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HQ 546577

August 13, 1997

RR:IT:VA 546577 AJS


Area Director
U.S. Customs Service
Port of New York/Newark
6 World Trade Center,
New York, New York 10048-0945

RE: Protest number 1001-96-105056; buying agent; related party; HRL 544630; buying commission; Bushnell v. U.S.; Pier I Imports, Inc. v. U.S.; Rosenthal-Netter, Inc. v. U.S.; HRL 542145; J.C. Penney Purchasing Corp. v. U.S.; Dorf Int'l Inc. v. U.S.; New Trends Inc. v. U.S.; Jay-Arr Slimwear Inc. v. U.S.; General Notice, Cust. B. & Dec., vol. 27, no. 4; HRL 542141; loan from agent to buyer for purchase of merchandise; interest charge; Restatement (Second) of Agency.

Dear Director:

This is in response to the application for further review (AFR) of the above-referenced protest, dated June 24, 1996, filed by counsel, on behalf of Foremost Designers Ltd. (hereinafter Foremost) concerning the appraisement of garments imported from Taiwan. We understand that counsel also filed an internal advice request (IA 33-96) concerning the same issues as are involved in the AFR. However, in a letter dated April 2, 1997, counsel stated that the internal advice request is now moot because of the liquidation of the entries covered in the AFR. Therefore, the internal advice request was withdrawn. A meeting was held with counsel and the protestant to discuss this matter at our offices on March 13, 1997. Subsequently, counsel filed additional submissions dated April 2, 1997 and June 24, 1997.

Your office also forwarded a copy of protest number 1001-96-105057, dated June 24, 1996, concerning a similar issue filed by Dressy Tessy for our convenience. This decision will only address the protest filed by Foremost.


Foremost, an importer of ladies wearing apparel, is based in New York City. Foremost has a sister corporation, Dressy Tessy, Inc., (hereinafter DT), which works out of the same offices in New York with the same staff. According to counsel, both companies conduct business in an identical fashion. The companies have a business strategy to import a wide variety of styles, in relatively small quantities. Counsel indicates that on average the companies import 1,000 different styles of wearing apparel annually.

To facilitate their import operations, Foremost and DT use the services of an agent based in Taiwan, Perfect Quality (hereinafter PQ). PQ was incorporated in Taiwan in 1974. See counsel's submission, Exhibit 8. Attached to counsel's submission is an English translation of PQ's Economic Bureau Company License from the Taiwanese Government dated March 31, 1975. According to this license, PQ will: (1) "[act] as import & export agent, and thereby [be] involved in price bidding in foreign markets, price quoting and its guarantee; (2) represent for domestic & overseas manufacturer's products and undertake their business; (3) invest for above mentioned business."

Counsel states that PQ presently has a staff of ten people. Counsel also states that no principal, officer, or employee of PQ has any direct or indirect stock, share, or control of Foremost, or any of the manufacturers of the imported merchandise, nor are any such persons partners. However, the brother of Foremost's owner owns and controls PQ. In 1982, PQ and Foremost entered into a buying agency agreement for a term of four years. Id., Exhibit 3. At the end of the four year term, the agreement was extended for a period of ten years. Id.

Under the agency agreement, the buyer (i.e., Foremost) appointed the agent (i.e., PQ) exclusively for the supervision and export from Taiwan of all purchases of goods and raw materials in the Far East. The duties that the agent was to perform included: introducing the buyer to manufacturers of repute; assisting in the arrangement of samples; supervising the production of merchandise on behalf of the buyer; supervising packaging of goods and raw materials sold to the buyer; assisting manufacturers in obtaining all necessary raw materials. In addition, at the buyer's expense, the agent was to arrange for the dispatch of all goods and raw materials bought by the buyer, and to obtain transportation insurance for the goods and raw materials. The agent was also responsible to act as exporter from Taiwan and observe all formalities and forward the complete set of export bills and documents to the buyers, including the visa license for goods under import restrictions. In exchange for the services that the agent provided, the buyer agreed to pay the purchase price for the goods and raw materials sold and delivered through the agent, reimburse the agent for all the expenses incurred by the agent and pay a commission of ten percent based on the FOB value of the goods and raw materials sold through the agent.

According to counsel, in the course of acting as an agent, PQ located sources of supply for the importer (i.e., Foremost) and arranged meetings between manufacturers and Foremost. PQ also provided samples, which were revised pursuant to the importers' specifications, and inspected samples of each style ordered before the importer gave its approval for production. PQ additionally placed orders on behalf of the importer, inspected finished goods, and assured that goods were properly packed.

Counsel also states that PQ frequently acted as the exporter of record. In this capacity, it provided quota that the Taiwanese Government freely and directly allocated to it at no additional charge. Counsel states that as the exporter, PQ was obligated to prepare invoices covering the exportation of the merchandise, which set forth the quantities and prices from the manufacturers under its letter head. Counsel has furnished copies of invoices prepared by PQ as well the manufacturers' invoices for our review. Id., Exhibit 4, and counsel's submission of June 24. We note that PQ's invoices show the same prices for the merchandise as is shown on the manufacturers' invoices.

In 1988, a brother of the owners of Foremost and PQ established a garment manufacturing company in Taiwan, called Jonathan Brothers, Ltd. (hereinafter JB). Id., Exhibit 6. Counsel states that no principal, officer or employee of JB, PQ or Foremost has any direct or indirect stocks, shares or control of any of the other entities (or of any other manufacturers), nor are such persons partners, employers, employees, officers or directors of either Foremost or PQ (or any other manufacturer). JB supplied merchandise to the importer (i.e., Foremost). Although JB gradually became the major supplier of goods for the importer, it did not produce or supply all of the goods that Foremost imported. JB generally cut fabric to pattern and subcontracted all sewing and finishing work to other companies, which were not related to PQ nor the importer. On occasion, JB would manufacture finished apparel. After JB was well established, the importer instructed PQ to place orders only with JB, unless it was specially instructed to order from another company. However, Foremost continued to obtain price quotes from other parties. Id., Exhibit 7.

According to an affidavit from Kitty Koo, Foremost's Secretary/Treasurer, the principal and employees of Foremost regularly traveled to Taiwan (at least three times a year, staying on average of three weeks per trip). The purposes of these trips was to personally meet with the manufacturers, negotiate prices, discuss styling specifications, assure styling details were properly understood, and to give instructions to PQ. However, Foremost still used PQ in order to maintain a constant presence in Taiwan. Foremost and PQ stayed in contact by facsimile. Foremost would receive manufacturers' price quotes from PQ and would accept or reject them. Foremost would also instruct PQ to place orders on the desired specifications, provide shipping instructions, and receive shipping information. Counsel submitted examples of facsimile communications between Foremost and PQ. Id., Exhibit 9.

Ms. Koo further states that PQ only acted on her company's instructions and could not and never did agree to any styling specification, purchase term, manufacturer selection, or merchandise order without instructions to do so from Foremost. She further stated that title to and ownership of the merchandise was always transferred directly from the manufacturers to Foremost and never to PQ. According to the affidavit, PQ was not responsible for shipping or handling charges or for defective merchandise.

Foremost generally remitted payment to the manufacturers through PQ. Counsel states that PQ advanced monies on behalf of Foremost and was reimbursed by wire transfer. Id., Exhibit 4. Foremost paid the buying commission by means of a separate wire transfer. Id., Exhibit 10, and counsel's submission of June 24. The manufacturers' invoices showed Foremost to be the purchasers of the merchandise. According to counsel, PQ never took title to the goods. Counsel states that Foremost, PQ, and JB as well all of the other manufacturers, were and operated as independent business entities. Counsel also states that these entities kept their own books and records, and sought to maximize the profitability of their own companies.

Pursuant to a separate agreement, Foremost paid PQ interest on monies it advanced on their behalf. Id., Exhibit 11. The dutiable status of this charge is the subject of a separate internal advice request and will not be dealt with in this decision.

Foremost maintains that PQ is a bona fide buying agent and the agency commission that PQ incurred in obtaining merchandise should not be dutiable. In support of Foremost's position, counsel submitted copies of documents related to two of the protested entries. Specifically, counsel submitted invoices for imported merchandise prepared by the manufacturer, JB, and the two corresponding invoices for the same merchandise prepared by the agent, PQ. In addition, copies of the wire transfer from Foremost to the agent showing the payment for the merchandise were submitted. Id., Exhibit 4. Counsel also furnished copies of PQ's debit notes to Foremost, showing the ten percent agent's commissions for the merchandise were due to PQ on each shipment. Counsel also presented a copy of the wire transfer covering the payment of the commission and the interest charges to PQ. Counsel also states that Foremost remitted payment to the manufacturer by check, and that examples of these payments were reviewed by Regulatory Audit. The Audit Report does states that payment to foreign suppliers are made by wire transfer and check. Counsel additionally offered to provide copies of these checks.

Your office prepared a memorandum outlining your position in this matter. The memorandum indicated that Foremost did not furnish sufficient evidence to establish that PQ acted as a buying agent. It further explained that a Customs Jump Team visited Taiwan and discovered that certain manufacturers could not produce as much merchandise for export to the United States as was credited to them. It reports that PQ sourced goods only from JB, and since 1982, it did not have any other clients besides DT and Foremost. Because your office did not have invoices directly from manufacturers that show the actual price paid for the goods, your office is of the opinion that the actual price of the goods is the total cost as shown on Foremost's books. In other words, it is your position that the price actually paid or payable for the imported merchandise should include the invoice price plus the commission paid to PQ and the costs for obtaining the goods.

We also note that the Office of Regulatory Audit conducted an audit of the books and records of Foremost. The objective of the audit was to verify the accuracy and reliability of information submitted by the importer in support of its consumption entries filed during the calendar years 1993 and 1994. The report states that Foremost imports from a related suppliers in Taiwan. The report concludes that Foremost failed to declare dutiable commissions and buying costs.


Whether the commissions that Foremost paid to PQ for performing the above described services were bona fide buying commissions, which should have been excluded from the transaction value of the imported merchandise.


Initially, we note that this protest was timely filed pursuant to 19 U.S.C. 1514(c)(3)(A). The subject entries were liquidated on May 10 through May 31, 1996, and the protest was filed on June 24, 1996. We also note that the appraised value of merchandise is a protestable matter pursuant to 19 U.S.C.

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 is transaction value, which is defined in section 402(b)(1) of the TAA as the "price actually paid or payable for merchandise when sold for exportation to the United States," plus certain enumerated additions. The term "price actually paid or payable" is more specifically defined in section 402(b)(4)(A) 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.

Although we note that there is a question as to whether Foremost, PQ, and JB are related parties, for the purpose of this AFR decision, we are assuming that transaction value will be applicable as the basis of appraisement. We also note that a transaction involving related parties does not necessarily preclude the existence of a buying agency, however the circumstances surrounding such transactions are subject to closer scrutiny in determing whether a commission is a bona fide buying commission. Bushnell v. United States, C.A.D. 1104, 477 F.2d 1402 (1973).

Buying commissions are fees paid by an importer to an agent for the service of representing the importer abroad in the purchase of the goods being valued. They are not specifically included as one of the additions to the price actually paid or payable. It has been determined that bona fide buying commissions are not added to the price actually paid or payable. Pier I Imports, Inc. v. Untied States, 13 CIT 161, 164, 708 F.Supp. 351. 353 (1989); Rosenthal-Netter, Inc. v. United States, 679 F.Supp. 21, 23, 12 CIT 77, 78, aff'd 861 F. 2d 261 (Fed. Cir. 1988); Jay-Arr Slimwear Inc., v. United States, 12 CIT 133, 136, 681 F.Supp 875, 878 (1988). The importer has the burden of proving that a bona fide agency relationship exists and that payments to the agent constitute bona fide buying commissions. Rosenthal-Netter, supra, 22. An invoice or other documentation from the actual foreign seller to the agent would be required to establish that the agent is not a seller and to determine the price actually paid or payable to the seller. Headquarters Ruling Letter (HRL) 542141 (September 29, 1980) (also known as TAA #7). Furthermore, the totality of the evidence must demonstrate that the purported agent is in fact a bona fide buying agent and not a selling agent or an independent seller. Id.

In order to view the relationship of the parties as a bona fide buying agency, Customs must examine all the relevant factors and each case is governed by its own particular facts. J.C. Penney Purchasing Corporation et al. v. United States, 80 Cust. Ct. 84, C.D. 4741 (1978), 451 F.Supp 973 (1978); United States v. Knit Wits (Wiley) et al., 62 Cust. Ct. 1008, A.R.D. 251 (1969). Although no single factor is determinative, the primary consideration, however, "is the right of the principal to control the agent's conduct with respect to the matters entrusted to him." Dorf Int'l Inc., et al v. United States, 61 Cust. Ct. 604, A.R.D. 245, 291 F.Supp. 690 (1968). The degree of discretion granted to the agent is an important factor. New Trends Inc. v. United States, 10 CIT 637, 645 F.Supp. 957 (1986).

The Court of International Trade in the case of New Trends Inc., supra, set forth several factors upon which to determine the existence of a bona fide buying agency. These factors include: whether the agent's actions are primarily for the benefit of the importer, or for himself; whether the agent is fully responsible for handling or shipping the merchandise and for absorbing the costs of shipping and handling as part of its commission; whether the language used on commercial invoices is consistent with the principal-agent relationship, whether the agent bears the risk of loss for damaged, lost or defective merchandise; and whether the agent is financially detached from the manufacturer of the merchandise.

In Jay-Arr Slimwear Inc., v. United States, 12 CIT 133, 681 F.Supp 875 (1988), the Court of International Trade cited examples of services which are characteristic of those rendered by a buying agent. These services include compiling market information, gathering samples, translating, placing orders based on the buyer's instructions, procuring the merchandise, assisting in factory negotiation, inspecting and packing merchandise and arranging for shipment and payment.

In this instance, we note that there are a number of factors which support a bona fide buying agency relationship between PQ and Foremost. The first indication is that there is a buying agency agreement signed by both parties. We note that the services the agent is supposed to perform under the buying agency agreement such as introducing the buyer (i.e., Foremost) to manufacturers of repute; assisting in the arrangement of samples; supervising the production of merchandise on behalf of the buyer; supervising packaging of goods and raw materials sold to the buyer are consistent with a bona fide buying agency relationship. Although a buying agreement was presented in this case, it is the position of Customs that "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, Cust. B. & Dec., vol. 23, no. 11 at 15 ( March 15 , 1989), see also HRL 544965 (February 22, 1994). The existence of a buying agency relationship is factually specific and is based on the documentation submitted. The totality of the evidence must demonstrate that the purported agent was in fact a bona fide buying agent and not a selling agent nor an independent seller. Id. at 9, see also HRL 542141.

Accordingly, the issue that must be resolved is whether the evidence presented in this case establishes that PQ was acting on the behalf of Foremost and was under its control. Counsel submitted affidavits from PQ (i.e., agent), Foremost (i.e., buyer), and JB (i.e., manufacturer) which indicate that PQ did not order merchandise unless it was instructed to do by Foremost. There is no evidence which contradicts these affidavits. Although PQ relayed orders and specifications to the manufacturers, the ultimate decision on what to order and who manufactured the merchandise was always made by Foremost. Similarly, there is no indication that PQ ever held title to the imported merchandise or bore the risk of loss for the imported merchandise. PQ may have arranged for shipment and the insurance for the merchandise, but Foremost absorbed the charges for these services.

In determining if there was a bona fide buying agency relationship, we have reviewed the transaction documents. Your memorandum states that your office did not have invoices directly from the manufacturers (subcontractors) that show the actual price paid for the goods. However, Foremost has presented invoices from JB and other manufacturers in its AFR submission. These manufacturers' invoices show the price of the goods and that Foremost was the buyer of the merchandise. PQ did prepare textile export visa/invoices. We note that the prices shown on the visa/invoices are identical to the prices shown on the manufacturers' invoices. We also note that PQ is listed as the seller on the Special Customs Invoice (SCI). Customs has ruled that while the designation of a party on the SCI is normally considered as evidence of the relationship between the parties, the fact that a purported agent is listed as the seller on the SCI does not necessarily preclude a finding of a buying agency relationship as long as the evidence, taken as a whole substantiates such a finding. See HRL 542141 September 29, 1980. However, Customs stated that it is essential that the entry papers reflect the actual seller in order to establish the price actually paid or payable. Id. Accordingly, while a buying agent may be designated as a seller on the SCI as a matter of convenience, an invoice or other documentation must be submitted with the entry papers which reflects the actual seller and the price. Id.

In Rosenthal-Netter, supra, the court cited the Restatement (Second) of Agency section 14K comment a (1958) for factors to assist in determining when one is selling to as opposed to acting as an agent for the alleged principal:

(1) That he is to receive a fixed price for the property, irrespective of the price paid by him. This is the most important. (2) That he acts in his own name and receives the title to the property which he thereafter is to transfer. (3) That he has an independent business in buying and selling similar property.

In this case, PQ does not receive a fixed price for the imported merchandise. Rather, its compensation was a ten percent commission based on the FOB price of the goods that Foremost paid to the manufacturers as evidenced by wire transfers. As noted previously, the evidence available indicates that PQ never took title to the imported merchandise and functioned largely to assist Foremost by conveying its instructions to the manufacturers. It also appears that PQ was not engaged in selling and buying property on its own behalf. This is supported by the certificate of incorporation, which indicates that PQ would operate as an agent. An additional consideration, in deciding if there is a bona fide buying agency relationship, is whether the importer could have purchased directly from manufacturers without employing the agent. See HRL 544965 (February 24, 1994). According to Ms. Koo's affidavit, Foremost was free to buy directly from the manufacturers without using PQ. There is no evidence to dispute Ms. Koo's claim.

The series of facsimile communications between Foremost and PQ further demonstrates that PQ was operating under the control of Foremost. In the communications PQ sent to Foremost, it was providing price quotes and other information regarding merchandise. From the exchange of communications, it is apparent that PQ was requesting instructions on how to proceed. In response to PQ's requests, there are outgoing communications from Foremost in which it provided instructions to PQ regarding the merchandise, what to order, and at what price. Finally, there is the issue regarding the method of payment surrounding the transactions. Counsel explains that in purchasing goods, PQ advanced monies on behalf of Foremost to pay the manufacturers. Foremost reimbursed PQ for the money it advanced through wire transfers, which did not include the buying commissions. The wire transfer documents submitted by counsel indicates that PQ's commissions were paid through separate wire transfers that did not include payment for the merchandise.

Foremost paid interest on the funds that PQ advanced on its behalf to pay the manufacturers. Counsel contends that the financing that PQ provided to Foremost should not affect its status as a buying agent. Counsel points out that an agency is a fiduciary relationship which results in the consent of one party to another's acting on its behalf and subject to its control. Restatement (Second) of Agency, sect. 1 (1958). Counsel states that an agent can act on its own account in a transaction which is covered by the agency so long as the agent deals fairly with the principal and discloses the pertinent facts. Id. at sect. 390. Counsel asserts that there is no violation of the agency relationship if there is full disclosure and no unfair advantage is taken. Id. at sect. 390(a). Counsel points to an example in the Restatement which indicates that an agent employed to sell can properly lend money to the buyer to complete the purchase. Id. at sect. 391(b). Counsel contends that the reasoning behind this example should be applied to a situation where a buying agent is lending money to a buyer to complete a transaction.

We note that there is a written financing arrangement between PQ and Foremost which indicates that Foremost clearly knew about and consented to the financing that PQ provided. Furthermore, there is no evidence to indicate that in providing the financing PQ acted unfairly to Foremost. To the contrary, counsel points out that the interest rate PQ charged was very favorable to Foremost. Most significantly, it appears that lending money did not give PQ any greater control over the purchase transactions or limit Foremost's control over PQ. PQ still looked to Foremost for instructions on what to order and needed Foremost's approval before ordering merchandise from the manufacturers. Accordingly, we conclude in this particular instance, the fact that the Foremost borrowed money from PQ on which it paid interest does not preclude a bona fide buying agency relationship. However, we will not address whether the interest the importer paid to PQ is dutiable, as that is the subject of a separate internal advice request.

Based on the evidence presented with the protest, the totality of factors indicates that PQ functioned as a bona fide buying agent on behalf of Foremost. Therefore, the commissions that Foremost paid to PQ for its services are not part of transaction value of the imported merchandise.

Because we are satisfied that Foremost has established its underlying claim that PQ acted as its bona fide buying agent and that the commissions paid are not dutiable, its additional claim that the subject entries were deemed liquidated after the date of entry is moot. Moreover, it appears that the protestant has not met its burden of proving that Customs' extension of liquidation was unreasonable, that all possible grounds for extension of liquidation have been eliminated nor did the protestant suffer prejudicial impact resulting from the liquidation extension notices. See Intercargo Insurance Company f/k/a International Cargo & Surety Co., (Surety for M. Genauer) v. United States, 83 F.3d 391 (Fed Cir. 1996,) petition for cert. filed, (U.S. Oct. 22, 1996) (No. 96-650) (reversing the CIT decision (879 F.Supp. 1338)).


In accordance with the above analysis, we are satisfied that the evidence establishes for the subject transactions that PQ acted as a bona fide buying agent on behalf of Foremost. Therefore the agency commissions that Foremost paid to PQ are bona fide buying commissions and should not have been included in the transaction value of the imported merchandise.

You are directed to grant the protest. A copy of this decision with the Customs Form 19 should be sent to the protestant. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office 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 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.


Acting Director
International Trade Compliance Branch

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