VAL CO:R:C:V 544419 ML
Category: Valuation
District Director
Milwaukee, Wis. 53204
RE: Decision on Application for Further Review of Protest No.
3701-89-000036 on Dutiability of Commissions
Dear Sir:
This protest was filed against your decision in the
dutiability of a commission paid by -------------- Company to an
agent, ---------------, to purchase clothing. The merchandise
was appraised under section 402 (b) of the Tariff Act of 1930, as
amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b);
TAA).
FACTS:
The importer contracted with an unrelated agent to purchase
goods in Asia. On behalf of and at the specific direction of the
importer, the agent placed orders with unrelated manufacturers
and sellers. For this service the importer paid them a
commission not to exceed 8%. Pursuant to their agreement, the
agent transmitted purchasers' packing instructions to the
manufacturer; inspected or caused the inspection of the finished
goods at the factories or before shipment to insure compliance
with the purchasers specifications and purchase orders, and
arranged for transportation in the most expeditious and
economical manner.
Additionally, the agent was to make every effort to supply
the importer with complete documentation relating to the price
actually paid or payable for the merchandise. The title to said
merchandise vested in the importer immediately upon delivery by
the manufacturer, FOB shipping point.
The importer and agent further agreed that no portion of the
agents' commission shall be remitted either directly or
indirectly to the manufacturer or other seller.
ISSUE:
Are the activities performed by an agent sufficient to
conclude that a buying agency exists?
LAW AND ANALYSIS:
For purposes of this protest review, we are assuming that
value was the applicable basis of appraisement.
Transaction value is defined in section 402(b)(1) of the
TAA. This section provides, in pertinent part, that the
transaction value of imported merchandise is the price actually
paid or payable for the merchandise plus amounts for the items
enumerated in section 402(b)(A). Since buying commissions are
not specifically included in section 402(b)(1), they are not to
be added to the price actually paid or payable. The "price
actually paid or payable" is more specifically defined in section
402(b)(4)(A) 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.
To establish transaction value, it is necessary to know the
identity of the seller and the amount actually paid or payable to
him. As stated in Headquarters Ruling Letter (HRL) No. 542141
(TAA #7), dated September 29, 1980, "an invoice or other
documentation from the actual foreign seller to the agent would
be required to establish that the agent is not a seller and to
determine the price actually paid or payable to the seller.
Additionally, the totality of the evidence must demonstrate that
the purported agent is in fact a bona fide buying agent and not a
selling agent or an independent seller."
Court cases such as Jay-Arr Slimwear Inc. v. United States,
12 CIT _, 681 F.Supp. 875, 878 (1988), stressed that having
legal authority to act as buying agent and acting as buying agent
were two different matters and that the Customs Service was
entitled to examine evidence which proved the latter. In order
to view the relationship of the parties as a bona fide buying
agency, Customs must examine all the relevant factors. J.C.
Penney Purchasing Corporation et al. v. United States, 80 Cust.
Ct. 84, C.D. 4741 (1978), 451 F.Supp. 973 (1983); United States
v. Knit Wits (Wiley) et al., 62 Customs Ct. 1008, A.R.D. 251
(1969). The primary consideration, however, "is right of the
principal to control the agent's conduct with respect to the
matters entrusted to him." Dorf Int'l Inc., et al. v. United
States, 61 Customs Ct. 604, A.R.D. 245, 291 F. Supp. 690 (1968).
The degree of discretion granted the agent is an important
factor. The fact that an importer has an opportunity to purchase
merchandise directly, without being required to seek the
assistance of an intervening party, has been held to support the
existence of an agency relationship. United States v. Alfred
Kohlberg, Inc., 27 CCPA 223, 237, C.A.D. 88 (1940). The fact
that the importer actually visited factories and participated in
negotiations with the factory has also been accorded significance
by the courts in finding the existence of an agency relationship.
J.C. Penney Purchasing Corp. v. United States, 451 F. Supp. 973,
983. Similarly, a factor which negates the existence of an
agency relationship is the lack of control over the choice of
factories. See B & W Wholesale, 58 CCPA at 95, 436 F.2d at
1402; J.C. Penney, 80 Cust. Ct. at 95-96, 451 F. Supp. at 983-84.
In the instant case, the importer is unable to purchase
merchandise directly, as the agent will not reveal his sources
for the manufacture of merchandise. He is, therefore, unable to
purchase his merchandise without the assistance of an intervening
party. Without knowing who the manufacturers are, he clearly
cannot visit factories and participate in price negotiations
directly.
An invoice or other documentation from the actual foreign
seller to the buying agent is required in order to establish that
the agent is not a seller and to determine the price actually
paid or payable to the seller. Headquarters Ruling Letter (HRL)
No. 543625 dated February 4, 1986; 543821 dated October 29,
1986...87, 122. The court in B & W Wholesale, 58 CCPA at 95-96,
436 F. 2d at 1402 stated that where a buyer exercises no control
over the manner in which the agent performs his duties, a bona
fide buying agency cannot be established. In New Trends Inc. v.
United States, 10 CIT 637, 645 F. Supp. 957 (1986), the court
held that no agency relationship existed because the alleged
agent retained a great deal of discretion and authority in the
purchasing process. 10 CIT at 641, 645 F. Supp. at 960.
Specifically, no instructions were given as to how the goods were
to be handled or shipped. Id.
The totality of the evidence must demonstrate that the
purported agent is in fact a buying agent and not a selling agent
or an independent seller. HRL Nos. 543625, and 543821. The
Court in J.C. Penney Purchasing Corporation, supra., stated that
no single factor was determinative in establishing the existence
of a bona fide buying agency relationship. The existence of such
a relationship must be ascertained by examining all relevant
factors and each case is governed by its own particular facts.
In New Trends Inc., supra, the Court of International Trade
set forth several factors upon which to determine the existence
of a bona fide buying agency. These factors include: whether the
agent's actions are primarily for the benefit of the importer, or
for himself; whether the agent is fully responsible for handling
or shipping the merchandise and for absorbing the costs of
shipping and handling as part of its commission; whether the
language used on the commercial invoices is consistent with the
principal-agent relationship; whether the agent bears the risk of
loss for damaged, lost or defective merchandise; and whether the
agent is financially detached from the manufacturer of the
merchandise. The inquiry does not end here, however. To be
exempt from dutiable value, the importer must additionally show
that "none of the commission inures to the benefit of the
manufacturer." J.C. Penney, 80 Cust. Ct. at 97, 451 F. Supp. at
984; See also, Manhattan Novelty Corp., 63 Cust. Ct. at 702;
Nelson Bead Co., 42 CCPA at 183; United States v. Knit Wits
(Wiley), 62 Cust. Ct. 850, 854-55, R.D. 11640 (1969); New Trends
Inc., 10 CIT 637, 643, 645 F.Supp. 957, 962 (1986), Rosenthal-
Netter, Inc. v. United States, 12 CIT , Slip Op. 88-9 (1988).
Under the facts provided, the importer does not have control
over the actions of his agent. The importer merely tells his
agent what he wants and the agent goes out and finds a
manufacturer who can meet the importers demands. The agent
makes it clear that he does not wish to reveal his sources for
the manufacture of the requisite items, yet the agency
agreement between the two parties states that the agent will
assist the purchaser on buying trips. Additionally, since the
importer does not meet the manufacturers, it is unclear just whom
the agent is working for or even if the manufacturer is aware of
any agency agreement.
As it is unclear just whom the agent is primarily working
for and no way for the importer to purchase merchandise directly,
the agents actions do not support the notion of an agency
relationship.
HOLDING:
As no single factor is determinative as to whether a buying
agency exists, the relationship must be judged by the entire
factual situation. It is our conclusion that the commissions to
be paid to the agent to perform the services of assisting in the
purchase of the merchandise from the foreign manufacturers cannot
be considered bona fide buying commissions as long as the
considerations discussed exist.
Accordingly, you are directed to deny this protest. A copy
of this decision should be attached to Customs Form 19, Notice of
Action, to be sent to the protestant.
Sincerely,
John Durant, Director
Commercial Rulings Division