RR:CTF:VS 548618 GG
Port Director
U.S. Customs and Border Protection
P.O. Box 3130
Laredo, Texas 78044-3130
RE: Appraisement of Refurbished Telephones
Dear Sir:
This is in response to an internal advice request from Nokia, Inc. (Nokia), dated October 18, 2004, which was forwarded by you to the National Commodity Specialist Division (NCSD) in New York. The NCSD in turn referred the request to our office, because the request concerns the appraisement of refurbished phones and we issue advice on matters involving valuation.
FACTS:
Nokia manufactures mobile phones and accessories, base stations, controllers, switches, and related equipment. Nokia, through its Customer Care Group (CCG), maintains an inventory of repaired phones to send to customers in need of replacement phones. This inventory consists of phones that initially have been returned to Nokia for repair. CCG ships the malfunctioning equipment to an unrelated repair facility in Mexico, Elqotec S.A. de C.V. (“Elcoteq”). After the repairs are completed, they are returned to CCG in the United States. CCG then sends the refurbished phones to U.S. customers needing replacement phones.
Elqotec charges Nokia a flat rate for its repair services, which vary depending upon the type and amount of repairs required. This rate includes freight and some raw materials. CCG has been treating the broken phones and related materials it sends to the repair facility as assists. Counsel for Nokia states that there is not a distinct and repeatable method to determine the actual costs associated with the repair of each rebuilt phone imported into the United States. This is because Nokia pays the repairer on a basis that does not provide for a direct method of tying the payments to the repair of specific phones. The payments are made on a lump-sum basis for the previous two weeks of repairs.
Nokia suggests that the refurbished phones may be appraised based on quotes by reputable U.S. resellers of refurbished phones. In support Nokia enclosed a representative price quote from a company called Sky Comm USA, Inc., which lists U.S. dollar “market values” for various model numbers of unspecified products in “New Complete,” “New H/O,” “Refurb H/O,” and “As-is H/O” conditions. As expected the prices for the refurbished and “as-is” products are lower than those for the products described as “new complete” or “new H/O.”
ISSUE:
What is the proper basis of appraisement of the imported refurbished phones?
LAW AND ANAYSIS:
Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1). In the current situation the refurbished phones are not the subject of a sale between the repairer, Elcoteq, and Nokia or CCG. Rather, Elcoteq simply evaluates and repairs the phones and charges Nokia an amount for the repair plus freight and some raw materials that presumably are used in the repair process. The absence of a sale eliminates transaction value as a method to appraise the imported refurbished phones.
When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. § 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. § 1401a(e)); and the “fallback” method (19 U.S.C. § 1401a(f)).
The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that being appraised. (19 U.S.C. § 1401a(c)). We assume, because we have not been given any information indicating otherwise, that there are no sales of similar or identical merchandise made at or about the same time as the merchandise imported. If that is the case it will not be possible to appraise the refurbished phones on the basis of transaction value of identical or similar merchandise.
Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the U.S. in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, or before the close of the 90th day after the date of importation. 19 U.S.C. § 1401a(d)(2)(A)(i)-(ii). This price is subject to certain enumerated deductions. 19 U.S.C. 1401a(d)(3). Though not explicitly stated, Nokia’s letter implies that the refurbished phones are given, not sold, to U.S. customers needing replacement phones. Consequently, the deductive value method is inapplicable.
Under the computed value method, merchandise is appraised on the basis of the material and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. 19 U.S.C. § 1401a(e)(1). Since there is no information on which to base computed value, this method is also unavailable.
When the value of imported merchandise cannot be determined under the methods set forth in 19 U.S.C. § 1401a(b)-(e), it may be appraised on the basis of a value derived from one of those methods, reasonably adjusted to the extent necessary to arrive at a value. This is known as the “fallback” valuation method. Certain limitations exist under this method, however. For example, merchandise may not be appraised on the basis of the price in the domestic market of the country of export, the selling price in the United States of merchandise produced in the U.S., minimum values, or arbitrary or fictitious values. 19 U.S.C. § 1401a(f); 19 CFR § 152.108.
Under section 500 of the Tariff Act of 1930, as amended, which constitutes CBP’s general appraisement authority, the appraising officer may:
fix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding….
19 U.S.C. § 1500(a) (emphasis added)
In this regard, the Statement of Administrative Action (SAA), which forms part of the legislative history of the TAA, provides in pertinent part:
Section 500 is the general authority for Customs to appraise merchandise. It is not a separate basis of appraisement and cannot be used as such. Section 500 allows Customs to consider the best evidence available in appraising merchandise. It allows Customs to consider the contract between the buyer and seller, if available, when the information contained in the invoice is either deficient or is known to contain inaccurate figures or calculations…. Section 500 authorize [sic] the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract.
In those transactions where no accurate invoice or other documentation is available, and the importer is unable, or refuses, to provide such information, then reasonable ways and means will be used to determine the appropriate value, using whatever evidence is available, again within the constraints of section 402.
Statement of Administrative Action, H.R. Doc. No. 153, 96 Cong., 1st Sess., pt 2, reprinted in, Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (October 1981), at 67.
Section 152.107(b) of the CBP regulations (19 CFR § 152.107) provides:
Reasonable adjustments. If the value of imported merchandise cannot be determined or otherwise used for the purposes of this subpart, the imported merchandise will be appraised on the basis of a value derived from the methods set forth in §§ 152.103 through 152.106, reasonably adjusted to the extent necessary to arrive at a value. Only information available in the United States will be used.
Identical merchandise or similar merchandise. The requirement that identical merchandise, or similar merchandise, should be exported at or about the same time of exportation as the merchandise being appraised may be interpreted flexibly. Identical merchandise in any country other than the country of exportation or production of the merchandise being appraised may be the basis for customs valuation. Customs values of identical merchandise, or similar merchandise, already determined on the basis of deductive value or computed value may be used.
CBP has previously examined the appraisement of refurbished items, in HQ 544377, dated September 1, 1989, and HQ 548453, dated March 8, 2005. In both instances the refurbished goods were appraised under the fallback method using books values recorded in the companies’ books that reflected the value of the refurbished products. We do not have any information on the availability of book values in the present case. If, however, upon further inquiry you find that such book values exist then it may be possible to use them for appraisement purposes under 19 U.S.C. § 1401a(f).
In the absence of book values, we find that the appraised value in this instance may be based upon quotes for identical or similar merchandise by reputable U.S. resellers of refurbished phones. This is because all reasonable ways and means must be used to appraise the merchandise, and it is asserted that the resellers’ quotes represent the only available information that can be quantitatively documented. Precedent for this approach exists in HQ 548247, dated March 10, 2003, which coincidently also involves Nokia. In that case, CBP permitted the appraisement of imported scrap material using the U.S. market price that was available for either identical or similar scrap materials. The basis of appraisement in that case was deemed to be a modified transaction value of identical or similar merchandise under 19 U.S.C. § 1401a(f).
HOLDING:
The refurbished phones may be appraised under the fallback valuation method, using either book values or price quotes by reputable U.S. resellers of refurbished phones.
Sincerely,
Myles B. Harmon, Director,
Commercial & Trade Facilitation Division