BRO-1-RR:IT:EC 114404 GG
Margaret S. Solinger, Esq.
Customs Counsel
DuPont
1007 Market Street
Wilmington, DE 19898
RE: Definition of “Customs Business”; 19 U.S.C. §1641; 19 CFR Part 111; Service of Broker to Others Not to Benefit Unlicensed Person; 19 CFR §111.36(a)
Dear Ms. Solinger:
This is in response to your ruling request, dated June 8, 1996, and follow-up letter and supplemental submission dated June 11 and September 25, 1998, respectively. As explained to you on the phone, we have no record of receiving the initial request. We regret any inconvenience the delay may have caused.
FACTS:
DuPont’s imports are managed by two different entities, the Import/Export Services Group (IMEX) and DuPont Import Operations (DIO). IMEX is staffed by DuPont personnel who are trained and experienced in Customs and related laws and regulations. Neither IMEX nor its staff are licensed customs brokers. IMEX advises the various importing DuPont divisions on issues involving classification, valuation, country of origin, marking etc. It also manages DuPont’s export licensing and export program. IMEX oversees compliance, seeks rulings, manages Customs audits, conducts training on compliance and other Customs matters, and monitors the duty preference programs in which DuPont is engaged.
DIO, the other DuPont importing arm, is contracted out to BDP International, Inc. (“BDP”), a licensed customs broker. BDP provides a group of both licensed and unlicensed BDP employees who comprise DIO and concentrate on the DuPont account. Although they are based in BDP’s offices in Philadelphia, they work closely with IMEX and with personnel in the various DuPont divisions. DIO is responsible for the actual entry and clearance of DuPont’s imports. DuPont is listed as the importer of record in these transactions. DIO prepares and reviews entry documentation, classifies certain imports, maintains (a)(1)(A) list import records on behalf of
DuPont, and provides a range of other post-entry services, including the filing of protests and the performing of post-entry audits. DIO also arranges for entries to be made by correspondent brokers in ports in customs broker districts in which BDP has no permit.
DuPont has established, and will continue to establish, related and unrelated businesses from preexisting companies. This is done through joint ventures, acquisitions, or divestitures in which DuPont will retain either some or no shares in the new company. In contrast to the various importing DuPont divisions to which reference has previously been made, these businesses will be separate corporate entities. When a new business is formed by one of these methods, DuPont offers to provide, for a fee, certain logistical services in the transportation, distribution, and freight forwarding areas. DuPont would like to add import services to this list. Companies elect to sign up for these services to take advantage of DuPont’s expertise in these areas as well as of the low rates DuPont has negotiated with its own service providers (freight forwarders, brokers etc.). Acceptance of DuPont’s offer of services is done by way of a business-by-business arrangement. Generally, only those companies into which DuPont has entered as a joint venture, or those companies from which DuPont is only partially divested, may use these services. Totally divested entities must make their own arrangements.
The import services DuPont would like to offer, through either IMEX or DIO, are as follows:
Activity IMEX DIO
1. Classification X X
2. Guidance on valuation issues X
3. Guidance on country of origin issues X
4. Guidance on marking issues X
5. Preparation of NAFTA certificates of origin (based on
information provided by the importing business) X
6. Preparation and submission of requests for binding rulings X X
7. Preparation and filing of protests X X
8. Training X
9. General consulting X
10. Preparation and filing of entries and all related documentation X
Activity IMEX DIO
11. Maintenance of Customs “(a)(1)(A)” records X
12. Payment of Harbor Maintenance Fee on exports X
13. Export licensing and control X
The new businesses, under their own Employer Identification Numbers, will execute separate powers of attorney with BDP. They may also have separate contracts with BDP. In a telephone conversation that took place on September 9, 1998, you stated that DuPont never receives a fee from BDP for referring clients. The management fee paid to DuPont by the client businesses covers DuPont’s consulting costs and BDP’s fees for services.
ISSUE:
Whether the proposed arrangement whereby DuPont will offer import services to separate companies through its two designated importing arms is in compliance with Section 641 of the Tariff Act of 1930, as amended, and the applicable Customs regulations.
LAW AND ANALYSIS:
Section 641(b)(1) of the Tariff Act of 1930, as amended (19 U.S.C. §1641(b)(1)), provides that no person may conduct customs business (other than solely on behalf of that person) unless that person holds a valid customs broker’s license. “Customs business” is defined in 19 U.S.C. §1641(a)(2) as:
. . . [T]hose activities involving transactions with the Customs Service concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by the Customs Service upon merchandise by reason of its importation, or the refund, rebate or drawback thereof. It also includes the preparation of documents or forms in any format and the electronic transmission of documents, invoices, bills, or parts thereof, intended to be filed with the Customs Service in furtherance of such activities, whether or not signed or filed by the preparer, or activities relating to such preparation, but does not include the mere electronic transmission of data received for transmission to Customs.
DuPont would like to provide import services through two entities, IMEX and DIO. Of the two, only DIO has a Customs broker’s license. Each proposed service will be examined to determine whether it is of the kind that must be performed by a licensed broker.
Issues 1, 2, 3 and 4- Guidance on Classification, Valuation, Country of Origin, and Marking Issues
Under the proposed plan, both IMEX and DIO will classify clients’ merchandise, and provide advice on its value, country of origin, and marking requirements. In Headquarters Ruling Letter (“HRL”) 114199, dated February 26, 1998, Customs stated that:
A license is not required to give instruction and general advice on various Customs topics. Teaching brokers, importers and exporters how to prepare and file drawback claims, and helping them to establish drawback programs would fall under this category. We permit these types of educational activities because they have no direct relationship to actual transactions with Customs... We would, however, draw the line at unlicensed persons advising clients on issues involving particular entries or drawback claims filed or to be filed with Customs. This is because 19 U.S.C. §1641(a)(2) specifically states that transactions involving the entry and admissibility of merchandise, [its classification and valuation], the payment of duties thereon, and the refund or drawback of duties, fall within the definition of customs business. For this reason, you may not advise brokers or other clients on actual drawback contracts or claims.
Although the focus of that particular ruling was on the establishment of drawback programs and on the filing of drawback claims, the same principles apply here. It is Customs position that the giving of general advice on how to classify, value or mark merchandise does not fall under the definition of “customs business.” For example, an unlicensed person could explain to a third party the use of the Harmonized Tariff Schedules, the General Rules of Interpretation, and the Explanatory Notes, or provide an overview of the different methods of valuation. That same person would be precluded, however, from classifying a client’s merchandise that is going to be the subject of an entry filed with Customs. In DuPont’s situation, both IMEX and DIO may offer general advice on classification, valuation, marking, etc. However, only DIO, the licensed broker, could apply that knowledge to actual transactions with Customs.
On a related issue, it is likely that at some point the entities representing a client will want to communicate directly with Customs. As a general rule, an importer is free to bring any person to a meeting, or to include any person in a conference call, between the importer and Customs. However, it would be improper for an unlicensed consultant to appear alone before Customs to discuss customs business matters on their client’s behalf. Only licensed brokers, or in some cases attorneys, may represent a client before Customs on issues involving customs business without the client being present. Consequently, IMEX would be subject to similar restrictions in its communications with Customs.
Issue 5 - Preparation of NAFTA Certificates of Origin
DuPont proposes that IMEX will prepare NAFTA certificates of origin (Customs Form 343) for clients. You do not specify whether the certificates will be prepared in conjunction with in- or outbound movements of merchandise. Specific regulations apply to the preparation of NAFTA certificates of origin for each type of movement. (See 19 CFR §§181.11(a), 181.11(b), 181.22(b), and 181.22(c).) The preparation of NAFTA certificates of origin used in connection with the exportation of merchandise from the United States into Canada or Mexico is not an activity amounting to “customs business”, because the certificate is not a document “intended to be filed with the U.S. Customs Service in furtherance of ... transactions ... concerning the entry and admissibility of merchandise [or] its classification ...”. Customs may, of course, still request a copy of a U.S. exporter’s NAFTA certificate of origin pursuant to 19 CFR §181.11(c).
NAFTA certificates prepared in anticipation of an importation from Canada or Mexico into the United States “shall be signed by the exporter or by the exporter’s authorized agent having knowledge of the relevant facts” (§181.22(b)(2)). “Knowledge of the relevant facts” implies familiarity with products and processes. It is therefore reasonable to assume that an agent in this particular context might be situated in proximity to the exporter’s or producer’s own situs, which in this case will be either in Canada or in Mexico. To restrict such “authorized agents” to licensed U.S. brokers would, therefore, place unrealistic limitations on the scope of that particular regulation.
In summary, the preparation and signing of NAFTA certificates of origin, whether for export or import purposes, are not activities falling within the definition of “customs business”. With proper authorization, either IMEX or DIO could perform these services.
Issues 6 and 7 - Preparation and filing of binding ruling requests and protests
Under the proposed plan both IMEX and DIO will prepare and submit binding ruling requests and protests on behalf of the importers they represent. The Customs regulations specifically allow the filing of protests and ruling requests by authorized agents of the importer (see 19 CFR §174.3 and 19 CFR §177.1(c), respectively). The definition of “agent” in these two circumstances is not limited to customs brokers but may be any agent duly empowered to represent the importer for such purposes. Therefore, IMEX and DIO may perform these functions upon obtaining the proper authorization from the client. See HRL 114199, supra.
Issue 8 - Training
IMEX would also like to offer training to the separate corporations. We assume this means training on issues pertaining to the importation of merchandise. A broker’s license is not required to conduct educational programs for others. See HRL 114199, supra. Consequently, IMEX could organize and conduct import courses for its clients.
Issue 9 - General Consulting
DuPont lists “general consulting” as an activity to be performed by IMEX. This term is too vague for a determination to be made on the applicability of 19 U.S.C. §1641. Guidance can be sought, however, by reference to the other activities discussed in this ruling.
Issue 10 - Preparation and Filing of Entries and All Related Documentation
Under the proposed plan DIO would prepare and file all entries and related documentation for the client corporations. The statutory definition of “customs business” includes “the preparation of documents or forms in any format and the electronic transmission of documents, invoices, bills, or parts thereof, intended to be filed with the Customs Service in furtherance of [those activities involving transactions with the Customs Service concerning the entry and admissibility of merchandise, its classification and valuation, etc.]”. The preparation and filing of Customs entry documents thus fall squarely within the intended meaning of customs business, and as such, may be done for others by DIO, a licensed broker.
Issue 11 - Maintenance of Customs “(a)(1)(A)” List Records
Under the proposed plan DIO would maintain (a)(1)(A) list records for the client corporations. This would be entirely appropriate because DIO, as a licensed broker, is required by 19 U.S.C. §1508(a) and Sections 111.21, 111.23, and Part 163 of the Customs Regulations to maintain the entry records appearing on the (a)(1)(A) list.
Issues 12 and 13 - Payment of Harbor Maintenance Fee on Exports and Rendering Advice on Export Licensing and Control
The ruling request references two other areas in which IMEX proposes to become involved on behalf of clients. The first is the payment of the Harbor Maintenance Fee (HMF) on exports. This issue has become moot with the outcome of the recent court case of United States v. United States Shoe Corp., 118 S. Ct. 1290, 140 L.Ed. 2d 453 (1998), which held that the assessment of HMF on exports is unconstitutional. The proposal to have IMEX provide guidance on export licensing and control issues does not violate 19 U.S.C. §1641 because, with a few export-related exceptions such as drawback and NAFTA duty deferral, “customs business” involves issues pertaining only to the importation of merchandise.
Restrictions on the Provision of Services by DIO
Under the proposal DuPont will refer some of the business of the separate corporations to DIO. DuPont reports that sometimes, but not always, the businesses will enter into a separate contract with BDP. In those instances when there is no separate contract, DIO must ensure that its services as a broker do not benefit DuPont. This is because Section 111.36(a) of the Customs Regulations provides, in pertinent part, that:
(a) Service to others not to benefit unlicensed person. A broker shall not enter into any agreement with an unlicensed person to transact Customs business in such manner that the fees or other benefits resulting from the services rendered for others inure to the benefit of the unlicensed person . . . When a broker is employed for the transaction of Customs business by an unlicensed person not the actual importer, the broker must transmit to the actual importer a copy of his bill for services rendered, unless the merchandise was purchased on an all-free basis (duty and brokerage charges paid by the unlicensed person).
DuPont has stated that the management fee it receives covers DuPont’s consulting costs and BDP’s fees for services. DuPont may not receive remuneration for the brokerage services provided by BDP to others. It must segregate the brokerage fees from its own consulting costs and send the amount for the brokerage fees on to BDP. BDP in turn must furnish a copy of its charges to the importer.
Brokers are also required to keep the records of their clients confidential. 19 CFR §111.24. BDP must ensure that it will not disclose its clients’ records to DuPont, unless disclosure is authorized by the client.
The Customs Regulations, in 19 CFR §111.30(c), require a broker to obtain approval from Customs to operate under a trade or fictitious name. DuPont has given BDP the name of “DuPont Import Operations”, or DIO. In our opinion there will be no violation of Section 111.30(c) if this name is confined to internal DuPont use and correspondence. A violation may result, however, if BDP holds itself out to Customs or to its clients as operating under the name of DIO without first obtaining the necessary approval.
HOLDING:
The DuPont importing entity known as IMEX, an unlicensed entity, may provide import services to separate companies, provided the services do not amount to the transaction of customs business. The exact parameters of that definition are outlined in this ruling. The other import arm to which DuPont makes reference, DIO, is a licensed broker and as such may conduct customs business for others. Although DuPont may refer importers to DIO, it may not benefit from the services rendered as a result of the referral.
Sincerely,
Jerry Laderberg
Chief,
Entry Procedures and Carriers Branch