CLA-2 OT:RR:CTF:EMAIN H285617 NCD
John M. Peterson
Neville Peterson LLP
One Exchange Plaza
55 Broadway, Suite 2602
New York, New York 10006
RE: Tariff classification of Kronaby hybrid smartwatches
Dear Mr. Peterson:
This is in response to your letter of March 15, 2017, submitted on behalf of Anima, AB, requesting a prospective ruling (“ruling request”) as to the classification of various models of “Kronaby”-brand hybrid smartwatches under the Harmonized Tariff Schedule of the United States (“HTSUS”). In reaching the below determination, we have considered information presented in your March 15, 2017 letter (hereinafter “ruling request”) and a separate submission dated April 26, 2018 (“supplemental submission”). Additionally, to confirm narrative descriptions of the subject merchandise, we have inspected a product sample provided at our request.
FACTS:
Kronaby hybrid smartwatches are wrist-wearable devices which, according to your ruling request, “incorporate both analogue watch features and wireless technology.” The exterior design of each device emulates that of a traditional analog wristwatch, replete with fixed-number dials, crown-replicative side buttons or “triggers”, and superadjacent and subjacent side buttons all embedded in steel cases. Whereas some model types have single dials, others have one or more chronograph-style “sub-dial” in addition to the main dial (See Figures 1 and 2 below).
Figure 1
Figure 2
According to schematics included with your supplemental submission, Kronaby hybrid smartwatches do not contain mechanical or quartz watch movements. They are instead equipped with a microcontroller consisting of (inter alia) a processor core and Bluetooth transceiver. The microcontroller controls a separate step-on motor that moves the watch hands, as well as a separate component that causes the watch to vibrate, and it is also linked to an internal accelerometer. Its constituent Bluetooth transceiver, in combination with a fully integrated antenna, enables wireless pairing and two-way interactivity with a mobile device. It specifically allows the watches to synchronize with a dedicated mobile device application, which both displays certain data received from the watch and transmits data to the watch. When so paired, the watch receives the requisite data to display local time on the main dial (as well as a secondary time or date on the sub-dial).
You contend that prior to this pairing, Kronaby hybrid smartwatches do not actually keep time. This account is consistent with our inspection of the above-mentioned sample, as well as our review of official product literature included with your submissions. By all indications, the watch hands are completely inactive prior to synchronization; not only are they unmoving, but they cannot be actuated or adjusted manually. Once the time is remotely set, it is kept and displayed on the watch face throughout any interruptions to the connection with the mobile application. Even then, however, the time cannot be adjusted manually on the watch itself. Instead, any adjustments to the watch hands – due, for example, to a change in time zone – are effectuated by the mobile application.
In addition to time-related data, the mobile application transmits to the watch certain notifications which are in turn conveyed to the wearer by vibration and/or the movement of the hands to pre-designated positions on the face (see Figure 3 below). Reciprocally, the application receives and displays data related to the wearer’s daily physical movement and nightly sleep patterns, including the number of steps taken, miles traveled, calories burned, hours slept, and quality of sleep. It also allows users to select, assign, and subsequently reassign various remote functions to different watch components. For example, if the user wishes to control music on a paired device from the watch, she or he can assign this function to one of the triggers (see Figure 4 below). The user can subsequently re-program that trigger to operate the camera on the paired device, send a pre-formed message to a different device, record the watch’s geographical location, or perform a different function altogether. Similarly, a user can cycle the sub-dial of the chronograph models among date, secondary time, or step-tracking displays.
Figure 3
Figure 4
ISSUE:
Whether the Kronaby watches are classified as “other” apparatus for the transmission or reception of voice, images or other data in heading 8517, HTSUS, as checking instruments in heading 9031, HTSUS, or as wrist watches in heading 9102, HTSUS.
LAW AND ANALYSIS:
GRI 1 requires that classification be determined first 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 heading and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order. GRI 2(b) states, in pertinent part, that “[a]ny reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance” and that “classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.” GRI 3(b) provides that "composite goods consisting of different materials or made up of different components” are to be classified, where possible, “as if they consisted of the material or component which gives them their essential character.”
The Harmonized Commodity Description and Coding System Explanatory Notes (“ENs”) constitute the official interpretation of the Harmonized System at the international level. While neither legally binding nor dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
The HTSUS headings under consideration in the instant case are as follows:
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
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:
As a preliminary matter, it is undisputed that the Kronaby hybrid smartwatches are partially, though not wholly, described by each of the headings at issue. To the extent they adorn the wrist and display the time following initial synchronization, they are partially described as wristwatches of heading 9102, HTSUS. See EN 91.02 (“This heading covers mechanical and electrical (mostly electronic) timekeeping instruments with case and movement, of a kind intended to be worn or carried and designed to function in all positions, which indicate the time or measure intervals of time.”). However, because they also transmit and receive data in the course of setting and updating the time and performing other functions, they are also described in part by heading 8517, HTSUS. Finally, because one of the collateral functions is step-tracking via an accelerometer application, the watches fall partially within the scope of heading 9031, HTSUS. Consequently, as in other cases involving multifunctional wristwear, the Kronaby hybrid smartwatches cannot be classified pursuant to GRI 1. See, e.g., Headquarters Ruling Letter (“HQ”) H271909, dated July 8, 2016, and HQ H268657, dated March 28, 2016 (setting forth analytical framework for determining the classification of “hybrid smartwatches”).
Rather, pursuant to GRI 3(b), they are composite goods which must be classified as if they consisted of the component which imparts their essential character. It is well-established that a determination as to “essential character” is driven by the particular facts of the case at hand. See, e.g., Alcan Food Packaging (Shelbyville) v. United States, 771 F.3d 1364, 1366 (Fed. Cir. 2014) (“The ‘essential character’ of merchandise is a fact-intensive issue.”); see also EN(VIII) to GRI 3(b) (“The factor which determines essential character will vary as between different kinds of goods.”). That said, essential character has traditionally been understood as “that which is indispensable to the structure, core or condition of the article, i.e., what it is” and as “the most outstanding and distinctive characteristic of the article.” Structural Indus. v. United States, 360 F. Supp. 2d 1330, 1336 (Ct. Int’l Trade 2005) (citing various Customs Court decisions).
Additionally, EN(VIII) to GRI 3(b) counsels that essential character “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.” See Home Depot USA, Inc. v. United States, 491 F.3d 1334, 1337 (Fed. Cir. 2007) (“Many factors should be considered when determining the essential character…?specifically including but not limited to those factors enumerated in Explanatory Note (VIII) to GRI 3(b).”). It is therefore common practice to determine essential character by applying some combination of the above-mentioned factors – e.g., physical predominance, indispensability, and/or relation to article use and identity – as warranted by the unique facts of the case. Compare Alcan, 771 F.3d at 1367 (affirming determinants of essential character to be relative weight, value, indispensability, and impartation of the “qualities that define…a product”) with Pomeroy Collection, Ltd. v. United States, 893 F. Supp. 2d 1269, 1287 (Ct. Int'l Trade 2013) (“The function of each article as a whole is to hold and display an object or objects; and the glass vessel is the component that gives the article its ability to serve that function…Thus, the essential character of the Floor Articles is imparted by the glass vessels.”).
In the present case, the balance of relevant factors supports a determination that the essential character of the Kronaby hybrid smartwatches is that of an apparatus for the transmission or reception of data. We initially note that the articles are capable of keeping and displaying time, and that their most prominent physical components, which account by far for the majority of their outer surface areas, are those that are related to timekeeping or are otherwise characteristic of analog wristwatches. These features include the analog dials, crown-replicative side buttons, and steel cases, which, collectively, make up almost the entirety of the articles’ faces. In prior cases involving “hybrid smartwatches,” CBP has viewed timekeeping capability and physical resemblance to traditional analog watches of heading 9102, HTSUS, as factors that are highly probative of the articles’ essential character. See HQ H271909, supra (finding that the Metropolitan+ Watch is primarily a timepiece” in large part because “the watchcase and dial…are substantially similar to those of a quartz analog wristwatch”); see also HQ H268657, supra (making a similar determination with respect to the “Fossil Grant Connect Watch”).
However, it is ultimately the articles’ Bluetooth transceivers which prove to be both an indispensable component and the component which plays the greatest role with relation to the article’s use. This is because the data transmission and reception conducted by the transceiver is an absolute prerequisite to the article’s above-mentioned use as a timekeeping device, or as anything else of utilitarian value. Again, per our review of product-specific schematics and inspection of a product sample, the Kronaby hybrid smartwatches lack quartz or mechanical watch movements and cannot be set or adjusted manually. Any movement of the hands results strictly from actuation of the step-on motor by the microcontroller, which receives the data needed to initially set and subsequently adjust the time via the Bluetooth transceiver. Thus, in their condition as imported, the articles at issue look like – but do not act as – wristwatches. See Mita Copystar Am. v. United States, 21 F.3d 1079, 1082 (Fed. Cir. 1994) (emphasizing the importance of the “condition when imported” of merchandise to be classified).
Nor can they be programmed to conduct, or can they actually conduct, the majority of their available collateral functions without a conduit for data transmission and reception. The haptic or visual conveyance of notifications, remote control of music and camera functions, display of a date or second time zone, and transmission of data related to location, physical activity, and sleep patterns – among other functions – are wholly dependent on two-way interactivity with a paired mobile device. In previous cases involving transceiver-equipped wristwear, CBP has found a comparatively high dependence upon data transmission and reception to be grounds for classification in heading 8517, HTSUS, per GRI 3(b). See, e.g., HQ H265035, dated January 19, 2016 (“When the Microsoft Band is ‘unpaired’…[it] operates with substantial functional limitations that render it unable to perform many of the tasks for which [it] is marketed. Consequently…?it is the Bluetooth transceiver that is indispensable to the core, essential condition of the Microsoft Band…”); see also HQ H260060 and HQ H257947, both dated July 14, 2015 (making similar determinations with respect to the “Apple Watch” and Samsung “Gear™ Live Android™ Smartwatch”, respectively).
Therefore, despite the articles’ general timekeeping capability and physical resemblance to analog wristwatches, we find the indispensability and comparative importance of the transceiver components to tip the balance of factors toward a determination that the Kronaby hybrid smartwatches have the “essential character” of “apparatus for the transmission or reception of data.”* They are consequently classified in heading 8517, HTSUS, pursuant to GRI 3(b). We caution, however, that this determination does not supersede or otherwise modify our general position regarding the classification of other products describable as “hybrid smartwatches”, such as those subject to HQ H271909 and HQ H268657, supra.
HOLDING:
By application of GRI 3(b), the Kronaby hybrid smartwatches are classified in heading 8517, HTSUS. They are specifically 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 2018 column one, general rate of duty for merchandise of subheading 8517.62.00, HTSUS, is free.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the internet at www.usitc.gov/tata/hts/.
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,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division