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HQ 227704
February 22, 2000
CON-9-CON-9-04-RR:CR:DR 227704 IOR
CATEGORY: Temporary Importation under Bond
Port Director
U.S. Customs Service
700 Doug Davis Dr
Atlanta GA 30354
RE: Temporary Importation Under Bond (TIB); transceivers; 9813.00.05, HTSUS; evidence of exportation; sale or sale on approval
Dear Sir:
This is in response to your internal advice request of August 26, 1997 (your file CLA-1:A SD), which was initiated by Telular Corporation’s letter of July 14, 1997, concerning the temporary importation under bond of transceivers. In addition to the information forwarded to Headquarters by your office, we are in receipt of a May 29, 1998 and April 30, 1999 submission of additional information, copies of which are enclosed. We are not enclosing all of the documents referred to in the submissions, but only those that appear to be necessary in order for you to apply this decision. The April 30, 1999 submission followed a September 23, 1998 meeting between representative’s of Telular Corporation and staff of the Office of Regulations and Rulings, U.S. Customs Service.
FACTS:
Under Temporary Importation Bonds (TIB), Telular Corporation (Telular) imports transceivers, which are radio transmitters-receivers that use many of the same components for both transmission and reception. Telular compares them to cellular telephones without a handset. Transceivers permit a person to converse with someone else by using radio waves. Telular takes an imported transceiver and assembles it with its patented interface board into a housing, in the U.S. The resulting product is known as a Fixed Wireless Terminal (F.W.T.). The F.W.T. permits a regular telephone (and other wireline devices such as faxes and modems) to operate over the cellular telephone network. The user plugs a regular telephone into the F.W.T. and it becomes a cellular telephone. The device which gives the regular telephone the capability to function as a cellular telephone is Telular’s interface board. The interface board monitors all of the activities on the telephone and generates all signals required by both the telephone and the transceiver to permit communication over a cellular network using a regular (non-cellular) telephone.
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Some of the FWT’s made with the imported transceivers, are sold to a company in the U.S. prior to their export from the U.S. For example, for one company (“Company A”) that Telular sells to, the FWT’s are shipped to the company’s logistics center in Illinois which is a staging area for exports. The facility does not contain any testing capabilities. The units shipped to Company A are in individually packed boxes and are shipped 50 units to a pallet. The shipping specifications come from Company A and are designed so that the merchandise can fit into air or ocean containers. Company A simply builds a crate around the palletized units and exports them. Nothing else is done to the FWT’s. These particular FWT’s are custom manufactured for MATAV of Budapest, Hungary (the Budapest telephone company), and contain MATAV’s logo. Telular knew that these FWT’s were only for export, based on the following: 1) these FWT’s use imported transceivers with a particular operating protocol, 2) Company A gave Telular specifications for the interface board; and 3) discussions and correspondence between Company A’s and Telular’s personnel as to the ultimate purchaser and use of the FWT’s. In addition, the Addendum to the Purchase Order references the fact that the FWT’s were destined for Hungary.
When the transceivers are imported, they are already manufactured with circuitry and software for a particular protocol which is not used in the U.S., and use of the imported transceivers in the U.S. is impossible. The protocol for which a particular transceiver is designed and manufactured limits the use of that transceiver to the area where that particular protocol is used. A protocol for a cellular telephone consists of the particular specifications which have been defined by the cellular telecommunication providers and the governing standards bodies. In the U.S., AMPS protocol is used for analog cellular telephones, and TDMA and CDMA protocols are used for digital cellular telephones. No other protocols are used. The transceivers imported by Telular are manufactured and designed for use with ETACS and GSM protocols, which are primarily used in Europe, and are not used in the U.S. The Federal Communications Commission (FCC) prohibits use in the U.S. of cellular products which utilize the ETACS and GSM protocols, as the use would interfere with operation of certain other wireless sound systems. Transceivers imported by Telular and which are designed and manufactured to operate with the ETACS and GSM protocols, cannot be modified to the AMPS protocol which would permit their operation in the U.S. According to background information prepared by Telular, 100% of Telular’s FWT’s that incorporate ETACS and GSM imported transceivers are shipped to and used by customers outside the U.S. No ETACS or GSM based FWT’s are sold for operation in the U.S., because during the period in question, there were no ETACS or GSM networks operating in the U.S.
Telular has provided photographs of the transceiver, other components of the FWT, and the completed FWT.
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From early 1996 through June 1997, Telular has been importing GSM and ETACS transceivers under TIB’s. Telular has imported 87,500 transceivers under TIB’s. With regard to the FWT units sold by Telular in the U.S., Telular has provided documentation with regard to 66,093 units sold to two U.S. purchasers (Company A and “Company B”), and has provided no details with respect to the remaining units sold to U.S. purchasers, and claimed to have been subsequently exported. The initial submission referred to 269 units sold to nine different purchasers in the U.S., however in the April 30, 1999 submission, 220 of those are now included with those having been exported directly by Telular, and the remaining 49 are stated as having been sold to eight different purchasers in the U.S. According to Telular, the information that is provided with respect to Company A and Company B could be provided with respect to all other U.S. customers, however “only at great time and expense.”
The remaining units, 1) were exported directly by Telular (9,940 as of the initial submission and 10,166 as of the April 30, 1999 submission) to 59 different foreign companies; 2) remain in inventory (10,491); 3) or were damaged in testing, were defective, or were destroyed in manufacturing (701). Of the transceivers remaining in inventory, 5,595 are in completed FWT’s and 4,896 are in their condition as imported. Of the 5,595 FWT units in inventory, as they contain transceivers spread across eighteen of the open nineteen TIB’s, and Telular does not expect to be able to sell the FWT’s in the near future, Telular would agree to the assessment of liquidated damages on these units so that the TIB’s can be closed. Of the 4,896 transceivers in raw material inventory, 895 are spread across nine of the open TIB’s and 4001 were entered under one TIB. Telular intends to keep the one TIB open until the transceivers are assembled into FWT’s and sold and exported. As to the 895 transceivers, they are spread across nine of the nineteen open TIB’s and Telular would agree to the assessment of liquidated damages on these units so that the TIB’s can be closed. For the 701 units that were damaged, defective or destroyed, Telular has paid liquidated damage duties on those units in order to close the eight TIB’s under which they were covered.
The transceivers were entered under 27 TIB’s and eight of them have been closed. Nineteen TIB’s remain open and their numbers, dates opened, number of extensions and expiration dates, according to ACS, are as follows:
TIB # Opened Extended Expired
1906436-0 6/26/96 1 6/25/98
1906459-2 7/02/96 1 7/01/98
1906529-2 7/07/96 1 7/06/98
1906543-3 7/10/96 1 7/09/98
1906558-1 7/15/96 1 7/14/98
1906599-5 7/19/96 1 7/18/98
1906621-7 7/28/96 1 7/27/98
19066886 8/02/96 1 8/01/98
1906985-6 10/03/96 2 10/02/99
1906993-0 10/03/96 2 10/02/99
2014917-6 11/22/96 0 11/21/97
1907208-2 11/22/96 2 11/21/99
1907261-1 12/13/96 1 12/12/98
0712160-5[*] 1/03/97 1 1/02/99
6200912-2 3/27/97 2 3/01/00
6200812-4 4/22/97 2 4/21/00
6200911-4 5/03/97 2 5/02/00
6201116-9 5/30/97 2 5/29/00
6201396-7 6/19/97 2 6/18/00
The transceivers at issue, are broken down in the following categories:
TRANCEIVERS AT ISSUE
QUANTITY DISPOSITION #of TIB’s/ STATUS
62,623 Sold to Company A 13/At issue
1,770 Sold to Company B 10/At issue
49 Sold to 8 different U.S. purchasers 10/Assess liq. damages
1,700 Sold to Company A- warranty replacements 1/At issue
10,166 Sold and exported by Telular 18/At issue
5,595 Remain in inventory in FWT’s 18/Assess liq. damages
4,001 Remain in inventory – one TIB 1/At issue
895 Remain in inventory – nine TIB’s 9/Assess liq. damages
701 Damaged, defective, destroyed 0/Liq. damages paid
87,500 Total
The documentation on the sales of the FWT’s and transceivers is as follows:
1) Company A- 74,800 total units, 62,623 TIB units (Sale 1)
Supply contract between Telular and Company A, dated September 29, 1995. The contract clearly provides that the contract is for the supply of FWT’s to Hungary, and that the FWT’s are to contain all of the modifications required by MATAV (the Budapest telephone company). The contract specifies that ETACS transceivers for the Hungarian market are to be supplied. The contract refers to Hungarian customers other than MATAV, and to ETACS markets outside of Hungary.
Addendum to Purchase Order, dated March 8, 1996. The addendum refers to obtaining and maintaining product approval from the Hungarian Telecommunications Company, PKI and MATAV. PKI stands for Post Kiserleti Intezet, which means “Post Experimental Research Institute”. PKI tested and certified the FWT’s prior to MATAV’s purchase of them from Company A. The contract prices for the FWT’s are “FOB Hungary”.
Amendment No. 1, dated November 11, 1996 to Purchase Order Addendum dated March 8, 1996. Changes price term from “FOB Hungary” to “FOB Atlanta” and adds a sum for FOB Hungary shipments.
Purchase Orders for 66,800 FWT’s produced by Telular for Company A. The 66,800 units include 4,177 transceivers which were not entered pursuant to TIB. 56,800 units were produced in Atlanta, Georgia, and 10,000 units were produced in Vernon Hills, Illinois. The purchase orders for the 56,800 units refer to the FWT model number identified by Telular. The single purchase order for the 10,000 units produced in Illinois, refers to the same part number, states that “payment is contingent on MATAV approval” and instructs that the merchandise be crated for international shipment and gives a Budapest address. The Atlanta purchase orders are dated June 10, 1996, and the Illinois purchase order is dated July 9, 1997.
Telular’s invoices for 74,800 units. The invoices are from Telular to Company A, and are for “Phonecells”, with an item number that is referenced on the purchase orders, as a part number. The item number for the FWT’s from Atlanta is different from the item number for the FWT’s from Illinois, by virtue of an alpha-numeric suffix. The invoices for the FWT’s produced in Illinois indicate that the merchandise is to be shipped to Budapest. The invoices are dated from December 30, 1996 through September, 1997.
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Waybills and invoices for exported merchandise. The waybills are for shipment to Hungary and the shipper is Company A. The address of the consignee is in Hungary but on some of the waybills, the consignee’s name and address is obliterated. On the waybills, the description of the nature of the goods varies (generally it is identified as “parts suitable for use with transceivers”). The invoices are from Company A, for merchandise with the same part number as on the Georgia purchase orders, and the merchandise is described as “FWT Telular.” On the invoices the identity and address of the party in the “ship to” section is obliterated, and the party identified as “ultimate” is a party with a Hungary address. The invoices indicate that the merchandise was sold to Company A. The invoices for the 10,000 Illinois units are copies of Telular’s invoices to Company A. The waybills are dated from July 24, 1996 through April 9, 1997.
The documents submitted also include a letter from Company A to Telular, stating that 1) Company A purchased 74,800 FWT’s from Telular for Company A’s project in Hungary (the model number corresponds to the part numbers and item numbers on the other documents); 2) upon receipt in the U.S. by Company A the FWT’s are “immediately exported ...unopened, to our facilities in Hungary and subsequently sold to a single customer for use in Hungary”; and 3) the product “purchased from Telular was specifically purchased for use in Hungary” and “[i]ts application is not appropriate for use on other cellular networks.”
2) Company A – 1,700 TIB units (Sale 2)
In it’s submission of April 30, 1999, Telular states that the 1,700 units were sold to Company A as replacement transceivers for fulfilling warranty obligation to MATAV.
Quotation of price for transceivers. A quote from Telular dated February 16, 1999 to Company A for the sale of 1,700 ETACS radios. The terms are described as FOB, Vernon Hills (Telular’s location). A handwritten note on the document says “[Company A] Hungary”.
Company A’s purchase order to Telular. The purchase order is dated February 17, 1999, and is for 1,700 units of “board with radio” and the same part number as identified on Telular’s quotation. The terms are FOB “origin” and the instructions are for shipment to a domestic address.