CLA-2 OT:RR:CTF:TCM H245902 LWF
Port Director
Area Port of Dallas
U.S. Customs & Border Protection
P.O. Box 619050
DFW Airport, TX 75261-9050
RE: Internal Advice Request; Classification of an equal number of mobile phone handsets, batteries, and wireless earphones, imported in the same container and segregated in separate shipping boxes by kind
Dear Port Director:
This letter is in response to your memorandum dated August 6, 2013, requesting internal advice in accordance with 19 C.F.R. § 177.11, concerning importations made by Samsung Telecommunications America, Inc. (“STA”). At issue is U.S. Customs and Border Protection’s (CBP) classification under the Harmonized Tariff Schedule of the United States (HTSUS) of an equal number of mobile phone handsets, batteries, and Bluetooth wireless earphones, imported in the same container, but segregated in separate shipping boxes by kind and not packaged for retail sale. The request for internal advice is based upon your disagreement with STA’s claim that the merchandise is properly classified pursuant to General Rule of Interpretation (“GRI”) 3(b), which provides for mixtures, composite goods, and goods put up in sets for retail sale. Additionally, you seek internal advice concerning the possible application of Note 4 to Section XVI, HTSUS, which controls the classification of machines consisting of individual components intended to contribute together to a clearly defined function of Chapter 84 or Chapter 85.
FACTS:
The merchandise is described as shipments of equal numbers of mobile phone handsets, batteries, and Bluetooth wireless earphones that are imported in the same shipping container, but segregated in separate shipping boxes by kind. In their condition as imported, the articles are not packaged for retail sale.
There is no dispute concerning the tariff classification of the individual mobile phone handsets, batteries, and Bluetooth wireless earphones. The mobile phone handsets are classified under subheading 8517.12.00, HTSUS, which provides for “Telephone sets, including telephones for mobile 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: Telephone sets, including telephones for cellular networks or for other wireless networks: Telephones for cellular networks or for other wireless networks.” The batteries are classified under subheading 8507.60.00, HTSUS, which provides for “Electric storage batteries, including separators therefor, whether or not rectangular (including square); parts thereof: Lithium-ion batteries.” The Bluetooth wireless earphones are classified under subheading 8517.62.00, HTSUS, which provides for “Telephone sets, including telephones for mobile 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.”
This request for internal advice concerns STA’s May 8, 2013 entry of equal numbers of mobile phone handsets, batteries, and Bluetooth wireless earphones at the Area Port of Dallas. Specifically, the request is based upon the Port’s disagreement with STA’s claim that the merchandise is properly classified pursuant to General Rule of Interpretation (“GRI”) 3(b), which provides for mixtures, composite goods, and goods put up in sets for retail sale. Additionally, the Port seeks internal advice concerning the possible application of Note 4 to Section XVI, HTSUS, which controls the classification of machines consisting of individual components intended to contribute together to a clearly defined function of Chapter 84 or Chapter 85.
ISSUE:
Whether the an entry of an equal number of mobile phone handsets, batteries, and Bluetooth wireless earphones, imported in the same container, but segregated in separate shipping boxes by kind and not packaged for retail sale, is classified pursuant to GRI 3(b), as a retail set, or whether Note 4 to Section XVI, HTSUS, controls the classification of the instant merchandise.
LAW AND ANALYSIS:
Merchandise imported in the United States is classified under the HTSUS. Tariff classification is governed by the principles set forth in the General Rules of Interpretation (GRIs) and, in the absence of special language or context, which requires otherwise, by the Additional U.S. Rules of Interpretation. 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.
The following HTSUS provisions will be referenced:
8507 Electric storage batteries, including separators therefor, whether or not rectangular (including square); parts thereof:
8517 Telephone sets, including telephones for mobile 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:
* * * * *
GRI 2(a) states as follows:
Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also include a reference to that article complete or finished (or failing to be classified as complete or finished by virtue of this rule), entered unassembled or disassembled.
* * * * *
Note 4 to Section XVI, HTSUS, states:
Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) 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 Explanatory Notes to the Harmonized Commodity Description and Coding System (ENs) represent 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. 89-90, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
The EN to GRI 2(a) provides, in relevant part, as follows:
RULE 2(a)
(Articles presented unassembled or disassembled)
(V) The second part of Rule 2 (a) provides that complete or finished articles presented unassembled or disassembled are to be classified in the same heading as the assembled article. When goods are so presented, it is usually for reasons such as requirements or convenience of packing, handling or transport.
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The ENs to Section XVI, provide, in relevant part, as follows:
(V) UNASSEMBLED MACHINES
(See General Interpretative Rule 2 (a))
For convenience of transport many machines and apparatus are transported in an unassembled state. Although in effect the goods are then a collection of parts, they are classified as being the machine in question and not in any separate heading for parts. The same applies to an incomplete machine having the features of the complete machine (see Part (IV) above), presented unassembled (see also in this connection the General Explanatory Notes to Chapters 84 and 85). However, unassembled components in excess of the number required for a complete machine or for an incomplete machine having the characteristics of a complete machine, are classified in their own appropriate heading.
…
(VII) FUNCTIONAL UNITS
(Section Note 4)
This Note applies when a machine (including a combination of machines) consists of separate components which are intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or, more frequently, Chapter 85. The whole then falls to be classified in the heading appropriate to that function, whether the various components (for convenience or other reasons) remain separate or are interconnected by piping (carrying air, compressed gas, oil, etc.), by devices used to transmit power, by electric cables or by other devices.
For the purposes of this Note, the expression “intended to contribute together to a clearly defined function” covers only machines and combinations of machines essential to the performance of the function specific to the functional unit as a whole, and thus excludes machines or appliances fulfilling auxiliary functions and which do not contribute to the function of the whole.
The following are examples of functional units of this type within the meaning of Note 4 to this Section :
…
(9) Welding equipment consisting of the welding head or tongs, with a transformer, generator or rectifier to supply the current (heading 85.15).
…
(11) Radar apparatus with the associated power packs, amplifiers, etc. (heading 85.26).
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This internal advice request concerns the tariff classification of an equal number of mobile phone handsets, batteries, and Bluetooth wireless earphones, imported in the same container, but segregated in separate shipping boxes by kind and not packaged for retail sale. As an initial matter, CBP notes that there is no dispute concerning the individual classification, pursuant to GRI 1, of STA’s mobile phone handsets, batteries, and Bluetooth wireless earphones when imported separately. The batteries are described by the text of heading 8507, HTSUS, and the mobile phone handsets and Bluetooth earphones are both classified in heading 8517, HTSUS.
Moreover, there is no dispute that, following importation into the United States, STA repackages an individual mobile phone handset, battery, and Bluetooth wireless earphone together for retail sale. Upon purchase, a consumer inserts the battery into the mobile phone to ready the device for use. Consequently, because the batteries and mobile phone units are separately packed for shipment and later assembled to form a functioning mobile device, the batteries and cell phones are considered unassembled for purposes of tariff classification. As such, GRI 2(a)—which governs the classification of unassembled articles—applies. GRI 2(a) states:
Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also include a reference to that article complete or finished (or failing to be classified as complete or finished by virtue of this rule), entered unassembled or disassembled.
Similarly, the EN to GRI 2(a) clarifies that unassembled goods are usually so presented “for reasons such as requirements or convenience of packing, handling or transport,” and the EN to Section XVI further explains, in relevant part, that:
For convenience of transport many machines and apparatus are transported in an unassembled state. Although in effect the goods are then a collection of parts, they are classified as being the machine in question and not in any separate heading for parts.
* * * * *
Consistent with the explanation provided by the EN to GRI 2(a), the instant merchandise consists of at least two types of articles—mobile phone handsets and batteries—which are presented unassembled at the time of importation and are subject to post-import assembly operations in the United States. There is no evidence to suggest that the STA merchandise is separately packaged and offered for individual sale after importation. Accordingly, if STA’s equal number of mobile phone handsets and batteries are determined to possess the essential character of a complete mobile phone, GRI 2(a) instructs that the mobile phone handsets and batteries shall be classified together as telephone sets of heading 8517, HTSUS. See New York Ruling Letter (“NY”) N049055, dated February 4, 2009 (classifying an equal number of separately packaged mobile phone handsets, batteries, battery covers, and chargers as telephone sets of heading 8517, HTSUS, by application of GRI 2(a)).
Nonetheless, CBP is mindful that the presence of additional machinery—namely Bluetooth wireless earphones—in STA’s entries of mobile phones and batteries requires novel analysis and discussion. After importation, STA repackages the mobile phones and wireless earphones for retail sale in consumer packaging that contains one handset, battery, and wireless earphone. In the case of electrical machinery and equipment of Chapter 85, Section XVI, Section Note 4, HTSUS, (“Section Note 4, HTSUS”) requires that:
Where 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. Section Note 4, HTSUS.
Consequently, because mobile phones and wireless earphones are both articles of Chapter 85, Section Note 4, HTSUS, requires that they be classified as a whole if they are intended to contribute together to a clearly defined function covered by of the headings in Chapter 84 or 85.”
The phrase in Section Note 4, HTSUS, “intended to contribute together to a clearly defined function,” is clarified by EN(VII) to Section Note 4, HTSUS, which states in relevant part:
For the purposes of this Note, the expression “intended to contribute together to a clearly defined function” covers only machines and combinations of machines essential to the performance of the function specific to the functional unit as a whole, and thus excludes machines or appliances fulfilling auxiliary functions and which do not contribute to the function of the whole.
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Similarly, the courts have provided guidance on the application of Section Note 4, HTSUS, and specifically, have commented that under certain circumstances, batteries can be considered essential to the function specific to portable electronic devices. See Dell Products LP v. United States, 714 F. Supp. 2d 1252, 1258 (C.I.T. 2010), aff’d, 642 F.3d 1055 (Fed. Cir. 2011). In Dell Products, the U.S. Court of International Trade (CIT) considered whether secondary batteries, manufactured for use with specific laptop computers, could be classified as “automatic data processing machines” under heading 8471, HTSUS, when they were packaged for importation and sale with laptop computers that already contained a primary battery. The CIT ultimately concluded that the secondary batteries are not “functional units” and are not classifiable under heading 8471, HTSUS, pursuant to GRI and Section Note 4, HTSUS, because they are not essential to the portable computing function of the notebook computer. Dell Products, 714 F. Supp. 2d 1252 at 1259. However, in reaching this conclusion, the CIT distinguished the role of primary and secondary batteries when presented for importation with portable electronic devices, and in so doing, highlighted the court’s interpretation of Section Note 4, HTSUS, that certain batteries for portable electronic devices may be classified as a “whole” with the device with which they are imported.
In the case of secondary batteries in Dell Products that were packaged with a laptop and primary battery, the CIT wrote that the laptop’s portable computing function was completely served by the combination of the primary battery encased in the computer and the power adapter. Dell Products, 714 F. Supp. 2d 1252 at 1258. Moreover, the CIT commented that because the “whole” laptop computers were equipped with primary batteries and were capable of performing the portable computing function without being packaged with an additional battery, the secondary battery was not “essential” to the computer’s portable computing function. Id. at 1259 (citing Section Note 4, HTSUS; ENs, Section Note 4, HTSUS).
When the instant mobile phones and wireless earphones are considered in the context of Dell Products, CBP finds that the STA mobile phone batteries are akin to the “primary batteries” discussed in Dell Products, because the batteries provide the primary power source for the performance of the portable mobile phone handset. Pursuant to Section Note 4, HTSUS, where a machine consists of individual components intended to contribute together to a clearly defined function covered by one of the heading in Chapter 85, then the whole falls to be classified in the heading appropriate to that function. Here, the “clearly defined function” of the mobile phone handset is its portable telephone function. See ENs, Section Note 4, HTSUS. Similar to the primary batteries in Dell Products that were deemed essential to the portable computing function of the notebook computer, the STA batteries are likewise essential to the operation of the mobile phone handsets because they provide the primary power source for the performance of the mobile phone handset’s portable telephone function. Dell Products, 714 F. Supp. 2d 1252 at 1258.
Unlike the STA batteries, however, the Bluetooth wireless earphones do not contribute to the operation of the mobile phone handsets and consequently, do not contribute to the clearly defined function of the handsets and batteries. Specifically, the earphones are not “essential to the performance of the function specific to the functional unit as a whole.” EN(VII), Section Note 4, HS (emphasis added). The STA earphones are capable of utilizing a wireless connection with the mobile phone headsets via radio transceivers to transmit voice communications between the two devices. However, because the mobile phone handsets already feature microphones and speakers that enable a user to send and receive voice communications without the use of the separate wireless earphones, it would be inaccurate to conclude that the STA Bluetooth wireless earphones perform an operation or provide a capability that is essential to the handset’s portable telephone function. Consequently, the Bluetooth wireless earphones are not described as “functional units” for tariff purposes under the terms of Section Note 4, HTSUS, and must be classified separate, under subheading 8517.62.00, HTSUS, as other machines for the reception, conversion and transmission or regeneration of voice, images or other data, in accordance with GRI 1. See Subheading EN 8517.62, HS.
Finally, CBP notes that in their condition as imported, the STA mobile phone handsets, batteries, and wireless earphones are not classifiable as “retail sets,” pursuant to GRI 3(b), because the merchandise is not imported in a condition suitable for sale directly to users without repacking. GRI 3(b) provides that when imported merchandise is, prima facie, classifiable under two or more headings, “[g]oods 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.” The term “set” as used in GRI 3(b) carries specific meaning and is defined in detail by EN(X) to GRI 3(b), which states:
For the purpose of this Rule, the term 'goods put up in sets for retail sale' shall be taken to mean goods which:
(a) consist of at least two different articles which are, prima facie, classifiable in different headings . . . ;
(b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and
(c) are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or cases or on boards).
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Here, although the merchandise at issue is, prima facie, classifiable under two or more subheadings, in accordance with GRI 3(b), CBP finds that the STA mobile phone handsets, batteries, and wireless earphones are not “put up in a manner suitable for sale directly to users without repacking” and therefore, cannot be classified as a retail set. EN(X) to GRI 3(b). As discussed supra, the STA mobile phone handsets, batteries, and wireless earphones are packed in separate shipping boxes at the time STA enters the merchandise into the United States. CBP is mindful that after importation, STA repackages the mobile phone handsets, batteries, and earphones for retail sale in consumer packaging that contains one handset, battery, and wireless earphone. However, it is well established that merchandise is classified based on its condition as imported. See United States v. Citroen, 223 U.S. 407 (1912). Consequently, CBP finds that STA’s mobile phone handsets, batteries, and wireless earphones are not—in their condition as imported—suitable for sale directly to users without repacking, when they are entered in separate shipping boxes in bulk. As such, the merchandise does not fall within the meaning of “set” as contemplated by GRI 3(b) and must instead be classified in accordance with the analysis contained above.
HOLDING:
By application of GRI 1 and GRI 2(a), the mobile phone handsets and batteries are classified in heading 8517, HTSUS. Specifically, the handsets and batteries are classified in subheading 8517.12.00, HTSUS, which provides for “Telephone sets, including telephones for mobile 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: Telephone sets, including telephones for cellular networks or for other wireless networks: Telephones for cellular networks or for other wireless networks.” The 2015 column one, general rate of duty under subheading 8517.12.00, HTSUS, is free.
By application of GRI 1, the Bluetooth wireless earphones are classified in heading 8517, HTSUS. Specifically, the earphones are classified in subheading 8517.62.00, HTSUS, which provides for “Telephone sets, including telephones for mobile 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 2014 column one, general rate of duty under subheading 8517.62.00, HTSUS, is free.
Sixty days from the date of this decision, the Office of International Trade, Regulations and Rulings, will make this decision available to CBP personnel, and to the public, on the CBP Home Page at http://www.cbp.gov, by means of the Freedom of Information Act, and other methods of publication.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division