External Automatic Data Processor Machine Speakers

HQ 964209 September 14, 2001 CLA-2 RR:CR:GC 964209 KBR CATEGORY: Classification TARIFF NO.: 8518.22.00 Mr. Bryan Schillinger Arthur Andersen, LLP Suite 1300 711 Louisiana Street Houston, TX 77002-2786 RE: External Automatic Data Processor Machine Speakers Dear Mr. Schillinger: This is in regard to your letter on behalf of Dell Computer Corporation to the U.S. Customs Service, Director, National Commodity Specialist Division, New York, dated April 17, 2000, concerning the classification, under the Harmonized Tariff Schedule of the United States (HTSUS), of external speakers for desktop automatic data processing (ADP) machines. Your letter was referred to this office for reply. In preparing this ruling, consideration was given to arguments you presented in a meeting on May 2, 2001, as well as in your additional submissions dated May 22, 2001, and August 9, 2001. FACTS: According to the information provided, Dell imports various ADP components into a foreign trade zone (FTZ), acquires individual orders from customers, configures the ADP units or system to that specific order and mails it to the customer within days of receiving the order. The customer can order an ADP system with or without any of the usual components: monitors, keyboards, mouse, cables, speakers, processors, storage devices (drives, zip drives, hard disks, etc.), add-on cards, software, and accessories. Most components are packaged together in one shipping carton to be sent to the customer. However, if a monitor is ordered, it will be shipped in a separate carton. If speakers are ordered, the speakers will be shipped in their own separate, original carton in which they were received from the original manufacturer by Dell. Although there may be more than one box going to the customer, the entire order is entered into the United States as part of the same entry. You requested a ruling on the classification of the speakers, not the other components. In the submission dated May 22, 2001, you discussed prototype speakers with the name “Dell” displayed on the front. The prototype speaker will have no volume control on the speaker. The volume will be controlled by a specially designed keyboard. You believe the speakers should be classified as part of an ADP system in subheading 8471.49.48, HTSUS. ISSUE: What is the proper classification for external desktop ADP machine speakers. LAW AND ANALYSIS: Classification of merchandise under the HTSUS is in accordance with the General Rules of Interpretation (GRI). GRI 1 provides that classification is determined according to the terms of the headings and any relative section or chapter notes. Merchandise that cannot be classified in accordance with GRI 1 is to be classified in accordance with subsequent GRI. In interpreting the headings and subheadings, Customs looks to the Harmonized Commodity Description and Coding System Explanatory Notes (EN). Although not legally binding, they provide a commentary on the scope of each heading of the HTSUS. It is Customs 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 HTSUS provisions under consideration are as follows: 8471 Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included: * * * * * Other digital automatic data processing machines: Other, entered in the form of systems: * * * * * Input or output units, entered with the rest of a system, whether or not containing storage units in the same housing: * * * * * Other: Other 8471.60 Input or output units, whether or not containing storage units in the same housing: 8471.60.10 Combined input/output units 8518 Microphones and stands therefor; loudspeakers, whether or not mounted in their enclosures; headphones, earphones and combined microphone/speaker sets; audio-frequency electric amplifiers; electric sound amplifier sets; parts thereof: * * * * * Loudspeakers, whether or not mounted in their enclosures: 8518.22.00 Multiple loudspeakers, mounted in the same enclosure Generally, speakers are goods of heading 8518, HTSUS, classifiable as loudspeakers, whether or not mounted in their enclosures; in subheading 8518.22.00, HTSUS, as multiple loudspeakers, mounted in the same enclosure. See, e.g. HQ 956962 (September 13, 1994). In this situation, Dell plans to ship the speakers as part of the same entry with other ADP units. However, the speakers will be packaged in their own shipping carton, separate from the other ADP components. You claim that the speakers should be classified in Chapter 84, HTSUS. Note 5 for Chapter 84 states, in pertinent part as follows: (B) Automatic data processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (E) below, a unit is to be regarded as being a part of a complete system if it meets all the following conditions: (a) It is of a kind solely or principally used in an automatic data processing system; (b) It is connectable to the central processing unit either directly or through one or more other units; and (c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system. (C) Separately presented units of an automatic data processing machine are to be classified in heading 8471. * * * * * (E) Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings. Pursuant to Note 5(B), automatic data processing machines may be a “system” composed of separate components or “units.” For a component to be considered part of a “system” of an automatic data processing machine, it must meet the requirements of Note 5(B)(a), (b) and (c). However, even if it meets those requirements, a component cannot be considered part of the automatic data processing system if Note 5(E) applies. Pursuant to Note 5(E), if a component has a specific function other than data processing, even though incorporated in or working with an automatic data processing machine, it must still be classified as a separate component according to its function. The instant speakers meet the terms of Note 5(E) and therefore cannot be part of a system pursuant to Note 5(B). See Chapter 84, General EN (E)(2). You also argue that the speakers may be considered part of a set pursuant to GRI 3(b) and therefore classifiable in subheading 8471.49, HTSUS, or subheading 8471.50, HTSUS. When a composite good consisting of two different components is involved, GRI 3(b) states that “[w]hen, by application of 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (b) Mixtures, composite goods consisting of materials or made up of different components, and 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.” The EN for GRI 3(b), states that "[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 . . .; (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)." In this case, the speakers are shipped in their own individual cartons, separate from whatever other ADP units the customer has ordered. The goods fail to meet the criteria in (c) because the components are “put up” after the sales transaction is complete. Further, they fail to meet the criteria in (b) because the components are not “put up together”. Each grouping is made to order so that no identifiable specific activity is met for all groupings. See e.g., NY B85213 (April 23, 1997); HQ 950667 (January 17, 1992); HQ 962125 (May 5, 2000). Therefore, the speakers may not be considered part of a “set” pursuant to GRI 3(b). You state in footnote 3, page 5, of your submission, that the separate packaging of the components should not effect the classification. You cite cases which determined that components of a “system” or “functional unit” may arrive separately and still be considered a system or functional unit. This is true as long as the items are part of the same “shipment” and arrive on the same day. See, HQ 546273 (July 23, 1996); HQ 961139 (April 6, 1998). However, there is a distinction between a “functional unit” or “system”, and a GRI 3(b) “set”. The “functional unit” evolves from Note 4 to § XVI, HTSUS. There is no functional unit here because there is no one combination of units, only importations in a freeform made-to-order format. Moreover, speakers do not contribute to the function of ADP systems of heading 8471. In addition, the “system” is determined pursuant to Chapter 84 Note 5, and different rules apply than for GRI 3(b), which requires all the components to be packaged together to be considered a “set.” In this case, we find that the speakers, pursuant to Note 5(E) to Chapter 84, have their own specific function and are not part of the ADP machine. The function of speakers is to convert an electrical signal into an audible sound. Speaker technology predates ADP technology and is used in a wide variety of apparatus including telephones, radios, record players, CD players, televisions, tape players, etc. The ADP system can operate without the external speakers. The speakers are shipped to the ultimate consumer without repackaging and in the same condition in which Dell receives them from the manufacturer. The ADP unit, if shipped without speakers, is operational; and the speakers, as shipped, can operate with different types of devices using the same plug/jack electrical connector. Therefore, we find that external speakers entered separate from an ADP unit, fall within Note 5(E) and are not part of an ADP system. You argue that if components are shipped without an output unit (i.e. monitor), one of the requirements to forming a system under Note 5(B), the speakers may be considered an output unit. However, since we have determined that speakers retain their own identity pursuant to Note 5(E), they may not be considered an “output unit” for purposes of Note 5(B), regardless of whether shipped with or without a monitor or printer or other components. Pursuant to GRI 1 and Chapter 84 Note 5(E), the classification of external speakers for a desktop ADP machine is in subheading 8518.22.00, HTSUS, which provides for multiple loudspeakers, mounted in the same enclosure. HOLDING: External speakers for desktop ADP machines are classifiable in subheading 8518.22.00, HTSUS, as multiple loudspeakers, mounted in the same enclosure. Sincerely, John Durant, Director Commercial Rulings Division