ENT 1-03
OT:RR:CTF:ER
H324098 ND
Patrick J. Caulfield, Esq.
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP
599 Lexington Avenue FL 36
New York, NY 10022
RE: Request for a determination of the right to act as importer of record by Your Special Delivery Services Specialty Logistics
Dear Mr. Caulfield:
This is in response to your letter dated March 16, 2022, requesting a ruling on whether Your Special Delivery Services Specialty Logistics (“YSDS”) meets the criteria to act as “importer of record” as defined in Customs Directive No. 3530-002A in connection with imported Wi-Fi components. We have considered the facts and issues raised, and our decision follows.
FACTS:
YSDS provides logistical consultation services to foreign and domestic shippers. According to YSDS, its client are predominantly Wi-Fi service providers who seek to import various Wi-Fi components such as wireless routers. YSDS notes that it is not a licensed customs broker but arranges for the transportation of merchandise from foreign sellers to U.S. buyers. YSDS’s logistical services include damage control, insurance, packing control and service, assisting with export permit applications, offering (brokering) freight insurances, tender to airline-carrier, and final mile delivery. According to counsel, YSDS’s services generally cease when the merchandise is released by U.S. Customs and Border Protection (“CBP”), but YSDS may assist in warehousing imported merchandise in some instances.
In its ruling request, YSDS states that it provides additional services including product review for issues relating to country of origin, value, and classification, documentation preparation and “customs clearance.” We note that these services amount to “customs business” as defined by 19 U.S.C. § 1641 and must be performed by a licensed customs broker per 19 U.S.C. § 1641(b)(1), which YSDS is not. Upon request for clarification from CBP Headquarters (“HQ”), counsel stated that YSDS does not make specific determinations on country of origin, value, or classification, but recommends its clients to third-party customs brokers and relies on the third-party customs broker or the overseas seller for such determinations. YSDS similarly relies on a third-party customs broker or overseas seller to prepare, complete, and review documents that are submitted to CBP. Finally, YSDS provides “customs clearance” services by introducing the overseas seller to a licensed customs broker and, where necessary, providing the broker with the shipment information when requested by the overseas seller.
YSDS requests a binding ruling to determine its eligibility to act as importer of record based on a security interest in the imported merchandise under two scenarios. First, YSDS proposes to retain a financial interest enumerated in the terms and conditions of the purchase order between the seller and purchaser that contains the following language:
“Purchaser hereby grants the seller, as well as seller’s agent, [YSDS], an enforceable security interest in the subject merchandise so that either seller or YSDS can attach a lien on the merchandise in any jurisdiction allowable by law in the event that purchaser does not comply with the terms contained herein.”
Second, YSDS proposes to retain a financial interest enumerated in the terms and conditions of the purchase order between the seller and YSDS that contains the following language:
“Seller hereby assigns seller’s agent, [YSDS], with seller’s security rights in the subject merchandise so that YSDS can bring legal action or attach a lien on the merchandise in any jurisdiction allowable by law in the event that the buyer engaged by seller does not comply with the terms contained in the agreement between seller and purchaser.”
According to YSDS, under both scenarios, it would have a security interest in the underlying merchandise that can be exercised on behalf of the seller whenever U.S. based consignees do not meet their payment obligations to either YSDS itself or the seller. Specifically, YSDS will have the right to a lien on the imported goods in the event of non-payment or the right to collect payment from the U.S. buyer for remission to the foreign seller. For its services, YSDS charges its clients, i.e., the seller of the imported merchandise, an initial, one-time flat fee plus a variable fee per transaction based upon a percentage of the underlying value.
ISSUE:
Whether YSDS has sufficient financial interest in the imported goods, at the time of entry, to act as importer of record based on a security interest in the imported merchandise?
LAW AND ANALYSIS:
Section 484(a)(1) of the Tariff Act of 1930, as amended (19 U.S.C. § 1484(a)(1)) provides that only parties qualifying as the “importer of record” may make entry. Those qualified parties are identified as the “owner” or “purchaser” of the goods, or a broker appointed on behalf of an owner, purchaser or consignee under 19 U.S.C. § 1484(a)(2)(B). Owner and purchaser are further defined in Customs Directive (“C.D.”) 3530-002A, dated June 27, 2001. Section 5.3.1 of the directive provides:
5.3.1 The terms “owner” and “purchaser” include 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 Customs 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.
C.D. 3530-0002A.
Accordingly, C.D. 3530-002A states that the terms owner and purchaser include any party with a financial interest in a transaction. According to C.D. 3530-002A, owners or purchasers must have more than custodial interest in the goods. Owners or purchasers have a financial interest in the goods that goes beyond that of a bailee. “Financial interest” means there is a nexus between the financial welfare of the owner or purchaser and the imported goods. See HQ H007168 (Aug. 2, 2007) (noting that rulings have identified “a nexus between the financial welfare of the would-be importer and the imported goods when finding that the financial interest in the goods is sufficient to entitle the would-be importer to act as importer of record”).
In HQ 116344 (Jan. 25, 2005), we determined that where the seller of goods retained a "security interest" in the goods to ensure its right to payment for products sold and shipped, such seller retained a continuing "financial interest" in the goods so as to enable the seller to act as importer of record with the right to make entry for the merchandise upon importation. In that case, title, ownership and risk of loss passed to the buyer upon the seller's delivery of the products to the foreign carrier for shipment to the customer in the U.S. The seller determined the means of carriage of the sold goods and invoiced the buyer for costs related to the shipment of the goods (shipping, handling, customs, insurance and similar charges). HQ 116344 stated that "significantly, however, notwithstanding that title and ownership of the products pass to the [buyer] upon their delivery to the foreign port of lading for shipment, [the seller], under its sales agreement, retains a ‘security interest’ in all such products delivered to the [buyer] ‘as security for the performance by [buyer] of all of [buyer]'s obligations arising under this Agreement . . . .’"
Similarly in HQ H007168 (Aug. 2, 2007), the seller was a logistics service provider who issued purchase orders and invoices, paid the invoices for which it was reimbursed by its client on a monthly basis, arranged for the transportation of goods to its client’s distribution centers or directly to its client’s customers, and assisted with the documentation and filling of necessary documents and declaration required for importation into the US. While the seller’s client owned the goods and bore the risk of loss, there was a possibility that the seller would not be paid if something happened to the goods while under its control. We determined the seller had a financial interest in the goods because it committed its own resources to purchase the goods initially and relied on its client to replace those resources.
In contrast, in HQ H312266 (Oct. 29, 2021), Marmen, the seller of the goods, required its customer to make a partial payment of the goods prior to importation, with 2% of the invoice balance due the day after cargo release. Additionally, Marmen was responsible for fixing any potentially defects once entered. We determined that Marmen did not maintain a “security interest” sufficient to establish a significant financial interest in the imported merchandise because Marmen was still entitled to the full payment as it was not contingent upon any potential post-entry responsibilities and Marmen did not possess title to the goods or risk of loss at the time of importation.
The facts presented by YSDS initially resemble those in HQ 116344 as YSDS’s purported financial interest is contingent upon a buyer’s failure to perform pursuant to a sales contract. Specifically, YSDS would have a security interest in the underlying merchandise that can be exercised on behalf of the seller whenever U.S. based consignees do not meet their payment obligations to either YSDS itself or the seller. This financial interest would entitle YSDS to a lien on the imported goods in the event of non-payment or the right to collect payment from the U.S. buyer for remission to the foreign seller. However, there is one important distinction in that the entity with the security interest in HQ 116344 was the seller, while in this case, it is purportedly the seller’s agent, YSDS, who seeks to make entry. In HQ 116344, the seller handled the logistics services in shipping the merchandise to the US and title, ownership, and risk of loss transferred to the buyer upon delivery of the merchandise to the foreign shipper. YSDS, though, is not the seller and never possesses title, ownership, or risk of loss. See C.D. 3530-0002A. Additionally, YSDS’s financial interest is triggered by the buyer’s failure to fulfill its contract with the seller, not with YSDS. According to YSDS, the security interest will only be granted or assigned if the seller engages YSDS pursuant to the clauses and only then YSDS would enforce the interest upon a buyer’s breach of contract. YSDS’s financial interest is also more ancillary than the seller’s financial interest in HQ H007168, who therein committed its own resources to purchase the invoiced goods and relied on its clients to reimburse the company for these payments. YSDS has not alleged any possible financial risk in the contemplated transactions.
As such, YSDS’s financial interest more closely resembles that of Marmen in HQ H312266. Here, YSDS charges an initial, one-time flat fee plus a variable fee per transaction based upon a percentage of the underlying value. As was the case with Marmen, full payment is not contingent upon any potential post-entry responsibilities because YSDS has admitted that its services generally cease when the merchandise is released by CBP. Moreover, YSDS never possesses title to the goods or risk of loss at any point in the transaction. YSDS’s security interest vests if the buyer fails to pay the seller, YSDS’s client, or for any other breach of contract by the buyer. Moreover, the size of YSDS’s “security interest” in the goods is never specified. In order to act as importer of record, there must be a significant nexus, between the would-be importer’s financial interest and the goods. There is no evidence here that YSDS’s interest in the goods is anything more than cursory.
Accordingly, in no way can YSDS be characterized as an “owner and purchaser” with sufficient financial interest in the goods so as to act as importer of record. According to its ruling request, YSDS has no more than an unspecified “security interest” in the imported goods. There is no evidence that YSDS has a sufficient financial interest in the goods so as to act as importer of record. While YSDS may characterize its role in the transaction as seller’s agent, which would ordinarily be permitted pursuant to C.D. 3530-0002A, based on the above, the facts do not give rise to a seller agent role for purposes of determining the right ot make entry. YSDS’s role in the transaction closely resembles that of a nominal consignee, who cannot be “owner” or “purchaser,” rather than a seller’s agent. Consequently, YSDS does not have a sufficient financial interest in the Wi-Fi components, at the time of entry, to act as importer of record.
HOLDING:
YSDS does not have sufficient financial interest in the Wi-Fi components, at the time of entry, to act as imported of record.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by CBP to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
Sincerely,
Renee N. D’Antonio, for
Kristina Frolova, Acting Branch Chief
Entry Process & Duty Refunds Branch