CLA-2 CO:R:C:M 951331 MBR
Mr. John C. Dibble
Venable, Baetjer, Howard & Civiletti
Suite 1000
1201 New York Ave., N.W.
Washington, D.C.20005-3917
RE: Revocation of HQ 089596, HQ 089597, HQ 089277, HQ 089227, HQ
086035, HQ 086478, HQ 086615, NY 843415, and NY 852403;
Local Area Network Interface Boards; LAN; Automatic Data
Processing Machine; Units Suitable For Physical
Incorporation
Dear Mr. Dibble:
This is in reply to your letter of March 12, 1992, on behalf
of Western Digital Corporation, IBM Corporation, NCR Corporation
and Madge Networks, regarding the classification of Local Area
Network ("LAN") interface boards, under the Harmonized Tariff
Schedule of the United States (HTSUS).
FACTS:
The merchandise in question is Local Area Network ("LAN")
Interface Boards. These stuffed printed circuit boards are
designed for physical incorporation into a personal computer (PC)
or into an automatic data processing (ADP) system. LAN boards
are connectable to other PCs and units (e.g., input units, output
units, storage units, and gateway equipment) over a variety of
local area network (LAN) media including coaxial cables and
twisted pair wire. These LAN network interface boards (NIBs)
convert, process, and format data so that several ADP machines or
systems are able to communicate and function as a local area
network.
The LAN boards perform two major functions. They receive
binary information from a PC and convert this to digital data so
that it can be used at other locations within the LAN. Examples
of this conversion are character format conversion and file
conversion. Once converted, this data is either formatted
separately or grouped into units of data known as packets. This
data is then transmitted to different locations within the LAN.
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Once received by another NIB, the packets are converted into a
form usable by the destination device. Thus, essentially, LAN
boards process, translate, convert, and transmit data for use
within the LAN. The NIBs also perform such additional functions
as encoding, decoding, LAN protocol implementation, temporary
memory storage, control logic for access to the host computer,
and LAN processor local memory.
The LAN boards consist of various programmed chips
(including microprocessors), resistors, transistors, and logic
devices which operate within the network transmission and
protocol software.
ISSUE:
Are local area network interface boards classifiable under
subheading 8517.82.00, HTSUS, which provides for: "[e]lectrical
apparatus for line telephony or telegraphy, including such
apparatus for carrier-current line systems: [o]ther apparatus:
[t]elegraphic," or are they classifiable under subheading
8471.99.60, HTSUS, which provides for other units suitable for
physical incorporation into ADP machines?
LAW AND ANALYSIS:
Since the HTSUS came into effect there has been a great deal
of controversy regarding the classification of LAN boards.
However, there is no clear classification guidance from either
the HTSUS or the Harmonized Commodity Description and Coding
System Explanatory Notes (ENs), primarily due to the
technological advancements in this area.
There has never been any controversy that the instant
networking boards are the foundation to a local area network.
The Computer Glossary, Fourth Edition, Alan Freedman (1989),
defines a "Local Area Network" as follows:
A local area network is a communications network that serves
several users within a confined geographical area. Although
the term may refer to any communications network within a
building or plant, it typically refers to the
interconnection of personal computers.
Personal computer local area networks function as
distributed processing systems in which each computer, or
node, in the network does its own processing and manages
some of its data. Shared data is stored in a high-
performance pc in the network, called a file server or
network server, which acts as a remote disk drive to all the
users in the network.
The printers that are attached to the network can function
on a first-come, first-served basis, or they can be
connected to a computer, called a print server, which
collects the print
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output and feeds it to the printer one job at a time.
A local area network is the backbone of office automation
and allows electronic mail and other information to be
communicated between all users of the system. Local area
networks are becoming essential for small work groups that
enter, share and exchange the same information.
With the use of a gateway, local area networks can connect
to minicomputer and mainframe networks.
BASEBAND NETWORKS
Baseband networks are all digital networks that require
information in digital form. Examples are ARCNET, Token
Ring, Ethernet and Starlan. All of these networks are
driven by network management software that resides in the
file servers and the work stations. Examples of network
software are Microsoft's NetBIOS and LAN Manager, Apple
Talk, TPC/IP and Novell's NetWare.
BROADBAND NETWORKS
Broadband networks use carrier frequencies and can handle
voice and video transmission as well, for example, Wang
Computer's WangNET.
Customs first held that LAN boards were classifiable under
heading 8471, HTSUS, because the submitted information was
persuasive that the LANs' principal function was that of data
processing (See HQ 086105, dated May 7, 1990).
Section XVI, Legal Note 3, provides direction for the
classification of machines with more than one function. It
states:
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 functions are to be
classified as if consisting only of that component or as
being that machine which performs the principal function.
(Emphasis added).
There has been no dispute that the LANs have two
complementary functions, i.e., transmission and data processing.
Therefore, the issue has been one of which performs the principal
function.
Subsequent to HQ 086105, it was determined that the
principal function of the LANs was that of data transmission,
directing classification under heading 8517, HTSUS, which
provides for: "[e]lectrical apparatus for line telephony or
telegraphy." See HQ 089596, HQ 089597, HQ 089277, HQ 089227, HQ
086035, HQ 086478, HQ 086615, NY 843415, and NY 852403.
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Legal Note 5(B) to chapter 84, HTSUS, provides guidance
regarding units of automatic data processing machines. It
states:
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 part of such a 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).
You argue that the networking boards are essential to the
ADP systems they serve because they process and format the data
of the computers they serve. We now agree. In fact, in the
future, LAN boards or their antecedents may be incorporated into
PCs at the time of manufacture. Apparently, the only reason they
are not presently incorporated at manufacture is because of the
myriad number of different types of LAN systems, which cannot
necessarily communicate or interact with each other. Therefore,
end users must choose the type of LAN system that best suits
their needs.
It is also important to note that the ENs, page 1299-1300,
describe separately presented ADP units as follows:
This heading also covers separately presented constituent
units of data processing systems. Constituent units are
those defined in Parts (A) and (B) above as being parts of a
complete system.
Apart from central processing units and input and output
units, examples of such units include:
(4) Control and adaptor units such as those to effect
interconnection of the central processing unit to other
digital data processing machines, or to groups of input
or output units which may comprise visual display
units, remote terminals, etc.
This category includes channel to channel adaptors
used to connect two digital systems to each other.
(5) Signal Converting units. At input, these enable an
external signal to be understood by the machine, while
at output, they convert the output signals that result
from the processing carried out by the machine into
signals which can be used externally.
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The network interface boards do in fact effectuate
interconnection of the CPU unit to other units or ADP machines,
thereby serving control and adaption functions, as well as
performing signal conversion. These facts further lend authority
for classification in heading 8471, HTSUS, which provides for ADP
machines and units thereof.
Our diligent fact finding, and research and analysis of this
issue, has been continually ongoing. Therefore, we have learned
more about this merchandise, its functions, and its geometrically
progressive technological developments. Furthermore, we have
consulted with the Customs Administrations of other countries
regarding their legal analysis of this issue. We have found that
a substantial majority of other Administrations are classifying
this merchandise in heading 8471, of the HS. While the views of
the other Administrations are not binding on the U.S. Customs
Service, they were useful in the analysis of this issue.
Therefore, based on the new information submitted, and in an
effort to expeditiously and accurately address this
classification issue, we have reconsidered our position. It is
now our conclusion that the data processing features do in fact
represent the principal function of the LAN boards, directing
classification in subheading 8471.99.60, HTSUS, which provides
for other units suitable for physical incorporation into
automatic data processing machines or units thereof.
HOLDING:
The instant local area network interface boards are
classifiable under subheading 8471.99.60, HTSUS, which provides
for: "[a]utomatic data processing machines and units thereof:
[o]ther: [o]ther: [o]ther: [u]nits suitable for physical
incorporation into automatic data processing machines or units
thereof." The rate of duty is Free.
EFFECT ON OTHER RULINGS:
For the reasons stated above, the following rulings are
revoked under authority of Section 177.9(d), Customs Regulations:
HQ 089596, dated September 17, 1991, HQ 089597, dated September
5, 1991, HQ 089277, dated August 14, 1991, HQ 089227, dated July
24, 1991, HQ 086035, dated August 2, 1990, HQ 086478, dated April
9, 1990, HQ 086615, dated April 20, 1990, NY 843415, dated August
8, 1989, and NY 852403, dated May 31, 1990.
Sincerely,
Sam Banks, Assistant Commisioner
Office of Commercial Operations