June 27, 1991
ENT-1-01-CO:R:C:E 223016 CB
S. Richard Shostak, Esq.
Stein Shostak Shostak & O'Hara Suite 1240 3580 Wilshire Boulevard Los Angeles, CA 90010-2597
RE: Qualification of Contract Assemblers to Make Entry and Interpretation of T.D. 90-42
Dear Mr. Shostak:
This letter is in response to your letter of September 6, 1990, wherein you presented two representative contractor fact situations with respect to the scope of financial interest under Customs Directive 3530-02 and T.D. 90-42. You have requested that Headquarters issue a binding ruling regarding the sufficiency of the "financial interest" to enable contract assemblers to make Customs entries.
In your letter you set forth two representative fact situations reflecting the diverse financial investments of the various contract assemblers along the Mexican Border.
Both Assemblers #1 and #2 perform similar or identical services, including, but not limited to, arranging for transportation and insurance of prefabricated components from the United States to an assembly plant in Mexico and clearance through both U.S. and Mexican Customs at the time the components are exported to Mexico. You state that, at a minimum, both assemblers also arrange for and/or perform or supervise the assembly of the components into finished merchandise in Mexico at either a related or unrelated assembly plant, and perform inspection of the assembled merchandise to insure that it meets with their ultimate U.S. customers' specifications and requirements.
Additionally, the assemblers arrange for the transportation of the finished product to their U.S. customers' facilities, as well as for Mexican and U.S. Customs clearance of the merchandise when imported into the United States. The assemblers also arrange for insurance on the consigned property during its exportation from the U.S., its time outside the U.S. and during its reimportation into this country.
You state that Assembler #1 may, at the option of its U.S.
customers, perform additional services, including, but not limited to, designing the system for the assembly of the merchandise in Mexico, procuring assembly equipment, furnishing technical expertise for assembling the merchandise, and providing a communications system between the Mexican assembly facility and the U.S. customers to help insure quality control and the delivery of components to Mexico and assembled products to the United States. We assume that the sample contract included in your submission applies to Assembler #1.
The contract assemblers in your fact situations have the following investments and involvements:
Assembler #1 Assembler #2
Investment in Mexico $5,000,000 $ 0
Investment in U.S. 500,000 40,000
Number of U.S. Employees 100 3
Number of Mexican Employees 250 0
Whether U.S. shelter operations have a sufficient financial interest in assembly operations to enable them to make a Customs entry under 19 U.S.C. 1484?
LAW AND ANALYSIS:
Under 19 U.S.C. 1484 only an "importer of record" has the right to make entry. "Importer of record" is defined as the owner or purchaser of the goods, or when designated by the owner, purchaser, or consignee, a licensed customhouse broker. A nominal consignee may designate a customhouse broker to make entry on his behalf but may not make entry on his own behalf. If a customhouse broker makes entry for a nominal consignee, the broker must appear as importer of record. The Act of January 12, 1983 (Pub. L. No. 97-446, 96 Stat. 2349) which repealed former section 483 of the Tariff Act of 1930, as amended, and required entries to be made by the owner, purchaser or a duly appointed customhouse broker is an example of a constriction of the right to make entry. It would be contrary to that congressional purpose to interpret the term beyond the express language in 19 U.S.C. 1484 or Customs Directive 3530-02 of November 6, 1984.
Customs Directive No. 3530-02, entitled "Right to Make Entry" provides, in part:
An "owner" or "purchaser" is defined as any party with a financial interest in a transaction including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent ...."
Subsequently, entry issues relating to 807/9802 "shelter" operations were specifically the subject of T.D. 90-42, which held in part:
"U.S. shelter corporations have the right to make entry if they are the owner or purchaser of the finished articles, or if they are a licensed customhouse broker duly appointed by the owner, purchaser, or consignee of the merchandise. A shelter corporation not licensed as a customhouse broker would be precluded from acting as importer of record, where it was engaged by the third-party U.S. client for the purpose of arranging the transportation and assembly of the articles in Mexico, and where it had no ownership interest in the finished goods."
It is your position that contract assemblers have as much financial interest in the goods which they seek to enter as many of the parties listed in the Directive, e.g. a buying or selling agent. Your argument is valid with respect to Assembler #1.
However, it is inappropriate to make such a comparison with respect to Assembler #2. As stated by the Court of International Trade in Rosenthal-Netter, Inc. v. United States, 12 CIT 77, 79, 679 F. Supp. 21, 23 (1988), aff'd, No. 88-1294 (Fed. Cir. Nov. 10, 1988), the primary consideration in determining an agency relationship is the "right of the principal to control the agent's conduct with respect to the matters entrusted to him." In establishing a buying agency the courts have looked at such factors as who controls the purchasing process, the manner of payment, who controls shipping and handling of merchandise, whether the principal has an opportunity to negotiate without the assistance of the agent, and whether the agent acts primarily for the benefit of the other and not for himself. In order to establish a selling agency the courts look at similar factors but from a selling point of view. See Dorf International, Inc. v. United States, 61 Cust. Ct. 604, A.R.D.
245, 291 F. Supp. 690 (1968). In both instances, special emphasis is placed on control.
The fact situation you presented, with respect to Assembler #2 does not conform to any of the factors enumerated by the courts. Assembler #2 acts primarily for its own benefit, controls the shipping and handling of the merchandise, the U.S.
customers may choose to negotiate directly with the foreign companies, and the U.S. customers excercise little, if any, control over the contract assembler. However, we do believe that Assembler #1 falls within the scope of a buying agent.
Under the contract you submitted, the U.S. customer has control over the screening and selection of employees, the establishment of manpower requirements, and bears any severance costs incurred.
The foreign assembly plant is leased for the benefit and use of the U.S. customer. The U.S. customer has to specifically authorize in advance the purchase of any equipment other than what is already provided by the customer. The customer is responsible for labor costs and provides "on-site" personnel.
Further, the customer reimburses the assembler for all shipping costs. Additionally, the customer is unable to negotiate with the foreign assemblers directly. Although Assembler #1 does not fall squarely within the agency criteria, there are sufficient factors present to fall within the general scope of a buying agency. Moreover, the financial investment is such that Assembler #1 clearly satisfies the financial interest requirements of T.D. 90-42.
It is our opinion, with respect to Assembler #2, that we lack sufficient information to issue a ruling. However, if the information provided is the only available information, then it is our position that contract Assembler #2 is an independent contractor. An independent contractor is one who, while "exercising independent employment, contracts to do a piece of work according to his own methods and without being subject to the control of the employer except as to the result of the work." See Donroy, Ltd. v. United States, 301 F.2d 200, 206 (9th Cir.
1962); S. Williston, A Treatise on the Law of Contracts 22-23 (1967). Certainly, with respect to Assembler #2, there is no question that the U.S. customers have control only over the result of the work. An independent contractor is not listed as one of the parties which has a right to make entry under the definition of "owner" or "purchaser" set forth in Customs Directive 3530-02. We see no need or requirement to expand such a definition at this time.
Additionally, Customs Directive 3530-02 provides that the terms "owner" and "purchaser" include a person who imports merchandise for the purpose of further fabrication or alteration.
Two law firms who claim to represent shelter operations assert that the provision should be interpreted to include foreign entities who receive imports from the United States which they further fabricate or assemble and then export back to the United States. The subsequent return to the United States is the key importation. If the Directive was intended to extend the right to make entry to a person who received merchandise that was exported from the United States for the purpose of further fabrication or assembly, it would not have used the words "a -5-
person who imports goods for repair or alteration or fabrication." At the time of importation the goods involved in the described shelter operations in issue are not being imported for repair, alteration or further fabrication.
You point out that Customs permits licensed Customs brokers, with no financial interest in the goods, to make entries in their own name and on their own bonds. However, we must point out that customhouse brokers are statutorily authorized to make entry. As stated in 19 U.S.C. 1484(a)(1)(C), "[w]hen an entry of merchandise is made under this section, the required documentation shall be filed either by..., a person holding a valid license under section 1641 of this title." A customhouse broker is such a person under 19 U.S.C. 1641. It is the statute and not the Customs Service which "permits" customhouse brokers to make entry. Merely having some kind of a "financial interest" is not sufficient to fall within the definition of "owner" or "purchaser" for entry purposes. For example, a carrier has a financial interest in the cargo, and a lien that would be enforced by Customs under 19 U.S.C. 1565. However, it is not an "owner" for the purpose of making entry under 19 U.S.C. 1484.
Unless a party claiming the right to make entry as an owner or purchaser can show legal or equitable title to the imported goods, or can show that it comes within the plain language defining these terms in Customs Directive 3530-02 of November 6, 1984, entry should be denied. 19 CFR 142.3(a)(2) The importer of record must satisfactorily prove its financial interest with the proper documentation, e.g. lease agreements, contracts between assembler and customer, purchase orders, etc. The District Director will be required to make a determination regarding the sufficiency of the evidence presented.
Regarding the two fact situations you presented, where the "importer of record" owns the assemblies overseas, it is the owner of the goods for the purpose of making entry both under T.D. 90-42 and Customs Directive 3530-02. The financial interest is such that the assembler would maintain substantial records and, therefore, provide a proper audit trail for Customs purposes. The recordkeeping requirements are set forth in 19 U.S.C. 1508. The statute requires that records shall be made, kept and rendered for examination and inspection for a period of time not to exceed 5 years from the date of entry.
Additionally, 19 U.S.C. 1509 provides that records and other documents may be examined in order to ascertain, among other things, the correctness of any entry and determining liability for duties. See also 19 CFR Part 162. The sample contract you submitted specifically provides that the assembler will maintain complete, accurate and timely records for inspection and audit purposes.
A buying agency relationship exists where a contract assembler has a related foreign assembly plant; therefore, it falls within the definition of "owner" or "purchaser" published in Customs Directive 3530-02 and the financial interest requirement set forth in T.D. 90-42. However, said principal- agent relationship must be satisfactorily proven with the proper documentation, e.g. lease agreements, contracts between assembler and customer, employment contracts, purchase orders. A contract assembler that is merely an independent contractor does not fall within the definition of "owner" or "purchaser" set forth in Customs Directive 3530-02 nor does it meet the financial interest requirement set forth in T.D. 90-42. Therefore, a contract assembler that is an independent contractor cannot make entry on behalf of the true owner or purchaser of the merchandise. In this instance, based on the limited evidence provided by way of contracts, we hold that Assembler #1 for which evidence of the buying agency relationship has been provided is entitled to make entry.
Regarding Assembler #2, we decline to issue a ruling because of the insufficiency of the information provided. We will rule on any detailed legal analysis and supporting evidence provided by interested parties. 19 CFR 177.2(b). As stated by the Court of International Trade in Bar Bea Truck Leasing Co., Inc., v.
United States, 5 CIT 124, 126 (1983), assertions of counsel are not evidence. Any additional ruling requests by interested parties should be submitted to Headquarters for consideration within ninety (90) days from the date of this ruling.
As general guidance, a party claiming a financial interest in goods so as to have the right to enter those goods as an owner or purchaser must show the extent and terms of that financial interest by sufficient evidence. In order for the Customs Service to rule, the relationship among the parties to each other must be shown: the traditional legal owner of the goods, the shelter company, and, if other than the shelter company, the actual processor of the goods. Contractual relationships that show which party is responsible for the loss of the goods, which party is responsible for quality defects in the processing, the terms of payment and which party has assumed the responsibility for recordkeeping under 19 U.S.C. 1508 and what provisions it has made to comply with 19 U.S.C. 1509 must also be shown.
This ruling is limited to the fact situations presented.
Samuel H. Banks Assistant Commissioner Commercial Operations
cc: Ronald W. Gerdes, Esq.
Sandler, Travis & Rosenberg, P.A.
Richard A. Jacobson, Esq.
Trenam, Simmons, Kemker, Scharf, Barkin, Frye & O'Neill District Director, Nogales, AZ District Director, El Paso, TX Regional Commissioners of Customs Pacific Region Southwest Region South Central Region Southeast Region