CLA-2 CO:R:C:M 956960 RFA

Mr. Douglas W. Sirinek
Sharp Electronics Corporation
Sharp Plaza
P.O. Box 650
Mahwah, NJ 07430-2135

RE: Software Programs; Computer Disks; Software Manual; Cable Link; Goods put up in sets for retail sale; Headings 8524, 8544; Legal Note 6 to Chapter 85; GRI 3(b); EN X to GRI 3(b); HQs 950925, 951887, 952154, 956490

Dear Mr. Sirinek:

This is in response to your letter dated July 25, 1994, to the Area Director of Customs in New York, concerning the tariff classification of the Organizer Links, Models OZ895 and OZ892, under the Harmonized Tariff Schedule of the United States (HTSUS). Your letter was referred to this office for response.

FACTS:

The Sharp Organizer Links, Models OZ895 and OZ892, contain the Organizer Link II (OL2) Version 2.1 operating system computer software, instructional or operational manuals, and a level converter for IBM-compatible or Macintosh personal computers (PCs). It is entered in retail boxes, ready for sale.

According to the information provided, the OL2 software integrates a user's desktop PC applications with Sharp's entire line of Organizer pocket computers (sometimes referred to as the "Wizard" organizer series) in order to: archive and restore Organizer data files; upload data file to OL2's various editors and viewers and download your changes back to the Organizer; view, search, and edit data on the PC as the user would with the Organizer; generate a wide variety of reports for each application; export and import Organizer files in formats compatible with the most popular PC desktop applications, including "Lotus 1-2-3", "dBase", and other common data base programs.

The level converter is a cable with a thin, 15-pin interface connector on one side for connection to the Organizer, and a thicker, 25-pin RS-232C connector on the other side for connection to the PC.

ISSUE:

Whether the Organizer Link II (OL2) Version 2.1 operating system computer software and a level converter for IBM-compatible or Macintosh personal computers (PCs), sold in a retail box are classified separately or as "goods put up in sets for retail sale" under the HTSUS?

LAW AND ANALYSIS:

Classification of merchandise under the HTSUS is in accordance with the General Rules of Interpretation (GRI's), taken in order. GRI 1 provides that classification shall be determined according to the terms of the headings and any relative section or chapter notes.

The subject merchandise consists of: 3.5 inch or 5.25 inch floppy disks which are provided for under heading 8524, HTSUS; a level converter cable which is provided for under heading 8544, HTSUS; and instruction manuals which are provided under heading 4901, HTSUS. Because the merchandise is prima facie classifiable in more than one heading, we must apply the other GRI's.

GRI 3(a) provides in pertinent part:

[t]he heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only . . . of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

Because the operating software, level converter cable, and instructional manuals fall under separate headings in the tariff schedule which describe only a portion of the subject merchandise, the headings are to be regarded as equally specific under GRI 3(a). Therefore, GRI 3(a) fails in establishing classification, and GRI 3(b) becomes applicable. GRI 3(b) provides that goods put up in sets for retail sale, shall be classified as if they consisted of the material or component which gives them their essential character.

The Harmonized Commodity Description and Coding System Explanatory Notes (EN) constitute the Customs Cooperation Council's official interpretation of the HTSUS. While not legally binding, 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 FR 35127, 35128 (August 23, 1989). EN X to GRI 3(b), page 4, provides as follows:

[f]or the purposes 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. Therefore, for example, six fondue forks cannot be regarded as a set within the meaning of this Rule;

(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).

According to EN X to GRI 3(b), a set must consist of at least two different articles. The subject merchandise meets the first criteria because it consists of software, a level converter cable, and instructional manuals which are prima facie classifiable in different headings. The subject merchandise also meets the third criteria of being put up in a manner suitable for sale directly to users, because it is packaged in a box suitable for sale directly to end-users.

The only issue remaining is whether the articles meet the second criteria of being put up together to meet a particular need or carry out a specific activity. The OL2 operating system software integrates a user's desktop PC applications with Sharp's entire line of Organizer pocket computers (sometimes referred to as the "Wizard" organizer series) in order to: archive and restore Organizer data files; upload data file to OL2's various editors and viewers and download your changes back to the Organizer; view, search, and edit data on the PC as the user would with the Organizer; generate a wide variety of reports for each application; export and import Organizer files in formats compatible with the most popular PC desktop applications, including "Lotus 1-2-3", "dBase", and other common data base programs.

To operate the software programs, the user must connect the Organizer to the PC by the level converter cable. The cable allows for the interaction of instructions and commands between the two units. Because the cable is needed to use the OL2 Version 2.1 operating system computer software, we find that these articles are put up together to carry out the specific activity of utilizing the software operating system. The subject merchandise is a retail set because it meets all three criteria as set forth above. The essential character of the subject retail set is imparted by the software program because the reason the end-user purchases the set is for the ability to integrate a user's desktop PC applications with the Organizer pocket computers. See HQ 951887 (October 26, 1992).

In HQ 956490, dated August 19, 1994, Customs determined that the Microsoft "Windows 3.1" operating system computer software and a digitizer unit (commonly known as a computer "Mouse"), met the definition of "goods put up in sets for retail sale" because it carries out the specific activity of utilizing the software operating system. Customs further noted that:

Legal Note 6 to Chapter 85, HTSUS, states that: "[r]ecords, tapes and other media of heading 8523 or 8524 remain classified in those headings, whether or not they are entered with the apparatus for which they are intended." In classifying retail sets containing media of heading 8523 or 8524, HTSUS, Customs has interpreted the meaning of Legal Note 6 to Chapter 85, as requiring that software is to be broken out from a retail set and classified separately. See HQ 952154 (November 17, 1992); HQ 950925 (May 12, 1992). In these situations, the essential character of the retail sets, which contained the media of headings 8523 or 8524, HTSUS, were held to be other than the media. However, in the present case, the essential character of the retail set is the software. The end-user purchases the merchandise because of the software capabilities. Therefore, we find that Legal Note 6 to Chapter 85 allows for a retail set, whose essential character is the software, to be classified as software.

Based upon HQ 956490, we find that the essential character of the subject merchandise is the software. The end-user purchases the merchandise because of the software capabilities of linking the Organizer with the desktop PC. Therefore, the subject merchandise is classifiable under subheading 8524.90.40, HTSUS, which provides for other recorded media.

HOLDING:

The Organizer Link II (OL2) Version 2.1 operating system software and a level converter retail set is classifiable under subheading 8524.90.40, HTSUS, which provides for: "[r]ecords, tapes and other recorded media for sound or other similarly recorded phenomena. . . : [o]ther: [o]ther. . . ." The column one, general rate of duty is 9.7 cents per square meter of recording surface.

Sincerely,

John Durant, Director
Commercial Rulings Division