HQ 545012: Application for Further Review of Protest No. 3001-92- 100309; dutiability of commissions paid to purported buying agent

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 545012
                        October 13, 1992

VAL CO:R:C:V  545012  ILK
CATEGORY: Valuation

District Director
Seattle District

RE:  Application for Further Review of Protest No. 3001-92-
     100309; dutiability of commissions paid to purported buying
     agent

Dear Sir:

     The subject protest and application for further review
concerns the appraisement of jackets imported from Hong Kong by
xxxxxxxxxxxxxx Inc. (hereinafter referred to as the "importer"),
and the Customs Service's decision to assess duty on commissions
paid by the importer to its purported Hong Kong buying agent,
xxxxxxxxxxx Ltd. (hereinafter referred to as the "agent").

FACTS:

      The importer contracted with the agent to provide three
styles of jackets for the importer.  The importer has provided
Customs with two purchase orders.  The first is dated October 3,
1990 and is for three styles of jackets at the unit prices of
$14.00. $17.60 and $19.00.  According to the importer sample
material failed to meet the Customs requirements for water
resistant fabric under HTSUS 6201.93.35, which has a duty rate of
7.6%.  The importer was therefore required to enter the jackets
under HTSUS 6201.93.35 at a 29.6% rate of duty.  In order to
compensate for the increased rate of duty, the importer
renegotiated the unit price of the jackets to $9.80, $12.32 and
$13.30.  These prices are reflected in a second purchase order to
the agent dated December 13, 1990, and represent a reduction of
approximately 30%.  The agent's total invoice price is
$24,044.30.  The importer claims that it was not until the
renegotiation of prices took place that it became aware that
commissions paid to buying agents are not dutiable.

     Two Customs Forms 28 were sent to the importer on or about
November 14, 1991, requesting the invoices from the manufacturer,
xxxxx xx xxx, proof of payment and the agent's commission
statement.  By its letter dated December 5, 1991, the importer
supplied certain documents to Customs.  In its letter dated
December 5, 1991, the importer stated that it has never been able
to obtain an invoice from the manufacturer of the merchandise
since it has "no contact with them," and the importer believed
that the agent and the manufacturer had a falling out over the
price renegotiations.

     The importer has provided a copy of a memorandum from the
agent dated December 14, 1990 which identifies the services that
the agent agrees to perform for the importer as its "commissioned
agent."  These services consist of locating a factory to produce
the styles requested by the importer, communicating
specifications to the factory, communicating questions and price
negotiations to the importer and the factory, delivering samples
of ornamentation, trim and prototypes to the importer for
approval, arranging for logo of computer embroidery and screen
print for approval and final production, inspection of production
to assure that product is of the quality approved by importer and
preparation of export documentation.  The memorandum provides
that the agent will charge a commission "approximately" 25% of
the factory F.O.B. price of the merchandise for the foregoing
services.  The agent's commission invoice is dated December 31,
1990, and is for 25% of the agent's invoice price of the imported
merchandise.  

     Customs has also been provided with a copy of an Advice of
Letter of Credit Drawing and Negotiation, showing the draft
amount as that for the merchandise invoice and the commission
invoice, to be drawn by the agent.  
     
     By Customs Form 29, dated December 12, 1991, the importer
was informed that the imported merchandise would be appraised at
the total amount paid to the agent, including the "commission,"
since the only invoices provided to Customs were from the agent.
The entry was liquidated accordingly on December 27, 1991.  The
Protest, filed on March 26, 1992, is accompanied by a copy of the
manufacturer's invoice.  The Protest states that the reason for
the delay in providing the manufacturer's invoice was the dispute
between the manufacturer and agent.  The manufacturer's invoice
is dated December 29, 1990, is in HK$, is made out to the agent
but cites the importer's purchase order numbers.  The invoice
shows a discount amount which reflects a discount of
approximately 15.35% of the total F.O.B. price.  This "discount"
is not explained.  

     According to T.D. 91-6, the quarterly rate of exchange for
US$ and HK$ was 0.128279 from October 1 through December 31,
1990.  The importer has not provided Customs with any other
exchange rate.  The manufacturer's invoice shows the jackets to
be priced at HK $93.00, 119.00 and 129.00 per piece.  Based on
the rate of exchange, the manufacturer's invoice prices for the
garments are US $11.93, 15.27 and 16.54 respectively.  The
manufacturer's total fob invoice price with the discount is HK
$195,806.75, or based on the exchange rate, US $25,117.90.

     The Customs field office has taken the position that the 25%
commission exceeds the commission rate that is customary in the
trade for bona fide buying agents.  It is the importer's position
that the agent is a buying agent, and the commission paid is non-
dutiable.


ISSUE:

     Whether the described services provided by the agent are
those of a bona fide buying agent.

LAW AND ANALYSIS:

     The services described above have long been considered
characteristic of a buying agent.  See e.g.., Jay-Arr Slimwear
Inc. v. United States, 12 CIT 133, 681 F.Supp. 875 (1988); J.C.
Penney Purchasing Corp. et al. v. United States, 80 Cust. Ct. 84,
C.D. 4741, 451 F. Supp. 973 (1978).  In addition, in Rosenthal-
Netter, Inc. v. United States, 12 CIT 77, 679 F.Supp. 21, aff'd.
861 F.2d 261 (Fed. Cir. 1988), the court noted that the factors
in deciding whether a bona fide agency relationship exists
include: the right of the principal to control the agent's
conduct, the transaction documents, whether the intermediary was
operating an independent business primarily for its own benefits,
and the existence of a buying agency agreement.  We have ruled
that "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."  Headquarters Ruling
Letter (HRL) 542141 dated September 29, 1980, also cited as TAA
No. 7.  Although no single factor is determinative, the primary
consideration is the "right of the principal to control the
agent's conduct with respect to the matters entrusted to him." 
J.C. Penney Purchasing Corp., 451 F.Supp. at 983.

     We have stated in U.S. Customs Service General Notice, dated
March 15, 1989, citing TAA No.7, that certain documents must be
submitted to Customs to clearly establish the existence of a bona
fide buying agency:

     [A]n 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.

While the importer has provided Customs with a copy of the
manufacturer's invoice, it does not establish the price actually
paid or payable, or that the agent is not a seller, because the
manufacturer's total F.O.B. price is different from the agent's
total F.O.B. price.

     The services performed by the agent are among those usually
performed by a bona fide buying agent.  However there are several
aspects of the agent's conduct that the importer failed to
control.  First, the importer did not control from which factory
the agent ordered the merchandise.  The importer's purchase
orders to the agent omit the name of any manufacturer.  Therefore



the importer could not have known from which factory the agent
would purchase the merchandise.  In Rosenthal-Netter, supra, the
Court found that the "failure to substantiate the names of
manufacturers is evidence that no agency relationship existed." 
679 F.Supp. at 23.  Second, the importer did not control the
manner of payment.  The letter of credit opened by the importer
to pay for the imported merchandise was made payable to the
agent.  The agent could also deduct its commission from the
letter of credit.  The Court in Rosenthal-Netter, found that "an
importer's failure to control the manner of payment is a factor
evidencing the nonexistence of an agency relationship."  Id. 
Third, the importer had no contact with the actual manufacturer
of the merchandise.  In New Trends, Inc. v. United States, 645
F.Supp. 957 (CIT 1986), the importer's lack of involvement with
the manufacturers of merchandise was an indication that there was
no principal-agent relationship between the importer and the
agent, but that the agent was acting as a seller of the imported
merchandise.  Based on the facts before us we are not satisfied
that the importer has exercised the requisite degree of control
over the agent.  

     The initial purchase order is dated October 3, 1990.  There
was no mention of a commission on that purchase order.  The
"agency agreement" is not even dated until December 14, 1990,
after it was found that the merchandise would be classified under
a higher rate of duty, and until after the prices of the
merchandise had been renegotiated.

     The appraising officer has determined that the 25% fee
exceeds the commission rate that is customary in the trade for
bona fide buying agents.  The facts do not indicate that the
extent of services provided by the agent are beyond those
customarily performed by such agents.  

     Based on the information provided to Customs regarding the
relationship between the importer, agent and seller, the totality
of the evidence does not indicate that the agent was under the
control of the importer and is in fact a bona fide buying agent. 
Therefore, we conclude that the fees to be paid to the agent do
not constitute a bona fide buying commission, and are therefore
included in the transaction value of the imported merchandise. 

HOLDING:

     As no single factor is determinative as to whether a buying
agency exists, the relationship must be judged by the entire
factual situation.  It is our conclusion that the commissions
paid to the agent to perform the services of assisting in the
purchase of the merchandise from the foreign manufacturer cannot
be considered bona fide buying commissions.

     Accordingly, you are directed to deny this protest.  A copy


of this decision should be attached to the Customs Form 19 mailed
to the protestant as part of the notice of action on the protest.

                                   Sincerely,



                                   John Durant, Director
                                   Commercial Rulings Division