CLA-2 OT:RR:CTF:TCM H260060 LWF

David P. Sanders
Cassidy Levy Kent (USA) LLP
2000 Pennsylvania Avenue, N.W., Suite 3000
Washington, D.C. 20006

RE: Tariff classification of the Apple “Apple Watch” wearable electronic device

Dear Mr. Sanders:

This is in reply to your letter of December 8, 2014, to U.S. Customs and Border Protection (CBP), on behalf of Apple, Inc. (“Apple”), seeking a prospective ruling under the Harmonized Tariff Schedule of the United States (HTSUS) on the tariff classification of the “Apple Watch” wearable electronic device.

FACTS:

The Apple Watch is a battery-operated, wearable electronic device in the form of a wrist-watch, incorporating a touch-sensitive, active-matrix organic light-emitting diode (AMOLED) display, a central processing unit (CPU), random access memory (512MB RAM), an 8GB internal flash memory hard drive, microphone, speaker, vibration motor, accelerometer, gyroscope, heart rate sensor, and a radio transceiver (NFC, Bluetooth® 4.0, and Wi-Fi).

The Apple Watch’s radio transceiver utilizes open wireless technology standards (Bluetooth® 4.0 and Wi-Fi), which enable the Apple Watch to communicate wirelessly (“pair”) with other Apple Internet-connected mobile devices, such as the Apple iPhone 5 and later models. A user interacts with the Apple Watch by touching and swiping “finger gestures” on the surface of the display, and when the Apple Watch is “paired” with a compatible Apple mobile device, the user can also speak voice commands to the Apple Watch.

The Apple Watch runs a pre-installed version of Apple’s “watchOS”, a mobile operating system that enables the Apple Watch to execute processing programs known as “apps” created through Apple’s “WatchKit” developer tool. WatchKit apps have two parts: a WatchKit extension that runs on iPhone and a set of user interface resources that are installed on the Apple Watch. When an app is launched on the Apple Watch, the WatchKit extension on the iPhone runs in the background to update the user interface and respond to user interactions on the Apple Watch. See “Create iPhone apps for Apple Watch,” https://developer.apple.com/watchkit/ (last visited June 17, 2015). The user can select which apps to install on the Apple Watch by downloading apps from Apple’s digital distribution platform, Apple Store.

When the Apple Watch is “paired” with an iPhone, the wearer is able to use apps on the Apple Watch to display, manipulate, and store data on the Apple Watch itself, or on the connected iPhone. The Apple Watch apps communicate wirelessly with the WatchKit extension on the iPhone and are capable of performing a variety of functions, including: receiving and responding to electronic communications, tracking fitness, displaying location-based information and directions, accessing Internet data, sending and receiving audio messages, paying for purchases using Apple Pay™ via NFC wireless connections, displaying airplane boarding passes, and controlling an Apple TV®. See “Apple Unveils Apple Watch—Apple’s Most Personal Device Ever,” www.apple.com/pr/library/2014/09/09Apple-Unveils-Apple-Watch-Apples-Most-Personal-Device-Ever.html (last visited June 17, 2015).

Although the Apple Watch must be paired with an iPhone to perform most functions, the Apple Watch is capable of performing several functions without being connected to an iPhone. “Unpaired” functions of the Apple Watch include: playing music stored locally on the Apple Watch; using watch, alarm, timers, and time functions; keeping track of physical activities and exercise; displaying photos stored locally on the Apple Watch; and using Apple Pay™ to make purchases via NFC wireless connections. See “Use Apple Watch without its paired iPhone,” https://support.apple.com/kb/PH20767?viewlocale=en_US&locale=en_US (last visited June 17, 2015).

ISSUE:

Whether the Apple Watch is classified, by application of General Rule of Interpretation (GRI) 1, in heading 9102, HTSUS, as a wrist watch, pocket watch, including stop watches, other than those of heading 9101, HTSUS, or by application of GRI 3(b), as a composite good made up of different components, classified as if it consisted of the material or component which gives the Apple Watch its essential character.

LAW AND ANALYSIS:

Classification under the Harmonized Tariff Schedule of the United States (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 may then be applied in their appropriate order.

GRI 3 provides, in pertinent part, as follows:

When, by application of rule 2(b) or for any other reason, good are, prima facie, classifiable under two or more headings, classification shall be effected as follows: Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. * * * * * The HTSUS headings under consideration are the following:

8517 Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528; parts thereof:

8519 Sound recording or reproducing apparatus:

8521 Video recording or reproducing apparatus, whether or not incorporating a video tuner:

9029 Revolution counters, production counters, taximeters, odometers, pedometers and the like; speedometers and tachometers, other than those of heading 9014 or 9015;

9031 Measuring or checking instruments, appliances and machines, not specified or included elsewhere in this chapter; profile projectors; parts and accessories thereof:

9102 Wrist watches, pocket watches and other watches, including stop watches, other than those of heading 9101:

* * * * * Note 1(n) to Section XVI, HTSUS, provides, in relevant part:

This section does not cover:



(n) Clocks, watches or other articles of chapter 91; * * * * * The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System at the international level. While not legally binding, the ENs provide a commentary on the scope of each heading of the HS and are thus useful in ascertaining the proper classification of merchandise. It is CBP’s practice to follow, whenever possible, the terms of the ENs when interpreting the HTSUS. See T.D. 89-90, 54 Fed. Reg. 35127, 35128 (August 23, 1989).

The ENs to GRI 3(b) provide, in pertinent part, that:

(VII) In all these cases the goods are to be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

(VIII) The factor which determines essential character will vary as between different kinds of goods. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods.

* * * * * Upon initial consideration of the physical characteristics and functions of the Apple Watch, CBP finds that the commercial identity of the Apple Watch prima facie differs from wrist watches and other watches described by heading 9102, HTSUS. Specifically, the Apple Watch features several electronic components—including an AMOLED display, CPU with installed OS, 512MB RAM, 4GB internal flash memory hard drive, radio transceiver, accelerometer, gyro sensor, heart rate monitor, speaker, and microphone—that are uncommon to articles of heading 9102, HTSUS. Moreover, although the Apple Watch is capable of displaying basic timekeeping information while both “paired” and “unpaired” with an iPhone, the Apple Watch is primarily designed to display, manipulate, and store data via the use of executable watchOS apps that communicate wirelessly with WatchKit extensions on an Internet-connected Apple iPhone. The fact that the Apple Watch is worn like conventional wrist watches of Chapter 91 merely indicates a different physical configuration of an article that is, prima facie, designed to extend the functionality of a “paired” mobile device for the convenience of the user. Accordingly, CBP finds that the Apple Watch substantially differs from the articles described by heading 9102, HTSUS, and cannot be classified under the heading by application of GRI 1.

In determining the correct classification of the Apple Watch, CBP observes that the device is constructed of several component articles that are, prima facie, classifiable under two or more headings. Specifically, upon review of the Apple Watch’s various component articles, there is no dispute that heading 8517, HTSUS, describes the radio transceiver; 8519, HTSUS, describes the sound recording and reproducing capabilities; heading 8521, HTSUS, describes the video display function of the AMOLED display; heading 9029, HTSUS, describes the heart rate monitor; and heading 9031, HTSUS, describes the accelerometer and gyro sensors. Consequently, because the Apple Watch is, prima facie, classifiable under two or more headings, classification shall be effected by application of GRI 3—specifically GRI 3(b), which directs that composite goods made up of different components shall be classified as if they consisted of the material or component that gives them their essential character.

GRI 3(b) covers mixtures, composite goods, and goods put up in sets for retail sale. For purposes of this rule, Explanatory Note IX to GRI 3(b) provides that, “composite goods made up of different components shall be taken to mean not only those in which the components are attached to each other to form a practically inseparable whole but also those with separable components, provided these components are adapted one to the other and are mutually complementary and that together they form a whole which would not normally be offered for sale in separate parts.” (Emphasis original). As such, the Apple Watch is properly described as a composite good because it consists of electrical components of independent, individual functions that are attached to each other to form an inseparable whole.

Under GRI 3(b), composite goods must be classified according to the material or component that imparts the article with its essential character. The “essential character” of an article is “that which is indispensable to the structure, core or condition of the article, i.e., what it is.” Structural Industries v. United States, 360 F. Supp. 2d 1330, 1336 (Ct. Int’l Trade 2005). EN VIII to GRI 3(b) explains that “[t]he factor which determines essential character will vary as between different kinds of goods. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of the constituent material in relation to the use of the goods.” Recent court decisions on the essential character for GRI 3(b) purposes have looked primarily to the role of the constituent material in relation to the use of the goods. See Estee Lauder, Inc. v. United States, 815 F. Supp. 2d 1287, 1296 (Ct. Int’l Trade 2012); Structural Industries, 360 F. Supp. 2d 1330; Conair Corp. v. United States, 29 C.I.T. 888 (2005); Home Depot USA, Inc. v. United States, 427 F. Supp. 2d 1278 (Ct. Int’l Trade 2006), aff’d 491 F.3d 1334 (Fed. Cir. 2007).

In accord with the meaning of “essential character” under GRI 3(b), CBP finds that the Apple Watch is primarily used to execute watchOS apps that display, manipulate, and store data via wireless communications with a paired, Internet-connect Apple iPhone mobile device. Apple Watch apps, and their associated WatchKit extensions on a paired iPhone, allow the wearer to perform various functions, including: receiving and responding to electronic communications, tracking fitness, displaying location-based information and directions, accessing Internet data, sending and receiving audio messages, paying for purchases using Apple Pay™ via NFC wireless connections, displaying airplane boarding passes, and controlling an Apple TV®. See “Apple Unveils Apple Watch—Apple’s Most Personal Device Ever,” www.apple.com/pr/ library/2014/09/09Apple-Unveils-Apple-Watch-Apples-Most-Personal-Device-Ever.html.

By contrast, when the Apple Watch is “unpaired”, i.e. without wireless connection to a “paired” Internet-connected Apple iPhone, the Apple Watch operates with substantial functional limitations that render it unable to perform many of the tasks for which the Apple Watch is marketed. Compare “Apple Unveils Apple Watch—Apple’s Most Personal Device Ever,” www.apple.com/pr/library/2014/09/09Apple-Unveils-Apple-Watch-Apples-Most-Personal-Device-Ever.html, with “Use Apple Watch without its paired iPhone,” https://support.apple.com/kb/PH20767?viewlocale=en_US&locale= en_US. Consequently, although each of the Apple Watch’s component articles (e.g., the microphone, speaker, AMOLED display, heart rate monitor, accelerometer, and gyro sensor) enable important functionality in the operation of the Apple Watch, it is the radio transceiver that is indispensable to the core, essential condition of the device, because the radio transceiver facilitates the display, manipulation, and storage of data between the Apple Watch and a paired iPhone.

The radio transceiver enables the Apple Watch to communicate wirelessly with a paired, Internet-connected Apple iPhone to display, manipulate, and store data via the execution of watchOS apps and their associated WatchKit extensions. Upon consideration of the role of each of the Apple Watch’s component articles in relation to the use of the Apple Watch, CBP therefore finds that the essential character of the Apple Watch is imparted by the radio transceiver. Radio transceivers are classified in heading 8517, HTSUS, which provides, in pertinent part, for “Other apparatus for the transmission or reception of voice, images, or other data[…] including apparatus for communication in a wired or wireless network[…]”. Accordingly, the Apple Watch is classified in heading 8517, HTSUS, specifically in subheading 8517.62. HOLDING:

By application of GRI 3(b), the Apple Watch wearable electronic device is classified in heading 8517, HTSUS. Specifically, it is classified in subheading 8517.62.00, HTSUS, which provides for, “Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528; parts thereof: Other apparatus for transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network): Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus.” The 2015 column one, general rate of duty for merchandise of subheading 8517.62.00, HTSUS, is free.

Duty rates are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at http://www.usitc.gov/.

A copy of this ruling letter should be attached to the 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.


Sincerely,

Ieva K. O’Rourke, Chief
Tariff Classification and Marking Branch