Photocards Kiosk; Software; Chapter 85, note 6; HQs 086126, 086624, 086851, 950675; NAFTA; Article 509; general notes 12(b)(i), 12(b)(ii)(A), and 12(t)/90.25(A); Change in Tariff Classification; NY 898735

HQ 956962 September 13, 1994 CLA-2 CO:R:C:M 956962 LTO CATEGORY: Classification TARIFF NO.: 8524.90.40; 9010.20.60 Mr. Terry Wadowski Lumuc Corporation 2380 Mississauga Road Mississauga, Ontario L5H 2L1 Canada RE: Photocards Kiosk; Software; Chapter 85, note 6; HQs 086126, 086624, 086851, 950675; NAFTA; Article 509; general notes 12(b)(i), 12(b)(ii)(A), and 12(t)/90.25(A); Change in Tariff Classification; NY 898735 Dear Mr. Wadowski: This is in response to your letter of July 15, 1994, to Customs in New York, concerning the applicability of the North American Free Trade Agreement (NAFTA) and classification of Photocards Kiosks under the Harmonized Tariff Schedule of the United States (HTSUS). Your letter was referred to this office for a response. FACTS: The article in question is a Photocards Kiosk, which is a machine that allows a customer to design a photographic business card. The Photocards Kiosk permits the user to select a background image from a library of digital images. The Kiosk also permits the user to add a picture by scanning a photograph, cropping it and positioning it on the business card. The user can then add a logo by choosing one from a library of logos or by scanning in the customer's own logo. Text can be added by using the built-in word processor. The design is saved on a disk until it is transferred to a negative for printing. The output of the Photocards Kiosk is a roll of exposed 35 mm film which is processed using separate processing equipment available in the photographic laboratory. The Kiosk does not contain any film processing or printing equipment. As presently configured, the Kiosk is sold only to photographic laboratories. - 2 - The Kiosk contains the following components: a Ricoh KR-10M SLR camera with Ricoh 35-70 mm lens; high resolution computer monitor; a UMAX flat bed scanner; a computer (486DLC-33 with 250 Mb hard disk drive) with monitor and mini keyboard; computer speakers; touch screen; and video splitter/multiplier. The Kiosk uses Canadian developed and produced software. The software, which is described as the "heart" of the system, incorporates stereo sound, recorded voice, photographic quality images and an interactive touch screen to guide the user through the design process. The software is permanently fixed in the Kiosk's hard disk drive, and is designed to work only with the Photocards Kiosk. In NY 898735, issued to you on June 28, 1994, the Kiosk was held to be classifiable under subheading 9010.20.60, HTSUS, which provides for other apparatus and equipment for photographic laboratories, while the Kiosk's software was classified separately under subheading 8524.90.40, HTSUS, which provides for records, tapes and other recorded media for sound or other similarly recorded phenomena. In this ruling, you were asked to provide more information if you were seeking a ruling on the applicability of the NAFTA. ISSUE: I. Whether the Photocards Kiosk and its software are classifiable under subheading 9010.20.60, HTSUS, or whether its software is separately classifiable under subheading 8524.90.40, HTSUS. II. Whether the Photocards Kiosk and its software are eligible for preferential treatment under the NAFTA. LAW AND ANALYSIS: I. CLASSIFICATION The General Rules of Interpretation (GRI's) to the HTSUS govern the classification of goods in the tariff schedule. GRI 1 states in pertinent part that "for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes . . . ." The Photocards Kiosk is a machine that allows a customer to design and produce a photographic business card. The Kiosk creates a standard 35 mm negative that can be processed using virtually any photo processing equipment. The Kiosk, which is sold only to photographic laboratories, is described under heading 9010, HTSUS, which provides for "[a]pparatus and equipment for photographic (including cinematographic) laboratories (including apparatus for the projection of circuit patterns on sensitized semiconductor materials), not specified or included elsewhere in this chapter . . . ." Specifically, the Kiosk is classifiable under subheading 9010.20.60, HTSUS, which provides for other apparatus for - 3 - photographic laboratories. However, note 6 to chapter 85, HTSUS, provides 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." The Photocards Kiosk consists of software that is permanently fixed in the Kiosk's hard disk drive. The software package is designed to work only with the Photocards Kiosk and the Kiosk cannot operate without the software. Customs has addressed the issue of whether chapter 85, note 6, extends to permanently installed software. HQ 950675, dated January 7, 1992, concerned the classification of a system that measured, displayed and recorded the electrical currents generated in a patient's heart during an electrophysiological study. The system utilized proprietary software to analyze the recorded data and compile the appropriate reports for display on the system's monitor, or for subsequent printing. We held that the software, whether imported in floppy disk form or downloaded onto the system's hard disk drive, was classifiable under subheading 8524.90.40, HTSUS, whether or not entered with the rest of the system. See also, HQ 086624, dated May 4, 1991; HQ 086851, dated April 9, 1990; HQ 086126, dated March 6, 1990. Accordingly, the Kiosk's software is classifiable under subheading 8524.90.40, HTSUS. II. NAFTA APPLICABILITY You contend that the Photocards Kiosk is eligible for duty- free treatment under the NAFTA. To be eligible for tariff preferences under the NAFTA, goods must be "originating goods" within the rules of origin in general note 12(b), HTSUS. General notes 12(b)(i) and (ii)(A), HTSUS, state: [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 -- (A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein . . . - 4 - The Kiosk contains a scanner, monitors, keyboard, video splitter/multiplier, 35mm camera and a pair of speakers imported into Canada from non-NAFTA countries. The Kiosk also contains a computer that consists of a U.S.-made chip and hard disk drive (33% U.S.). Because the Kiosk contains goods from countries other than Mexico, Canada and/or the U.S., general note 12(b)(i) does not apply. Consequently, we must resort to general note 12(b)(ii)(A), HTSUS. Because the Kiosk is provided for under subheading 9010.20.60, HTSUS, a transformation is evident when a change in tariff classification occurs which is authorized by general note 12(t)/90.25(A), HTSUS, which states: [a] change to subheadings 9010.10 through 9010.30 from any other heading . . . Thus, any non-originating materials in the Kiosk must come from a heading other than subheadings 9010.10, HTSUS, through 9010.30, HTSUS. None of the non-originating materials are classifiable under heading 9010, HTSUS. For example, the monitors, keyboard and scanner are classifiable under heading 8471, HTSUS (automatic data processing machines and units thereof), the camera is classifiable under heading 9006, HTSUS (photographic cameras) and the speakers are classifiable under heading 8518, HTSUS (loudspeakers, whether or not mounted in their enclosures). Consequently, a change in tariff classification does occur, and the Photocards Kiosk, containing a scanner, monitor, keyboard, video splitter/multiplier, television monitor, 35 mm camera, pair of speakers, etc., from non-NAFTA countries, is eligible for preferential treatment under the NAFTA. The Canadian developed and produced software, which is separately classifiable under subheading 8524.90.40, HTSUS, is also eligible for preferential treatment under the NAFTA according to general note 12(b)(i), HTSUS. If the software is developed and produced in a non-NAFTA country, it is still eligible for preferential treatment under the NAFTA according to general note 12(b)(ii)(A). Because the non-originating components of the Photocards Kiosk went through the necessary transformation, the Kiosk is an "originating good." Thus, the software, which is separately classifiable, is also considered an "originating good." HOLDING: The Photocards Kiosk is classifiable under subheading 9010.20.60, HTSUS, which provides for other apparatus for photographic laboratories. The Photocards Kiosk's software is classifiable under subheading 8524.90.40, HTSUS, which provides for - 5 - other recorded media. The Kiosk and the software are eligible for preferential treatment under the NAFTA. The Column 1 (Special) (CA) rate of duty for articles of subheading 9010.20.60, HTSUS, is free. The Column 1 (Special) (CA) rate of duty for articles of subheading 8524.90.40, HTSUS, is 3.8 cents/square meters of recording surface. Sincerely, John Durant, Director Commercial Rulings Division