VAL RR:IT:VA 546539 CRS

Area Director
U.S. Customs Service
Hemisphere Center
Room 200
Routes 1 & 9 South
Newark, NJ 07114

RE: Internal Advice 23/95; buying agency; commissions

Dear Madam:

This is in reply to the above-referenced request for internal advice, forwarded to this office through the Customs Information Exchange, N.Y., under cover of your memorandum of February 23, 1996. The internal advice request was initiated by counsel Weltz & Posner on behalf of the importer, W. Weber Co., Inc. (hereinafter "Weber"). In conjunction with a case opened by the Office of Investigations, Newark, the Regulatory Audit Division conducted an audit of Weber. We regret the delay in responding.

FACTS:

Weber purchases and imports wearing apparel manufactured in Europe. The bulk of Weber's purchases are made under annual contracts based on Weber's assessment of its projected demand. In certain situations, however, Weber requires additional production that cannot be met by the contract factories. As a result, in 1992, Weber retained the services of an individual, Mr. Rauf Alamin, to act as agent in Europe for Weber's additional requirements as they might arise from time to time. This arrangement was formalized in an agreement, dated December 4, 1992, between Weber and Mr. Alamin.

The agreement provides that Mr. Alamin would, among other things, obtain samples from vendors and provide them to Weber; negotiate the "cut and make" unit price per garment, obtain trim; enter into purchase contracts with vendors; and arrange for quality control and shipment. As compensation for these services, Weber agreed to pay Mr. Alamin a commission to be negotiated at the beginning of each season.

The commission paid to Mr. Alamin was calculated on a per garment basis. In an affidavit submitted with the internal advice request, Weber's president stated that prior to selecting a factory to manufacture the garments, Weber and Mr. Alamin would agree on a maximum, or ceiling, price for the garments. Mr. Alamin would then negotiate the cut and make unit price with the manufacturer. Mr. Alamin would be paid the differential between the actual total cost of the goods and the ceiling price as a commission for his role in the transaction. Thus, the commissions paid to Mr. Alamin fluctuated from manufacturer to manufacturer and from garment to garment. Pursuant to the agreement, Mr. Alamin agreed to prepare and submit periodic invoices for his commissions.

As stated above, the payment to the manufacturer/seller of the imported merchandise was a "cut and make" price. The necessary fabric was procured in some instances by Weber, while in other cases, Mr. Alamin would procure the fabric. In either case, the fabric was provided free of charge to the manufacturer/seller.

Weber maintains that the commissions paid to Mr. Alamin are bona fide buying commissions and should not have been included in the appraised value of the imported merchandise. Weber alleges that Mr. Alamin had no authority to select manufacturers and that the actual selection thereof was made by Weber after thorough consideration. Weber remained involved throughout the production process. Weber states that the title to the goods never passed to Mr. Alamin and that Mr. Alamin never had a financial interest in the factories which were selected. In support of this, Weber has submitted invoices from the manufacturers/sellers and copies of correspondence between itself and certain of the factories with which it dealt through Mr. Alamin.

It is your position that the payments to Mr. Alamin are not bona fide commissions. You note that no separate invoices were submitted to document the payments to Mr. Alamin. In this regard, you also note that Weber dealt with Mr. Alamin on open account. Payments for fabric and trim, payments to cover Mr. Alamin's expenses, as well as the payments, described above, which incorporated Mr. Alamin's commissions, were all booked to this account. Moreover, you note that Mr. Alamin incurred a loss on certain transactions and this is not typical of an agent. As a result, you concluded that Mr. Alamin was acting as an independent seller of the imported merchandise rather than as a buying agent.

ISSUE:

The issue presented is whether amounts in question constituted bona fide buying commissions such that they should not have been included in the transaction value of the imported merchandise.

LAW AND ANALYSIS:

Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C.  1401a). The primary method of appraisement under the TAA is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus five enumerated additions including the value, apportioned as appropriate, of any assist, and any selling commissions incurred by the buyer with respect to the imported merchandise. 19 U.S.C.  1401a(b)(1).

Pursuant to section 402(b)(4) of the TAA, the term "price actually paid or payable" is defined in pertinent part 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. 19 U.S.C.  1401a(b)(4). Bona fide buying commissions, however, are not an addition to the price actually paid or payable. Pier 1 Imports, Inc. v. United States, 708 F. Supp. 351, 354, 13 CIT 161, 164 (1989); Rosenthal-Netter, Inc. v. United States, 679 F. Supp. 21, 23, 12 CIT 77, 78 (1988); Jay-Arr Slimwear, Inc v. United States, 681 F. Supp. 875, 878, 12 CIT 133, 136 (1988).

The existence of a bona fide buying commission depends upon the relevant factors of the individual case. E.g., J.C. Penney Purchasing Corp. v. United States, 451 F. Supp. 973, 983, 80 Cust. Ct. 84, 95, C.D. 4741 (1978). However. the importer has the burden of proving the existence of a bona fide agency relationship and that the payments to the agent constitute bona fide buying commissions. Rosenthal-Netter, 679 F. Supp. 21, 23; New Trends, Inc. v. United States, 645 F. Supp. 957, 960, 10 CIT 637 (1986).

The primary consideration in an agency relationship is the right of the principal to control the agent's conduct with respect to those matters entrusted to the agent. J.C. Penney, 451 F. Supp. 973, 983. The existence of a buying agency agreement has been viewed as supporting the existence of a buying agency relationship. Dorco Imports v. United States, 67 Cust. Ct. 503, 512, R.D. 11753 (1971). In addition, the courts have examined such factors as: the transaction documents; whether the purported agent's actions were primarily for the benefit of the principal; whether the importer could have purchased the merchandise directly from the manufacturers without employing an agent; whether the intermediary was operating an independent business, primarily for its own benefit; and whether the purported agent was financially detached from the manufacturer of the merchandise. Rosenthal-Netter, 679 F. Supp. 21, 23 (1988); New Trends, 645 F. Supp. 957, 960-962.

In determining whether an agency relationship exists, the evidence submitted to Customs must clearly establish the fact of a bona fide buying agency. Headquarters Ruling Letter (HRL) 544610 dated February 23, 1991. Customs has consistently held that an invoice or other documentation from the actual foreign seller to the agent is required in order to establish that the agent is not the seller, as well as to determine the price actually paid or payable to the seller. HRL 542141 dated September 29, 1980 (TAA No. 7).

In this instance, Weber has submitted a buying agency agreement between itself and Mr. Alamin. However, while a written buying agency agreement supports the notion of a bona fide agency relationship, it is merely evidence that the parties intended to create an agency relationship and is not dispositive as to the existence of such an arrangement. Rosenthal-Netter, 679 F. Supp. at 26, 12 CIT at 83, citing J.C. Penney, 451 F. Supp. at 985, C.D. 4741 at 98. Thus, "having legal authority to act as a buying agent and acting as a buying agent are two separate matters and Customs is entitled to examine evidence which proves the latter. General Notice, 23:11 Cust. B. & Dec. 9 (March 15, 1989). See also, HRL 544965, dated February 22, 1994.

In addition, Weber has provided of copies of relevant correspondence, primarily involving the sellers/manufacturers of the imported merchandise. The correspondence indicates that Mr. Alamin was involved in the transactions between Weber and the sellers. For example, the correspondence indicates that Mr. Alamin procured trim on behalf of Weber and that the sellers were aware that the goods were ultimately destined for Weber, rather than Mr. Alamin. J.C. Penney, 451 F. Supp. at 983, C.D. 4741 at 80. Nevertheless, with respect to the agent's duties as set forth in paragraph 3 of the buying agency agreement, there is no evidence, for example, that Mr. Alamin obtained samples and submitted them to Weber, nor that he negotiated the cut and make price on behalf of Weber, nor that he exercised any supervision quality control. Furthermore, Mr. Alamin did not submit periodic invoices for agent's commissions as required under paragraph 3 of the buying agency agreement.

Moreover, the evidence indicates that Mr. Alamin lost money on certain of the transactions in which he purported to act as agent for Weber. The fact that Mr. Alamin profited on some transactions and yet lost on others suggests that he was acting in his own name and interests rather than those of Weber. Thus, the evidence does not support a finding that Mr. Alamin actually acted as a bona fide buying agent under the terms of the buying agency agreement.

Finally, the evidence shows that Weber dealt with Mr. Alamin on open account. The payments to that account reflected amounts for fabric, trim and expenses connected with the purchase of the imported merchandise, as well as amounts in respect of Mr. Alamin's compensation, calculated as described above. In this respect, Weber has failed to establish that Mr. Alamin was not an independent seller of the imported merchandise. Accordingly, it is our position that the payments to Mr. Alamin are part of the price actually paid or payable for the imported merchandise and therefore were properly included in transaction value.

HOLDING:

In conformity with the foregoing, the amounts in question were properly included in the transaction value of the imported merchandise.

This decision should be mailed by your office to the internal advice requester no later than sixty days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access channels.

Sincerely,

Acting Director
International Trade Compliance Division