H315944

HQ H315944 August 3, 2023 OT:RR:CTF:VS H315944 RMC CATEGORY: Valuation Center Director Automotive and Aerospace Center of Excellence and Expertise U.S. Customs and Border Protection 477 Michigan Ave., Rm 281 Detroit, MI 48226 RE: Application for Further Review of Protest No. 4601-19-106281; Buying Agency; Commissions Dear Center Director: This is in response to the Application for Further Review (“AFR”) of Protest No. 4601-19-106281, timely filed by counsel for Leviathan Corporation, contesting the appraised value of truck tires imported from China. FACTS: The transaction under review involves three parties: (1) Leviathan Corporation (“Leviathan”), a U.S. entity and the importer of record; (2) Tianjin Leviathan Corporation (“Tianjin”), a wholly-owned subsidiary of Leviathan Corporation organized under the laws of China; and (3) Shandong Haohua Tire Co. (“Shandong”), an unrelated Chinese tire manufacturer. The proper appraisement of the imported truck tires at issue in this case turns on whether Tianjin acted as a buyer and seller of the merchandise, as the Center of Excellence and Expertise (“Center”) contends, or as a buying agent on behalf of Leviathan, as counsel asserts. On October 12, 2018, Tianjin issued a purchase order to Shandong for 254 tires at a FOB unit price of $121.00, for a total of $30,734.00. The buyer is listed is Leviathan, while Tianjin is listed as the finance affiliate in China. The purchase order states that the tires are to be shipped from Qingdao, China to New York, NY. The purchase order was stamped by both Shandong and Tianjin. On that same day, Shandong issued a corresponding sales contract. The terms are identical to those listed in the purchase order except that the “buyer” is listed as Tianjin, rather than Leviathan. The commercial invoice submitted with the entry was issued by Tianjin and dated October 22, 2018. It lists Tianjin as the “supply/finance” party, Shandong as the “manufacturer/exporter,” and Leviathan as the “purchaser.” The FOB value is listed as $30,734.00, with separately listed commissions for $2,151.36, with $32,885.38 as the “amount payable at due date on 120 days from the Bill of Lading.” The bill of lading lists Shandong as the shipper and the “consigned to” party as Leviathan. The document indicates direct shipment from Qingdao, China, to New York, NY. The arrival notice/freight bill lists the “notify and bill to” party as Leviathan. Based on the documents submitted to it, and particularly the sales contract listing Tianjin Leviathan as the “buyer” and the commercial invoice that was issued by Tianjin, the Center concluded that Tianjin was acting as a buyer/seller of merchandise, rather than as a buying agent on behalf of Leviathan. As a result, it disallowed the deductions for commissions that Leviathan and liquidated the entries with an appraised value of $32,885.38. In this AFR, Leviathan provided additional documentation and argues that the Center improperly added legitimate buying commissions to the declared value of its imported goods. According to Leviathan, listing of Tianjin as a “buyer” on the commercial invoices was done solely to facilitate the favorable financing arrangement described in further detail below. In fact, Leviathan argues, the parties acted in accordance with the written buying agency agreement, which outlines roles and responsibilities typical of buying agents. In sum, Leviathan asserts that the substance of the transactions and conduct of the parties, rather than the labels used on the commercial invoice and sales contract, demonstrate that Tianjin Leviathan was, in fact, a legitimate buying agent. Therefore, it argues that the declared value was correct. According to the information provided, the Chinese government issued a “Certificate of Approval for the Establishment of Enterprises with Foreign Investment” to Tianjin on July 16, 2005. The sole investor listed on the document is Brian David Cohn, the owner of Leviathan. The authorized “business scope” is described as “international trade and related simple processing, bonded goods storage services, and consulting services related to business scope.” By an authority letter signed by Brian Cohn as President of Leviathan on November 23, 2005, Mr. Sun Bao Dong was appointed as vice president of Tianjin and was “delegate[d] [Brian Cohn’s] power to transact all business in China.” In December of 2013, Leviathan and Tianjin entered into a “Buying Agency/Financing Agreement” (“Agreement”) that was signed by both parties and provided for our review. The Agreement contains the following relevant terms: Tianjin Leviathan Corporation will act as an exclusive Buying Agent for Leviathan Corporation in connection with the latter’s purchase of tires in China, Korea, India, and other territories (“the Territories”) The Agent agrees to perform the following services on behalf of the Principal: The Agent shall familiarize itself with the Principal’s needs and survey the potential markets to obtain the best available merchandise; The Agent will assist in the negotiation of the most favorable prices for the Principal. In this connection, the agent shall visit manufacturers/sellers, quoting prices at which the merchandise can be purchased; The Agent shall negotiate free on board (f.o.b.) prices on behalf of the Principal. The Agent shall quote f.o.b. prices which shall not include buying commissions; The Agent shall place orders with manufacturers/sellers on behalf of the Principal. The Agent shall act only on the specific instructions of the Principal and in no case shall the Agent act without such explicit instruction. . . . The Agent shall make periodic visits to manufacturers/sellers where orders are placed in order to inspect the quality of the merchandise shipped to the Principal and to provide production progress reports to the Principal. . . . The Agent shall arrange for the consolidation of shipments and, at the direction of the Principal, arrange for all inland freight, hauling, ligherage, insurance and/or storage. Moreover, the agent shall facilitate the acquisition of the documentation necessary for importation into the United States; The Agent shall assist the Principal in the return of any merchandise deemed to be defective. . . . The Agent shall familiarize itself with export restrictions in the Territories, and insure that the manufacturer provides all necessary licenses, permits, and other documents . . . . . . m. The Agent shall never act as a seller in any transaction involving the Principal. (3) The Principal agrees to compensate the Agent for any efforts to ensure the quality of the merchandise in an amount equal to four percent (4%) of the f.o.b. price of the merchandise which is ordered and shipped pursuant to this agreement. . . . (5) The principal shall open irrevocable letter(s) of credit in favor of the manufacturer/seller of the merchandise for the f.o.b. price of the merchandise. (6) The Principal agrees to compensate the Agent an amount equal to three percent (3%) of the f.o.b. price of the merchandise which is ordered and shipped pursuant to this agreement as the cost for financing merchandise for up to ninety days (90). In terms of payment, Tianjin paid Shandong the purchase price of $30,734.00 with financed funds that it obtained on behalf of Leviathan. According to Leviathan, having a Chinese domestic entity (i.e., Tianjin) obtain the necessary financing from the Bank of Tianjin allows the purchase to be financed at rates that are more favorable than those offered to foreign companies. Leviathan then paid Tianjin $32,885.38, which presents the purchase price of $30,734.00 plus Tianjin’s 7% commission, which Tianjin retained. To further explain this transaction structure, Leviathan submitted an affidavit from Zoe Wang, the sales manager for Shandong. The affidavit explains that: Shandong has previously met with both Brian Cohn and Tianjin and understands that the latter serves as local finance and buying

Merchandise imported into the United States is appraised for customs purposes in accordance with Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a). The primary method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. § 1401a(b)(1). For purposes of this decision, it is undisputed that transaction value is the appropriate method of appraisement.The term “price actually paid or payable” is defined in pertinent part as “the total payment (whether direct or indirect…) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.” 19 U.S.C. § 1401a(b)(4). As a general matter, bona fide buying commissions are neither part of the price actually paid or payable nor an addition thereto. Pier 1 Imports, Inc. v. United States, 708 F. Supp. 351, 13 CIT 161, 164 (1989); Rosenthal-Netter, Inc. v. United States, 679 F. Supp. 21, 12 CIT 77 (1988); Jay-Arr Slimwear, Inc. v. United States, 681 F. Supp. 875, 12 CIT 133 (1988).The existence of a bona fide buying commission depends upon the relevant factors of each particular case. J.C. Penney Purchasing Corp. v. United States, 451 F. Supp. 973 (Cust. Ct. 1978); Nelson Bead Co., 42 CCPA 175, 183 (1955). However, 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. Pier 1 Imports, 13 CIT at 164; Rosenthal-Netter, 12 CIT at 78; and New Trends, Inc. v. United States, 645 F. Supp. 957, 960, 10 CIT 637, 640 (1986). 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 Headquarters Rulin