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HQ 086035


August 2, 1990

CLA-2 CO:R:C:G 086035 MBR

CATEGORY: CLASSIFICATION

TARIFF NO.: 8517.30.50

Mr. Richard T. Deane
Northern Telecom, Inc.
77 Oriskany Drive
Tonawanda, NY 14150

RE: Reconsideration of NY 843415 (August 8, 1989) regarding the Northern Telecom Digital Packet Network (DPN) from Canada.

Dear Mr. Deane:

This is in reply to your letter of September 25, 1989, on behalf of Northern Telecom, Inc., requesting reconsideration of NY 843415 (August 8, 1989), regarding the classification of the Digital Packet Network, under the Harmonized Tariff Schedule of the United States Annotated (HTSUSA).

FACTS:

The Digital Packet Network (DPN) is designed to handle large scale, wide area data networks supporting from less than 100 lines to over 1,000,000 lines. This enables users to send data between multiple points - usually host computers and terminals. Typical user applications include electronic funds transfers, electronic mail, file transfers between computers, and point of sale or credit card authorization terminal transaction processing with a host computer. These applications usually involve industries such as banking, utilities, government, public telephone companies, large corporations and retail industries.

The DPN requires an external modem in order to transmit and receive data over carrier current line systems. However, the DPN is dedicated to the transmission between two points of electrical impulses representing text and/or images and other data using a line connection connecting the transmitting station to the receiving station. The DPN is not intended for the transmission of speech or other sounds.

ISSUE:

Whether the Northern Telecom Digital Packet Network is classifiable under 8471, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), which provides for "[a]utomatic data processing machines," or under 8517, HTSUSA, which provides for "[e]lectrical apparatus for line telephony or telegraphy"?

LAW AND ANALYSIS:

The General Rules of Interpretation (GRI's) to the HTSUSA govern the classification of goods in the tariff schedule. GRI 1 states, in pertinent part:

...classification shall be determined according to the terms of the headings and any relative section or chapter notes...

You argue that the Digital Packet Network is classifiable as an automatic data processing machine as defined by Legal Note 5(A)(a) to Chapter 84, HTSUSA. However, Legal Note 5(A)(a)(2) requires that digital machines must be capable of: "(2) being freely programmed in accordance with the requirements of the user." You argue this Legal Note is met because "Service Data" is downloaded into the processors. "Service Data" defines protocol, packet size, and password/security selections of the resident program. However, it is Customs position that the Digital Packet Network is not freely programmed, and therefore is not classifiable under heading 8471.

Heading 8517, HTSUSA, provides for: "[e]lectrical apparatus for line telephony or line telegraphy, including such apparatus for carrier-current line systems." The Harmonized Commodity Description and Coding System Explanatory Notes (EN) to heading 8517 of the HTSUSA, page 1360, state:

The term "electrical apparatus for line telephony or line telegraphy" means apparatus for the transmission between two points of speech or other sounds (or of symbols representing written messages, images or other data), by variation of an electric current or of an optical wave flowing in a metallic or dielectric (copper, optical fibers, combination cable, etc.) circuit connecting the transmitting station to the receiving station. The heading covers all such electrical apparatus designed for this purpose, including the special apparatus used for carrier-current line systems. (Emphasis added).

The term "apparatus" has been defined by the courts as a combination of articles and materials which are intended, adapted, and necessary for the accomplishment of some purpose. The Deseret Co., v. United States, ___CIT___, Slip Op. 86-93 (1986). The Digital Packet Network is clearly a combination of articles and materials intended, adapted and necessary for the accomplishment of a specific purpose, i.e., that of processing and preparing data for the transmission of line telegraphy. Therefore, the Digital Packet Network and each of its components can be appropriately termed "apparatus" for line telegraphy, even though the DPN requires the addition of a modem.

The Customs Co-Operation Council Harmonized Commodity Description and Coding System, Summary of Comments and Observations by the Technical Team, Chapter 85, (April 25, 1979) stated:

With regard to packet switching equipment, the Technical Team reproduces below, for information, a text published by the Secretariat for the attention of the Working Party on Customs applications of computers (Doc. 21.926):

The transmission of computer system messages or parts of messages between distant points in the form of discrete packets which are transmitted over an independently operated computer driven network. The routes followed by messages are determined by the network and not by the sending systems. Packet switching is in many ways analogous to the conventional manual postal system in which an independent carrier receives and delivers letter packets for a community of users. Any one transmission line of the network may carry messages from different senders to different addresses. A message to be transmitted across a packet switched network is handled in the following manner: [t]he message is split into a number of packets of fixed maximum size each prefixed by the source and destination addresses, length and sequence number. Each packet is then handled by the network as a discrete message, being passed from one switch or node of the network to the next as soon as possible, depending on the destination address, the traffic density and the routes available. At the destination, the addresses, etc., are stripped off, the packets combined to form the original message and an acknowledgement sent back to the source according to whether or not the message is free from error. By using high speed links for the network, packets, originating from a large number of users transmitting into the network at moderate speeds, may be interleaved within the network, while maintaining full integrity and security. In this manner, network time is shared between users in a similar manner to that of a time sharing computer system.

Although the above text is not binding on us, such information is helpful in that it is demonstrative of the Customs Co-Operation Council's consideration for inclusion of this type of apparatus in Chapter 85.

You argue that the DPN is designed for the switching of user data, not the switching of voice or "telephony signals" which, by definition, you argue, is the transmission of speech or other sounds. However, heading 8517 includes line telegraphy for the transmission of symbols representing written messages, images or other data. The definition of "telegraphic apparatus" is found within the Harmonized Commodity Description and Coding System Explanatory Note (EN) to 85.17, p. 1363, which states:

This is essentially designed for converting texts or images into appropriate electrical impulses, for transmitting those impulses, and at the receiving end, receiving these impulses and converting them either into conventional symbols or indications representing the text, or into the text or image itself. (Emphasis added)

Clearly, the Digital Packet Network is telegraphic apparatus designed for the transmission of data between two points. Therefore, it is Customs position that the Digital Packet Network is properly classifiable under subheading 8517.30.50, which provides for: "[e]lectrical apparatus for line telephony or telegraphy...: [t]elegraphic or telephonic switching apparatus: [o]ther." See HQ 086478 (April 9, 1990), NY 843415 (August 8, 1989), NY 838270 (March 24, 1989).

HOLDING:

We concur with NY 843415 (August 8, 1989). The Northern Telecom Digital Packet Network is classifiable under subheading 8517.30.50, HTSUSA, (whether imported together or as separate components) which provides for: "[e]lectrical apparatus for line telephony or telegraphy...: [t]elegraphic or telephonic switching apparatus: [o]ther."

Goods classifiable under subheading 8517.30.50, HTSUSA, which have originated in Canada, under the United States - Canada Free Trade Agreement, will be entitled to a 2.8% percent ad valorem rate of duty, upon compliance with all applicable regulations.

Sincerely,


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