ENT-1-01-CO:R:C:E 223016 CB
S. Richard Shostak, Esq.
Stein Shostak Shostak & O'Hara
Suite 1240
3580 Wilshire Boulevard
Los Angeles, CA 90010-2597
RE: Qualification of Contract Assemblers to Make Entry and
Interpretation of T.D. 90-42
Dear Mr. Shostak:
This letter is in response to your letter of September 6,
1990, wherein you presented two representative contractor fact
situations with respect to the scope of financial interest under
Customs Directive 3530-02 and T.D. 90-42. You have requested
that Headquarters issue a binding ruling regarding the
sufficiency of the "financial interest" to enable contract
assemblers to make Customs entries.
FACTS:
In your letter you set forth two representative fact
situations reflecting the diverse financial investments of the
various contract assemblers along the Mexican Border.
Both Assemblers #1 and #2 perform similar or identical
services, including, but not limited to, arranging for
transportation and insurance of prefabricated components from the
United States to an assembly plant in Mexico and clearance
through both U.S. and Mexican Customs at the time the components
are exported to Mexico. You state that, at a minimum, both
assemblers also arrange for and/or perform or supervise the
assembly of the components into finished merchandise in Mexico at
either a related or unrelated assembly plant, and perform
inspection of the assembled merchandise to insure that it meets
with their ultimate U.S. customers' specifications and
requirements.
Additionally, the assemblers arrange for the transportation
of the finished product to their U.S. customers' facilities, as
well as for Mexican and U.S. Customs clearance of the merchandise
when imported into the United States. The assemblers also
arrange for insurance on the consigned property during its
exportation from the U.S., its time outside the U.S. and during
its reimportation into this country.
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You state that Assembler #1 may, at the option of its U.S.
customers, perform additional services, including, but not
limited to, designing the system for the assembly of the
merchandise in Mexico, procuring assembly equipment, furnishing
technical expertise for assembling the merchandise, and providing
a communications system between the Mexican assembly facility and
the U.S. customers to help insure quality control and the
delivery of components to Mexico and assembled products to the
United States. We assume that the sample contract included in
your submission applies to Assembler #1.
The contract assemblers in your fact situations have the
following investments and involvements:
Assembler #1 Assembler #2
Investment in Mexico $5,000,000 $ 0
Investment in U.S. 500,000 40,000
Number of U.S. Employees 100 3
Number of Mexican Employees 250 0
ISSUE:
Whether U.S. shelter operations have a sufficient financial
interest in assembly operations to enable them to make a Customs
entry under 19 U.S.C. 1484?
LAW AND ANALYSIS:
Under 19 U.S.C. 1484 only an "importer of record" has the
right to make entry. "Importer of record" is defined as the
owner or purchaser of the goods, or when designated by the owner,
purchaser, or consignee, a licensed customhouse broker. A
nominal consignee may designate a customhouse broker to make
entry on his behalf but may not make entry on his own behalf. If
a customhouse broker makes entry for a nominal consignee, the
broker must appear as importer of record. The Act of January 12,
1983 (Pub. L. No. 97-446, 96 Stat. 2349) which repealed former
section 483 of the Tariff Act of 1930, as amended, and required
entries to be made by the owner, purchaser or a duly appointed
customhouse broker is an example of a constriction of the right
to make entry. It would be contrary to that congressional
purpose to interpret the term beyond the express language in 19
U.S.C. 1484 or Customs Directive 3530-02 of November 6, 1984.
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Customs Directive No. 3530-02, entitled "Right to Make
Entry" provides, in part:
An "owner" or "purchaser" is defined as 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 ...."
Subsequently, entry issues relating to 807/9802 "shelter"
operations were specifically the subject of T.D. 90-42, which
held in part:
"U.S. shelter corporations have the right to make entry if
they are the owner or purchaser of the finished articles, or
if they are a licensed customhouse broker duly appointed by
the owner, purchaser, or consignee of the merchandise. A
shelter corporation not licensed as a customhouse broker
would be precluded from acting as importer of record, where
it was engaged by the third-party U.S. client for the
purpose of arranging the transportation and assembly of the
articles in Mexico, and where it had no ownership interest
in the finished goods."
It is your position that contract assemblers have as much
financial interest in the goods which they seek to enter as many
of the parties listed in the Directive, e.g. a buying or selling
agent. Your argument is valid with respect to Assembler #1.
However, it is inappropriate to make such a comparison with
respect to Assembler #2. As stated by the Court of
International Trade in Rosenthal-Netter, Inc. v. United States,
12 CIT 77, 79, 679 F. Supp. 21, 23 (1988), aff'd, No. 88-1294
(Fed. Cir. Nov. 10, 1988), the primary consideration in
determining an agency relationship is the "right of the principal
to control the agent's conduct with respect to the matters
entrusted to him." In establishing a buying agency the courts
have looked at such factors as who controls the purchasing
process, the manner of payment, who controls shipping and
handling of merchandise, whether the principal has an opportunity
to negotiate without the assistance of the agent, and whether the
agent acts primarily for the benefit of the other and not for
himself. In order to establish a selling agency the courts look
at similar factors but from a selling point of view. See Dorf
International, Inc. v. United States, 61 Cust. Ct. 604, A.R.D.
245, 291 F. Supp. 690 (1968). In both instances, special
emphasis is placed on control.
The fact situation you presented, with respect to Assembler
#2 does not conform to any of the factors enumerated by the
courts. Assembler #2 acts primarily for its own benefit,
controls the shipping and handling of the merchandise, the U.S.
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customers may choose to negotiate directly with the foreign
companies, and the U.S. customers excercise little, if any,
control over the contract assembler. However, we do believe
that Assembler #1 falls within the scope of a buying agent.
Under the contract you submitted, the U.S. customer has control
over the screening and selection of employees, the establishment
of manpower requirements, and bears any severance costs incurred.
The foreign assembly plant is leased for the benefit and use of
the U.S. customer. The U.S. customer has to specifically
authorize in advance the purchase of any equipment other than
what is already provided by the customer. The customer is
responsible for labor costs and provides "on-site" personnel.
Further, the customer reimburses the assembler for all shipping
costs. Additionally, the customer is unable to negotiate with
the foreign assemblers directly. Although Assembler #1 does not
fall squarely within the agency criteria, there are sufficient
factors present to fall within the general scope of a buying
agency. Moreover, the financial investment is such that
Assembler #1 clearly satisfies the financial interest
requirements of T.D. 90-42.
It is our opinion, with respect to Assembler #2, that we
lack sufficient information to issue a ruling. However, if the
information provided is the only available information, then it
is our position that contract Assembler #2 is an independent
contractor. An independent contractor is one who, while
"exercising independent employment, contracts to do a piece of
work according to his own methods and without being subject to
the control of the employer except as to the result of the work."
See Donroy, Ltd. v. United States, 301 F.2d 200, 206 (9th Cir.
1962); S. Williston, A Treatise on the Law of Contracts 22-23
(1967). Certainly, with respect to Assembler #2, there is no
question that the U.S. customers have control only over the
result of the work. An independent contractor is not listed as
one of the parties which has a right to make entry under the
definition of "owner" or "purchaser" set forth in Customs
Directive 3530-02. We see no need or requirement to expand such
a definition at this time.
Additionally, Customs Directive 3530-02 provides that the
terms "owner" and "purchaser" include a person who imports
merchandise for the purpose of further fabrication or alteration.
Two law firms who claim to represent shelter operations assert
that the provision should be interpreted to include foreign
entities who receive imports from the United States which they
further fabricate or assemble and then export back to the United
States. The subsequent return to the United States is the key
importation. If the Directive was intended to extend the right
to make entry to a person who received merchandise that was
exported from the United States for the purpose of further
fabrication or assembly, it would not have used the words "a
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person who imports goods for repair or alteration or
fabrication." At the time of importation the goods involved in
the described shelter operations in issue are not being imported
for repair, alteration or further fabrication.
You point out that Customs permits licensed Customs brokers,
with no financial interest in the goods, to make entries in their
own name and on their own bonds. However, we must point out that
customhouse brokers are statutorily authorized to make entry. As
stated in 19 U.S.C. 1484(a)(1)(C), "[w]hen an entry of
merchandise is made under this section, the required
documentation shall be filed either by..., a person holding a
valid license under section 1641 of this title." A customhouse
broker is such a person under 19 U.S.C. 1641. It is the statute
and not the Customs Service which "permits" customhouse brokers
to make entry. Merely having some kind of a "financial interest"
is not sufficient to fall within the definition of "owner" or
"purchaser" for entry purposes. For example, a carrier has a
financial interest in the cargo, and a lien that would be
enforced by Customs under 19 U.S.C. 1565. However, it is not an
"owner" for the purpose of making entry under 19 U.S.C. 1484.
Unless a party claiming the right to make entry as an owner
or purchaser can show legal or equitable title to the imported
goods, or can show that it comes within the plain language
defining these terms in Customs Directive 3530-02 of November 6,
1984, entry should be denied. 19 CFR 142.3(a)(2) The importer
of record must satisfactorily prove its financial interest with
the proper documentation, e.g. lease agreements, contracts
between assembler and customer, purchase orders, etc. The
District Director will be required to make a determination
regarding the sufficiency of the evidence presented.
Regarding the two fact situations you presented, where the
"importer of record" owns the assemblies overseas, it is the
owner of the goods for the purpose of making entry both under
T.D. 90-42 and Customs Directive 3530-02. The financial interest
is such that the assembler would maintain substantial records
and, therefore, provide a proper audit trail for Customs
purposes. The recordkeeping requirements are set forth in 19
U.S.C. 1508. The statute requires that records shall be made,
kept and rendered for examination and inspection for a period of
time not to exceed 5 years from the date of entry.
Additionally, 19 U.S.C. 1509 provides that records and other
documents may be examined in order to ascertain, among other
things, the correctness of any entry and determining liability
for duties. See also 19 CFR Part 162. The sample contract you
submitted specifically provides that the assembler will maintain
complete, accurate and timely records for inspection and audit
purposes.
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HOLDING:
A buying agency relationship exists where a contract
assembler has a related foreign assembly plant; therefore, it
falls within the definition of "owner" or "purchaser" published
in Customs Directive 3530-02 and the financial interest
requirement set forth in T.D. 90-42. However, said principal-
agent relationship must be satisfactorily proven with the proper
documentation, e.g. lease agreements, contracts between assembler
and customer, employment contracts, purchase orders. A contract
assembler that is merely an independent contractor does not fall
within the definition of "owner" or "purchaser" set forth in
Customs Directive 3530-02 nor does it meet the financial
interest requirement set forth in T.D. 90-42. Therefore, a
contract assembler that is an independent contractor cannot make
entry on behalf of the true owner or purchaser of the
merchandise. In this instance, based on the limited evidence
provided by way of contracts, we hold that Assembler #1 for which
evidence of the buying agency relationship has been provided is
entitled to make entry.
Regarding Assembler #2, we decline to issue a ruling because
of the insufficiency of the information provided. We will rule
on any detailed legal analysis and supporting evidence provided
by interested parties. 19 CFR 177.2(b). As stated by the Court
of International Trade in Bar Bea Truck Leasing Co., Inc., v.
United States, 5 CIT 124, 126 (1983), assertions of counsel are
not evidence. Any additional ruling requests by interested
parties should be submitted to Headquarters for consideration
within ninety (90) days from the date of this ruling.
As general guidance, a party claiming a financial interest
in goods so as to have the right to enter those goods as an owner
or purchaser must show the extent and terms of that financial
interest by sufficient evidence. In order for the Customs
Service to rule, the relationship among the parties to each other
must be shown: the traditional legal owner of the goods, the
shelter company, and, if other than the shelter company, the
actual processor of the goods. Contractual relationships that
show which party is responsible for the loss of the goods, which
party is responsible for quality defects in the processing, the
terms of payment and which party has assumed the responsibility
for recordkeeping under 19 U.S.C. 1508 and what provisions it has
made to comply with 19 U.S.C. 1509 must also be shown.
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This ruling is limited to the fact situations presented.
Sincerely,
Samuel H. Banks
Assistant Commissioner
Commercial Operations
cc: Ronald W. Gerdes, Esq.
Sandler, Travis & Rosenberg, P.A.
Richard A. Jacobson, Esq.
Trenam, Simmons, Kemker, Scharf, Barkin, Frye & O'Neill
District Director, Nogales, AZ
District Director, El Paso, TX
Regional Commissioners of Customs
Pacific Region
Southwest Region
South Central Region
Southeast Region