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HQ 547668





July 31, 2002

RR:IT:VA 547668 MMC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
300 S. Ferry Street
Terminal Island, CA 90731
ATT: Rene La Rue

RE: Sale for Export; Multi-Tiered Transaction; Commissions; Application for Further Review of Protest 2704-99-102392

Dear Port Director:

This is in response to your memorandum dated March 8, 2000, forwarding an Application for Further Review (AFR) of Protest 2704-99-102392. The protest was submitted by John B. Pellegini, counsel on behalf of Artemis Innovations, Inc. The request concerns the appraisement of an entry of footwear based on a transaction between the manufacturer, the middleman and the importer of record/protestant.

In a protest timely filed on September 2, 1999, counsel for the importer, adopts your characterization of the middleman as a seller and therefore contends that the transaction value should be based on an alleged sale between the middleman and the manufacturer.

FACTS:

The imported merchandise is footwear for the SSSS label in two styles "CCCCC" and "AAAA". Counsel identifies the footwear as a "grinding" shoe. The imported merchandise was initially entered on May 22, 1998 at a price of $00,000, but that price was changed to reflect the calculation correction. A payment characterized as a "buying commission" had been deducted twice. Protestant indicates that entry was based upon the middleman's invoice to the importer. The corrected entered value was $00,000, which would be the accurate amount for the deduction of a claimed 10% buying commission.

On October 9, 1998, you issued a Request for Information (CF 28). In it you asked, in pertinent part, that the importer, through its counsel, provide you with details of any additional costs/expenses incurred in the transaction, including commissions. Specifically you asked that a buying commission be substantiated. The requested buying agency agreement was never provided. You also asked for assist information which was provided.

In a March 15, 1999 Notice of Action, you notified the importer that there would be a rate and value advance. You stated the reasoning as "value appraised at $000,000 net packed per documentation received on CF 28 DTD 10-9-98 and sent to the NIS, the middleman is seller rather than agent."

Based on this Notice of Action, counsel alleges in this AFR that the middleman is not in fact a agent for the importer but rather a seller in his own right. According to counsel, the importer "buys" the footwear from the middleman who is located in Korea and then the middleman "buys" the footwear from the manufacturer, located in China. Based on these assertions, counsel argues that the merchandise should be appraised based on the sale between the manufacturer and the middleman, as the middleman acts as a "seller" and not an agent for the importer.

Counsel has provided documentation in support of his assertion. The documentation is as follows:

1. A February 27, 1998, Purchase Order: The purchase order is issued by the importer to the middleman with a "ship to" designation of the importer. It contains instructions that: "[t]he following number must appear on all related correspondence, shipping papers, and invoices: P.O. NUMBER: 0000." The merchandise is to be shipped via ocean freight with an "f.o.b. point: Dalian, China. Payment will be made by a letter of credit. The order is for 20,700 pairs of SSSS shoes per attached schedule. No unit price is stated but a total of $000,000.00 pre-tax appears on the invoice. An attached schedule indicates a break down of both CCCC and AAAA styles by color, unit price, size, and the numbers ordered in those sizes. The CCCC styles are further broken down by color and are all unit priced at $00.00. The AAAA styles are also broken down by color. Navy and Black/Grey are unit priced at $00.00. White and Black/Yellow is unit priced at $00.00.

2. A March 1, 1998, Revised Schedule for Purchase Order 2132: It is from the importer to the middleman. It revises the original schedule attached to the purchase order. It states that: "[r]evised to reflect grind plate material specification change from nylon ST801to nylon 6. Reduction of $0.55 per pair from original purchase order dated February 27, 1998." The CCCC styles are unit priced at $ 00.00. The AAAA styles are also broken down by color. Navy and Black/Grey are unit priced at $00.00. White and Black/Yellow is unit priced at $00.00.

3. A March 2, 1998 Purchase Order from the Middleman to the Manufacturer: The document also identifies this purchase order as #0000, and the customer as importer. Shipping terms are FOB Dalian, China. Destination is USA. Size is USA. Both the main and side mark blocks indicate "TO FOLLOW OUR INSTRUCTION". The goods are identified by Style name, Color, Size, Style number, pairs per case, and unit price. The CCCCC styles are unit priced at $ 00.00. The AAAA styles are also broken down by color. Navy and Black/Grey are unit priced at $00.00. White and Black/Yellow are unit priced at $00.00.

4. A March 3, 1998 Issue of Irrevocable Documentary Credit: It indicates in pertinent part that it was issued by the importer for the benefit of the middleman to a Korean bank for USD 401,380.80 for "SSSS" branded footwear. The shipment period is from Dalian, China no later than April 30, 1998 for transportation to Long Beach, CA. The letter is incomplete. Specifically, it is missing a portion of Section 47A. Section 47A provides for additional conditions under which the letter is drawn.

5. An April 7, 1998 Commercial Invoice from the Manufacturer to the Middleman: The invoice indicates that the manufacturer is the seller, Circle International is the consignee, and the middleman is the buyer. The invoice indicates that the goods are sold freight collect and shipped by sea. Terms of delivery are payment at sight FOB Dalian, China to LA/Long Beach. The purchase order number (0000) is indicated on the invoice. The invoice is for 3 different types of SSSS shoes. These shoes include 1,716pairs of AAAA Navy/White at $00.00 a pair for a total of $00,000.00, 3,624 pairs of CCCCC black at $00.00 a pair for a total of $00,000.00 and 384 pairs of CCCC sand at $00.00 a pair for a total of 6,432. The total for the invoice is $00,000.

6. An April 8, 1998 Irrevocable Documentary Credit: It indicates in pertinent part that it was issued by the middleman for the benefit of the manufacturer for "full invoice amount" for "SSSS" branded footwear. It then details the amounts for the different styles etc. Next to the amounts there are handwritten altered numbers with "ok" by each. The shipment period is from Dalian, China no latter than April 30, 1998 for transportation to Long Beach, CA

7. An April 17, 1998 Bill of Lading: The middleman is identified as the shipper with Circle International identified as consignee, forwarding and pre-carriage (domestic/export instructions) agent. Terms of delivery are FOB Dalian, China to LA/Long Beach by sea. The goods are identified as 0,000 pairs of "SSSS" branded footwear. The terms are "freight collect as arranged". The purchase order number 0000 appears on the document.

8. An April 24, 1998 Commercial Invoice from the Middleman for the Account and Risk of the Importer: The invoice indicates that the middleman is the seller for the account and risk of the importer. Circle International is identified as the consignee. The invoice indicates that the goods are sold freight collect and shipped by sea. Terms of delivery are payment at sight FOB Dalian, China to LA/Long Beach. The purchase order number (0000) is indicated on the invoice. The invoice is for 3 different types of SSSS shoes. These shoes include 0,000 pairs of SSSS Navy/White at $00.00 a pair for a total of $00,000.00, 0,000 pairs of CCCCC black at $00.00 a pair for a total of $00,000.00 and 000 pairs of CCCC sand at $00.00 a pair for a total of 0,000. The subtotal for the 0,000 pairs is 00, 000.00. A buying commission of 00,000.00 is added. The total for the invoice is $000,000.00. Counsel for the importer indicates that this invoice covers a partial shipment consisting of 0,000 pairs of the 00,000 ordered. The unit price paid for each pair is 10 cents more than the importer's purchase order unit price. Protestant did not provide an explanation for this difference in unit price.

9. A May 5, 1998 proof of payment Issued by Wells Fargo Bank: It indicates that Wells Fargo debited the importer's account in the amount of 000,000.00 plus misc. expenses for negotiable instruments, courier and mail fees for the benefit of the middleman.

10. An April 29, 1998 Negotiation Bill: It is written in Korean with handwritten translation. It is made to the attention of the middleman. It indicates a CM portion of $00,000.00, a "middleman portion" of $00, 000.00 and a "middleman portion after offsetting below total fee". This last category only has an amount in Korean Won that Wells Fargo debited the importer's account in the amount of $000,000.00 plus misc. expenses for negotiable instruments, courier and mail fees for the benefit of the middleman. According to counsel, the amount paid to the middleman represents the total payment less the amount disbursed to the manufacturer and banking fees.

11. Assist Calculations: This is a chart indicating the per pair cost of assists (molds, lasts, and dies) provided by either the importer directly to the manufacturer or from the importer through the middleman to the manufacturer. The total indicated by the table for the assists from both the importer and the middleman is $0.000. It is unclear from counsel's submission whether the assists were added to the price actually paid or payable when the importer initially made entry.

ISSUE:

Whether the imported merchandise may be appraised based on the transaction between the middleman and manufacturer.

Whether the evidence submitted supports a finding that the commissions paid constitute bona fide buying commissions such that they are not included in the price actually paid or payable.

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 ("TAA"), codified at 19 U.S.C. §1401a. §402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus numerated statutory additions, including:

(B) any selling commission incurred by the buyer with respect to the imported merchandise,

The term “price actually paid or payable” is defined in §402(b)(4)(A) of the TAA as:

...the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller.

1. Multi-tiered Transaction

Counsel contends that the instant situation involves a multi-tiered transaction with the merchandise first being sold from the manufacturer to the middleman, then from the middleman to the importer. Thus, it is counsel’s position that two sales take place, with the claimed sale for exportation being that between the manufacturer and the middleman.

In Nissho Iwai American Corp. v. United States, 16 CIT 86, 786 F. Supp. 1002 (1992), rev'd in part, 982 F.2d 505 (1992), (Nissho Iwai) and Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993) (Synergy), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman and a United States purchaser. In both cases, the middleman was the importer of record. In each case, the court held that the price paid by the middleman/importer was the proper basis for transaction value. Each court further said that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm’s length, free from any non-market influences, and involving goods clearly destined for the United States.

In situations involving multi-tiered transactions Customs has presumed that the price paid by the importer is the basis of transaction value. In order to rebut this presumption, the importer must provide evidence that establishes that the manufacturer’s price was a statutorily viable transaction value, i.e., that the goods were "clearly destined for export to the United States" and that the manufacturer and middleman dealt with each other at arm's length, absent any non-market influences affecting the legitimacy of the sales price. It is the importer's responsibility to demonstrate that the standard set forth in Nissho has been met.

The evidence submitted to rebut the presumption should describe the structure of the entire transaction. More particularly:

[T]he requestor must describe in detail the roles of all the various parties and furnish relevant documents pertaining to each transaction that was involved in the exportation of the merchandise to the United States. If there is more than one possible sale for exportation, information and documentation about each of them should be provided. Relevant documents include, purchase orders, invoices, proof of payment, contracts and any additional documents (e.g., correspondence) which demonstrate how the parties dealt with one another and which support the claim that the merchandise was clearly destined to the United States....What we are looking for is a complete paper trail of the imported merchandise showing the structure of the entire transaction.

30/31:52/1 Cust. B. & Dec. at 7, 9, T.D. 96-87, General Notice, Determining Transaction Value in Multi-Tiered Transactions .

With regard to the Nissho Iwai analysis, the importer is not the middleman. Thus, the importer must present sufficient evidence that there was a bona fide arm’s length sale between the middleman and the manufacturer, and that if in fact a sale did occur, it involves goods clearly destined for the United States.

For Customs purposes, the word “sale” generally is defined as a transfer of ownership in property from one party to another for consideration. J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974) (J.L. Wood). While J.L. Wood was decided under the prior appraisement statute, Customs adheres to this definition under the TAA. The primary factors to consider in determining whether there has been a transfer of property or ownership are whether the alleged buyer has assumed the risk of loss, and whether the buyer has acquired title to the imported merchandise. Also relevant is whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller.

In this case the protestant did provide a significant number of documents detailing the nature of the transactions between the manufacturer, middleman and importer. An initial cursory review indicates that a purchase order, invoice and proof of payment all exist for the transaction between the manufacturer and middleman. Furthermore, the amounts, totals, etc. all correspond. This appears to be compelling evidence of a bona fide sale between the manufacturer and middleman until it is reviewed in context with the documents from the entire transaction.

The purchase order from the middleman to the manufacturer is identified as purchase order number 0000, the same purchase order number used for the purchase order between the importer and the middleman. This seems to indicate that the middleman considers its purchase order to the manufacturer to be a mere extension of the importer's order. Additionally, the middleman's invoice to the importer indicates how the middleman characterizes itself. The invoice is issued for the account and risk of the importer and contains an amount identified as a "buying commission". Finally, and most tellingly, the importer itself initially entered on the price it paid, and deducted the identified buying commission from the price paid. Based on this evidence it is unclear whether the middleman is a seller/principal in his own right or an agent. The importer has failed to provide clarification and/or evidence that provides an explanation for the documentary evidence that suggests an agency relationship or why if the middleman was a seller, the importer did not initially enter the goods based upon the price paid by the middleman to the manufacturer.

These unanswered questions concerning the principle/agent status of the middleman lead us to conclude that the protestant/importer has not overcome the presumption that transaction value should based on the price paid by the importer. The question remains though whether the evidence submitted supports a finding that the commissions paid constitute bona fide buying commissions such that they are not included in the price actually paid or payable.

2. Buying Commission

The payments made by the importer to the middleman are identified as buying commissions on the middleman's invoice. Buying commissions are not part of the price actually paid or payable in determining transaction value pursuant to §402(b)(1)(B) of the TAA. Buying commissions are fees paid by an importer to his agent for the service of representing him abroad in the purchase of the goods being appraised. Bona fide buying commissions are not added to the price actually paid or payable. Pier 1 Imports, Inc. v. United States, 708 F. Supp. 351, 13 CIT 161, 164 (1989) (Pier 1 Imports, Inc); Rosenthal-Netter, Inc. v. United States, 679 F. Supp. 21, 23, 12 CIT 77, 78, aff'd, 861 F.2d 261 (Fed. Cir. 1988) (Rosenthal-Netter, Inc); Jay-Arr Slimwear, Inc. v. United States, 681 F. Supp. 875,878, 12 CIT 133, 136 (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, Inc, supra., New Trends, Inc. v. United States, 10 CIT 637, 645 F. Supp. 957 (1986); Pier 1 Imports, Inc, supra.

The importer has failed to substantiate that prima facie claim of a buying agency by providing the requested buying agency agreement and requested substantiating information. While the documentation is strong enough to call into question the nature of the relationship between the parties in this transaction, it, on its own, is not enough to substantiate a bona fide buying agency. The documents do not demonstrate that the middleman actually performed the typical services of a buying agent. As such the transaction value for the imported footwear includes all the payments made by the importer.

3. Assists

It is unclear from the evidence submitted whether or not the assists given by both the middleman and importer were included in the price paid by the importer. If both types of assists are not included in the price paid by the importer, then they should be added in accordance with the statute.

HOLDING:

The protest is DENIED. The unanswered questions concerning the principle/agent status of the middleman lead us to conclude that the protestant/importer has not overcome the presumption that transaction value should based on the price paid by the importer. Furthermore, there is insufficient evidence to demonstrate that the middleman actually performed the typical services of a buying agent. Therefore, the fees paid do not constitute bona fide buying commissions and are, therefore, included in the transaction value of the imported merchandise. Finally, if the identified assists given by the importer and middleman have not already been included in the price paid by the importer, then they should be added to the price actually paid or payable in accordance with the statute.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, 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 or entries in accordance with the decision must be accomplished prior to mailing the decision.

Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Virginia L. Brown, Chief

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