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HQ 548380





October 23, 2003

RR:IT:VA 548380 EK

CATEGORY: VALUATION

Michael S. O’Rourke
Rode & Qualey
55 W. 39th Street
New York, NY 10019

RE: Request for Valuation Ruling, Nokia Inc.

Dear Mr. O’Rourke:

This is in response to your letter of August 6, 2003, requesting a ruling on behalf of your client, Nokia Inc., (hereinafter referred to as Nokia), relating to the valuation of merchandise to be manufactured at a related maquiladora facility operated by Nokia Mexico, S.A. de C.V., located in Reynosa, Tamaulipas, Mexico (hereinafter referred to as Reynosa). You indicate that Customs completed an audit of Nokia in order to determine whether the entries by Nokia met an acceptable level of compliance with Customs laws and regulations. This ruling request is the result of recommendations made by the audtitors with regard to the valuation of the imported merchandise. As part of Nokia’s audit, it was agreed that Nokia obtain a prospective ruling from this office regarding these transactions. This ruling applies only to future transactions.

FACTS:

You state that the Nokia Mobile Phones division of Nokia (hereinafter referred to as NMP) is involved in the manufacture, assembly, sale and distribution of mobile phone handsets and related accessories and services. Currently, you indicate that all the manufacturing activities for NMP occur at Reynosa. Until recently, NMP’s products were manufactured at Nokia’s facility at Alliance Gateway, Fort Worth, Texas, (hereinafter referred to as Alliance).

Reynosa does not manufacture any product unless there are specific orders from NMP customers. Merchandise is not manufactured for inventory purposes. Reynosa supplies shipping documents to import the merchandise from Mexico to the United States, and NMP’s customer is shown on the shipping documents as the ultimate consignee. The invoice prepared in Reynosa is the only invoice NMP’s customer receives and pays NMP based on the prices shown on the invoice prepared by Reynosa. You indicate that in some instances (infrequently), that the merchandise may be shipped to NMP’s warehouse facility for distribution. However, that is an exception to the normal practice, direct delivery to NMP’s customer.

ISSUE:

Whether transaction value is applicable in appraising merchandise manufactured by Reynosa for NMP’s customers in the United States.

LAW AND ANALYSIS:

The primary basis of appraisement of imported merchandise is transaction value pursuant to section 402(b) of the TAA, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five enumerated additions. In order for transaction value to be used as a method of appraisement, it is essential that a “sale” between the parties is available. For Customs purposes, the word “sale” generally is defined as a transfer of ownership in property from one party to another for consideration. J.L. Wood vs. United States, 62 CCPA, 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974). Without a sale for exportation to the United States, transaction value must be eliminated as a means of appraisement. In this case, there is no “sale” between Reynosa and NMP. Therefore, there is no transaction value with respect to the transactions between these two related parties.

It is your contention that the price paid by NMP’s customers to NMP represents the “price actually paid or payable” when sold for exportation to the United States, and therefore, is a proper transaction value with respect to the merchandise manufactured by Reynosa and purchased by NMP’s customers. You indicate that this is the only “sale” in the import transaction, and since it is available, should be utilized in appraising the merchandise rather than resorting to either deductive or computed values, sections 402(d) and (e). You state that the auditors and Nokia staff considered a variety of accounting methods that may be implemented in order to provide information to support either a deductive or computed value calculation. However, you claim that there are inherent problems in verifying audited records, and that since there is a viable alternative, the invoice price paid by NMP’s customers, then it should be utilized as the price actually paid or payable for the merchandise.

We agree with your conclusion that the prices paid by NMP’s customers may be used as the “price actually paid or payable” for the merchandise when sold for exportation to the United States. For purposes of this ruling request, we assume that the transactions between NMP and its customers are bona fide sales, and that NMP and NMP’s customers are not related within the meaning of section 402(g). Since this a prospective ruling request, we have not reviewed any documents that would establish the existence of a bona fide sale between the parties. In your ruling request, you cite La Perla Fashions, Inc. vs. United States, 22 CIT 393 (1998), affirmed by La Perla Fashions Inc., vs. United States, 185 F.3d 885 (1999). In that case, the court agreed with Customs and held that the sales transactions between La Perla in the United States and its unrelated U.S. customers represented the proper transaction upon which to base a transaction value. In La Perla, there were separate sales between La Perla and its related foreign manufacturer. However, those sales did not adequately represent transaction value because the prices were influenced by the relationship between the parties. The only sales upon which to base a transaction value were those sales between La Perla in the U.S., and its U.S. customers. In the instant situation, there is only one “sale” available to appraise pursuant to transaction value. There are no sales between NMP and Reynosa. The only available sale transactions are those between NMP and its unrelated U.S. customers.

In addition, assuming the existence of a sale between NMP and its customers, in order for transaction value to be valid, it must also be a “sale for exportation to the United States”. Here, the merchandise is manufactured in Reynosa in direct response to an order placed by the U.S. customer. Reynosa prepares the shipping documents and invoices, on behalf of NMP, and direct ships the merchandise to the U.S. customers, and the U.S. customers pay NMP the invoice price. It is our conclusion that these transactions represent sales for exportation to the United States within the meaning of section 402(b) of the TAA.

Regarding the merchandise that is not shipped directly to the U.S. customers, but rather, is shipped to NMP’s warehouse facility, we have insufficient information presented to decide whether there are sales for exportation to U.S. customers. If NMP can show that such importations are for specific customers, and these sales do take place, then transaction value may be used with respect to the merchandise shipped to the warehouse facility.

HOLDING:

Transaction value in this case is represented by the sales between NMP and its unrelated U.S. customers. These are the only sales available upon which to base a transaction value. We have not reviewed any documents that verify the existence of a sale between NMP and it’s U.S. customers, and we are assuming that such a sale exists. If not, there is no transaction value available, and Customs would proceed sequentially through the remaining bases of appraisement in order to properly appraise the imported merchandise.

Please note that 19 CFR § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”

Sincerely,

Virginia L. Brown, Chief

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