Request for Internal Advice on Sale for Exportation Involving the Importation of Textiles; IA 5/89

HQ W544314 April 15, 1991 VAL CO:R:C:V W544314pmh CATEGORY: Valuation Area Director New York Seaport, NY RE: Request for Internal Advice on Sale for Exportation Involving the Importation of Textiles; IA 5/89 Dear Madam: This is in response to your memorandum dated February 21, 1989 (CLA—2—03:SN:N3—I:355—13), regarding a request for internal advice (IA 5/89) on the appraised value of certain merchandise imported by Gaeltaryn Ltd. We regret the delay in responding. FACTS : According to the submission, Gaeltaryn Ltd. (the Company), has two separate arrangements with Dragonwyck Ltd. (DWL), a trading house in Hong Kong. Under the first arrangement, the Company acts as DWL's clearance agent in the U. S. The Company solicits orders on behalf of DWL, from U.S. purchasers, and forwards the orders to DWL in Hong Kong. DWL, in turn, fills the orders by purchasing goods from various foreign manufacturers. DWL sends the invoice for the goods directly to the ultimate purchaser in the U.S. The goods are sold on a landed duty—paid basis and shipped directly from the foreign factory to the U.S. Although the U.S. purchaser makes payment directly to DWL, Caeltaryn Ltd. is the importer of record for the goods, files the Customs entry and subsequently arranges for transportation of the goods to the U.S. purchaser. According to a written agreement between the Company and DWL, DWL pays the Company a commission for its services, in the amount of .5% to 2% of the FOB price of the imported goods. The transaction value of the goods when entered into the U.S. is based on the sale between DWL and the foreign manufacturer. The Company contends that the sale between DWL and the U.S. purchaser is a domestic sale because title for the goods passes to the U.S. purchaser after importation, and that therefore, the sale should not serve as the basis for transaction value. The Company also has a second arrangement with DWL by which the Company buys goods for its own account. According to a written agreement between the Company and DWL, the Company pays DWL the ex—factory price of the goods plus a 10% commission. The transaction value of the imported goods is based on the ex— factory price of the goods. A copy of a factory invoice from a foreign manufacturer lists the Company as the buyer and does not show the 10% commission paid to DWL. ISSUES: Whether the transaction between DWL and the foreign manufacturer or the transaction between DWL and the ultimate U.S. purchaser, determines the "price actually paid or payable" for the merchandise when sold for exportation to the U.S. Whether DWL is a bona fide buying agent for the Company, under the arrangement where the Company buys goods for its own account. LAW AND ANALYSIS: The 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; 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.” With regard to the first issue, as noted above, it is the Company's position that the transaction value of the imported merchandise should be based on the price paid to the foreign manufacturer by DWL; that this is the only sale for export to the U.S. The Company contends that the sale between DWL and the U.S. purchaser is a domestic sale because title for the merchandise passes after importation, and that such a sale cannot form the basis for transaction value. The Company cites Headquarters Ruling Letter 543786, dated September 15, 1986 and HRL 543789, dated February 17, 1987 as support for its contentions. The concerned Import Specialist and National Import Specialist have taken the position that the sale between DWL and the U.S. purchaser is the sale that most directly causes the merchandise to be exported to the United States. In HRL 543786 and HRL 543789, Customs held that under the circumstances in each of those cases, the sale between two domestic companies was not a sale for exportation within the meaning of 19 U. S.C. 1401a(b). However, in the case at hand, the subject sale is between a foreign company (DWL) and a U.S. purchaser. The mere fact that title passes to the U.S. purchaser after importation is not enough to disqualify this sale from being a sale for exportation within the meaning of 19 U.S. C. 1401a(b). (See TAA #59, dated March 4, 1983.) In TAA #59, Customs specifically held that the fact title may pass at some time subsequent to importation into the U.S., does not preclude a sale for exportation to the U.S. which may be used to establish transaction value. TAA #59 concerned components for chemical plants and pulp and paper systems. The transaction between the foreign manufacturer and the importer involved one contract and one total price. To fulfill the contract some of the components were manufactured in Canada and some in the U.S. Since the price of the merchandise included assembly work performed in the U.S., title to the imported merchandise did not pass to the importer until after completion
of assembly and final acceptance in the U.S. Furthermore, in that case, there was no price actually paid or payable for the imported merchandise when sold for exportation to the U.S. However, Customs held that transaction value was the appropriate basis of appraisement because at the time the merchandise was exported there was an agreement to purchase. That is, although acceptance and final payment were contingent upon assembly in the U.S., there was a transfer of property for consideration. Consideration consisted of mutual promises to sell and to purchase, plus a payment. (The subject contract provided for a payment of immediately upon acceptance of the order.)
In the case at hand, the only element of the sale that occurs in the U.S. is passage of title. Full consideration passes, by means of the open letter of credit, when the merchandise is exported and no further work is performed on the merchandise after it is imported. Therefore, in accordance with our holding in TAA #59, we find that there is a sale for exportation to the U.S. of the imported merchandise, even though title to the entire article does not pass until sometime after importation. In the alternative, the Company contends that even if the sale from DWL to the U.S. purchaser is a sale for export to the United States, the price actually paid or payable for the merchandise should be based on the transaction between DWL and the foreign manufacturer. The Company cites E.C. McAfee Company et al. v. United States, 842 F. 2d 314 (Fed. Cir. 988) and Brosterhous, Coleman & Co. et al. v. United States, Slip Op. 90— 48 (May 11, 1990), in support of this contention. In E. C. McAfee Company. et, al. v. United States, 842 F. 2d 314 (Fed. Cir. 1988), U.S. purchasers ordered made—to—measure clothing from a foreign distributor who in turn paid a foreign manufacturer for assembly of the clothing. The court held that the transaction value of the finished clothing was represented by the price the foreign distributor paid to the foreign manufacturer, rather than by the price paid by the U.S. purchaser to the foreign distributor. The court was careful to limit its holding to the particular circumstances in that case. That is, because the clothing was made—to—measure, it was destined for a specific customer in the United States at the time the foreign distributor contracted for assembly of the clothing with the foreign manufacturer. In a General Notice issued by Customs, Customs also emphasized that the holding in McAfee is limited by the language of the court to the facts peculiar to that case. (See General Notice, Customs Bulletin, May 4, 1988.) In Brosterhous, Coleman & Co., et al. v. United States, Slip Op. 90—48 (May 11, 1990), a U.S. paper producer purchased a paper plant from a foreign seller. The foreign seller, in turn, purchased the components to be used in the construction of the paper plant, from foreign vendors. The court found that each transaction constituted a sale for export to the U. S. However, the court held that appraisement of the paper plant should be based on the sale between the foreign seller and the foreign vendor because that was the sale that most directly caused the merchandise to be exported to the U.S. In reaching its decision, the court distinguished the facts of Brosterhous from previous Customs rulings, in which the sale for exportation was held to be the transaction between the U.S. customer and the foreign distributor. The court noted that in each of those cases, the U.S. purchaser placed its order for consumer goods with a foreign distributor and the contract, therefore, "contemplated that the merchandise would be imported. (See C. S.D. 84-54, C. S.D. 83-95, TAA #57.) In contrast to the facts in those rulings, in Brosterhous the transaction between the U.S. purchaser and the foreign seller involved a turn—key contract, for the construction of a paper plant in the U. S. Due to the nature of such a transaction, the U.S. purchaser would not necessarily expect that all the components to be used in the construction of the plant would be imported. Indeed, the foreign seller could have purchased the components for the paper plant from any vendor, including a U.S. vendor. Importation became necessary only when the foreign seller chose a foreign vendor. Accordingly, the components were "sold for exportation to the U.S. at the time they were purchased. We find that the facts in the case at hand, are more analogous to the facts in the rulings that were distinguished by the court in Brosterhous. (See C. S.D. 84-54, C. S.D. 83-95, TAA #57.) In each of those rulings as in the present case, a U.S. purchaser placed an order for goods with a foreign distributor, who in turn purchased goods from a foreign manufacturer to fill the order. Customs has held, and it remains our position, that under such circumstances it is the sale between the foreign distributor and the U.S. purchaser that most directly causes the goods to be exported to the United States. Likewise, in this case, we find that the sale between DWL and the foreign manufacturers does not cause the merchandise to be exported to the United States. The merchandise is not shipped as a result of this sale. Rather, since DWL purchases the merchandise from the foreign manufacturers in order to fill the U.S. purchase orders, it is the sale between DWL and the U.S. purchaser that most directly causes the merchandise to be exported to the U.S. Therefore, appraisement of the subject merchandise should be based on the transaction between DWL and the U.S. purchaser. As noted above, under the second arrangement the Company has with DWL, DWL purchases merchandise from foreign manufacturers for the Company's own account. The Company contends that DWL is a buying agent and that, therefore, the price actually paid or payable for the merchandise imported under this arrangement is the ex—factory price and does not include the 10% commission paid to DWL. Section 402 (b) (1) enumerates items to be added to the price actually paid or payable for imported merchandise. Buying commissions are not specifically included as one of the additions. Whether or not a bona fide buying agency exists between an importer and an alleged "buying agent" is not determined by any single factor, but depends upon the relevant facts of each case. See J.C. Penney Purchasing Corp. v. United States, 451 F. Supp. 973 (Cust. ct. 1978). The primary consideration in determining whether a bona fide buying relationship exists between an importer and an alleged "buying agent" is the right of the principal to control the agent's conduct with respect to matters entrusted to the agent. B & W Wholesale Co. Inc. v. United States, 58 CCPÄ 92, C. A.D. 1010 (1971). 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. (See General Notice, Customs Bulletin, March 15, 1989.) In this case, we have a written agreement between DWI, and the Company (the importer) establishing that DWL will act as buying agent for the importer. The written agreement provides that the importer will approve the terns of all purchase orders and that any discrepancies will be submitted to the importer for approval prior to purchase In addition, a commercial invoice from the foreign manufacturer has been submitted, which lists the importer as the buyer and indicates that the importer bears the risk of loss for the merchandise. While the evidence submitted is not as extensive as it could be it does support the existence of a buying agency. Furthermore, there is no evidence refuting the existence of a bona fide buying agency. Therefore, based on the evidence submitted, we find that a bona fide buying agency exists between the importer and DWL. HOLDING: The sale for exportation for purposes of transaction value is the sale between DWL and the ultimate U.S. purchaser, as it is the sale that most directly causes the merchandise to be exported to the United States. Based upon the information submitted and for the reasons stated above, we find that it has been established that a bona fide buying agency exists between the Company and DWL, and that, therefore, the commission paid to DWL is not dutiable as part of the transaction value of the merchandise.