HQ W548515
SEP 2 8 2004
RR:IT:VA 548515er
Port Director
Customs and Border Protection
200 E. Bay Street
Charleston, SC 29401
RE: Application for Further Review of Protest (1603-03-100018); Bona Fide Sale; Agency; Selling Commissions.
Dear Port Director:
This is in response to the above-noted Application for Further Review ("AFR") dated March 18, 2004, submitted by counsel on behalf of their client, Mitsubishi Polyester Film, LLC ("MFA"). The protest concerns the proper valuation of certain polyester film ("PET film") imported by MFA.
FACTS:
MFA is an importer of PET films. MFA is a wholly-owned subsidiary of Mitsubishi Chemical Co. of Japan which is part of the Japan-based Mitsubishi Group of companies.
MFA imports PET film from two affiliated companies, Mitsubishi Polyester Film Co. (Japan) ("MFJ') and Mitsubishi Polyester Film GmbH (Europe) ("MFE"). The three parties are related within the meaning of 19 U.S.C. 1401a(g)(1).
MFA, MFJ and MFE entered into a Mutual Supply Agreement ("MPSA" or "agreement") in 2000, a copy of which was submitted with this application. The MPSA defines the "Supplier" as any of MFJ, MFA or MFE when any one of them conducts a sale of PET film to its customers in any of the other parties' Geographical Sales Territory. The MPSA defines "Purchaser" as any of MFJ, MFA or MFE when any of them undertakes in its Geographical Sales Territory to intermediate the sale of PET film by the Supplier to its customer(s). The MPSA defines "Customer" as a customer of the Supplier located in the Purchaser's Geographical Sales Territory.
The PET film is delivered to the destination port on a CIF basis except that the risk of loss remains with the Supplier up to the point of delivery to the U. S. customer. The price charged to the Customer is determined through a three-way negotiation between the Supplier, the Purchaser
and the Customer. In return for its services the Purchaser is paid a margin which is defined as a percentage of the CIF price to the Customer. The agreement refers to the payment to the Purchaser as "a margin of sales commission... on resale". According to you, the amount of this margin is included in the price to the Customer.
The agreement identifies such a transaction as an "MCB" and further provides that all transactions contemplated under the agreement are made on an "MCB" basis. The agreement further provides that transactions subject to the agreement are made on the account of and at the risk of the Supplier.
In the event the Purchaser (importer) is unable to collect the payment from the Customer, the loss from the uncollected debt is shared between the Supplier and Purchaser on an 85%: 15% basis. Additionally the Supplier bears the risk of all claims made by the Customer or any third party in connection with the PET film.
Counsel's characterization of the transactions at issue differs from the terms of the MPSA. In the April 23, 2004 submission, counsel states that where MFA purchases PET film produced abroad, MFA is responsible for finding the potential customer and establishing a price at which to sell the imported PET film to its Customer. Further, counsel states the Supplier has no say or control of the prices at which MFA elects to sell the merchandise. Counsel also states that MFA purchases the PET film on a CIF basis and, as such, obtains title and risk of loss for PET film while it is in-transit to the U.S. Last, counsel states that MFA is responsible for clearing the goods with Customs, arranging for transportation to the customers (or warehousing the product), and it is responsible for 85% of the liability in the event of non-payment by a U. S. customer.
ISSUE:
Whether protestant has presented sufficient evidence to prove that the imported merchandise was improperly appraised under transaction value to include the commissions paid to MFA?
LAW AND ANALYSIS:
Merchandise imported into the U. S. 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 preferred 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 statutory additions in section 402(b), including selling commissions incurred by the buyer with respect to the imported merchandise. The "price actually paid or payable" is defined in section 402(b)(4) 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).
In order for the merchandise to be appraised based on the transaction between MFE or MFJ and MFA, there must be a bona fide sale. In determining whether a bona fide sale has occurred, Customs also will consider whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties were functioning as buyer and seller. While it is characteristic of a buyer-seller relationship for the parties to maintain an independence in their dealings, in a principal-agent relationship the former will control the actions of the latter.
Specifically, Customs considers as evidence of a buyer-seller relationship whether the potential buyer:
a. provided (or could provide) instructions to the seller;
b. was free to sell the items at any price he or she desired;
c. selected (or could select) his or her own customers without consulting the seller; and
d. could order the imported merchandise and have it delivered for his or her own inventory.
The fact that a potential buyer cannot assume such tasks is an indication that the party is serving as an agent. See, Informed Compliance Publication "Bona Fide Sales and Sales for Exportation", Vol 30/31 Cust. Bull. No. 52/1 dated January 2, 1997.
The roles of the parties to the subject transactions are identified in the MPSA. Specifically, section 1 of the MPSA provides the following regarding the definition of the parties' roles:
1.1 "Supplier" shall mean any of MFJ, MFA or MFE when any of them conducts a sale of PET Film to its customer(s) in any of the other parties Geographical Sales Territory.
1.2 "Purchaser" shall mean any of MFJ, MFA or MFE when any of them undertakes in its Geographical Sales Territory to intermediate the sale of PET Film by the Supplier to its customer(s).
1.3 "Customer" shall mean a customer of the Supplier located in the Purchaser's Geographical Sales Territory.
Section 2 provides that all the transactions are made on the account of and at the risk of the Supplier. Although the "Purchaser" sells in its own name and supposedly takes title to the merchandise in return for a sales commission, the foreign supplier retains the risk of loss to the point of delivery as determined by the U.S. Customer and Purchaser. When the supplier ships the merchandise directly to the Customer, then a delivery term agreed to by all three parties is used.
Section 4 specifically provides that the price charged to the Customer is determined by means of a three-way negotiation between the parties. Section 6 provides that in the event the Purchaser/importer is unable to collect the payment from the U. S. Customer, the loss is shared between the Supplier and the Purchaser on an 85%:15% basis. Moreover, section 7 provides that the Supplier bears all risk for claims arising against the Purchaser/importer.
The described roles of the parties indicate that the buyer and seller are, respectively, the U.S. Customer and the foreign Supplier. As the intermediary, MFA does not provide instructions to the foreign seller; is not free to sell the merchandise at any price it wants; does not select the U.S. Customers to the transaction; and, in the described transactions, does not import the merchandise for its own inventory. Under the circumstances, based on the terms of the agreement we conclude that the buyer is the U. S. Customer and the seller is the foreign Supplier, with no intermediate sale for exportation occurring between MFJ or MFE and MFA. The remaining issue, therefore, is whether the commissions paid to MFA are selling commissions.
The Customs and Border Protection ("CBP") regulations define "selling commission" as any commission paid to the seller's agent, who is related to or controlled by, or works for or on behalf of, the manufacturer or seller 19 CFR 152.102(b). Additionally, in an Informed Compliance publication entitled "Buying and Selling Commissions", Customs defines selling commissions as
fees paid to a selling agent for the services it performs on behalf of the seller in the sale of the imported goods. The seller controls the actions of the selling agent with respect to those matters entrusted to the agent. Vol. 34 Cust. Bull. No. 25 dated June 21, 2000.
Both the CBP regulations and Informed Compliance publication quoted above indicate that in order for a commission to be treated as a bona fide selling commission, an agency relationship between the seller and some third party who receives the payment is presupposed. Based on the description of the roles of the parties in the agreement, MFA undertakes activities on behalf of the foreign Suppliers that are consistent with an agency relationship. These activities include assisting the principal/foreign Supplier in the sale of the imported merchandise to the foreign Supplier's U.S. Customer.
As regards these commissions paid to MFA, the statute specifies that a selling commission is one incurred by the buyer. 19 U.S.C. 1401 a(b)(1)(B). According to you, the amount of the commission paid to MFA is included in the price actually paid or payable by the U.S. Customer/buyer. Under these circumstances, the commission paid to MBA meets the definition of a "selling commission", and should be included in the dutiable value of the imported merchandise.
In the context of a protest, protestant has the burden of proving the validity of and justification for its protest. See, HQ 546824 dated November 4, 1998. As stated above in the facts, counsel's characterization of the transaction is not consistent with the terms of the agreement. Nor does the other information submitted in conjunction with this protest establish that the merchandise was improperly appraised to include the commissions in transaction value. Under the circumstances, protestant has not met its burden of proof to justify its claim that the merchandise was improperly appraised to include the commissions. Accordingly, we conclude that the sale for exportation occurs between the U.S. Customer and the foreign Supplier, and accordingly, pursuant to 19 U.S.C. 1401a(b)(1)(B) that the commissions paid to MFA were properly included in the transaction value of the imported merchandise, as dutiable selling commissions.
HOLDING:
Based on the submitted information, protestant has not presented sufficient evidence to prove that the merchandise was improperly appraised under transaction value to include the commissions paid to MFA.
You are directed to deny this protest. In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing
of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Virginia L. Brown, Chief
Value Branch