Request for Valuation Ruling; Buying Commissions

HQ W548487 April 26, 2004 RR:IT:VA W548487 EK CATEGORY: Valuation Robert L. King, Jr. Customs Manager Meijer, Inc. 2929 Walker, N.W. Grand Rapids, Michigan 49544-9428 RE: Request for Valuation Ruling; Buying Commissions Dear Mr. King: This is in response to your letter of February 6, 2004, requesting a ruling on behalf of Meijer, Inc., (hereinafter referred to as Meijer) relating to the valuation of imported merchandise. You have requested confidential treatment regarding names, specific responses to a questionnaire, percentage of compensation, and documents in Appendix C. You indicate that disclosure of this information would cause Meijer to suffer a competitive disadvantage in your industry. We are granting this request for confidentiality. FACTS: You state that Meijer is a regional general merchandise and foot retailer located in the Midwest. Meijer imports general merchandise sold in its stores, and does not maintain an overseas buying staff; however, Meijer contracts with agents and vendors to facilitate its overseas buying activities. Meijer has contracted with a buying agent to negotiate sales on behalf of Meijer. A signed buying agency agreement entered into on January 23, 2004, has been submitted with this ruling request. The agreement specified certain duties that the buying agent will perform. Included in these duties, among other things are: investigating and researching potential manufacturers of products; providing Meijer (buyer) with all pertinent information on prices, qualities, quantities, and availability of products suitable for the U.S. market; inspecting seller's facility where products are to be manufactured; ensuring that the country of origin claim by vendor is correct; negotiating with sellers as to the lowest possible price quotations for the products; submitting to Meijer, along with representative samples, the price quotations resulting from such negotiations; submitting to buyer "estimated landed cost" for the products, with the understanding that such estimates are advisory only and subject to buyer's confirmation; arranging meetings between representatives of buyer and sellers; providing buyer with complete and accurate description of product; assisting buyer in developing products, including specifications and instructions for sellers; assisting buyer in preparation of contract documents, letters of credit, and other documentation required for importation; explaining buyer's vendor policy and purchase order terms and conditions to the seller; upon express written direction of buyer, placing orders on behalf of buyer; visiting manufacturer's production facility while products are in process; monitoring U.S. import quota from the U.S.; maintaining contact with sellers throughout production process; verifying and confirming that the quantity, quality, condition, packaging, labeling, invoicing and customs documentation of all ordered products conform to all transaction requirements and to all applicable laws and regulations; verifying that products ordered by buyer conform to buyer's specifications; and, assisting buyer in obtaining satisfaction from seller for defective products. In addition, the agent agrees that it shall not exercise any control whatsoever over the prices paid by the buyer for the imported merchandise. The agent has no authority to accept any price quotations except upon express terms and conditions established by the buyer. In exchange for these services, agent receives a commission equal to (XXX)% of the contract price. Purchase orders submitted with this ruling request confirm that Meijer is in fact the purchaser of the imported merchandise. ISSUE: Whether the commissions paid to the agent are bona fide buying commissions such that the commissions are not added to the price actually paid or payable in the determination of transaction value. LAW AND ANALYSIS: The preferred method of appraising merchandise imported into the United States 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)(l) 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 statutory additions. Buying commissions are fees paid by an importer to its agent for the service of representing the importer abroad in the purchase of imported merchandise. Bona fide buying commissions are not added to the price actually paid or payable in determining transaction value. Pier I Imports, Inc. vs. United States, 13 CIT 161, 164, 708 F.Supp. 351, 353 (1989); Rosenthal-Netter, Inc. vs. United States, 670 F.Supp. 21, 23; 13 CIT 77, 78, aff'd. 861 F.2d 261 (Fed. Cir. 1988); Jay-Arr Slimwear Inc., vs. United States, 12 CIT 133, 681 F.Supp. 875 (1988). The importer has the burden of proving that a bona fide buying agency relationship exists and that payments made to the agent constitute bona fide buying commissions. See, Monarch Luggage Company Inc., vs. United States, 13 CIT 523, 715 F.Supp. 1115 (1989). As stated in Headquarters Ruling Letter 542141 (T AA #7), dated September 29, 1980, " . . . an invoice or other documentation from the actual foreign seller would be required to establish that the agent is not a seller and to determine the price actually paid or payable to the seller." 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. In order to view the relationship of the parties as a bona fide buying agency, Customs must examine all the relevant factors. Each case is governed by its own set of particular facts. J.C. Penney Purchasing Corporation, et. al. vs. United States, 80 Cust. Ct. 84, C.D. 4741 (1978), 451 F. Supp. 973 (1978). 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 International Inc. et. al. vs. United States, 61 Cust. Ct. 604, A.RD. 245, 291 F .Supp. 690 (1968). The degree of discretion granted to the agent is an important factor. New Trends Inc. vs. United States, 10 CIT 637, 645 F. Supp. 957 (1986). The Court of International Trade in the case of New Trends, 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 commissions; whether the language used on the 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, supra, 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 case, it is the buyer that controls and determines the price that it is willing to pay. It is also evident that the buyer is in control of the agent with respect to the import transactions. The submitted agency agreement is very specific as to the duties and obligations of the agent. You indicate that Meijer could, in fact, go directly to the vendor and purchase the imported merchandise. However, since an overseas staff is not available, the agent acts on its behalf in purchasing and importing the merchandise. In addition, Meijer handles all shipping and handling of the merchandise and has assigned freight forwarders that the vendor is responsible for contacting. Also, the agent does not bear the risk of loss. The commercial invoices indicate the vendor as the beneficiary of the letter of credit and presentation is made directly to Meijer for payment. A separate commission invoice is issued to the agent directly from Meijer. We are satisfied from your submission, which includes a signed buying agency agreement and other documentation, that the agent is in fact a true bona fide buying agent of Meijer, such that commissions paid are not added to the price actually paid or payable. HOLDING: Provided the parties' actions adhere to the terms of the agency agreement submitted, we are satisfied that the relationship between the parties is that of a bona fide buying agency. Therefore, the commissions paid to the buying agent are not added to the price actually paid or payable in the determination of transaction value. Sincerely, Virginia L. Brown, Chief Value Branch