CLA-2 OT:RR:CTF:TCM H027696 HkP
Ms. Joyce Wineman
UPS Supply Chain Solutions
4950 Gateway East
El Paso, TX 79905
RE: ADP systems: classification; NAFTA eligibility
Dear Ms. Wineman:
This is in response to your letter, dated March 19, 2008, to the National Commodity Specialist Division, U.S. Customs and Border Protection (“CBP”), on behalf of your client, Hon Hai Precision Industry Co. (“Hon Hai”), requesting a binding ruling on the tariff classification of certain merchandise under the Harmonized Tariff Schedule of the United States (HTSUS). At issue is the classification of an automatic data processing (“ADP”) machine, keyboard, mouse, and monitor imported from Mexico packaged together for retail sale. You have also asked CBP to address whether this merchandise would be eligible for treatment as a good of a NAFTA (the North American Free Trade Agreement) country. Your letter was forwarded to this office on May 7, 2008, for a response.
The issues addressed by this ruling originated in a request for a ruling made by you on June 19, 2007, with respect to the tariff classification and NAFTA eligibility of certain merchandise in two scenarios, the second of which is the subject of this decision. The first concerned whether an ADP machine, keyboard and mouse packaged together for retail sale in a box would be classified as a set pursuant to GRI 3(b). CBP issued New York Ruling Letter (“NY”) N025291, dated April 25, 2008, in response to the first scenario.
Hon Hai imports from their subsidiary in Mexico an ADP machine, a keyboard, a mouse, and a monitor packaged together for retail sale. When so packaged, the merchandise is identified by model numbers M9177c and M8307c.
According to the submitted information, the keyboard and mouse are imported into Mexico from various vendors in China, Taiwan, and Malaysia, and the monitor is imported into Mexico from Taiwan. The monitors measure either 19 or 22 inches and have integrated speakers but cannot accept video signals other than VGA and DVI. Some monitors may contain TV tuner cards which are also manufactured outside of NAFTA countries. Those monitors can only receive analog signals. Their TV functions can be controlled through the computer once certain software is installed.
The ADP machine is assembled in Mexico from components originating in China, Taiwan, and Malaysia. The ADP’s motherboard is shipped to Mexico in a box with all its components except for the memory (a BIOS ROM chip) and the central processing unit. The following assembly operations occur in Mexico:
1. Chassis installations: rear I/O shield; system fan; power supply; PCA (printed circuit assembly) components such as the processor cooler back plate, retention module, memory module, Intel processor, heatsink, Bluetooth, front I/O shield, and PCA cabling; Expansion cards, such as a video card, modem card, TV tuner card, wire/wireless card and LED, or an audio card, as requested; optical drive; hard drive; Bluejay module (video and imaging card); bezel subassembly.
2. Final assembly: front bezel installation, connector cover installation, cable routing and side access panel installation.
3. Equipment testing.
4. Software installation.
All of the above stated operations are performed by skilled and trained workers.
All of the ADP machines use Windows Vista as their operating system and all the models perform data processing functions. Additional hardware or software can also be installed by a customer on a machine. The keyboard and mouse connect to the CPU though connectors or USB ports.
Are an ADP machine, keyboard, mouse, and monitor imported together an ADP system of subheading 8471.49, HTSUS?
If so, what is the country of origin of an ADP system comprised of an ADP machine assembled in Mexico, a monitor made in Taiwan, and a keyboard and a mouse made in China?
If so, how should an ADP system that has components originating in different countries be marked for country of origin marking purposes?
LAW AND ANALYSIS:
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.
The HTSUS provisions under consideration are as follows:
8471 Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included:
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Other automatic data processing machines:
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8471.49.0000 Other, entered in the form of systems …..
8471.50.01 Processing units other than those of subheading 8471.41 or 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units,
output units …..
* * *
8471.60 Input or output units, whether or not containing storage units in the same housing:
* * *
8471.60.2000 Keyboards …..
8471.60.7000 Units suitable for physical incorporation into automatic data processing machines or units thereof …..
* * *
8471.60.90 Other …..
* * *
8471.60.9050 Other …..
Note 5 to Chapter 84, HTSUS, provides in relevant part:
(A) For the purposes of heading 8471, HTSUS, the expression "automatic data processing machines" means machines capable of:
(i) Storing the processing program or programs and at least the data immediately necessary for the execution of the program;
(ii) Being freely programmed in accordance with the requirements of the user;
(iii) Performing arithmetical computations specified by the user; and
(iv) Executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run.
(B) Automatic data processing machines may be in the form of systems consisting of a variable number of separate units.
(C) Subject to paragraphs (D) and (E) below, a unit is to be regarded as being part of an automatic data processing system if it meets all of the following conditions:
(i) It is of a kind solely or principally used in an automatic data processing system;
(ii) It is connectable to the central processing unit either directly or through one or more other units; and
(iii) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.
Separately presented units of an automatic data processing machine are to be classified in heading 8471.
However, keyboards, X-Y co-ordinate input devices and disk storage units which satisfy the conditions of paragraphs (C) (ii) and (C) (iii) above, are in all cases to be classified as units of heading 8471.
Subheading Note 1 to Chapter 84 provides:
For the purposes of subheading 8471.49, the term “systems” means automatic data processing machines whose units satisfy the conditions laid down in note 5(C) to chapter 84 and which comprise at least a central processing unit, one input unit (for example, a keyboard or a scanner), and one output unit (for example, a visual display unit or a printer).
Under the provisions of Note 5(B), ADP machines may be in the form of systems consisting of a variable number of separate units. Note 5(C) instructs that keyboards and X-Y coordinate input devices [for example, a mouse] that meet the conditions of paragraphs C (ii) and (iii) of the Note are in all cases to be classified as units of heading 8471. Since that is the case here, we find that the keyboard and the mouse must be classified as units of an ADP machine under heading 8471. Likewise, in this instance, we find that the monitor meets the requirements of Note 5(C) and is to be regarded as part of an ADP system because it is not presented separately. Furthermore, based on the information you have provided to CBP, we find that the ADP machine you have described conforms to the definition provided in Note 5(A) and is classified under heading 8471, HTSUS.
Based on the relevant provisions of Note 5 and Subheading Note 1 to Chapter 84, we find that the ADP machine, keyboard, mouse, and monitor when entered packaged together, comprise an ADP system, which is classified in subheading 8471.49.0000, HTSUS.
You ask whether an ADP machine assembled in Mexico, a monitor made in Taiwan, and a keyboard and a mouse made in China (or in other non-NAFTA countries), and imported into the U.S. as an “ADP system”, are eligible for preferential duty rates under NAFTA as goods of a NAFTA country.
As an initial matter, the following is noted on GN p. 2 of the HTSUS (2008) (Rev. 1):
COMPILER’S NOTE: The rules of origin provisions for United States free trade agreements, other than those for the United States-Australia Free Trade Agreement, the United States-Singapore Free Trade Agreement and the United States-Chile Free Trade Agreement,
have NOT been updated to reflect changes to the tariff schedule resulting from Presidential Proclamation 8097, which modified the HTS to reflect World Customs Organization changes to the Harmonized Commodity Description and Coding System. You will therefore see tariff heading/subheading numbers in the pertinent general notes which do not correspond to numbers in chapters 1 through 97 or to other portions of the same general notes.
Accordingly, because the NAFTA rules of origin have not been updated to reflect the 2007 changes to the Harmonized System, the pre-2007 classifications for the goods at issue must be used in order to ascertain their correct rule of origin under NAFTA.
General Note 12 of the HTSUS incorporates Article 401, North American Free Trade Agreement, as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057) (December 8, 1993), into the HTSUS. Note 12(b) provides, in relevant part:
For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA party” only if –
they are goods wholly obtained or produced entirely in the territory of Canada, Mexico, and/or the United States; or
they have been transformed in the territory of Canada, Mexico and/or the United States so that--
(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivision (r), (s) and (t) of this note or the rules set forth therein, or
(B) the goods otherwise satisfy the applicable requirements of subdivision (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note[.]
Originating good status is conferred on ADP systems classified under 8471.49 in accordance with GN 12(t) 85/191, Subheading 8471.49 rule, which provides:
The origin of each unit presented within a system shall be determined as though each unit were presented separately and were classified under the appropriate tariff provision for that unit.
The foregoing rule is subject to Chapter Rule 2, Chapter 84, GN 12, which provides:
For purposes of subheading 8471.49, the origin of each unit presented within a system shall be determined in accordance with the rule that would be applicable to such unit if it were presented separately; and the special rate of duty applicable to each unit presented within a system shall be the rate that is applicable to such unit under the appropriate tariff item within subheading 8471.49.
For purposes of this rule, the term "unit presented within a system" shall mean:
(a) a separate unit as described in note 5(B) to chapter 84 of the tariff schedule; or
(b) any other separate machine that is presented and classified with a system under subheading 8471.49.
As only the ADP machine underwent processing in Mexico, it is the only unit that is eligible to acquire originating status as a good of Mexico under rule of origin GN12(b). The monitor, keyboard and mouse do not fulfill any of the requirements of GN 12(b) and, therefore, cannot be treated as goods originating in the territory of a NAFTA party. We have not been provided with any manufacturing information on the monitor, keyboard or mouse and, thus, will not comment on their countries of origin.
Based on the Compiler’s Note above, the pre-2007 classification for the ADP machine must be used in order to ascertain its correct rule of origin. Under the provisions of HTSUS (2006), when presented separately, an ADP machine was classified in subheading 8471.50, HTSUS. (This remains the case under HTSUS (2008).) Originating status is thereby conferred on an ADP machine by the following rule:
192. A change to subheading 8471.50 from any other subheading, except from subheading 8471.30 through 8471.49.
As earlier stated, the ADP’s motherboard is imported into Mexico in a box with all of its components except for the BIOS ROM chip and the CPU. Without these components an ADP machine cannot perform the functions described in Note 5(A) to Chapter 84 (discussed in the “Classification” section above). None of the components assembled together to form the ADP machine were classified in subheadings 8471.30 through 8471.49, HTSUS. The ADP machine is, therefore, a good of Mexico for duty purposes.
Finally, you have asked, what country of origin should be indicated on the CBP Form 7501 (“Entry Summary”) when only one classification (8471.49, HTSUS) is used for the ADP system?
For purposes of the Entry Summary, pursuant to Chapter Rule 2 to Chapter 84, General Note 12, HTSUS, the country of origin of each unit of the ADP system must be listed in the box specified on the form (currently, box 10). Further, each unit of the system must be separately described as required on the form (currently, in boxes 27 through 33). The duty rate for each unit must be reflected in specified box (currently, box 34).
The issue of country of origin marking was indirectly raised in some of the correspondence between you and CBP. Although not specifically asked to do so, we will also address this issue because we believe that it is an important corollary to the issues discussed in this ruling.
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. §1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co., 27 CCPA 297, 302, C.A.D. 104 (1940). Part 134, U.S. Customs and Border Protection Regulations (19 C.F.R. §134) implements the country of origin marking requirements and exceptions of 19 U.S.C. §1304.
Section 134.1(b), CBP Regulations (19 C.F.R. § 134.1(b)), defines "country of origin" as:
[T]he country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of [the marking laws and regulations]; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Part 102 of the CBP Regulations sets forth the NAFTA Rules of Origin for country of origin marking purposes. 19 C.F.R. §102.0. 19 C.F.R. §102.11 provides, in pertinent part:
The following rules shall apply for the purposes of determining the country of origin of imported goods other than textile and apparel products covered by § 102.21.
The country of origin of a good is the country in which:
The good is wholly obtained or produced;
The good is produced exclusively from domestic materials; or
Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in §102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
* * *
(d) Where the country of origin of a good cannot be determined under paragraph (a), (b) or (c) of this section, the country of origin of the good shall be determined as follows:
* * *
(3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
In previous correspondence between CBP and yourself, there was discussion of the tariff shift requirements of section 102.11(a). However, we now find that section 102.11(a) is not applicable in this situation. Paragraphs (a)(1) and (a)(2) are not applicable because the ADP system is not wholly obtained or produced in any one country and is not produced exclusively from the domestic materials of any one country. Paragraph (a)(3) (the section 102.20 “tariff shift” rules) is not applicable because the ADP system (the good at issue for marking purposes) does not incorporate foreign materials, that is, the units of the system are not subassemblies or components incorporated into each other by any production process in order to produce the system; it is only the ADP machine, a unit (which is not at issue for marking purposes) of the system, that is wholly assembled from foreign materials. See 102.1(l) “Material”.
Paragraph (b) of section 102.11 concerns the country of origin for marking purposes based on the “essential character” of materials of a good that is not a set and is not covered by paragraph (a) of the section. This is inapplicable because, as stated above in relation to section 102.11(a)(3), the ADP system itself does not incorporate foreign materials. Paragraph (c) covers “goods specifically described in the Harmonized System as a set or a mixture, or classified as a set, mixture or composite good pursuant to General Rule of Interpretation 3”. This is not the situation here. Paragraphs (d)(1) and (d)(2) concern goods produced as a result of minor processing or by simple assembly; neither is the case here.
Under the provisions of section 102.11(d)(3), we find that the country of origin with which the ADP system should be marked is Mexico because it is the last country in which it underwent production. See 102.1(n) “Production”. Specifically, the ADP machine was assembled in Mexico by skilled and trained workers in an operation that constituted more than simple assembly. See 102.1 (o) “Simple Assembly”.
Finally, for your information, 19 C.F.R. §134.22 provides that when an article is excepted from the marking requirements, the outermost container or holder in which the article ordinarily reaches the ultimate purchaser shall be marked to indicate the country of origin of the article whether or not the article is marked to indicate its country of origin. Section 134.32 provides that articles for which the marking of the containers will reasonably indicate the origin of the articles are an exception to the marking regulations. In this case, we believe that only the outermost package in which the ADP system reaches the ultimate purchaser need be marked.
In addition, 19 C.F.R. §134.41(b) requires that the degree of permanence and visibility of marking should at least be sufficient to insure that in any reasonably foreseeable circumstance, the marking shall remain on the article (or its container) until it reaches the ultimate purchaser unless it is deliberately removed. The marking must survive the normal distribution and store handling. The ultimate purchaser in the United States must be able to find the marking easily and read it without strain.
CBP has found certain factors to be indicative but not conclusive of compliance with the requirements of 19 C.F.R. §134.41 and 19 U.S.C. §1304. Among the factors that we consider are the size, location, and legibility of the marking, and whether or not the marking stands out. CBP has generally found that the size of the marking should be large enough so that the ultimate purchaser can easily see the marking without strain. The location of the marking should be in a place where the ultimate purchaser could expect to find the marking or where he/she could easily notice it from a casual inspection. Whether the marking stands out is generally dependent on where it appears in relationship to other print on the article and whether it is in contrasting letters to the background. Overall, CBP has found that the totality of the circumstances determines whether or not the marking conforms to the marking rules. See, for e.g., HQ 733940, October 24, 1991.
By application of GRI 1, the ADP system is classified in heading 8471, HTSUS. It is specifically provided for in subheading 8471.49, HTSUS, which provides for: “Automatic data processing machines and units thereof …: Other automatic data processing machines: Other, entered in the form of systems.”
The country of origin of the system is determined according to the origin of each unit of the system. The country of origin of the ADP machine is Mexico. The country of origin of the other components of the system will depend on where they were manufactured or substantially transformed.
The country of origin for marking purposes of the ADP system is Mexico.
A copy of this ruling letter should be attached to entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Gail A. Hamill, Chief
Tariff Classification and Marking Branch