BRO-3-02-CO:R:C:E 224532 AJS
Mr. Jonathan M. Fee
Grunfeld, Desiderio, Lebowitz & Silverman
1201 West Peachtree Street, N.E.
Suite 4860
Atlanta, GA 30309
RE: Franchises issued to other Customs brokers; 19 U.S.C. 1641;
C.S.D. 79-111; power of attorney; "Position Statement on
Relationships Between Customs Brokers"; 19 CFR 111.30(c); 19 CFR
143.1; Automated broker interface.
Dear Mr. Fee:
This is in reply to your letters of February 25 and May 5,
1993, on behalf of your client, the Wilmington Shipping Company
(WSC), regarding the granting of franchises.
FACTS:
WSC is a licensed Customs broker and operates under the
fictitious name "Southern Oversees Corporation". WSC proposes to
offer and enter into franchises as a franchisor with other
separately licensed Customs brokers. WSC and its franchisees
intend to use the name "Southern Overseas" as a fictitious name
and as a service mark under a franchise agreement. This request
does not seek permission to use this fictitious name, but only
that WSC and its franchisees may conduct Customs business under a
common fictitious name. Each franchisee will use the service
mark on stationary, invoices and other business documents. Each
franchisee will obtain powers of attorney from its customers in
its own name, with a notation showing that the franchisee is
doing business under the fictitious name, and will use its own
name in conjunction with the fictitious name in executing Customs
documents. These powers of attorney will contain a clause
authorizing the appointee to execute and issue, on the customer's
behalf, powers of attorney to other brokers in
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other ports and districts. The power of attorney executed by the
first broker in this arrangement will create an agency
relationship between the customer and the second broker, and the
second broker will be directly accountable to the customer in the
performance of Customs brokerage services.
Each franchisee will exercise supervision and control of its
Customs business in each district in which it maintains a permit,
and will in all other respects separately and independently meet
Customs requirements for conducting Customs business as a
licensed broker.
WSC also intends to provide communications facilities and
data processing services to its franchises which are
substantially similar to facilities and services provided by
Automated Broker Interface (ABI) service bureaus.
ISSUE:
Whether WSC may enter into franchises as a franchisor with
other Customs brokers under the facts described above.
Whether WSC and its franchisees may conduct Customs business
under a common fictitious name and service mark, as separate and
independent licensed Customs brokers.
Whether WSC may provide communications facilities and data
processing services to its franchisees substantially similar to
facilities provided by ABI services bureaus.
LAW AND ANALYSIS:
19 U.S.C. 1641(a) states the term "customs broker" means any
person granted a Customs broker's license under subsection (b) of
this section. Section 1641(b)(2) & (3) provide for the granting
of a Customs broker's license to certain individuals,
corporations, associations or partner- ships. Section 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. Section 1641(a)(2) states the term
"customs business" means those 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. In this instance, WSC
intends to enter into franchise agreements with other Customs
brokers. Each
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franchisee will be required, as a condition of the franchis- ing
agreement, to maintain its separate existence as a licensed
Customs broker, and to retain direct accountability for the
discharge of its duties and responsibilities as a Customs broker.
Accordingly, the franchise agreement does not appear to violate
the above portion of the Customs Regulations.
19 U.S.C. 1641(b)(4) provides that a Customs broker shall
exercise responsible supervision and control over the Customs
business that it conducts. 19 CFR 111.11(d) states the term
"responsible supervision and control" means that degree of
supervision and control necessary to ensure that the employee
provides substantially the same quality of service in handling
customs transactions that the licensed broker is required to
provide. Furthermore, this section provides:
While the determination of what is necessary to maintain
responsible supervision and control will vary depending upon
the circumstances in each instance, factors which Customs
will consider include, but are not limited to: The frequency
of visits to offices of the licensee by the licensed broker(s);
the training required of employees; the volume and type of
business of the licensee; the reject rate for the various custom
transactions; the maintenance of current editions of the
Customs Regulations, Harmonized Tariff Schedule of the United
States, and Customs issuances; the availability of the
licensed broker(s) for consultation with the employee(s) when
necessary; the frequency of audits and reviews by the
licensed broker(s) of the customs transactions handled by the
employee(s): and any circumstances which indicates
whether a licensed broker of the firm has a real interest in the
firm's operation.
Each franchisee will exercise supervision and control of its
Customs business in each district in which it maintains a permit.
Therefore, the franchise agreement also does not appear to
violate this portion of the Customs Regulations.
In Customs Service Decision (C.S.D.) 79-111 we addressed the
situation of whether an importer may issue a power of attorney to
a broker (broker A) that would empower that broker to issue, on
the importer's behalf, powers of attorney to other brokers in
other ports. These other brokers had the same relationship to
the importer as does broker A, and will bill and be paid by the
importer directly and not through
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broker A. We ruled that this relationship was permissible under
the Customs Regulations. Our rationale was based on the view
that the brokers appointed by broker A would not be subagents of
the principal (i.e., the importer) because the importer's power
of attorney to broker A would specifically authorize broker A to
appoint these other brokers and because these other brokers, once
appointed, would act solely on account of the importer and bear
no agency relationship to broker A.
Customs position in C.S.D. 79-111 was affirmed in a
"Position Statement on Relationships Between Customs Brokers"
published in 54 Fed. Reg. 13136 (March 30, 1989). Customs stated
that "unless a bona fide employer-employee relation- ship exists,
a licensed Customs broker cannot conduct Customs business for
another licensed broker's client." Customs further stated that
"[a]lternatively, C.S.D. 79-111 can be used since the relevant
broker-client relationship is between the broker who is actually
performing the work for the client and the broker who is
responsible for that performance." The position is this
statement was held to apply to the conduct of all Customs
business by a license broker.
In this instance, powers of attorney obtained by WSC and
individual franchisees from their customers will contain a clause
authorizing the appointee to execute and issue, on the customer's
behalf, powers of attorney to other brokers in other ports and
districts. This type of power of attorney would be permissible
as long as each franchisee has the same relationship to the other
franchisees' customers as the other franchisee, and each
franchisee bills and is paid by the customer directly and not
through WSC or another franchisee.
Your request seeks acknowledgement that, provided the ruling
is not inconsistent with any provisions of the proposed Customs
Modernization and Informed Compliance Act (ACT), WSC and its
franchisees may alter their relationships or practices in any
manner that may be permitted under the Act without affecting the
binding effect of this ruling. We see no reason why this type of
acknowledgement would be necessary. If the ACT becomes law, any
applicable provisions would be binding on both Customs, WSC and
its franchisees.
In addition, any portion of this ruling which is not inconsistent
with the ACT would remain binding on Customs, WSC and its
franchisees. Consequently in accordance with 19 CFR 177.7(a),
your request for an acknowledgement on the possible effect of
unenacted legislation is denied.
19 CFR 111.30(c) provides that a broker who changes his
name, or who proposes to operate under a trade or fictitious name
in one or more States within the district in which he
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has been granted a permit and is authorized by State law to do
so, shall submit evidence of his authority to use such name.
Furthermore, the name shall not be used until the approval of the
Commissioner has been received. In the case of a trade or
fictitious name, the broker shall affix his own name in
conjunction with each signature of the trade or fictitious name
when signing Customs documents.
WSC and its franchisees intend to use a common fictitious
name and service mark to conduct Customs business. Each
franchisee will use the mark on stationary, invoices and other
business documents, but would affix its own name in conjunction
with each signature of the service mark when signing Customs
documents. Powers of attorney obtained by the franchisee from
its customers will also show the franchisee's true name as the
appointee thereunder with the notation showing that the
franchisee was doing business under the service mark. Therefore,
the franchise agreement does not appear to violate this portion
of the Customs Regulations.
WSC intends to provide communications facilities and data
processing services to its franchises which are substantially
similar to facilities and services provided by ABI service
bureaus. 19 CFR 143.1 states that ABI is a module of the Customs
Automated Commercial System (ACS) which allows participants to
transmit data electronically to Customs through ABI and to
receive transmissions through ACS. Its purposes are to improve
administrative efficiency, enhance enforcement of Customs and
related laws, lower costs and expedite the release of cargo.
Section 143.1(a) allows Customs brokers to participate in ABI.
Section 143.1(c) defines an ABI service bureau as "an individual,
partnership, association or corporation which provides
communications facilities and data processing services for
brokers and importers, but which does not engage in the conduct
of customs business . . .", and states that such persons may
participate in ABI.
Your request asserts that implicit in section 143.1(c) is
the recognition that services provided by an ABI service bureau
are not Customs business, and that unlicensed persons (i.e., non-
brokers) may offer those services. Your request then argues that
if unlicensed persons may offer those services, licensed persons
should be allowed to offer the same services in districts where
they do not maintain permits. We agree that WSC may perform ABI
services for its franchisees. Inasmuch as Customs brokers are
permitted to participate in ABI, and WSC would not be engaged in
the
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conduct of Customs business for its franchisees but merely
providing communications and data processing services for other
brokers, this portion of the franchise agreement does not appear
to violate the Customs Regulations.
HOLDING:
WSC may enter into franchise agreements with other Customs
brokers under the above described facts.
WSC and its franchisees may conduct Customs business under a
common fictitious name and service mark, as separate and
independent licensed Customs brokers.
WSC may provide communication facilities and data processing
services to its franchisees substantially similar to facilities
and services provided by ABI service bureaus.
Sincerely,
John Durant, Director