RE: The tariff classification and status under the North American Free Trade Agreement (NAFTA), of an ADP processing machine with a keyboard and mouse from Mexico; Article 509
Ms. Joyce Wineman
UPS Supply Chain Solutions, Inc.
4950 Gateway East
El Paso, TX 79905
Dear Ms. Wineman:
In your letter dated March 19, 2008, you requested a ruling on the tariff classification and status under the North American Free Trade Agreement (NAFTA), of models (a6317c, a6333w, a6342p,and a6347c), which include an automatic data processing (ADP) machine, a keyboard and mouse from Mexico on behalf of your client, Hon Hai Precision Industry Company.
The ADP machine is processed 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 and central processing unit (CPU). Without the CPU or BIOS ROM chip, it could not perform the functions described in note 5(A), to Chapter 84, HTSUS, which states that:
(A) For the purposes of heading 8471, the expression "automatic data processing machines" means machines capable of: (i) storing the processing program or programs and at least the data immediately necessary for execution of the program; (ii) being freely programmed in accordance with the requirements of the user; (iii) performing arithmetical computations specified by the user; and, (iv) executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run.
The CPU is the component of a computer with the circuitry to control the interpretation and execution of instructions and includes the arithmetic logic unit and control unit. The lack of the BIOS ROM chip prevents the motherboard from performing input/output functions. Logic and control functions cannot be performed. Also, the processing program cannot be executed without human intervention.
In Mexico, the power supply and system fan is installed to the chassis’ barebones. The following printed circuit assembly (PCA) components are then installed. Special drivers are used to install the processor cooler back plate and retention module. Memory modules are then installed for either the Intel processor or AMD processor according to DIMM database designation and colored connector slots. The respective processor (Intel or AMD), is aligned and installed to the motherboard. The heatsink and cooler master are strategically placed onto the processor to accommodate fan connectors, cables and PCA capacitances. The BIOS is installed and the motherboard is attached to the case (chassis) of the CPU. Windows Vista is downloaded as the operating system and there are no blocks preventing the machine from being freely programmable. The PCA is carefully positioned into the chassis aligning PCA ports with openings in the rear I/O panel ensuring cables and connectors do not interfere with cable routing. The PCA cabling and expansion cards for the modem and graphics are installed. A floppy disk drive, DVD drive, hard disk drive and card reader are installed. Final testing is performed.
The finished ADP machine is packaged together and put up in sets for retail sale with two ADP input units: a standard keyboard and a mouse imported to Mexico from various vendors in China, Taiwan, and Malaysia.
According to the EN (X) to GRI 3 (b),
[t]he 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).
GRI 6 states that:
[f]or legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule, the relative section, chapter and subchapter notes apply, unless the context otherwise requires.
With respect to the instant merchandise, at the heading level, we do not have "goods put up in sets for retail sale" since the ADP machine, keyboard and mouse are all classifiable in heading 8471, HTSUS. However, based upon GRI 6 and the reasoning in HQ 088774, they would be considered a set pursuant to GRI 3(b) by virtue of GRI 6. The instant goods are classifiable under two different subheadings within the same heading, 8471.50 and 8471.60 respectively and they contain articles put up together to meet a particular need in a manner suitable for the direct sale to the user applicable to this merchandise. The ADP machine imparts the essential character of the set to perform data processing.
The assembly process in Mexico goes beyond the fitting together of five parts described in a simple assembly 19 CFR 102.1 (o) or minor processing 19 CFR 102.1 (m). The skill level of the employees who are assembling and testing the ADP requires training in a private line prior to on-the-job training. The assembly requires precision and specialized tools.
General Note 12(b), HTSUS, sets forth the criteria for determining whether a good is originating under the NAFTA. General Note 12(b), HTSUS, (19 U.S.C. § 1202) states, in pertinent part, that
[f]or 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--
(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
(ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that--
(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note…
Based on the facts provided, the goods described above qualify for NAFTA preferential treatment, because they will meet the requirements of a tariff shift under General Note 12(b)(ii)(B), HTSUS.
The chassis and the other components undergo an assembly process that results in a desktop computer distinct from the components from which they were assembled. As imported to Mexico, the motherboard without the CPU and BIOS ROM chip would be classified under subheading 8473.30. The motherboard with the CPU and the BIOS ROM chip has the essential character of a finished ADP processing machine. After installation of the non-originating CPU and BIOS ROM chip, the motherboard would be classified under subheading 8471.50., thus complying with the Change in Tariff Classification Rules for Chapter 84, Chapter rule 4: 192, "A change to subheading 8471.50 from any other subheading…" The set complies with the criteria set forth in 19 CFR 102.20, “A change to subheading 8470.10 through 8471.50 from any other subheading within that group or from heading 8473, provided the change is not that of a simple assembly.” The goods will therefore be entitled to a free rate of duty under the NAFTA upon compliance with all applicable laws, regulations, and agreements.
The applicable tariff provision for the ADP machine, keyboard and mouse set will be 8471.50.0150, Harmonized Tariff Schedule of the United States (HTSUS), which provides for Digital processing units other than those of subheading 8471.41 or 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units: Other. The general rate of duty will be free.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at http://www.usitc.gov/tata/hts/.
This ruling is being issued under the provisions of Part 181 of the Customs Regulations (19 C.F.R. 181).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Denise Faingar at 646-733-3010.
Should you wish to request an administrative review of this ruling, submit a copy of this ruling and all relevant facts and arguments within 30 days of the date of this letter, to the Director, Commercial Rulings Division, Headquarters, U.S. Customs and Border Protection, 1300 Pennsylvania Ave. N.W., (Mint Annex), Washington, D.C. 20229.
Robert B. Swierupski