Right to import goods

Mark K. Neville, Jr.

It is axiomatic that the status as importer of record (IOR) carries with it a considerable burden, meeting the customs law requirements to present accurate entry documents and meeting all other statutory obligations as well. In the United States this burden may be summed up by the phrase “reasonable care.”¹

But to focus on the IOR’s responsibilities alone is to ignore the rights associated with IOR status. And that would be a mistake, because the IOR status grants the holder the right to make entry. Perhaps surprisingly, that right to act as the importer is as sought after by some as it is often avoided by others, and it will be seen that various parties within a surprisingly broad reach have that right in the United States.

Applicable Law

Under 19 USC § 1484 (a), the importer of record is expected to be the owner, purchaser or consignee of the goods, or a licensed customhouse broker authorized to make entry by the owner, purchaser or consignee. The text of the statute is muddled, but it is clear that a consignee of the goods is entitled to act as IOR.² In relevant part, the statute reads

(B) When an entry of merchandise is made under this section, the required documentation or information shall be filed or electronically transmitted either by the owner or purchaser of the merchandise or, when appropriately designated by the owner, purchaser, or consignee of the merchandise, a person holding a valid license under section 1641 of this title [i.e., a customhouse broker]. When a consignee declares on entry that he is the owner or purchaser of merchandise the Customs Service may, without liability, accept the declaration. For the purposes of this chapter, the importer of record must be one of the parties who is eligible to file the documentation or information required by this section.³

For the most part, we shall be discussing “owner” or “purchaser” status—and it is important to note that the two terms are separate and not co-extensive--but we also include a discussion based upon a consignment model. The administrative pronouncement governing the CBP administration of this requirement is Customs Directive 3530-002A (June 27, 2001), entitled "Right to Make Entry.” There, CBP defines the terms "owner" or "purchaser" as:

any party with a financial interest in the transaction, including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent, a person or firm who imports on consignment, a person or firm who imports under loan or lease, a person or firm who imports for exhibition at a trade fair, a person or firm who imports goods for repair or alteration or further fabrication, etc. Any such owner or purchaser may make entry on his own behalf or may designate a licensed Customs broker to make entry on his behalf and may be shown as the importer of record on the CF 7501. The terms "owner" or "purchaser" would not include a "nominal consignee" who effectively possesses no other right, title, or interest in the goods except as he possessed under a bill of lading, air waybill, or other shipping document.

Under current administrative practices, then, as a general rule, for a party to act as IOR it must qualify either as an owner or as a purchaser.

Discussion

Of the “owner” and the “purchaser” qualifying standards, the former is associated with the holding of title to the goods. The latter term has been broadly interpreted as to include persons falling within categories that would not appear to qualify as purchasers in the common meaning of that term. Customs Directive 3530-002A, above. The commonly shared trait that is consistently demonstrated is that these persons are all seen to have “a significant financial interest” in the imported goods. As a result of CBP’s administrative rulings, we know, for example, that, among others, a buying agent,⁴ selling agent,⁵ a company that was to conduct tests on the imported goods,⁶ or a “toll” processor⁷ can act as IOR.

Clearly in an orthodox sales transaction, the party holding title to the imported goods, i.e., the owner of the goods, at the time of entry will qualify as the IOR. For instance in ruling no. 224015 (11/18/92), CBP held that a foreign seller having title to the goods upon importation is the “owner” and thus qualifies as the IOR. Where a party with title to the goods has passed title and thus the ownership interest in the goods to a buyer prior to the importation, however, it is only the buyer who is the owner at the time of entry who is entitled to make entry as the IOR.⁸

A party may be incapable of acting as the IOR if that qualification were dependent solely upon status as “owner.” However, it must be immediately recognized that IOR status is not so narrowly circumscribed; a “purchaser” of the imported goods can also act as IOR.

Indeed, there is strong CBP authority for the conclusion that a non-owner might yet qualify as an IOR. In ruling no. 114654 (5/28/99), CBP was asked whether a Canadian company could act as the importer of record. CBP stated as follows

Applied here, the Canadian companies would be precluded from being the entry filer if they were no longer the owner of the merchandise at the time of making entry. This may depend on how their sales transactions are arranged, i.e., the terms of sale would dictate when title passes from seller to buyer. Of course, they could also make entry if they possessed any of the other types of financial interest listed in the directive.

Thus, following this logic, an entity might yet qualify as a purchaser of the goods and thereby be qualified to act as IOR on that basis.

Purchaser of Imported Goods

As has been noted, it is the term “purchaser” which is read especially broadly. Thus, in ruling no. H003868 (3/22/07), CBP held that a US customer who did not take title to the goods until after they had been delivered and accepted after entry into the US, was not the owner at the time of entry (more precisely, it was not yet the owner) but was the purchaser. Moreover, CBP held that the purchase had occurred prior to the goods entering the US. One of the factors was that the customer was obligated to pay duties and broker fees. Because the buyer who did not yet have title was still the “purchaser,” the buyer could act as the IOR. As summarized in ruling no. H080181 (12/30/09), there appear to be two reasons why the buyer in ruling no. H003868 was seen as a purchaser for IOR purposes:

[1] The fact that the customer was the purchaser in combination with [2] the customer having an additional financial interest in the transaction based in part on the customer being responsible for all costs (including import duties and brokerage fees) other than insurance incurred to transport the goods, led CBP to the conclusion that the customer had a financial interest in the transaction as the purchaser of the imported goods.

Even if a party will never hold title to the goods, and cannot fill the role of a pre-title transfer buyer,⁹ we might point to that party’s continued connection to and responsibilities for the imported goods being consistent with those of a purchaser. That would certainly be the case if the would-be importer’s financial and other obligations are as extensive as those borne by the purchaser in ruling no. H003868. In that ruling, the buyer/purchaser assumed all international transportation costs except for insurance, and possibly had to make all arrangements for those services as well.

Beyond the ambit of ruling no. H003868, there are stronger claims for that status that might be advanced. Purchaser status might lie if the party reserves a security or other financial interest in the goods or if the goods are consigned to the party seeking to act as IOR.

Reserved Security or Financial Interest in the Imported Goods

Apart from a significant financial interest being connoted by consignee status, discussed below, another strategy, and one that we have advised other clients to adopt when confronted with IOR questions, is to go more directly to a financial interest by having the prospective importer reserve a financial or security interest in the goods, e.g., they reserve rights in the goods until they are paid in full for the goods. Clearly, the actual customer (or ultimate consignee to use the customs term) should formally acknowledge that security interest.

Direct Authority: Ruling no. H007168

In ruling no H007168, a 2007 ruling,¹⁰ we find direct authority for the position that a party providing services can qualify as an IOR-empowered purchaser of the imported goods. CBP opined that where a foreign “seller” that had “sold” the goods to the buyer (buyer held title and risk of loss to goods) in the foreign exporting country forward, the foreign “seller” was nevertheless qualified to act as IOR. In the case of this ruling, the foreign party that was entitled to act as IOR never actually owned the goods—it ordered the goods from factories and paid for the goods on behalf of the US buyer, expecting to be reimbursed by the buyer for those purchases. Under a separate “logistics agreement,” the “seller” arranged for transportation, including B/Ls and brokerage, and was also to assist the buyer with documentation required for the entry. The party requesting the ruling stated in somewhat vague terms, the “seller” claimed to have an

insurable interest or security interest in the goods because the seller possibly would not be paid if something happened to the goods while under their control . . [CBP observed that] [a]ccording to your correspondence, at the time the goods are shipped to the U.S., [the US buyer] will own the goods and bear the risk of loss, but that the Seller retains an "insurable interest or security interest in the goods.

This assertion served the requesting party’s purpose, as CBP concluded

Although the actual ownership of the products and risk of loss pass to [the buyer] at the time the goods are shipped, it is significant in this context that the Seller retains a security interest in the goods. This security interest retained by the Seller is reflective of its financial stake in securing payment for the goods and services it provides to [the buyer].

Quite apart from the security interest, the foreign “Seller” had separately agreed to provide the following “logistics services” to the US buyer-- arranges for transportation of the goods, including the bills of lading and brokerage, to buyer's distribution centers or to buyer's customer. The logistics agreement also required the Seller to "assist with the documentation and filing of necessary documents and declarations" required for importation into the U.S. These factors—(i) security interest reserved by (ii) a party that never held title to the goods coupled with (iii) dedicated logistics support—are characteristic of and consistent with IOR status.

2005 Ruling on Security Interest

The relative vagueness of the asserted financial interest in ruling no. H007168 from 2007 is in contrast to what appears to have been a more formal reservation of a security interest that had featured prominently in an earlier ruling, no. 116344 (1/25/05), which was heavily relied upon in ruling no. H007168. It is worth quoting ruling no. H007168’s citation to the earlier 2005 ruling, as it provides more guidance for us.

In HRL 116344 (1/25/2005), we determined that, where the seller of goods retained a "security interest" in the goods to ensure its right to payment for products sold and shipped, such seller retained a continuing "financial interest" in the goods, within the scope of C.D. 3530-002A, so as to enable the seller to act as importer of record with the right to make entry for the merchandise upon importation. In that case, title, ownership and risk of loss passed to the buyer upon the seller's delivery of the products to the foreign carrier for shipment to the customer in the U.S. The seller determined the means of carriage of the sold goods and invoiced the buyer for costs related to the shipment of the goods (shipping, handling, customs, insurance and similar charges). HRL 116344 stated that "significantly, however, notwithstanding that title and ownership of the products pass to the [buyer] upon their delivery to the foreign port of lading for shipment, [the seller], under its sales agreement, retains a "security interest" in all such products delivered to the [buyer] "as security for the performance by [buyer] of all of [buyer]'s obligations arising under this Agreement . . . ."

We should recognize that the recitation in this 2005 ruling of the seller’s role in the transportation of the goods appears to be somewhat inconsistent with the seller’s role in a transaction with title passing at the point of lading in Asia.¹¹

December 2013 ruling

We find still other authority in a December, 2013 ruling¹² where CBP held that a company whose role was to dispose of brine after importation for a fee and who never owned the goods was entitled to act as IOR. CBP spoke of a “nexus” between the financial interest of the prospective IOR and the imported goods, citing to the 2007 ruling

According to C.D. 3530-002A, owners or purchasers have more than custodial interest in the goods. Owners or purchasers have a financial interest in the goods that goes beyond that of a bailee. “Financial interest” means there is a nexus between the financial welfare of the owner or purchaser and the imported goods. See H007168 (Aug. 2, 2007) (noting that past rulings have identified “a nexus between the financial welfare of the would-be importer and the imported goods when finding that the financial interest in the goods is sufficient to entitle the would-be importer to act as importer of record”).

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Based on the foregoing discussion, we are able to gain support for the IOR role of a party based upon an overt reservation of a financial or security interest,¹³ precisely as was done in the two cited rulings, even if that party is not a seller or buyer in the formal sense. Ruling no. H007168 and the other rulings cited are powerful authority indeed. One important note must be sounded here. While the party providing the services described above might be called an “agent”, that term should be avoided. First, the rulings allow both buying or selling agents to act as IOR; none of the authoritative rulings dealing with logistics and other services refer to these service providers as “agents.” To do so is likely to introduce needless confusion, as CBP is familiar with buying and selling agents, neither of which status is relevant. Rather than having to explain that the party is nonetheless an “agent” of some other stripe, it is far better to refer to the party as a purchaser of the goods or as a service provider with a significant financial interest.

2. Consignment of Goods

The second possible solution is if the buyer of the goods, having taken title to the goods, then consigns the goods to the prospective IOR and requires that the entity make entry in the US. You would not be arguing that the party was the owner or the purchaser of the goods, but instead looking to its entirely separate role as “consignee.” While the goods would be owned by the buyer at the time of entry, they will have been entrusted to the party in order to have the prospective IOR provide the further logistics/customs entry services.¹⁴ That entrustment is legally in the nature of a consignment. That consignment will end as the goods are entered and the buyer will then reassert full ownership on a stand alone basis. This establishment of a consignment will work here to allow the service-provider party to act as the IOR,¹⁵ as CBP has previously confirmed the reading of Section 1484 (a)

A person who imports merchandise under a consignment arrangement, other than that provided by a bill of lading, air way bill, or other shipping document, comes within the definition of an owner or purchaser under Customs Directive 3530-002.

From your description it appears that [the US subsidiary] is importing the product on consignment. The term "consignment", used in a commercial sense, ordinarily implies an agency and denotes that property is committed to the consignee for care or sale. Black’s Law Dictionary, 5th Edition. [The Japanese parent company] sends the goods to [the US subsidiary] for the purpose of [the US subsidiary] locating purchasers in the United States. Accordingly, [the US subsidiary] as a company that imports on consignment has a sufficient financial interest in the transaction to qualify as the owner or purchaser for purposes of making entry. [The US subsidiary] would be entitled to serve as the importer of record on the entry documents for these products.¹⁶

You will note that CBP did not parse whether the consignee is an owner or a purchaser, being content to note that the consignee would “qualify as the owner or purchaser.”

In a later ruling, no. 115808 (10/08/02), CBP allowed the US subsidiary of a Japanese seller to act as the IOR, even without taking title to the goods at or before the time of entry, because the foreign seller/parent sent the goods to the subsidiary on a consignment basis. The subsidiary was charged with finding US customers and the foreign seller retained title and did not sell the goods to the subsidiary until after the subsidiary had located a customer at some point after the importation. At that later point, the goods would be sold to the subsidiary who would then sell them in turn to the US customers. In that interim, post-entry period the subsidiary was a consignee of the goods.

There is nothing that is mutually exclusive about reserving a security interest in the goods and acting as a consignee. Conceivably the party could do both.

Summary and Conclusion

On the basis of the foregoing, we may summarize the discussion by stating that the customs law contemplates that in order to act as the IOR, a party would need to meet either owner or purchaser status,¹⁷ unless it was decided to pursue consignee status under the alternative discussed.

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1. See 19 USC § 1484 (a) (1).

2. Whether a consignee that is not a mere “nominal” consignee is qualified to act as an IOR because it is a consignee or is qualified because, as a consignee it is an owner or purchaser, makes for a nice point of statutory construction that is ultimately of academic interest only. It is clear that a consignee can act as IOR.

3. 19 USC § 1484 (a) (2) (B).

4. See, e.g., ruling nos. 223904 (11//4/92), 225332 (10/12/94) and 113894 (6/20/97).

5. See, e.g., ruling nos. 224015(11//18/92), 224636 (8/28/93), 115139 (12/19/00) and 115914 (4/7/03).

6. Ruling no. 222140 (5/14/90).

7. See ruling no. 222020 (8/1/90).

8. See ruling no. 116024 (8/14/03) (seller having passed title prior to entry no longer able to act as IOR). To the same effect, a person who sold goods within an FTZ is no longer capable of acting as the IOR upon their withdrawal and entry into the customs territory—that right is transferred to the buyer, ruling no. 228151 (1/22/99).

9. The only possible way around that would be to apply a further gloss, to the effect that party would again take title to the goods but after the entry, so it is in a prospective owner role similar to that of the purchaser in ruling no. H003868. Obviously, this introduces a complication into the business model.

10. Ruling no. H007168 (8/2/07).

11. It is interesting to note that the ruling does not identify which Incoterm, if any, controlled the transaction. It may have been FAS or FCA. 12. Ruling no. H247460 (12/19/13).

13. I would defer to others regarding the drafting and the Law of Sales issues, such as whether there would be a need to perfect a security interest under Article 9 of the Uniform Commercial Code.

14. In the 2007 ruling, no. H007168 (8/2/07), discussed at length above, the foreign “Seller” had separately agreed to provide the following “logistics services” to the US buyer--arranges for transportation of the goods, including the bills of lading and brokerage, to buyer's distribution centers or to buyer's customer. The logistics agreement also required the Seller to "assist with the documentation and filing of necessary documents and declarations" required for importation into the U.S

15. We are mindful that entry by a consignee must be accompanied by the declaration specified in 19 USC § 1485 (a), 19 CFR § 141.19.

16. Ruling no. 225357 (12/22/94).

17. If purchaser status is pursued, we would recommend that serious consideration be given to a security or financial interest in the goods being reserved by the party until full performance by the buyer and that this reservation be formally acknowledged. The effect of this strategy would be to preserve the prospective IOR’s financial interest in the imported goods which would seal its role as a purchaser.

Mark K. Neville, Jr., LL.M. is a Principal of International Trade Counsellors and may be reached at mkneville@itctradelaw.com. He has served as an adjunct professor at The University of California, Berkeley’s Haas School of Business and NYU’s Stern School.

October, 2014