OT:RR:CTF:TCM H303881 TPB
Casey Richter
Jeffrey Whalen
Counsel for Nike USA, Inc.
One Bowerman Drive
Beaverton, OR 97005-6453
Re: Tariff classification of the Nike Adapt BB basketball shoe
Dear Sirs:
This in response to your correspondence, dated January 18, 2019, in which you requested a prospective binding tariff classification ruling from U.S. Customs and Border Protection (CBP) on behalf Nike USA, Inc. Your ruling request concerns the tariff classification of certain footwear incorporating Nike wearable technology (Nike Adapt BB) under the Harmonized Tariff Schedule of the United States. This ruling also takes into consideration information presented to CBP in your video conference of February 23, 2021 as well as the written supplement provided by your counsel on March 12, 2021.
FACTS:
You request a tariff classification ruling concerning certain Nike wearable technology, referred to as the Adapt BB, or “Adapt”. In your request, you state that the Adapt platform consists of five primary components: (1) a Bluetooth® system-on-chip (SoC); (2) a sensor pack consisting of a gyroscope, accelerometer, and capacitive sensor; (3) system and subsystem components including three microcontroller unit (MCU) processors, flash memory and a wireless power receiver; (4) an auto-lacing platform with an optical quadrature rotary encoder and a low-resistance, high-torque, DC motor; and (5) a “performance basketball shoe” housing.
As imported, the Nike Adapt BB contains one pair of shoes (incorporating the above electronics components), a wireless charging pad, a USB cable/wall charger combo and operating manual packaged together for retail sale. Below are two photographs that are representative of the merchandise at issue in its condition as imported:
Image 1
Image 2
ISSUE:
What is the tariff classification of the Nike Adapt BB?
LAW AND ANALYSIS:
Classification under the Harmonized Tariff Schedule of the United States (HTSUS) is made in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that the classification of goods shall be determined 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 headings and legal notes do not otherwise require, the remaining GRIs may then be applied in their appropriate order.
In your request, you indicate that the Adapt is a fitness platform, which combines wireless communication technology with sensing and fitness tracking, and packages it into auto-adjustable performance footwear. The platform consists of five primary components: 1) a Bluetooth system on chip (SoC), 2) a sensor pack - gyroscope, accelerometer, and capacitive sensor, 3) system and subsystem components – microcontroller unit processors, flash memory and power receiver, 4) an auto lacing platform, optical quadrature rotary encoder, a DC motor, and (5) a performance basketball shoe housing. You also provided a cost break-down of the product.
You note that the Adapt includes multiple components and functions that are not described under any single provision of the HTSUS. You provide a description of the Adapt’s materials and components and their proposed classification as follows:
Bluetooth SoC – heading 85.17, 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;
Sensors – heading 90.31 which provides for measuring or checking instruments, appliances and machines, not specified or included elsewhere in this chapter; profile projectors; parts and accessories thereof;
System Technologies:
Data Processing – heading 85.42 which provides for electronic integrated circuits; parts thereof;
Memory – heading 85.23 which provides for discs, tapes, solid-state non-volatile storage devices, "smart cards" and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37;
Auto-fit technology – heading 85.01 which provides for electric motors and generators (excluding generating sets);
Wireless charging pad – heading 85.04 which provides for electrical transformers, static converters (for example, rectifiers) and inductors.
Shoe – heading 64.04 which provides for footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials.
According to your submission, the value of the Bluetooth SoC, sensors, memory, and other electronic components, when taken together, constituted the largest percentage of landed costs when compared to the footwear base and packaging, although we note that the value of the electronic components is not further broken down.
Based on the above, it is your view that the Adapt is a good consisting of different materials and made up of different components. As such, classification cannot be done under any single provision of the HTSUS so we turn to GRI 2, which states that the classification of goods consisting of more than one material or substance shall be according to the principles of GRI 3. See General Rule of Interpretation 2(b). Rule 3 reads:
When by application of Rule 2 (b) or for any other reason, goods are prima facie, classifiable under two or more headings, classification shall be effected as follows:
The 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 materials or substances contained in mixed or composite goods or 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.
Mixtures, composite goods consisting of different materials or made up of different components, and goods 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, insofar as this criterion is applicable
When goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System (HS) at the international level. While not legally binding, the ENs provide a commentary on the scope of each heading of the HS and are thus useful in ascertaining the proper classification of merchandise. It is CBP’s practice to follow, whenever possible, the terms of the ENs when interpreting the HTSUS. See T.D. 89-90, 54 Fed. Reg. 35127, 35128 (August 23, 1989). The Explanatory Note to GRI 3(b) states:
(VII) In all these cases the goods are to be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
(VIII) The factor which determines essential character will vary as between different kinds of goods. It 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.
(IX) For the purposes of this Rule, composite goods made up of different components shall be taken to mean not only those in which the components are attached to each other to form a practically inseparable whole but also those with separable components, provided these components are adapted one to the other and are mutually complementary and that together they form a whole which would not normally be offered for sale in separate parts.
You argue in your request that the Adapt cannot be classified solely by application of GRI 1. With respect to GRI 3(b), you contend that the essential character of the good is imparted by the Bluetooth transceiver and therefore the Adapt is classified under subheading 8517.62, and more specifically, subheading 8517.62.00, HTSUS, which provides for other machines for the reception, conversion, and transmission or regeneration of “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.” You note that the component which imparts “essential character” will “vary as between different kinds of goods,” but is generally understood to be the component “which is indispensable to the structure, core or condition of the article, i.e., what it is.” Structural Industries v. United States, 360 F. Supp. 2d 1330, 1336 (Ct. Int’l Trade 2005).
You believe that the Adapt’s transceiving subsystem imparts its essential character and argue that it is indispensable to the Adapt’s core and condition. These components make the article “what it is” in the eyes of the consumer. In support of this, you cite several rulings issued by CBP pertaining to wrist-worn “smart” devices, which monitor health and provide the user data on physical activities. You state that the Adapt has many of the same capabilities as these wrist-wearable devices. At our February 23, 2021 meeting, you cited other rulings which goods with embedded Bluetooth modules are classified in heading 8517, HTSUS, despite the fact that they have utilitarian functions. You are also of the view that the Adapt platform's commercial value is unlocked by its Bluetooth transceiver. You note that the expansive functionality offered by the Adapt is reflected in product costs and retail values that are significantly higher than those of analog footwear. In your view, the footwear constituents of the Adapt account for a minor portion of the total costs, on the other hand, because they are essentially the housing for the electronic system.
In your view, the prior rulings on wrist-wearable smart devices referred to in your request, along with others, demonstrate four key points with respect to the Adapt: (1) devices with the particular connectivity features of the Adapt are classified in heading 8517; (2) limited display does not disqualify a device from classification in heading 8517; (3) devices with comparable technical specifications to the Adapt are classified in heading 8517; and (4) and the location of a wearable device on the body is immaterial to classification in heading 8517. Additionally, the Adapt is distinguishable from composite footwear, which CBP has previously classified as footwear. CBP has previously classified wearable devices with connectivity features nearly identical to those of the Adapt in heading 8517 pursuant to GRI 3 (b).
You also distinguish the Adapt from other cases where CBP classified composite foot-wearable products according to their footwear components, such as dusters, lights or GPS tracking devices. In your view, those rulings only contained two simple components that performed a distinct task. The Adapt contains numerous components performing various interrelated tasks to support the product's overall use as a wearable multifunctional device. Footwear incorporating a single duster, light, or GPS tracker simply cannot be analogized to a product that includes motors, sensors, a microcontroller, memory, and a transceiver. You also point to CBP’s classification of slippers incorporating a vibrating massaging unit as massage apparatus of heading 9019, HTSUS, noting that, like the Adapt' s technology components, the massage element could not be removed from the product and that, like the Adapt's footwear component, the slipper functioned to hold the massage unit in place on the user's foot.
Finally, you provide guidance provided to Nike from the Customs authority of Belgium, classifying the Adapt under heading 8517. Acknowledging that although the classification positions of other customs agencies are not binding on CBP, they are instructive and entitled to “respectful consideration” given the importance of ensuring uniformity in the interpretation of the HS at the international level.
In conclusion, you summarize that the Adapt is designed for use as a wearable electronic device. The product's electronic components predominate by cost and drive a substantial increase in retail value over a comparable product which lacks electronic components. The primary purpose of the electronic components is to interact with apps on a paired wireless device or with devices in the internet of things. Accordingly, you conclude that “it is the wireless Bluetooth transceiver that enables the user to fully access all of the [Adapt's] functionality” and it is the wireless Bluetooth transceiver that unlocks the Adapt's full retail value. Taking the above into consideration, you propose that classification of the Adapt is under subheading 8517.62.00, HTSUS.
With regard to the legal basis of classification, we agree that GRI 1 does not resolve the classification of the Adapt for the reasons you put forth. Utilizing the subsequent GRI’s, we arrive at GRI 3(b), as do you, which provides instruction on the classification of, inter alia, composite goods made up of different components. In such cases, classification of composite goods is controlled by the component of the product that gives it its essential character. However, for the reasons set forth below, it is our conclusion that the essential character is imparted by the Adapt footwear rather than the Bluetooth transceiver, as you conclude.
You describe the Nike Adapt BB in your ruling request and related submissions as a wearable electronic device designed to provide consumers with a connected experience supported by online content. The actual imported item is athletic footwear in the form of a basketball shoe. The brief description of the footwear states that the upper is constructed out of synthetic knit and features a foam sole. The outer sole unit will contain the sensor pack, Bluetooth chip, system components, and an auto-lacing platform in the upper. The basketball shoe containing the physical technological components is considered a composite good that will be imported as a set with a wireless battery charging pad/mat.
You cite to other CBP rulings involving wearable “smart” devices that utilize Bluetooth and share several features of the Adapt, including fitness and location tracking. These devices were ultimately classified under heading 8517, HTSUS, as apparatus for communication in a wired or wireless network. However, there are significant differences between those products and the Adapt. The devices you cite to, generally referred to as “smart watches”, are worn on the user’s wrist and in most of the cases, despite their name, cannot set the correct time themselves unless they are paired with a “host” device, such as a computer or laptop, tablet computer or mobile phone. These wearable smart-devices not only gather data and transmit it to the host device, but interact directly with the user through touch, sight and sound (ex., display screen with or without touch-sensitivity, speakers, haptics). They contain their own mobile operating system (OS) and can perform functions such as sending and receiving text messages, emails, mobile telephone calls, and remotely control music, to name a few.
As you noted, under GRI 3(b), composite goods must be classified according to the material or component that imparts the article with its essential character. The “essential character” of an article is “that which is indispensable to the structure, core or condition of the article, i.e., what it is.” Structural Industries v. United States, 360 F. Supp. 2d 1330, 1336 (Ct. Int’l Trade 2005). In this case, the shoe imparts the essential character. Although the Adapt may enable the wearer to enhance his or her experience via a smartphone or other device, the wearer must actually wear them and use them as footwear. If the wearer chooses to enable some or many of the additional features or capabilities, that is his or her option; that is the way the Adapt platform will gather data and subsequently transmit data to the user. However, the wearer will always use the Adapt as footwear.
As you note in your request, CBP has historically and consistently classified footwear with electronic modules and components, and battery components, as part of massaging, light-up, heating, and sound-emitting footwear in Chapter 64.
HQ W968135, dated October 3, 2006, concerned slippers incorporating light and weight sensors in them that activated LED light bulbs, embedded in the toes. The bulbs in each slipper were angled upward and illuminated an area 20-25 feet in front of the wearer when activated. Each slipper was powered by two lithium batteries contained in a compartment on the medial side. In both NY N237859, dated February 4, 2013, and NY N127780, dated November 4, 2010, footwear contained batteries and bulbs which allowed the shoes to light up or flash when making contact with the ground. In NY N289089, dated August 31, 2017, electronic, battery operated novelty shoes contained a speaker and a circuit board enabled a sound to be emitted when activated by the wearer.
In NY N007520, dated March 19, 2007, slippers contained a portable battery powered charger used to heat the items prior to use. The electrical heating unit in the soles of the slippers could be plugged into the charging unit, warming the slippers to 40-degrees Celsius. Ruling N165336, dated June 6, 2011, featured a lace-up hiking boot with a battery powered heating system, which included two lithium-polymer batteries, two USB charging cables, an AC charger, and a control electronics box. These electrical parts, except for the control electronics box, were imported in a separate box within the same box containing the boots. The pair of boots accompanied by the electrical parts constituted a set classifiable at the rate applicable to the classification of the boots.
NY N244135, dated August 15, 2013, featured therapeutic massage sandals. Massaging “fingers” applied to the inner soles provided stimulation to the foot when the sandals were worn. NY L87810, dated October 11, 2005, were manufactured with massaging insoles. These sandals were classified in Chapter 64 as footwear.
Further, as you note, not all footwear incorporating massaging apparatus were classified as footwear. In HQ 960032 dated December 6, 1999, the “massaging slipper” consisted of two components a slipper and a battery-powered massaging mechanism, which together comprised a composite good. In this case, the slipper functioned as the component of the apparatus which held the massaging component in place, allowing massage to be applied to the foot. Additionally, in HQ 967179 dated October 15, 2004, dealt with certain slippers incorporating battery controlled massaging mechanisms. In this ruling, it was found that the primary purpose of the goods was to provide the user with a heated massage. The massaging mechanism imparted the essential character of the items, and were classified accordingly.
Under the HTSUS, it has been established that the factor which determines essential character will vary as between different kinds of goods. It 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. There have been several court decisions on “essential character” for purposes of classification under GRI 3(b), several of which have been touched upon above. See Conair Corp. v. United States, 29 C.I.T. 888 (2005); Structural Industries v. United States, 360 F. Supp. 2d 1330, 1337-1338 (C.I.T. 2005); and Home Depot USA, Inc. v. United States, 427 F. Supp. 2d 1278, 1295-1356 (C.I.T. 2006), aff’d by 491 F.3d 1334 (Fed. Cir. 2007) (“essential character is that which is indispensable to the structure, core or condition of the article, i.e., what it is.”) (quoting A.N. Deringer, Inc. v. United States, 66 Cust. Ct. 378, 383 (1971)). In particular, the court stated “[a]n essential character inquiry requires a fact intensive analysis.” Id. at 1284.
Looking again at the product at issue, we note that the Bluetooth SoC is just one of the electronic components of the Adapt. This article provides wireless capability to the module, which is in turn also incorporated within the footwear. In our view, the act of providing wireless connectivity supports the primary function of the electronic module, which is imparted by the fitness sensors or the auto-lacing platform. The act of wirelessly exchanging that data with a host device is a support or secondary function. The function of the Bluetooth chip, in theory, could be replaced by a wire, but there is no way to replace the sensor assembly, it is the component that proves to be indispensable. This makes it clear that the wireless function is a support function and not the essential character when viewing the electronic module on its own.
Wearable “smart” technology is a growing segment of the marketplace. Without a doubt, these types of goods will require individual, or case-by-case, analyses in order to determine their essential character. Regarding the Adapt, it is clear that the basketball shoe is indispensable for the engagement of all of the “experience” options offered by the additional components. It predominates in size, weight, function (if not the cost) and delivers the experience of walking, running, and training as compared with the ancillary use of the technological features. Unlike the wrist-wearable smart devices you cite in your request, whose value to the user comes from the information they convey, the Adapt serves a utilitarian function that provides the value to the user while the information conveyed supplements that usefulness. As such, the Adapt is an article of footwear classified under heading 6404, HTSUS.
In conclusion, based on the above, the Nike Adapt BB, is classified under subheading 6404.11.90, HTSUS, as footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials, tennis, shoes, basketball shoes, gym shoes, training shoes and the like: other: valued over $12/pair.
HOLDING:
By application of GRI 3(b), the Nike Adapt BB is classified in heading 6404, HTSUS, and is specifically provided for by application of GRI 6 under subheading 6404.11.90, HTSUS, as footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials, tennis, shoes, basketball shoes, gym shoes, training shoes and the like: other: valued over $12/pair. The general, column one rate of duty will be 20 percent ad valorem.
Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 6404.11.90, HTSUS, unless specifically excluded, are subject to an additional 7.5 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.15, in addition to subheading 6404.11.90, HTSUS, listed above.
The HTSUS is subject to periodic amendment, so you should exercise reasonable care in monitoring the status of goods covered by the Note cited above and the applicable Chapter 99 subheading. For background information regarding the trade remedy initiated pursuant to Section 301 of the Trade Act of 1974, including information on exclusions and their effective dates, you may refer to the relevant parts of the USTR and CBP websites, which are available at https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions and https://www.cbp.gov/trade/remedies/301-certain-products-china respectively.
The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at http://www.usitc.gov/.
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,
Gregory Connor, Chief
Electronics, Manufacturing, Automotive,
and International Nomenclature Branch