VAL CO:R:C:V 544976 CRS
Sandra Liss Friedman, Esq.
Barnes, Richardson & Colburn
475 Park Avenue South
New York, NY 10016
RE: Assists; commissions paid to an agent for procuring piece
goods used in the manufacture of imported apparel; HRL 544323,
HRL 544423, TAA 20 cited.
Dear Ms. Friedman:
This is in reply to your letters dated April 13, 1992, and
December 18, 1992, on behalf of J. Gallery Ltd. (Junior Gallery),
concerning the dutiability of payments for the services of an
agent in procuring assists. This matter was also discussed with
members of my staff in a meeting held at Customs Headquarters on
November 23, 1992.
FACTS:
Junior Gallery contemplates importing women's clothing from
various manufacturers in the Orient. The garments will be made
using piece goods and other materials supplied by Junior Gallery
as assists. These materials will be procured for Junior Gallery
through the services of an agent who will be paid a commission
amounting to three percent of the f.o.b. value of the piece
goods. The services to be performed by the agent will include
sourcing the piece goods, maintaining quality control, and
arranging the production and delivery schedules to designated
factories.
You contend that the payments from Junior Gallery to its
agent should be treated as nondutiable since they represent the
cost of procuring assists, and thus are distinguishable from the
assist or the value of the assist.
Alternatively, with regard to the payments you describe as
"procurement assists," you state in your letter of December 18th:
[They] closely resemble the types of services provided
by a buying agent; (sic) sourcing, negotiation of
price, checking of quality control, arranging for
shipment and the like. In fact, the agent/facilitator
who will be hired by Gallery to source the fabric is
also retained by Gallery as their buying agent for
garments manufactured in Korea. The agreement with the
agent for the assist procurement can be incorporated
into the basic buying agency agreement as an addendum.
In view of the above, you have enquired as to the consequences
for appraisement purposes if the commissions paid by your client
to its agent for the procurement of fabric were to be provided
for under the terms of the agency buying agreement relating to
the purchase of the finished garments, viz. whether these
payments would be non-dutiable?
ISSUE:
The issue presented is whether commissions paid by a
principal to an agent for procuring piece goods (assists) used in
the manufacture of imported apparel form part of the cost of the
assists such that they are included in the appraised value of the
imported merchandise.
LAW AND ANALYSIS:
For the purposes of this ruling request we have assumed that
transaction value is the appropriate basis of appraisement of the
merchandise in question. Transaction value is defined in section
402(b)(1) of the Tariff Act of 1930, as amended by the Trade
Agreements Act of 1979 (TAA; 19 U.S.C. 1401a), as the price
actually paid or payable for imported merchandise when sold for
exportation to the United States, plus five enumerated statutory
additions, including the value, apportioned as appropriate, of
any assist. 19 U.S.C. 1401a(b)(1)(C).
Section 402(h) of the TAA (19 U.S.C. 1401a(h)) provides in
pertinent part:
The term "assist" means any of the following if
supplied directly or indirectly, and free of charge or
at reduced cost, by the buyer of imported merchandise
for use in connection with the production or the sale
for export to the United States of the merchandise:
(i) Materials, components, parts and similar
items used in the production of the imported
merchandise....
Through its agent, Junior Gallery intends to provide materials
and parts, specifically piece goods, to the manufacturers of the
apparel it contemplates importing. The piece goods therefore
constitute assists within the meaning of 19 U.S.C. 1401a(h)(i).
Section 152.103(d), Customs Regulations (19 CFR 152.103(d)),
provides in relevant part:
If the value of an assist is to be added to the price
actually paid or payable...the district director shall
determine the value of the assist and apportion that
value to the price of the imported merchandise in the
following manner:
(1) If the assist consists of materials,
components, parts, or similar items incorporated
in the imported merchandise, or items consumed in
the production of the imported merchandise,
acquired by the buyer from an unrelated seller,
the value of the assist is the cost of
acquisition.
Accordingly, the value of the assists furnished by Junior Gallery
to unrelated sellers should be based on the cost of acquisition
pursuant to 19 CFR 152.103(d).
In support of your client's position that the three percent
commission for locating sources of piece goods is non-dutiable,
you cite TAA 20 (Headquarters Ruling Letter (HRL) 542412 dated
March 27, 1981). In TAA 20 the issue was whether certain costs
incurred in procuring an assist, specifically purchasing,
receiving inspection, warehousing and transportation expenses,
formed part of the cost of acquiring an assist. With regard to
the cost of an assist we stated:
In our opinion, the cost of acquiring an assist is
limited to the purchase price, if purchased from an
unrelated party. Accordingly, the cost of procuring
the assist is not to be included in its value. Neither
are receiving inspection and warehousing costs. Actual
transportation costs are part of the value of an
assist.
Based on this ruling, HRL 542367 dated June 18, 1981, held that
procurement expenses connected with the inspection and selection
of fabric furnished as an assist by an importer to a manufacturer
were not to be included as part of the cost of acquiring the
fabric.
Nevertheless, in HRL 544323 dated March 8, 1990, it was
determined the term "procurement assist" was not defined in the
TAA, and that consequently, the proper inquiry was whether
certain costs were assists or part of the value of assists as
defined in 402(h)(1)(A) of the TAA. Subsequently, in HRL
544423 dated June 3, 1991, this office addressed the issue of
whether commissions paid to a buying agent for obtaining piece
goods supplied to apparel manufacturers and used in the
production of imported garments should be considered part of the
cost of the assist. Having first determined that a bona fide
agency relationship did not exist we held that commissions paid
by an importer to an "agent" for procuring materials (piece
goods) to be incorporated into imported merchandise, i.e.,
assists, were part of the cost of acquiring the assist and were
therefore dutiable.
Customs continues to adhere to its position as expressed in
HRL 544423; accordingly, commissions paid by Junior Gallery to an
agent for procuring assists are part of the cost of acquiring an
assist and should be added to the price actually paid or payable.
However, you have also asked what the duty consequences for
commissions paid by Junior Gallery would be if the agent's role
in procuring fabric assists were incorporated as part of the
buying agency agreement related to the purchase of finished
garments. Assuming the existence of a bona fide buying agency,
it is Customs' view that the commissions would be non-dutiable.
Please note, however, that this advice is provided for your
information only, pursuant to 177.1(d)(2), Customs Regulations
(19 CFR 177.1(d)(2)), and does not constitute a ruling letter
under 19 CFR 177.9.
HOLDING:
Commissions contemplated by Junior Gallery as payments to an
agent for services rendered in sourcing piece goods (assists) on
behalf of manufacturers of imported women's garments are properly
considered as part of the cost of acquiring the assists and would
therefore be added to the price actually paid or payable for the
imported merchandise.
Sincerely,
John Durant, Director