CLA-2 CO:R:C:M 952862 LTO

District Director
U.S. Customs Service
55 Erieview Plaza
Cleveland, Ohio 44114

RE: Protest 4195-92-100139; Teklogix RF/DC Systems; hand- held/vehicle-mounted data collection devices; system controllers; remote radio module; section XVI, note 3, 4; chapter 84, note 5; Add. U.S. note 3 to chapter 85; HQs 084649, 087984, 089317, 953330; NY 894426; not "freely programmable"; General Note 3(c)(vii)(B); General Note 3(c)(vii)(R)(16)(aa) and (bb) Dear District Director:

The following is our decision regarding Protest 4195-92- 100139, filed on behalf of Teklogix Inc. ("Teklogix"), concerning the classification, under the Harmonized Tariff Schedule of the United States (HTSUS), and applicability of the United States- Canada Free Trade Agreement (CFTA), for hand-held data collection devices, vehicle-mounted data collection devices, system controllers and remote radio modules, for the Teklogix RF/DC Systems ("Teklogix systems"). The subject merchandise was entered from November 21, 1990, through August 10, 1991, and the entries were liquidated on March 6 and March 13, 1992. The protest was timely filed on June 4, 1992. In reaching this decision, we have carefully reviewed several submissions and considered arguments raised at meetings with counsel for the protestant.

FACTS:

Teklogix systems are designed for radio frequency collection and transmission of data for industrial inventory control. The systems are made up of various components. The exact number and type of components in any given system will be tailored to each customer's needs. Each system, however, will include at a minimum either: (1) a system controller and data collection devices; or (2) a system controller, data collection devices and one or more remote radio modules. - 2 -

The data collection devices (models #7015, 7020, 7025, 8025, 8030), which are either hand-held or vehicle-mounted, communicate over radio frequencies in real-time through a system controller to a computer which acts as a host for the system, such as an IBM mini, midrange or mainframe computer. The use of radio provides ease of mobility while permitting instantaneous real-time information transmission to the host computer. Moreover, several models of the data collection devices incorporate a port where a microphone can be attached for voice input for RF communications.

The system controllers (models #9011, 9015, 9020, 9200) provide an interface between the host computer and the mobile data collection devices. They function in the same manner as a terminal or "cluster" controller in a hard-wired host/multi- terminal system. The controllers control the flow of data from the host computer to the data collection devices, and allow each data collection device to access the host without interfering with the others. Their main task is to store and redirect data as it passes from the host computer to the terminals, and vice versa.

Models #9011 and #9015 system controllers incorporate radio transceivers, while models #9020 and #9200 do not (they are used in conjunction with the model #9120 remote radio module). The remote radio module is essentially a radio transceiver and power supply. It performs very few processing tasks, as most of the storage and processing is handled by the system controllers. The data collection devices, system controllers and remote radio module, which make up the Teklogix system, were entered under subheading 8471.91.00, HTSUS. The articles were classified upon liquidation as transceivers under subheading 8525.20.30, HTSUS.

ISSUE:

1. Whether the components of the Teklogix system (data collection devices, system controllers, remote radio module) are classifiable under heading 8471, HTSUS, which provides for automatic data processing machines and units thereof, or heading 8525, HTSUS, which provides for transmission apparatus for radiotelegraphy.

2. Whether the components of the Teklogix system are entitled to duty-free treatment under the CFTA.

LAW AND ANALYSIS:

I. Classification

The General Rules of Interpretation (GRI's) to the HTSUS govern the classification of goods in the tariff schedule. GRI 1 - 3 -

states in pertinent part that "for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes . . . ."

The subheadings under consideration are as follows:

8471 Automatic data processing machines and units thereof . . .: Other: 8471.91.00 Digital processing units, whether or not entered with the rest of a system, which may contain in the same housing one or two of the following types of units: storage units, input units, output units (3.9% ad valorem)

* * * * * * * * * * * * *

Input or output units, whether or not entered with the rest of a system and whether or not containing storage units in the same housing: 8471.92.10 Combined input/output units (3.7% ad valorem)

* * * * * * * * * * * * *

Other: 8471.99.15 Control or adapter units (free)

* * * * * * * * * * * * *

8525 Transmission apparatus for radiotelephony, radiotelegraphy, radiobroadcasting or television, whether or not incorporating reception apparatus or sound recording or reproducing apparatus; television cameras: Transmission apparatus incorporating reception apparatus: Transceivers: 8525.20.30 Other (6% ad valorem)

* * * * * * * * * * * * *

Other: 8525.20.60 Other (6% ad valorem) The data collection devices, system controllers and remote radio modules are separately housed components of the Teklogix system. The units transmit data to a host computer, which is at a remote location, by radio waves. The host computer is not a - 4 -

part of the importation in question.

The protestant contends that the system is classifiable under subheading 8471.91.00, HTSUS. It is Customs position that the components of the Teklogix system are not classifiable under this provision, either collectively or individually, for the following reasons.

A. Section XVI, Note 4 ("functional units")

Note 4 to section XVI, HTSUS, concerns the classification of "functional units" under the tariff schedule. The note provides that "[w]here a machine (including a combination of machines) consists of individual components . . . intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85, then the whole falls to be classified in the heading appropriate to that function." The individual components of the Teklogix system do not contribute together to a clearly defined function covered by a single heading of chapter 84 or 85. Rather, the components perform complementary functions covered by headings 8471 and 8525, HTSUS. Moreover, the language used in the subheadings of heading 8471, HTSUS, precludes the use of the "functional unit" concept, because each unit of an ADP system is intended to be classified separately in its own individual eo nomine subheading.

Because of language such as "whether or not entered with the rest of the system" found in subheadings 8471.91.00, 8471.92 and 8471.93, HTSUS, the components of a personal computer "system" (i.e., central processing unit, monitor, keyboard and printer) would not be classified according to note 4 to section XVI as a "functional unit." Rather, each component would be classified in its own respective heading. See HQ 089317, dated September 4, 1991. Similarly, the components of the Teklogix system must be separately classified.

B. Applicability of headings 8471 and 8525, HTSUS

Note 5(B) to chapter 84, HTSUS, provides guidance with regard to the classification of separately housed units of automatic data processing machines. The note states as follows:

Automatic data processing machines may be in the form of systems consisting of a variable number of separately housed units. A unit is to be regarded as being a part of the complete system if it meets all of the following conditions:

(a) It is connectable to the central processing unit either directly or through one or more other units; and (b) It is specifically designed as a part of such a - 5 -

system (it must, in particular, unless it is a power supply unit, be able to accept or deliver data in a form (code or signals) which can be used by the system).

Such units entered separately are also to be classified in heading 8471. The data collection devices, system controllers and remote radio modules are connectable to the host computer through a radio link. Further, they are specifically designed for use with the Teklogix system. As such, they can be regarded as being units of the complete system, and are therefore, prima facie classifiable under heading 8471, HTSUS.

The data collection devices, system controllers (with the exception of models #9020 and #9200) and remote radio modules incorporate transceivers. Therefore, because they perform data transmission, as well as data processing, functions, the units (with the exception of models #9020 and #9200) are also prima facie classifiable as radiotelegraphy transmission apparatus, under heading 8525, HTSUS.

C. Section XVI, Note 3 ("composite machines")

Note 3 to section XVI, HTSUS, which encompasses heading 8471 (ADP machines and units thereof) and 8525 (transmission apparatus for radiotelegraphy), HTSUS, provides the following guidance with regard to the classification of composite (multi-function) machines:

Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function [underlining added].

We have previously considered the classification of machines with functions described in both headings 8471 and 8525, HTSUS. In HQ 085404, dated July 20, 1990, which was reconsidered and affirmed in HQ 087984, dated September 13, 1991, we held that various Mobile Radio Data Terminals [MDT] were composite (multi- function) machines with the principal function of radiotelegraphy, and were therefore classifiable under heading 8525, HTSUS. The terminals, which were units of various communications systems, enabled field personnel to transmit and receive information from their remote position to a base office by use of a radio link. This process was described in HQ 087984 as follows: - 6 - Incoming messages initiated by the field personnel on the MDTs are received by the modulator of the mobile radio for transmission over the radio link. A simple modification of the radio equipment allows the MDT to bypass the bandwidth-limiting audio circuitry, thus requiring that the data signal be injected directly into the modulator. The signal is received at a base radio site. The digital message is reconstructed by a radio/ data interface. This interface may be at the computer site or at a remote location from the host computer. The signal is transmitted to the communications controller over a telephone or microwave link via a data modem. The Communications Controller decodes and translates the data into standard computer-input format and then passes the message to the host computer. The computer is then able to display the field message on output terminals at the base or headquarters office for personnel to view. Should the base or headquarters personnel wish to send messages to the field personnel, they simply input the message into their terminals and the process works in reverse. The field personnel may also have the ability to access the host computer directly from the MDT for specific data if the system with which the MDT operates is programmed for such access.

We concluded that although the MDTs performed certain processing functions, including word processing and word storage, their principal function was the transmission of data, rather than the processing of data. The protestant agrees with Customs classification of the MDTs. It is Customs position that the MDTs are functionally similar to the Teklogix devices.

In HQ 953330, dated May 14, 1993, we held that the constituent units for a "Wireless Data Network" were also composite (multi-function) machines, but that the local area networking ("LAN") function, not the transmission and reception of radiotelegraphy, was their principal function. The units were classified under heading 8471, HTSUS.

We stated that LAN units perform two major functions, "[t]hey receive binary information from a PC and convert this to digital data so that it can be used at other locations within the LAN." We further stated that "LANs process, translate, convert, and transmit data for use within the LAN system. LAN units also perform such additional functions as encoding, decoding, LAN protocol implementation, temporary memory storage, control logic for access to the host computer, and processing local memory." We then reasoned that these units were distinguishable from the terminals of HQ 087984, "because the Mobile Radio Data Terminals were simply automated replacements for voice transmission radio communications systems." With regard to the terminals of HQ - 7 -

087984, which were not themselves freely programmable, we determined that "the data processing function was a secondary, ancillary function to that of the radio transmission. Whereas, the instant Wireless LAN Units operate as standard LAN units with the addition of a radio transceiver."

1. System Controllers ("principal function")

The system controllers in question, including those used in conjunction with the remote radio module, are functionally similar to the system controller at issue in HQ 953330. The Teklogix system controllers provide an interface between the host computer and the data collection terminals. They function in the same manner as a terminal or "cluster" controller in a hard- wired host/multi-terminal system. The units control the flow of data from the host computer to various data collection devices, and allow each data collection device to access the host without interfering with the others. Their main task is to store and redirect data as it passes from the host computer to the data collection devices, and vice versa. As such, it is our opinion that the principal function of the system controllers is described by heading 8471, HTSUS. The system controllers (models #9011, 9015, 9020, 9200) entered separately or with the system, are classifiable under subheading 8471.99.15, HTSUS, which provides for control or adapter units for automatic data processing machines.

2. Data Collection Devices ("principal function")

As for the data collection devices, it is our opinion that, as with the MDTs, while they are prima facie classifiable as combined input/output units under subheading 8471.92.10, HTSUS, their principal function is described by heading 8525, HTSUS. The devices, which are either hand-held or vehicle- mounted, communicate over radio frequencies in real-time through a system controller to a computer which acts as a host for the system. However, in HQ 087984, we cautioned: "that the system utilizes a computer for its operations does not make it a data processing system, nor does it make the transmission of messages within the system data processing."

The data collection devices' most significant features are their mobility and ability to transmit data by radio waves. The component that allows them to function from a mobile location is the radio transceiver. The devices, which generally have "ABCD" keyboards (rather than the standard "QWERTY" keyboards), are not of the class of laptop computers, nor are they of the class of ADP intelligent or dumb terminals.

The data collection devices, although they have some processing capability, are not "freely programmable." While a finding that an input/output unit is "freely programmable" is not - 8 -

required for classification under subheading 8471.92, HTSUS, the absence of this finding indicates that the data processing functions are limited, and that these functions may be ancillary to that of radio transmission. See HQ 087984. Thus, the principal function of a "freely programmable" ADP machine (i.e., a laptop PC) incorporating a radio transceiver would be data processing, rather than data transmission, and the machine would be classified under heading 8471, HTSUS.

The "freely programmable" requirement can be found in note 5 to chapter 84, HTSUS, which provides the meaning of the term automatic data processing machines as used within the tariff schedule. The definition is expressed in terms of the abilities an automatic data processing machine must possess. Note 5(A)(a)(2) to chapter 84 states that, for the purposes of heading 8471, HTSUS, digital machines must be capable of "being freely programmed in accordance with the requirements of the user."

In determining whether a particular machine is "freely programmable," it is helpful to examine the definitions of the terms "computer" and "personal computer." A computer, which is freely programmable, is a "[g]eneral-purpose machine that processes data according to a set of instructions that are stored internally either temporarily or permanently." A. Freedman, The Computer Glossary, Sixth Edition, pg. 95 (1993). A personal computer "is functionally similar to larger computers, but serves only one user. It is used at home and in the office for almost all applications traditionally performed on larger computers." Computer Glossary (1993), pg. 400. Personal Computers "are typically used for applications, such as word processing, spreadsheets, database management and various graphics-based programs, such as computer-aided design (CAD) and desktop publishing. They are also used to handle traditional business applications, such as invoicing, payroll and general ledger. At home, personal computers are primarily used for games, education and word processing." A. Freedman, The Computer Glossary, Fourth Edition, pg. 524 (1989). Because they can perform any of the above-listed applications, personal computers are considered to be "freely programmable."

On the other hand, the Teklogix data collection devices are not "general purpose" machines, nor do they provide the general purpose display capability of a standard desktop terminal. They are designed for specific applications--for example, "to present information to warehouse workers and to receive their keyed or bar code scanned data back."

The Teklogix data collection devices are not computers (or personal computers), nor can they, by themselves, perform the above-listed applications. Thus, the devices are not capable of "being freely programmed in accordance with the requirements of the user," and are not "freely programmable" for tariff purposes. - 9 -

The data collection devices incorporate an operating system based on a 32-bit microprocessor, 246 KB EPROM (erasable programmable read only memory) for operating system storage, and 256 RAM (random access memory) for temporary storage of information. However, unlike the applications programs of a personal computer, the data collection terminals' EPROM and RAM must be programmed by the host computer.

The protestant has consistently argued that "Teklogix terminals have all the capabilities, and more, of the top line, hardwired ADP terminals made by IBM, HP, or DEC." This claim, however, ignores the terminals' design limitations not found on top of the line IBM, HP or DEC hardwired ADP terminals.

A top of the line hardwired ADP terminal incorporates a cathode ray tube (CRT). The graphics component of the Teklogix data collection devices is not similar to a CRT. The devices use vacuum fluorescent display screens, which can only display characters (numbers and letters). Unlike a terminal incorporating a CRT, the Teklogix devices are not capable of displaying graphics (no pixel configuration), nor can they run a word processing program, such as WordPerfect. The screens are also limited by size. The hand-held devices' displays are available in sizes as small as four lines of 20 characters, while the vehicle-mounted devices' displays are available in sizes from two lines of 40 characters to eight lines of 51 characters. Thus, the size and configuration of the Teklogix data collection devices' display screens are limited by design. Such limitations are not found on the top of the line hardwired ADP terminals, or on the bottom of the line ADP terminals. Moreover, several models of the Teklogix data collection devices incorporate a port where a microphone can be attached for voice input for RF communications. The devices' transceivers are used to send and receive the message, and are necessary for voice communication. Thus, these particular models can function as "walkie-talkies" with the mere addition of a microphone.

Finally, while users of the Teklogix devices can input data, they cannot substantially manipulate data, nor will they spend a large portion of their time attempting to manipulate data. The limited processing of data performed at the data collection device is an ancillary function to that of data transmission. Accordingly, the data collection devices' principal function is described by heading 8525, HTSUS, and they are classifiable either under subheading 8525.20.30 or 8525.20.60, HTSUS.

Additional U.S. Note 3 to chapter 85, HTSUS, states that "[f]or the purposes of heading 8525 the term 'transceivers' refers to combinations of radio transmitting and receiving equipment in a common housing, employing common circuit components for both transmitting and receiving, and which are not - 10 -

capable of simultaneously receiving and transmitting." The data collection devices, as well as the remote radio modules, incorporate transceivers that are not capable of simultaneously receiving and transmitting. Thus, the data collection devices (models #7015, 7020, 7025, 8025, 8030) are classifiable as "transceivers" under subheading 8525.20.30, HTSUS. Similarly, the remote radio modules (model #9120), also composite (multi- function) machines, are classifiable under subheading 8525.20.30, HTSUS. (In HQ 087984, the MDTs, which incorporated transceivers that were not capable of simultaneously receiving and transmitting, were classified under subheading 8525.20.60, HTSUS. As stated above, these devices should have been classified under subheading 8525.20.30, HTSUS.)

The protestant points out that Harmonized Commodity Description and Coding System Explanatory Note (EN) 84.71, pg. 1298, states that an ADP unit's "interconnections may be made by material means (e.g., cables) or by non-material means (e.g., radio or optical links)." We agree that this EN permits the classification of an ADP unit using a radio link in heading 8471, HTSUS. However, where an ADP unit's principal function is that of data transmission, the unit cannot be classified under heading 8471, HTSUS. Any other result would be contrary to note 3 to section XVI. D. Miscellaneous arguments

The protestant argues that if Customs classifies a data collection device incorporating a transceiver under heading 8525, HTSUS, then we must classify a device incorporating a modem as a modem under heading 8517, HTSUS. We disagree.

In HQ 084649, dated September 20, 1989, and NY 894426, dated February 7, 1994, portable computer terminals incorporating modems were classified under subheading 8471.92.10, HTSUS. While note 3 to section XVI was not mentioned in these rulings, we would clarify the holdings of HQ 084649 and NY 894426 as follows: terminals incorporating modems are composite (multi-function) machines with a principal function described by heading 8471, HTSUS.

Terminals incorporating modems are distinguishable from the devices in question, in that the function performed by the modem is not as integral as that performed by the transceiver. The transceiver imparts the identity of the Teklogix devices and, therefore, the principal function of the devices in question is described by heading 8525, HTSUS.

The protestant also argues that "the technology that permits a product to become mobile does not change the product's character or function. Otherwise, a battery powered five inch - 11 -

color television suddenly would have to be classified as a battery, because the batteries are what permit the television to go 'wireless' and be taken to the ball game [underlining in original]."

The battery, which supplies the television's power, is not similar to the Teklogix data collection device's transceiver. In fact, the hand-held devices also incorporate a rechargeable battery, while the vehicle-mounted devices are powered by the vehicle. The transceiver allows the devices to interact with the host computer--a process necessary for data entry. As stated above, the transceiver, the device that permits the data collection devices to become mobile, also allows the devices to perform their principal function. A portable television incorporating a rechargeable battery does not function as a battery, while the Teklogix data collection devices, composite (multi-function) articles, perform a data transmission function. The devices are therefore distinguishable from portable televisions.

II. United States-Canada Free Trade Agreement

To be eligible for tariff preference under the CFTA, goods must be "originating goods" within the rules of origin in General Note 3(c)(vii)(B), HTSUS. There are two means in General Note 3(c)(vii)(B) by which articles imported into the U.S. may be "goods originating in the territory of Canada." The first method is if the goods are "wholly obtained or produced in the territory of Canada and/or the United States." Because the goods are not wholly obtained or produced in Canada, it is necessary to resort to the second method which is if the goods are "transformed in the territory of Canada and/or the United States." A transformation is evident when a change in tariff classification occurs that is authorized by General Note 3(c)(vii)(R).

General Note 3(c)(vii)(R)(16)(aa) and (bb), HTSUS, state, respectively, that for chapters 84 and 85, "[a] change from one chapter to another, other than a change to heading 8544," or "[a] change from one heading (other than a parts heading) to another heading, other than heading 8528 or 8529," is acceptable.

The data collection devices (models #7015, 7020, 7025, 8025, 8030) and remote radio module (model #9120) incorporate Japanese- origin transceiver boards. The transceiver boards imported into Canada, which have the essential character of complete transmission apparatus, are classifiable under heading 8525, HTSUS. As imported into the U.S., the data collection devices and remote radio module are classifiable under subheading 8525.20.30, HTSUS. Therefore, the required transformation does - 12 -

not occur. According to General Note 3(c)(vii)(B), HTSUS, the data collection devices and remote radio module are not "goods originating in the territory of Canada," and are not eligible for duty-free treatment under the CFTA.

The system controllers (models #9011, 9015, 9020, 9200) are classifiable under subheading 8471.99.15, HTSUS, which provides for control or adapter units. The General, Column 1 rate of duty for articles of this subheading is free. Therefore, it is unnecessary to discuss CFTA eligibility for these articles.

HOLDING:

The data collection devices (models #7015, 7020, 7025, 8025, 8030) and radio remote module (model #9120) are classifiable under subheading 8525.20.30, HTSUS, and are not entitled to duty- free treatment under the CFTA. The corresponding rate of duty for articles of this subheading is 6% ad valorem.

The system controllers (models #9011, 9015, 9020, 9200) are classifiable under subheading 8471.99.15, HTSUS. The corresponding rate of duty for articles of this subheading is free. The protest should be DENIED with regard to the classification and CFTA eligibility for the data collection terminals and remote radio module, and GRANTED with regard to the classification of the system controllers. In accordance with section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to the mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division