Thursday, May 12, 2016

Final Exam 2016: Identity Crisis Edition

You may recall that last year my final exam for Trade Remedies was an elaborate, cinematic fact pattern involving the DC superhero universe. See here for that. Read the comments, which are really quite good.

This year, I was not able to string together quite as detailed a fact pattern for my Customs Law class. I did, however, ask this question. Tell me what you think is the correct answer. I will be flexible, but you should not need to stretch too much.

I'll be back soon. I promise.


Ralph Dibny is the CEO of Plastico, which imports plastic in various forms from suppliers all over the world into the United States. To find suppliers, Ralph relies on two representatives. Reed Richards is responsible for suppliers in South America. Patrick “Eel” O’Brian is responsible for suppliers in Asia. Neither representative is an employee of Plastico.

When Plastico wants to purchase materials from South America, Dibny contacts Richards who then finds suppliers that can provide the necessary material. Richards facilitates the transaction by locating and approving suppliers to Plastico’s standards, creating Plastico Purchase Orders, reviewing supplier invoices for Plastico, approving payment by Plastico, and arranging transportation. For these services, Richards earns a fee of 5% of the invoice price Plastico pays to the supplier. That amount is not shown on the commercial invoice for the imported product and has not been declared to Customs as part of the dutiable value of the merchandise.

Purchasing from Asia is a different process. Eel O’Brian has relationships with several plastic manufacturers throughout Asia. When a manufacturer in Asia has excess inventory, it contacts O’Brian and asks him to sell it to customers in the U.S. The supplier dictates the lowest acceptable price and usually refuses to take responsibility for the cost of shipping and transportation insurance, which must be paid by the customer, including Plastico. O’Brian will then contact Dibny and offer the merchandise to Plastico. If Plastico wants to purchase the merchandise on O’Brian’s terms, it agrees to purchase it from O’Brian. At that point, Plastico will create a Purchase Order naming O’Brian as the supplier. O’Brian places the order with the supplier, who ships the merchandise directly to Plastico in the United States according to the terms of Plastico’s P.O. with O’Brian. The supplier invoices O’Brian who then sends Plastico an invoice showing O’Brian as the seller and including a markup to add his profit. Plastico may not know the identity of the supplier until it receives the shipment, if even then. O’Brian has similar arrangements with several U.S. customers. He negotiates prices with the U.S. customer to maximize his income. The O’Brian’s markup is included in the commercial invoice used for entry and, therefore, has been declared to Customs as part of the dutiable value of the merchandise.

Plastico is always the importer of record and is not related to Richards, O’Brian, or to any foreign manufacturer of plastics. Transaction value is the applicable basis of appraisal.

Dibny has asked for your legal advice on whether the fee paid to Richards and O’Brian’s markup are legally part of the dutiable value of the merchandise. Dibny also wants to know whether there are adjustments Plastico can make to ensure that the amounts paid to Richards and O’Brian’s markup are not dutiable.


Anonymous said...

In the first instance, the 5% commission incurred by Plastico from Richards, who is acting on behalf of Plastico, is a buying commission, and, may not be subject to duty if a valid buying agreement exists. If a valid buying agreement between Richards and Plastico does not exist, the 5% commission should be added to the transaction value and is subject to duty. In the example, there is no evidence a valid buying agreement between the two parties exist; therefore, the 5% commission must be declared and added to the transaction value and subject to duty.

In the second instance, the invoice from O’Brian, the seller to Plastico, the buyer represents the transaction value for entry purposes. If O’Brian were to allow Plastico access to the original invoice between O’Brian and his supplier, Plastico may be able to use the “First Sale” as the transaction value.

Larry said...

I have graded the papers. I am happy to say that one student correctly noted that Ralph Dibny is DC Comics' Elongated Man, Eel O'Brian is Plastic Man, and Reed Richards is Marvel's equally flexible Mr. Fantastic.

legal service provider said...

therefore, the 5% commission must be declared and added to the transaction value and subject to duty.