directly or indirectly owning, controlling, or holding with power to vote, 5 percent or more of the outstanding voting stock or shares of any organization and such organization.

(G) Two or more persons directly or indirectly controlling, controlled by, or under common control with, any person.

As Company X no longer owns or has a financial interest in the supplier, based on the information submitted, it does not appear that they are related pursuant to ?402(g)(1) of the TAA. Thus, the only connection between the supplier and IFT which must be examined is the person who performs services for both the supplier and IFT. In the first situation, you state that this person sits on the board of directors for both the supplier and IFT. It is our position that in this situation, IFT and the supplier are related pursuant to ?402(g)(1)(C) of the TAA. However, under the circumstance where the person is on the board of directors for IFT and is only an employee of the supplier, it is our position that IFT and the supplier are not related pursuant to ?402(g)(1) of the TAA.

Based on the information submitted, we are unable to determine whether the parties are related pursuant to the supplier and IFT's business practices and relationship. Thus, we are unable to determine whether the parties are "directly or indirectly controlling, controlled by, or under common control with, any person."

HOLDING:

Based on the information submitted, IFT International, Inc., is related to its supplier pursuant to ?402(g)(1)(C) of the TAA, where one person sits on the board of directors for both the supplier and IFT. However, IFT and the supplier are not related where one person is on the board of directors for IFT and is only an employee of the supplier.

Based on the information submitted, we cannot determine whether the supplier and IFT are related pursuant to

Sincerely,

Acting Director
International Trade Compliance

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