HQ 545255: Application for Further Review of Protest No. 2809-92-101856; Proper Transaction Value of Imported Merchandise; Dutiability of Commissions

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 545255

                        August 10, 1994

VAL CO:R:C:V 545255 LPF

CATEGORY: Valuation

District Director
U.S. Customs Service
555 Battery Street
San Francisco, CA 94111

RE: Application for Further Review of Protest No. 2809-92-101856;
    Proper Transaction Value of Imported Merchandise; Dutiability
    of Commissions

Dear Sir:

     This is a decision on an application for further review of a
protest filed October 29, 1992, against your decision concerning
the valuation of backpacking and camping tents.  The entry was
liquidated on September 25, 1992.  We regret the delay in
responding.

FACTS:

     On May 29, 1992, Sierra Designs ("Sierra"), a U.S.
corporation, filed an entry for backpacking and camping tents at
San Francisco, CA.  The Entry Summary (Customs Form 7501)
indicates $126,831 as the value determined by Customs.  The file
includes a copy of an invoice dated May 20, 1992, from Odyssey
International Limited ("Odyssey") to Sierra for 190 cartons of
backpacking tents at a total of $126,831.  Also included is an
invoice dated May 8, 1992, from the Korean factory, Kyong Jo
Industrial Co. Ltd. ("Kyong Jo"), to Odyssey for 2400 backpacking
tents at a total of $114,256.  A copy of the buying agency
agreement entered into on May 11, 1992, between Sierra and
Odyssey was submitted.  Your office points out that Odyssey owns
Sierra and requires that Sierra use its services as an overseas
buying agent and pay a seven percent buying commission.  It is
your understanding that prior to Odyssey's acquisition of Sierra,
the latter paid an unrelated agent a seven percent commission.

     You appraised the merchandise at $126,831, the price from
Odyssey to Sierra.  The protestant claims that the appraised
value should be the FOB price from Kyong Jo to Odyssey.  Sierra
claims that the value determined by Customs includes a seven
percent buying commission paid to Odyssey pursuant to the buying
agency agreement.  Based on these claims, the protestant requests
that the entry be reliquidated with a refund to Sierra for the
                               -2-

alleged overpayment of $620.57 representing a seven percent
buying commission paid to Odyssey.

ISSUE:

     Based on the facts presented, whether the protestant has
proven the existence of a bona fide agency relationship and, if
not, which sale is the sale for exportation for purposes of
determining the transaction value of the merchandise.

LAW AND ANALYSIS:

     As you are aware, the preferred method of appraisement is
transaction value pursuant to section 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.  Section 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 enumerated additions.

     The "price actually paid or payable" is defined in section
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."

     The existence of a bona fide buying commission depends on
the relevant factors in light of the individual case.  See J.C.
Penney Purchasing Corp. v. United States, 80 Cust. Ct. 84, 95,
C.D. 4741, 451 F. Supp. 973, 983 (1978).  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, Inc. v. United
States, 12 CIT 77, 78, 679 F. Supp. 21, 23 (1988); New Trends,
Inc. v. United States, 10 CIT 637, 640, 645 F. Supp. 957, 960
(1986).

     In determining whether an agency relationship exists, the
primary consideration has been the right of the principal to
control the agent's conduct with respect to those matters 
entrusted to the agent.  J.C. Penney, 80 Cust. Ct. at 95, 451 F.
Supp. at 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 considered
such factors as: whether the purported agent's actions were
primarily for the benefit of the principal; whether the principal
or the agent was responsible for the shipping and handling and
the costs thereof; whether the importer could have purchased 

                               -3-
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, 12 CIT at 79, 679 F. Supp. at 23;
New Trends, 10 CIT at 640-644, 645 F. Supp. at 960-962.

     The fact that the buying agency agreement was dated three
days after the date of the invoice from Kyong Jo to Odyssey, that
Odyssey requires Sierra to use its services, and that the
difference between the Kyong Jo-Odyssey and Odyssey-Sierra sales
prices reflects more than seven percent of the manufacturer's
invoiced amount (the Kyong Jo-Odyssey invoice) may indicate that
Odyssey is not a bona fide buying agent.  It appears from the
information provided that the importer has not met its burden of
proving the existence of a bona fide agency relationship.  If
your office has determined that Odyssey is not a valid buying
agent, but a middleman, the decisions reached in Nissho Iwai
American Corp. v. United States, 786 F. Supp. 1002 (CIT 1992)
rev'd 982 F.2d 505 (Fed. Cir. 1992) and Synergy Sport
International, Ltd., v. United States, Slip. Op. 93-5 (Ct. Int'l
Trade, decided January 12, 1993) become relevant.

     In Nissho Iwai and 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 U.S.
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 stated 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 nonmarket influences and involving
goods clearly destined for export to the United States.

     Likewise, we note that in the context of filing an entry,
via Customs Form (CF) 7501, an importer is required to make a
value declaration.  As indicated by the language of the CF 7501
and the language of the valuation statute, there is a presumption
that such transaction value is based on the price paid by the
importer.

     In keeping with the courts' respective holdings and our own
precedent, we will continue to presume that an importer's 
declared transaction value is based on the price the importer
paid.  In further keeping with the courts' holdings, we note that
in those situations where an importer requests appraisement based
on the price paid by the middleman to the foreign manufacturer
 (and the importer is not the middleman), the importer may do so. 
However, it will be the importer's responsibility to show that
such price is acceptable under the standard set forth in Nissho
Iwai and Synergy.  That is, the importer must present sufficient 

                               -4-

evidence that the sale was an "arm's length sale," and that it
was "a sale for export to the United States," within the meaning
of 19 U.S.C. 1401a(b).

     In this case, Sierra is the importer and, therefore, based
on the presumption explained above, the appraising officer
correctly based the transaction value of the imported merchandise
on the price that Sierra paid to Odyssey.  With regard to whether
transaction value may be based on the transaction between Odyssey
and the foreign manufacturer, we note that it is not clear from
the evidence included in the file that such transaction was "a
sale for export to the United States" (i.e., that at the time
Odyssey purchased, or contracted to purchase, the imported goods,
they were "clearly destined for the United States") or was an
"arm's length sale" within the standard set forth by the court. 
Consequently, we cannot make a determination that the transaction
value of the imported merchandise should be based on the sale
between Odyssey and Kyong Jo, the foreign manufacturer.  On the
other hand, we assume that the sale between Odyssey and Sierra is
acceptable as an "arm's length sale" as articulated by the Nissho
Iwai court.

HOLDING:

     Based on the evidence submitted, and for the reasons cited
above, the appraising officer correctly based the transaction
value of the imported merchandise on the price paid by the
importer, Sierra, to Odyssey.  Furthermore, the protestant has
not met its burden of proving the existence of a bona fide agency
relationship.  

     You are directed to deny the protest.  A copy of this
decision with the 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, Lexis, the Freedom
of Information Act and other public access channels.

                                   Sincerely,



                                   John Durant, Director
                                   Commercial Rulings Division