January, 2019

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Buying Agency (Part 2)

Mark K. Neville, Jr.

In last month’s discussion we presented the basic customs valuation law status of buying agent services and compensation therefor. With this discussion we turn first to the amount of such commissions which should be accorded duty-free status. We then turn our attention to the role of buying agents as that role intersects with services provided and activities undertaken that might be regarded as dutiable assists furnished to foreign manufacturers.

Entire “Buying Commission” Paid to Agent is Nondutiable

As previously noted, Art. 72 (e) of the EU’s Union Customs Code (UCC) directs that buying commissions are not dutiable. In other customs valuation law statutes, such as in the US, that point is implied, as only selling agent commissions are deemed dutiable.

As we have seen, buying commissions are defined in the Valuation Agreement, with which the UCC and all other implementing statutes must be consistent, as “fees paid by an importer to the importer’s agent for the service of representing the importer abroad in the purchase of the goods being valued.” This does not allow for any disallowance of any portion of the commission payment unless the disallowed amount itself is nondutiable, as in the example of the transport charges discussed in the World Customs Organization’s Technical Committee on Customs Valuation (TCCV) Commentary 17.1. In fact, this is the lesson of Commentary 17.1: the buying agency status remains undisturbed and only the costs directly identified with the additional dutiable services would be reviewed for dutiability.

In order to be a buying agent, the entity must be neither a seller in its own right nor an agent acting on behalf of, i.e., under the direction and control of, the foreign seller. The only compensation paid for those services must be in the form a nondutiable buying agent commission.

There is no authority for a customs office to accord nondutiable status only to the portion of the commission payment that reflects the agent’s cost, or to shift some or all of the agent’s “profit” into a dutiable category, whether as a part of the PAPP or as a dutiable adjustment.

Assist Status

In the United States, only activities necessary for the production of imported merchandise will be considered assists. This familiar line was drawn on the question of test equipment in a 1990 ruling (no. 544508, June 19, 1990) which held that equipment used in post-production testing was not dutiable:

Testing equipment provided free of charge to the foreign manufacturer by the U.S. importer may constitute an assist within the meaning of 402(h)(1)(A) of the TAA if it can be shown that the equipment was used for testing performed during the production process and that such testing, due to the nature of the finished product, was essential to production of the product

CBP had an opportunity to review the job descriptions of buying agent employees providing various services and clearly held that services in connection with materials purchases are not dutiable

[Employees who] work in the …[buying agent] Material Department seemed to be involved in the sourcing of materials and did not involve the production of the imported merchandise; thus, we find that their work would not be assists.1

As for services in the nature of quality control, such services are normally not dutiable, as they are consistent with the actions undertaken by a buyer for its own benefit.2 QC services are deemed dutiable only if they are involved in production related design and intimate involvement in the nature of the goods produced. In such situations, quality control services may be dutiable as part of the price actually paid or payable or as an assist.3

What if the testing for quality is conducted at an early stage, for example to ensure that the materials that will be furnished by suppliers to the manufacturer of the finished product meet quality standards? CBP has held that such pre-production review by a buying agent of the materials and components used in manufacture is not dutiable: The fact that the agent works to ensure that the materials from unrelated suppliers meet

the quality standards of the Foreign Manufacturer does not alter this analysis [that the entity is a bona fide buying agent]. The sourcing fees paid to the affiliate therefore constitute a buying commission which is not added to the price actually paid or payable.4

Make no mistake: this nondutiable status of the testing is not dependent on the payment for such pre-production testing being made to a buying agent. With the same result, CBP has held that payments to third parties for testing are not dutiable. Ruling no. H256223 (Aug. 20, 2014). One of the earlier rulings cited there dealt with the testing of materials, and it is important to review how it was considered

In HRL 563480, dated June 9, 2006, CBP considered the dutiability of the importer’s payment to an unrelated, third-party testing company for quality assurance purposes. In that case, the importer paid the fees directly to the testing company to review fabrics prior to production. CBP found that this case was distinguishable from cases where the payments were being made to, or for the benefit of, the seller and concluded that payments made to an independent third-party tester is not part of the price actually paid or payable for the imported goods. [Emphasis added]

In connection with inspection services, we note that they will be nondutiable if they are to ensure that the quality and condition of the merchandise corresponds to the contract specifications. In contrast, in ruling no. 545038 (Feb. 17, 1993), US customs authorities held the relationship between the importer and the agent did not meet the criteria of a bona fide buying agency relationship. In that case, the importer stated that the agent’s inspection function was substantially more comprehensive than usual where the agent monitored production throughout the entire production process, and not just upon completion of production.

In ruling no. 547033 (June, 25, 1998) an intermediate party acted as a “mill liaison” providing consulting as well as separately providing buying agent services:

The fact that the consultant acts both as "consultant" with respect to woven fabric sourcing, for a flat fee, and as a "buying agent" with respect to knit garment sourcing, for an amount based on the FOB value, does not per se vitiate the existence of a bona fide buying agency between the importer and the consultant for the services performed as a consultant. Our ruling is limited to the questions regarding the inclusion of the consultant fees in the price actually paid or payable and whether they constitute assists to be included in the transaction value.

US customs authorities noted that

While the consultant's activities as the importer's consultant are separate and distinct from his function as a principal of the buying agent and the terms of the consulting agreement between the importer and the consultant are different, the activities performed as the consultant, in connection with woven fabric sourcing, are similar to those performed by a bona fide buying agent.

Because of the limited nature of the consultancy services, they did not arise to the level of a dutiable assist nor, equally of importance, did they affect the buying agency status.

Dutiable Assists Furnished by Buying Agent

As an initial matter we acknowledge that even if an element that would be characterized as a dutiable assist, or part of the Price Actually Paid or Payable (PAPP) for that matter, were to be routed through a buying agent then its dutiable status will remain intact. Were it otherwise, sheltering such payments or services from duty would be a simple matter of rendering them via the buying agent, which result would be at odds with and jarring to a principled reading of the WTO Valuation Agreement and the national customs statutes. As the US customs authorities noted in a relevant ruling, which upheld buying agent status,

We note however, that if items that fall within the definition of an "assist" are provided to the manufacturer by [the importer], or [the agent] on behalf of [the importer], those items must be declared as part of the transaction value of the shoes.5

We hasten to add that a buying agent can be called upon to procure a dutiable assist. The fact that a buying agent is entrusted with the task of procuring an assist does not imperil the buying agent status. Indeed, in at least one instance recorded in the US corpus of published customs valuation rulings the procuring of assists was a primary function for the agent. Ruling no. 544396 (May 14, 1990) (commissions to be paid to a foreign agent for the services of aiding in the purchase of fabric to be provided to the Mexican assembler as well as aiding in the purchase of finished garments).

If buying agents are involved in procuring or in delivering assists, then the question arises, how should those assists be valued? More directly, should any of the payments that represent commissions to the agent become dutiable?

Dutiable Assists are Valued on a Purchase Basis or a Cost Basis

It is quite clear from the applicable statutory texts and from authoritative interpretations that dutiable assists are to be valued only on the basis of their cost of acquisition (purchasing price) or cost of production. Stated otherwise, there is no basis for the inclusion of profits in the case of assists produced by the importer or a person related to the importer.

This is made clear both by what the texts state as well as what the texts do not state.

Valuation Agreement

The text to Art. 8.1 (b) contains no reference to profit. The text states that a dutiable assist will lie where one of the elements noted in subparagraphs (i) through (iv) have been provided free or at reduced cost. The Interpretative Notes to Art. 8 provide some clarity. We are mindful that the Note is set forth in the context of Art. 8.1 (b) (ii) but there is no reason why the text should not be applied with equal force to all of the subparagraphs. The Note (at para. 2) recites that a dutiable assist will be valued in two separate ways— (1) where the importer acquires the element from a seller not related to the importer at a given cost, the value if the element is that cost. [This may be referred to as the “cost of acquisition.”]; (2) if the element was produced by the importer or by a person related to the importer, its value would be the cost of producing it. [This may be referred to as the “production cost” or the “cost of production.”]

UCC Texts

Not surprisingly, we find the same dichotomy as in the WTO Valuation Agreement. In the European Union, dutiable assists are the subject of Article 71 (1) (b) of the Union Customs Code and Art. 135 of the Implementing Regulation.6 Together, these are the texts which govern the treatment of goods and services used for the production of the imported goods. We may cite to the Implementing Regulation, Art. 135, which states, in relevant part, 1
  1. Where a buyer supplies any of the goods or services listed in Article 71(1)(b) of the Code to the seller, the value of those goods and services shall be deemed to be equal to their purchasing price. The purchasing price shall include all the payments which the buyer of the goods or services listed in Article 71(1)(b) is required to make to acquire the goods or services.

    Where those goods or services were produced by the buyer or a person related to him, their value shall be the cost of producing them.

  2. Where the value of the goods and services listed in Article 71(1)(b) of the Code cannot be determined in accordance with paragraph 1, it shall be determined on the basis of other objective and quantifiable data. [Emphasis added]
It is certainly true that the cost of acquisition or the cost of production should include all associated costs. In other words the same rule of looking to the fully loaded cost should apply to all assists.

United States and World Customs Organization Authorities

The United States authorities may be instructive and should be cited as authority according to their inherent correctness and their power to persuade. In the United States practice, all costs must be accounted for in valuing assists7 and its customs authority has issued a ruling which clearly states that all acquisition costs must be accounted for.

If the importer had to pay a license fee to have access to technology that was used to produce an element that constituted an assist then the license fee should be included in the cost of production of that assist. Ruling no. W548568 (Oct. 19, 2004). This position is entirely consistent with the Commentary 24.1 of the World Customs Organization’s Technical Committee on Customs Valuation (TCCV). That instrument interpreted the cost of acquisition for the elements named in Art. 8.1 (b) (ii) as including all the costs incurred by the importer in respect of acquiring the element. In connection with this instrument, we point out that the analysis should apply consistently on a mutatis mutandis basis to all of the various categories of assists. It was limited to subparagraph (b) (ii) only because it was interpreting the phrase “given cost” which appears therein. The TCCV Case Study 8.1 is to the same effect. The cost of a license fee that was required to be paid for patterns that were used in making garments was to be included in valuing the assist. Likewise, the TCCV Case Study 8.2 included a 5% license fee when valuing the assist.

The Purchasing Price of an Assist Does not Include any Portion of a Buying Agent Commission

Even though there is a need to account for all associated costs, we note that when buying agents are involved with procuring assists there does not appear to be any instance in which any portion of the commission paid to the agent is added to the value of the assist. Instead, the value of the assist stands on its own and the agency commission likewise stands on its own, the latter remaining entirely duty-free. Ruling nos. 544396 (May 14, 1990) and W563326 (Nov. 3, 2006) (The sourcing fees paid to the affiliate therefore constitute a buying commission which is not added to the price actually paid or payable.)

It is conceded that costs incurred by a buying agent, as distinguished from the commission paid to it, may play a role in valuing assists. In this way, the general rules for valuing assists will be respected. An example is offered by US rulings examining the role of an importer/buyer who had incurred shipping department and purchasing department expenses in the acquisition and sending of materials that were classed as dutiable assists to the manufacturer. The US customs authority in 1990 drew a distinction between the two sets of activities:

In this case the costs incurred by the importer's Purchasing Department are costs incurred for activities prior to the acquisition of the material. These expenses are not part of the price that the importer will pay the unrelated seller for the merchandise. Therefore, these expenditures are not includable in the value of the material assists.

However, the activities undertaken by the employees in the importer's Shipping Department are incidental to the transportation of the materials. In addition, it is our understanding that salaries of this type are generally included as part of the overall shipping cost that would be capitalized as a material cost of the items. Therefore, the Shipping Department costs related to arranging the shipment of the materials, supplies and machinery are includable in the value of the assists.8

There was no apportionment of the agent’s commission in later ruling no. 544843 (Oct. 31, 1994). To be clear, US Customs Headquarters took the occasion in 1995 of having been called upon to review that 1994 ruling, no. 544843, to establish a clear dichotomy of treatment. If an entity which did not have buying agency status was paid to acquire an assist, then the amounts paid to it for that purpose, i.e., procuring the assist, should be added to the value of the assist. See ruling no. 545420 (May 31, 1995). On the other hand, if the person acquiring the assist was a buying agent which performed buying agent functions and the procuring of assists was only one among many of its service functions, then no portion of the agent’s commission was to be included in the valuation of the assist. This rationale is made clear in that 1995 ruling, no. 545851 (May 8, 1995):

It is the position of the Customs Service that buying commissions paid to [a] bona fide buying agent for acquiring merchandise to be imported are not dutiable. Where the agent has the dual role under an agency agreement of procuring assists as well as the finished merchandise, any commissions paid to the agent arising out of the such an agreement will not be dutiable. However, commissions paid to an agent whose sole obligation is to acquire assists for the buyer, are part of the cost of acquiring an assist and will be added to the price actually paid or payable.

In this case as explained above, if the parties follow the proposed buying agency agreement, U.S. Shoe would be a bona fide buying agent, and under the proposed agency agreement, it would have the dual role of procuring both finished goods and the assists used to make the goods. Accordingly, based on the analysis articulated in HRL 544843, no portion of the agency commissions it receives from purchasers arising out of the agency agreement would be dutiable. (Emphasis added)

In other words, to make use of the language of the EU’s Implementing Regulation, Art. 135, if there is a bona fide buying agency relationship, no portion of the buying agent commission paid to that agent ever becomes part of the purchasing price of the assist.9 An agent’s role can certainly include the sourcing of assists and should play no part in the valuation of the assist. By referring to the recitation of typical buying agent activities that we had shown in the part 1 discussion last month we can test the validity of this proposition.

In the same fashion, we may refer to the criterion of 19 USC §1401a (b) (1) of “sufficient information”10 as well as Art. 71.2 of the UCC, as well as the discussion in the Valuation Agreement at the Interpretative Note subparagraph 8.1 (b) (iv), to “objective and quantifiable data” in fixing the additional costs contemplated under Art. 71 of the UCC.11 This requirement, as well as the formidable, even daunting, fact-finding task of ascertaining relative costs and profits associated with a buying agent’s activities, may be a valid reason for abstaining from the effort. Any such effort is bound to be an arbitrary exercise.

We also note that there is no role for profits in valuing a self-produced assist.

The Cost of Producing an Assist does not Include a Profit Element

It is undeniably true that valuing an assist on the basis of the its Purchasing Price or “cost of acquisition” differs in one marked respect from a cost of production valuation. That is that the Purchasing Price or the cost of acquisition will invariably include a seller’s profit in the price paid to acquire the assist.

But the term “cost of producing” the good or service perforce invokes any reference to profit. Indeed, the term itself precludes any such profit consideration. It can only be assumed that the use of “cost” as the only valuation metric here was done deliberately. Perhaps the reason for this deliberate drafting was that there was a recognition that to have included a profit element would have demanded an intensive inquiry and would have resulted in announcing a profit that would need to be either assigned by the customs authority in the first instance or, if assigned by the importer, would need to be reviewed and approved by the customs authority. Any such endeavor would be impracticable to the point of bring unrealistic and, thus, would collide with the “objective and quantifiable data” or “sufficient information” standard that applies to all aspects of any customs valuation inquiry.

As we have demonstrated, no portion of the buying argent commission should be dutiable in the context of valuing a purchased assist. On the other hand, it remains the case that the customs authority may need to pay close attention to the costs incurred in valuing a self-produced assist, and this imperative will apply to including the salary costs associated with dutiable assists produced by the buyer or some party related to the buyer. The general rule for self-produced assists is expressed in ruling no. H031244 (Apr. 10, 2009)

…[T]he value of a self-produced assist is the cost of producing it, supported by the company’s business records, plus the cost of transporting the assist to the place of production.12 The subsidiary does not maintain records of design work created for any particular style of garment imported by the requester, but the subsidiary has records of the salaries paid to its employees who are engaged in the creation of the design work. [Importer] proposes to value the assist by allocating the total annual salaries paid to its employees engaged in design work to all relevant products produced during a calendar year. It states that the salaries and wages of the following employees might be considered part of the value of an assist because they produce the design work: computer-aided designers; graphic designers; technical designers; and technical design assistants. [Importer] would add the courier charges for transporting the artwork and technical specification packages to Asian producers to determine the total value of any assist. (Emphasis added)

This approach appears to be correct. If an activity that falls within the definition of a self-produced assist, such as design work, is discerned, then the value of the assist might include the associated salary costs of the buyer or party related to the buyer, on a narrowly defined and closely circumscribed basis of allocation. Again, were it otherwise, then the valuation of self-produced dutiable assists would be skewed or improperly calculated by the simple expedient of supplying them via an entity with buying agent status.

On no account should there be any excursion into profit or any other accounting category outside these associated costs when valuing self-produced assists.

Indeed, it would be a mistake to assume that the inclusion of an element for profit in valuing a dutiable assist on a production cost basis should nevertheless be acceptable. Such a profit-inclusive valuation approach was explicitly rejected in a United States Court of International Trade decision dating to 1996. Merck, Sharp & Dohme v. United States, 20 CIT 137 (1996). There, the importer provided sufficient documentary evidence to show the production cost. As a result the customs authority’s valuation of the cost of production that included a profit element was rejected by the court.

Because the customs valuation legal texts are essentially identical, it is presumed that reviewing customs authorities in other jurisdictions would apply the same careful textual analysis, follow the same logical path and come to the same legal conclusion. In consequence, those customs authorities should similarly refrain from including a profit element in any valuation of assists produced by the buyer or by a person related to the buyer.


The very model of a modern buying agent, if not of a modern major general, is such that wide-ranging functions will be undertaken for the benefit of the principal. Because many agents in these latter days are tasked with assisting in the procurement or deployment of dutiable assists, it was useful to review the customs valuation rules that govern the valuing of assists and the intersection with the rules governing buying agents’ status. We have seen a distinction between the treatment accorded to agents’ undertakings in third party and in self-produced assists.


1. Ruling no. H235895 (Aug. 22, 2014).

2. Ruling no. 544396 (May 14, 1990).

3. Ruling nos. 548540 (Jul. 28, 2004) and 547006 (Apr. 28, 1998).

4. Ruling no. W563326 (Nov. 3, 2006).

5. Ruling no. 548002 (June 13, 2002). See also ruling no. 544876 (Sept. 3, 1993) (Buttons supplied free of charge to manufacturers of wearing apparel in India, through the importer's buying agent and at the importer's expense, are dutiable assists).

6. Commission Implementing Regulation (EU) 2015/2447 of 24 November 2015.

7. Consistent with this “all costs” approach, you will note that the United States always includes the cost of transporting the element comprising the assist to the production site. This is provided for in the customs regulations at 19 CFR §152.103 (d).

8. Ruling no. 544323 (Mar. 8, 1990).

9. These 1994 and 1995 rulings depart from two 1993 rulings which held that commissions for procuring the assists did comprise part of their valuation, ruling nos. 545266 (June 30, 1993) and 544976 (Mar. 17, 1993). We should note that these rulings, both authored by the same Headquarters attorney, mischaracterized the rationale of ruling no. 544323 and thus they are outliers with questionable authority.

10. Defined in the statute as “information that establishes the accuracy of such amount, difference, or adjustment.” 19 USC § 1401a (h) (5) and in the regulations at 19 CFR § 152.102 (j).

11. At the international level, this standard is embedded in Art. 8.3 of the Valuation Agreement, which applies with equal vigor to all of the provisions of Art. 8. This notion of a consistent interpretation of Art. 8.1 (b) across all of its subparagraphs is embedded in TCCV Case Study 5.2.

12. Pursuant to 19 CFR § 152.103(d)(2).

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