India sourcing agent, buying house or a direct match with manufacturers: who works for you and who sells

Agent, buying house, merchant exporter or the maker direct

A sourcing agent works for the buyer: it looks for factories, relays the specification and follows the order, while the buyer buys from the factory and pays the agent separately for that work. A go-between may call itself a buying agent or a buying house, and the name alone does not tell you whose side it is on. India's trade policy sorts exporters by what they do instead:

• A manufacturer exporter is a person who exports goods manufactured by him or intends to export such goods^[1].
• A merchant exporter is a person engaged in trading activity and exporting or intending to export goods^[1].

The government's guide to exporting spells out how the second kind works: merchant exporters do not have their own manufacturing facilities; instead they buy goods from the manufacturer-exporter^[2]. They sell and buy on their own account^[2], and the goods bear the name of the merchant exporter and not the original supplier^[2].

That gives you a practical test, and US customs thinks the same way. In CBP's words: It is not important what the agent refers to himself/herself as. What is important is the role s/he plays in the transaction.^[3] If a company's name is on the export invoice as the party selling the goods, it is selling to you, whatever it calls itself. If the factory invoices you for the goods and the go-between bills you separately for its service, the go-between is set up as an agent. The invoice is where to start; US customs still weighs the rest of the arrangement, as the next section shows.

The policy also covers goods that leave through a second exporter. It defines third-party exports as exports made by an exporter or manufacturer on behalf of another exporter(s)^[1]. For those, export documents such as shipping bills shall indicate names of both manufacturer exporter/manufacturer and third party exporter(s)^[1], while the export order and invoice should be in the name of third party exporter^[1]. In other words, the Indian export papers can show the maker, but the invoice you receive comes from the firm that sold to you.

The direct route is the one a manufacturer exporter offers: you find or are introduced to the factory, and it quotes, invoices and ships to you itself. Nobody is paid to follow the order for you, so checking the exporter and the goods is yours to do, or to hire an inspection company for.

How US customs reads an Indian buying agent

The label matters at the US border because a genuine buying agent's fee is normally kept out of the price that duty is charged on: CBP says no addition is made for bona fide buying commissions incurred by the buyer^[3]. So CBP looks closely at whether an agent is genuine, and four points are worth knowing before you sign with one.

• Ties to a factory draw scrutiny. CBP says it is more difficult to show that the intermediary is a bona fide buying agent when it is related to the seller^[3]. When the agent buys only from its related factory, a finding of a bona fide buying agency is unlikely^[3]. CBP also weighs whether any of the commissions paid by the buyer inure to the benefit of the seller^[3].
• An agent that works for the factory is the seller's agent. US customs rules define a selling commission as any commission paid to the seller's agent, who is related to or controlled by, or works for or on behalf of, the manufacturer or the seller^[4]. That kind of fee is not kept out: the transaction value, the value duty starts from, adds any selling commission incurred by the buyer with respect to the imported merchandise^[5] to the price. So if a go-between shares owners with the factory it proposes, or takes payment from it, the fee you pay it can end up in the dutiable value.
• Separate invoices are the clearest evidence. CBP says the easiest way to show the go-between is not a seller is for the seller to invoice the buyer for the purchase price of the imported merchandise and for the middleman to invoice the buyer separately for its commissions^[3].
• The fee has to be declared. Leaving it off the entry is not an option, because an importer who fails to declare commissions would not be exercising reasonable care and may be subject to penalty or other enforcement compliance action^[3].

Before you hire an Indian agent, ask whether it or its owners have a stake in, or take any payment from, any factory it proposes, and get the factory's invoice and the agent's invoice as two documents. Give both to your customs broker.

Papers to ask an Indian exporter for

On every route, the Indian company that invoices you for the goods, whether a factory you pay directly or alongside an agent, or a merchant exporter, should be able to show its standing as an exporter. India has export promotion councils, organizations of exporters, set up with the objective to promote and develop Indian exports^[6]; each council is responsible for promotion of a particular group of products^[6]. The councils also register their members. An exporter seeking an export authorisation or any other benefit under the Foreign Trade Policy has to provide the RCMC granted by competent authority^[6], the registration-cum-membership certificate. The government's export guide says an exporter applying for one has to declare his mainstream business in the application^[2].

So ask for that certificate and the name of the council or board that issued it. A council for your product group suggests the company exports goods like yours. A certificate from the exporters' federation (FIEO) rather than a product council or board is not a warning sign in itself: the same guide says that where an export product is not covered by any council or commodity board, RCMC in respect thereof is to be obtained from FIEO^[2]. An exporter that claims no benefit under the policy may not hold a certificate at all. If it has one, check that the company name on the certificate matches the name on your invoice, and do the same with its importer-exporter code.

Which route fits

An agent tends to suit a buyer who wants someone in India to search, relay the specification and follow the order, and will keep the agency paperwork CBP may ask for. A merchant exporter suits a buyer who would rather compare finished prices and deal with one Indian company that answers for the goods. The direct route suits a buyer ready to own the factory relationship and manage the order, or to bring in an inspection firm for the goods. On every route you are normally the importer of record, so the entry and the declared value are yours to get right, and on the agent route so is declaring the agent's commission. How agents set their fees, and the questions to ask one before you sign, are in sourcing agent vs going direct to the factory.

If the direct route suits you, send us the product and the quantity you need. We are not an agent and we do not sell the goods: we introduce you to Indian manufacturers that fit your request, name each one, and do not act for you or for the manufacturer. If none fits, we tell you. It is free for brands, and the manufacturers quote you directly.