HQ 548258 - Request for internal advice regarding seed brokerage fee payments - United States International Trade Commision Rulings

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HQ 548258

October 9, 2003

RR:IT:VA 548258 MMC

CATEGORY: VALUATION

Port Director
U.S. Customs and Border Protection
112 W. Strustman
Pembina, North Dakota 58271
Attention: Pat Cayley, Team 382

RE: Request for internal advice regarding seed brokerage fee payments

Dear Port Director:

This is in response to a March 17, 2003 letter from Barnes, Richardson & Colburn on behalf of Archer Daniels Midland (ADM), requesting internal advice. At issue is the dutiability of certain seed brokerage fees paid in connection with certain importations of canola seed from Canada. Counsel states that ADM (the importer/buyer) made payments to Crop Tech, a seed broker, for arranging a purchase of canola seed from Swanfleet Farms, a seller of canola seed in Manitoba, Canada.

An initial internal advice on the matter was forwarded to our office on June 12, 2002, however counsel chose to withdraw the request until such time that he was able to resubmit it with additional information. The information provided in the March 17, 2003 and June 12, 2002 letters was considered for this decision. Headquarters Ruling Letter (HRL) 548298 dated July 25, 2003, addressed the dutiability of crusher levy fees and check-off fees paid in connection with the importation of the canola seed.

FACTS:

According to counsel, ADM regularly purchases canola seeds directly from Canadian producers for importation into the United States. Because ADM lacks the personnel and local resources to contact all potential sellers in Canada, seed brokers are occasionally used.

The National Grain and Feed Association Trade Rules

National Grain and Feed Association (NGFA) Grain Trade Rules published April 3, 2002. See www.ngfa.org/traderules. These rules govern "all transactions of a financial, mercantile or commercial character connected with grain, including oilseedsarising between an Active member of NGFA and other parties or other parties using the rules..." defines "broker" as:
a person, firm or electronic trading platform that is engaged for others, in accordance with instructions from both principals, that, at the time of negotiations, or the facilitation, advises each principal the name of the other, and that completes such negotiations or facilitation in accordance with the rules and customs governing such transaction, thereby fulfills all obligations and has no further liability to either principal. The contract so negotiated or facilitated is valid and binding between the Buyer and Seller as if it had been negotiated or facilitated directly between them. Rule 2(A)

Brokerage shall be credited when shipments are invoiced or when a contract is otherwise consummated or terminated. Rule 2(F).

According to its website, www.croptech.ca Corp. Tech's (seed broker) mission is, in pertinent part:

[t]o provide the best, most knowledgeable advice to assist the prairie grain producer. Crop Tech is a unique blend of consulting services designed to support the grain producer

Crop Tech’s only agenda is to help the farmer. Crop Tech is not attached to any grain company or supplier. We do not answer to large corporate shareholders, we answer to our customers

Additionally, the website indicates that the services provided by Crop Tech include Grain Brokerage.

Counsel indicates that a typical transaction transpires as follows. ADM provides a daily price quote for canola seeds via fax to its regional offices and to an ADM accepted list of seed brokers. For Canadian purchases these price quotes are derived from futures market trading prices in Canada. ADM's seed brokers and their purchasing offices try and locate grain suppliers that are willing to sell at ADM's quoted price. Normally, such suppliers are producers (farmers) or grain elevator operators in Canada.

According to counsel, ADM seed brokers have a very limited role in the transaction because ADM usually deals directly with the seller after the seller has been located by the broker. Sometimes, however, ADM uses brokers as a means of conveying information between the parties, but the broker has no authority to negotiate contractual terms on his/her own. Brokers also on occasion may suggest shipping arrangements or complete such arrangements themselves. However, payment for transportation and other terms of shipment are decided in the purchase contract between ADM and the producer. The seed brokers are not exclusive and the same broker may arrange deals on behalf of ADM or other buyers. On some occasions a producer may employ an agent to locate a buyer, but the producer pays the agent.

Additionally, counsel states that, in accordance with industry business customs, the price quoted by the seed broker to the seller is understood to be a net amount from which the seed broker's commission has already been deducted. In that way, the seller and ADM agree upon an actual sale price per quantity of grain. Commissions are separately remitted to the broker. Furthermore, counsel states that the seed broker customarily operates without a written "buying agent" type of agreement and does not issue an invoice to ADM. Rather ADM "notes' its obligation to pay the commission, and does so as a matter of course.

Counsel's March 17, 2003 letter provides an example of the transactions in question. The documents reflect a transaction that involves ADM's purchase of canola seed from Swansfleet Farms in Canada. In the transaction, ADM acts as the buyer and Swansfleet Farms is the seller (vendor). Crop Tech is the broker. Counsel states that the transaction began when ADM ascertained a quote price (gross price) to buy Canadian canola seed effective for purchase on July 1, 2002. According to counsel, ADM based the quote price on the futures market for Canadian canola seed at a specific time, as listed on the Winnipeg Board of Trade. No documents indicating what that futures price was were submitted, but counsel indicates that the quote price was 359.50 CAD. According to counsel, because ADM's seed broker found the seller in this case, all parties "understood" that the price was to be 22.00 CAD per metric ton (MT) below the quoted price. In instances where no broker is involved a "quote factor" of 20.00 CAD would have been understood to have been deducted from the quoted price. In addition the parties understood that any "check-off" fee would be paid by ADM and that amount would also be deducted from the quoted price to arrive at a "final/net sale price". In other words, using the quoted price counsel alleges that ADM "deducts" either a 20.00 CAD per/MT "quote factor" for direct purchases from sellers or a 22.00 CAD per/MT for transactions using a broker. The 2.00 CAD difference represents the per metric ton price for the brokerage fee. It is not clear what the 20.00 CAD quote factor represents and whether this amount is paid either directly or indirectly by ADM to the seller. Assuming it represents a discount to the buyer and it is not paid either directly or indirectly to the seller, it would not be included in the price actually paid or payable.

The pertinent documents include:

The Processing Grain Purchase Contract Confirmation: This is a confirmation of the contract between buyer (ADM) and seller (Swansfleet Farms) and confirms to the seller that the buyer has purchased the goods for 337.50 CAD per/MT. The 22.00 CAD quote factor (including the 2.00 brokerage) is also listed on the invoice. In the remarks it states, in pertinent part, that: "Broker/check off tax/canola levy to seller's account". The Terms and Conditions on the back of the document indicate in pertinent part that: "all agreements between the parties herein must be in writing and this contact is the final expression of the agreement between the parties." Additionally the terms and conditions indicate that "this Contract is also subject to the trade rules of the National Grain and Feed Association. .."

The Purchase Contract Data: This is a record of the facts of the purchase electronically maintained by ADM. It indicates that the price for the canola seed was 337.50 and that the "BROK RT" is 2.00. In the remarks section it indicates that ADM pays the freight while Crop Tech books the trucks.

An ADM check to Swansfleet Farms: The amount is equal to a total that would equate to a price of 337.00 CAD per/MT.

An ADM check to Crop Tech: The amount is equal to 2.00 times the number of metric tons in the example.

An ADM journal Entry: The journal entry indicates 337.50 in the "price" column, -22n in a "CTR BASIS" column, and crop tech 2.00 in the "broker" column. Counsel asserts that this means that ADM "books" the amount paid to Crop Tech as a "commission."

Counsel provides the following table to demonstrate his theory of how the per unit net price was ascertained:

Futures price on Winnipeg Board of Trade for July 1, 2002 359.50

Less ADM's quote factor for a purchase using a seed broker 22.00 Counsel asserted Grain purchase contract Confirmation Quoted 337.50 Price

Less ADM "check-off" to be paid by ADM .50

Per unit sale price to ADM 337.00 CAD

ISSUE:

Whether the brokerage fees are part of the price actually paid or payable for the imported goods.

LAW AND ANALYSIS:

Merchandise imported into the United States is appraised in accordance with §402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA, codified at 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 enumerated statutory additions. 19 U.S.C. §1401a(b)(1).

Section 402(b)(4) of the TAA defines the term “price actually paid or payable” 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). The TAA also requires additions the price actually paid or payable to determine the transaction value of the merchandise. The statutory additions include packing costs, selling commissions, assists, royalties or license fees, and the proceeds of any subsequent resale that accrue to the seller. 19 U.S.C. § 1401a(b)(1).

Although the customs valuation statute and regulations address many of the additional charges that importers sometimes pay sellers, some payments are not specifically covered by law or regulation. The mere absence of a charge from the statutory additions listed in 19 U.S.C. § 1401a(b)(1), however, does not mean that such charges cannot be considered part of the price actually paid or payable for the merchandise. See, Generra Sportswear Co. v. United States, 905 F.2d 377 (Fed. Cir. 1990), finding that certain quota payments were part of the price actually paid or payable.

The relevant documents indicate that the fees at issue here are already included in the seller's price; that is the futures price quoted to the broker by the buyer or the gross price (359.50). The Processing Grain Purchase Contract Confirmation submitted indicates that the price includes the price of goods sold (337), the check off fee (.50) and the 2.00 per/MT brokerage fee. The buyer and seller determined that this is how they wanted to structure their transaction. Once these payments were included in the contract price, they became a part of the total payment for the goods. Furthermore, in the remarks and special terms section of the Processing Grain Purchase Contract Conformation it states, in pertinent part, that: "Broker/check off tax/canola levy to seller's account". While these remarks are not entirely clear, a reasonable interpretation based on the facts is that the fees paid by ADM are to be credited to the seller's account.

Counsel contends that the brokerage fee should not be included in the transaction value of the imported canola seed because it is a buying commission. The fact of whether the fee is or is not a buying commission is immaterial. Even if the payments were determined to be bona fide buying commissions, once the seller's price includes certain fees, there is no authority to deduct them. See, Moss Manufacturing Co, Inc. vs. United States, 13 CIT 420, 714 F. Supp. 1223 (1989); aff'd., 896 F. 2d 535 (CAFC 1990) where buying commissions included in the price could not be deducted [Moss]; and Headquarters Ruling Letter (HRL) 547958 dated July 23, 2001, where the license fees were not deducted from the price actually paid or payable because they were already included in the negotiated price. See also HRLs 547098 dated February 2, 1999, and 545296 dated August 16, 1993, where Customs held that it had no authority to deduct buying commissions from the price actually paid or payable. In any case, independent evidence suggests that the fee is not a buying commission. The brokerage firm describes its mission, in pertinent part, as:

[t]o provide the best, most knowledgeable advice to assist the prairie grain producer[C]rop Tech’s only agenda is to help the farmer. Crop Tech is not attached to any grain company or supplier. We do not answer to large corporate shareholders, we answer to our customers

While not conclusive, such language suggests that the broker was in fact one who works on behalf of grain producers (sellers) and not grain purchasers (buyers).

The contract and the other evidence between the parties indicates that the parties included brokerage fees in their contract price. Therefore, Customs has no authority to deduct them from the transaction value for the goods.

HOLDING:

Based on the evidence submitted, the brokerage fees are included in transaction value of the imported merchandise as they are part of the price actually paid or payable for the imported merchandise.

Your office should mail this decision to the party requesting internal advice no later than sixty days from the date of this letter. On that date the Office of Regulations & Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act, and other public access channels.

Sincerely,

Virginia L. Brown

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