CLA-2 OT:RR:CTF:TCM H074136 JRB
Ms. Joyce Wineman
Account Manager/LCB
UPS Supply Chain Solutions
4950 Gateway East
El Paso, TX 79905
RE: ADP systems; NAFTA eligibility; Marking; Modification of HQ H027696
Dear Ms. Wineman:
This is in reference to HQ H027696, issued to you on July 2, 2008, on behalf of your client, Hon Hai Precision Industry Co. (“Hon Hai”), concerning the tariff classification of certain merchandise under the Harmonized Tariff Schedule of the United States (HTSUS). On May 29, 2009, U.S. Customs and Border Protection (“CBP”) issued a notice in the Customs Bulletin proposing to modify HQ H027696 with proposed ruling letter HQ H037540. Based on comments received as a result of this notice, CBP decided to withdraw the proposed modification on August 20, 2009. In HQ H027690, in addition to classifying the merchandise as an automatic data processing (“ADP”) system, CBP also addressed whether the merchandise was eligible for preferential tariff treatment under the NAFTA (the North American Free Trade Agreement). For the reasons set forth below, we are modifying only that portion of the ruling relating to NAFTA eligibility and country of origin marking. We will also be addressing whether the subject merchandise is subject to the merchandise processing fee under 19 U.S.C. §58c(a).
Pursuant to section 625(c), Tariff Act of 1930 (19 U.S.C. §1625(c)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed modification was published on December 10, 2009, in the Customs Bulletin, Volume 43, No. 50. No comments were received in response to this notice.
FACTS:
Hon Hai imports from their subsidiary in Mexico an ADP machine, a keyboard, a mouse, and a monitor packaged together for retail sale. When so packaged, the merchandise is identified by model numbers M9177c and M8307c.
According to the submitted information, the keyboard and mouse are imported into Mexico from various vendors in China, Taiwan, and Malaysia, and the monitor is imported into Mexico from Taiwan. The monitors measure either 19 or 22 inches and have integrated speakers but cannot accept video signals other than VGA and DVI. Some ADP machines may contain TV tuner cards which are also manufactured outside of NAFTA countries. The monitors can only receive analog TV signals through the ADP machine. The TV functions can be controlled through the computer once certain software is installed.
The ADP machine is assembled in Mexico from components originating in China, Taiwan, and Malaysia. The ADP’s motherboard is shipped to Mexico in a box with all its components except for the memory (a BIOS ROM chip) and the central processing unit. The following assembly operations occur in Mexico:
1. Chassis installations: rear I/O shield; system fan; power supply; PCA (printed circuit assembly) components such as the processor cooler back plate, retention module, memory module, Intel processor, heatsink, Bluetooth, front I/O shield, and PCA cabling; Expansion cards, such as a video card, modem card, TV tuner card, wire/wireless card and LED, or an audio card, as requested; optical drive; hard drive; Bluejay module (video and imaging card); bezel subassembly.
2. Final assembly: front bezel installation, connector cover installation, cable routing and side access panel installation.
3. Equipment testing.
4. Software installation.
All of the above stated operations are performed by skilled and trained workers.
All of the ADP machines use Windows Vista as their operating system and all the models perform data processing functions. Additional hardware or software can also be installed by a customer on a machine. The keyboard and mouse connect to the CPU through connectors or USB ports.
ISSUES:
I. Whether an ADP system comprised of an ADP machine assembled in Mexico, a monitor made in Taiwan, and a keyboard and a mouse made in China, Taiwan or Malaysia, is eligible for preferential tariff treatment under the NAFTA?
How should an ADP system that has components originating in different countries be marked for country of origin marking purposes?
Is the ADP system exempt from the merchandise processing fee?
LAW AND ANALYSIS:
I. Eligibility for Preferential Treatment Under NAFTA
You ask whether an ADP machine assembled in Mexico, a monitor made in Taiwan, and a keyboard and a mouse made in China (or in other non-NAFTA countries), and imported into the U.S. as an “ADP system”, are eligible for preferential duty rates under NAFTA as goods of a NAFTA country.
As an initial matter, the following is noted on page 2 of the General Notes (GN) of the HTSUS (2009) (Rev. 1):
COMPILER’S NOTE: The rules of origin provisions for United States free trade agreements, other than those for the United States-Australia Free Trade Agreement, the United States-Singapore Free Trade Agreement and the United States-Chile Free Trade Agreement, have NOT been updated to reflect changes to the tariff schedule resulting from Presidential Proclamation 8097, which modified the HTS to reflect World Customs Organization changes to the Harmonized Commodity Description and Coding System. You will therefore see tariff heading/subheading numbers in the pertinent general notes which do not correspond to numbers in chapters 1 through 97 or to other portions of the same general notes.
Accordingly, because the NAFTA rules of origin have not been updated to reflect the 2007 changes to the Harmonized System, the pre-2007 classifications for the goods at issue must be used in order to ascertain their correct rule of origin under NAFTA.
General Note 12 of the HTSUS incorporates Article 401, North American Free Trade Agreement, as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057) (December 8, 1993), into the HTSUS. General Note 12(a)(ii) provides that:
(a) Goods originating in the territory of a party to the North American Free Trade Agreement (NAFTA) are subject to duty as provided herein. For the purposes of this note--
* * * * *
(ii) Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act. (emphasis added)
General Note 12(b) provides in relevant part that:
(b) For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if—
* * * * *
(v) they are goods enumerated in subdivision (u) of this note and meet all other requirements of this note.
General Note 12(u) incorporates Table 308.1.1 of Annex 308.1 of the NAFTA and provides that:
Goods that shall be considered originating goods. For the purposes of subdivision (b)(v) of this note, notwithstanding the provisions of subdivision (t) above, the automatic data processing machines, automatic data processing units and parts of the foregoing that are classifiable in the tariff provisions enumerated in the first column and are described opposite such provisions, when the foregoing are imported into the customs territory of the United States from the territory of Canada or of Mexico, shall be considered originating goods for the purposes of this note:
Provisions
Description
(1)
8471.30.01,8471.41.01, 8471.49.00, 8471.50.01
Automatic data processing machines
(2)
8471.49.00, 8471.50.01
Digital processing units
(3)
8471.49.00, 8471.60.10
Combined input/output units
(4)
8471.49.00, 8528.41.00, 8528.51.00, 8528.61.00
Display units
(5)
8471.49.00, 8471.60.20, 8471.60.70, 8471.60.80, 8471.60.90
Other input or output units
(6)
8471.49.50, 8471.70
Storage units
(7)
8471.49.00, 8471.80.10, 8471.80.40, 8471.80.90, 8517.62.00, 8517.69.00
Other units of automatic data processing machines
(8)
8443.99, 8473.30, 8517.70, 8529.90
Parts of automatic data processing machines and units thereof
(9)
8471.49.00, 8504.40.60. 8504.40.70
Power supplies for automatic data processing machines
(10)
8504.90.20, 8504.90.40
Parts of power supplies for automatic data processing machines
In HQ H027696, dated July 2, 2008, we properly determined that the merchandise met the terms of an ADP system as defined by Subheading Note 1 to Chapter 84 and was correctly classified in subheading 8471.49.00, HTSUS, when imported from the territory of Mexico into the United States. This classification remains the same under the 2006 through 2009 versions of the HTSUS. As this tariff provision is listed in General Note 12(u), the merchandise qualifies as an originating good under NAFTA for duty purposes.
II. Marking for Country of Origin Purposes
The issue of country of origin marking was indirectly raised in some of the correspondence between you and CBP. Although not specifically asked to do so, we will also address this issue because we believe that it is an important corollary to the issues discussed in this ruling.
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. §1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co., 27 CCPA 297, 302, C.A.D. 104 (1940). Part 134, U.S. Customs and Border Protection Regulations (19 C.F.R. §134) implements the country of origin marking requirements and exceptions of 19 U.S.C. §1304.
Section 134.1(b), CBP Regulations (19 C.F.R. § 134.1(b)), defines "country of origin" as:
[T]he country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of [the marking laws and regulations]; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Part 102 of the CBP Regulations sets forth the NAFTA Rules of Origin for country of origin marking purposes. 19 C.F.R. §102.0. 19 C.F.R. §102.11 provides, in pertinent part:
The following rules shall apply for the purposes of determining the country of origin of imported goods other than textile and apparel products covered by § 102.21.
The country of origin of a good is the country in which:
The good is wholly obtained or produced;
The good is produced exclusively from domestic materials; or
Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in §102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
(b) Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good, or
(2) If the material that imparts the essential character to the good is fungible, has been commingled, and direct physical identification of the origin of the commingled material is not practical, the country or countries of origin may be determined on the basis of an inventory management method provided under the appendix to part 181 of this chapter.
(c) Where the country of origin cannot be determined under paragraph (a) or (b) of this section and the good is specifically described in the Harmonized System as a set or mixture, or classified as a set, mixture or composite good pursuant to General Rule of Interpretation 3, the country of origin of the good is the country or countries of origin of all materials that merit equal consideration for determining the essential character of the good.
(d) Where the country of origin of a good cannot be determined under paragraph (a), (b) or (c) of this section, the country of origin of the good shall be determined as follows:
* * *
(3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
CBP finds that §102.11(a) is not applicable in this situation. Paragraphs (a)(1) and (a)(2) are not applicable because the ADP system is not wholly obtained or produced in any one country and is not produced exclusively from the domestic materials of any one country. Paragraph (a)(3) (the §102.20 “tariff shift” rules) is not applicable because the foreign-sourced goods (e.g., the monitor, keyboard and mouse) which are simply re-packed with the ADP machine is a non-qualifying operation under 19 C.F.R. §102.17.
As the goods entered into the United States meet the terms of “ADP systems” as defined in Subheading Note 1 to Chapter 84, CBP finds that they constitute a GRI 1 set under the Harmonized System for the purposes of §102.11. Therefore, we find that §102.11(b) is also inapplicable.
In cases where §102.11(a) or (b) do not apply we must also consider the applicability of 19 C.F.R. §102.19 which provides, in relevant part:
NAFTA preference override.
(a) Except in the case of goods covered by paragraph (b) of this section, if a good which is originating within the meaning of § 181.1(q) of this chapter is not determined under § 102.11(a) or (b) or § 102.21 to be a good of a single NAFTA country, the country of origin of such good is the last NAFTA country in which that good underwent production other than minor processing, provided that a Certificate of Origin (see § 181.11 of this chapter) has been completed and signed for the good.
As demonstrated above, §102.11(a) and (b) do not apply and the system is originating within the meaning of §181.1(q) because the system qualifies for NAFTA under General Note 12. Therefore, the country of origin of the system is the last NAFTA country in which that good underwent production other than minor processing. In this case, the country of origin is Mexico because it is the last country where the system underwent production that was beyond minor processing. The ADP machine is assembled in Mexico and it is then packaged together with various input and output units for retail sale. That assembly is not minor processing because it is not one of the nine operations listed in §102.1(m). Thus, the ADP system should be marked as a product of Mexico because Mexico is the last NAFTA country where the good underwent production other than minor processing so long as a properly completed Certificate of Origin is included with the good at the time of importation.
Merchandise Processing Fee
19 U.S.C. §58c(a) provides the statutory authority for certain customs services which states in relevant part that:
(a) Schedule of fees
In addition to any other fee authorized by law, the Secretary of the Treasury shall charge and collect the following fees for the provision of customs services in connection with the following:
* * * * *
(9)(A) For the processing of merchandise that is formally entered or released during any fiscal year, a fee in an amount equal to 0.21 percent ad valorem, unless adjusted under subparagraph (B).
However, 19 U.S.C. §58c(b)(10)(B) provides that:
For goods qualifying under the rules of origin set out in section 3332 of this title, the fee under subsection (a)(9) or (10)--
* * * *
(ii) may not be increased after December 31, 1993, and may not be charged after June 29, 1999, with respect to goods that qualify to be marked as goods of Mexico pursuant to such Annex 311, for such time as Mexico is a NAFTA country.
Any service for which an exemption from such fee is provided by reason of this paragraph may not be funded with money contained in the Customs User Fee Account.
19 U.S.C. §3332(n) provides for the rules of origin of automatic data processing goods under NAFTA:
Notwithstanding any other provision of this section, when the NAFTA countries apply the rate of duty described in paragraph 1 of section A of Annex 308.1 of the Agreement to a good provided for under the tariff provisions set out in Table 308.1.1 of such Annex, the good shall, upon importation from a NAFTA country, be deemed to originate in the territory of a NAFTA country for purposes of this section.
As stated above, Table 308.1.1 is codified in General Note 12(u) which lists ADP systems of subheading 8471.49.00 as being deemed to originate in the territory of a NAFTA country for purposes of origin. In addition, the ADP system qualifies to be marked as a good of Mexico. As such, the subject merchandise qualifies under 19 U.S.C. §58c(b)(10)(B)(ii) as being exempt from the merchandise processing fees.
HOLDING:
By application of GRI 1, the ADP system is classified in heading 8471, HTSUS. It is specifically provided for in subheading 8471.49.00, HTSUS, which provides for: “Automatic data processing machines and units thereof …: Other automatic data processing machines: Other, entered in the form of systems.” In accordance with General Note 12(b)(v), the ADP system originates from Mexico under NAFTA.
The country of origin of the system for marking purposes is Mexico so long as the importer presents a NAFTA Certificate of Origin pursuant to 19 C.F.R. §181.11.
Under 19 U.S.C. §58c(b)(10)(B)(ii), the ADP system imported from Mexico qualifies for exemption from the merchandise processing fee.
EFFECT ON OTHER RULINGS:
HQ H027696, dated July 2, 2008, is hereby modified.
Sincerely,
Myles B. Harmon, Director
Commercial & Trade Facilitation Division