HQ 0089355 - Protest No. 0901-9-850158; CLIMA Printed Circuit Boards; Pep and Step Circuit Boards; TDI Converter; Local Area Networking; Telegraphic Apparatus - United States International Trade Commision Rulings

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HQ 089355

January 7, 1992

CLA-2 CO:R:C:M 089355 MBR

CATEGORY: CLASSIFICATION

TARIFF NO.: 8517.82.00

District Director
U.S. Customs Service
111 West Huron St.
Buffalo, New York 14202

RE: Protest No. 0901-9-850158; CLIMA Printed Circuit Boards; Pep and Step Circuit Boards; TDI Converter; Local Area Networking; Telegraphic Apparatus

Dear Sir:

This is in response to the request for further review of Protest No. 0901-9-850158, dated May 9, 1989, regarding the classification of CLIMA printed Circuit boards, Pep and Step circuit boards, and TDI converters, under the Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The "CLIMA" boards are described in the submitted literature as an intelligent card consisting of an 8088 processor with 64K of DRAM, an 8053 timer, an 8259A interrupt controller, a 2764 EPROM and multibus interface. The card plugs into a Multi-Bus type host computer and is used to communicate to other remote computers. The board performs functions such as handling low level communication protocols, error checking and error handling.

"PEP" stands for "Personal Emulation Package." "Step" is the same technology developed by UNISYS. These "PEP" and "Step" boards are communications boards similar to the Network Interface Cards ("NICs") ruled upon in HQ 089596, dated September 17, 1991. NICs are designed for physical incorporation into a personal computer (PC) or into an automatic data processing (ADP) system. NICs are connectable to other PCs and units (e.g., input units, output units, storage units, and gateway equipment) over a variety of local area network (LAN) media including coaxial cables and twisted pair wire. The NICs convert, process, and format data so that several ADP machines or systems are able to communicate and function as a local area network.

The NICs perform two major functions. They receive binary information from a PC and convert this to digital data so that it can be used at other locations within the LAN. Examples of this conversion are character format conversion and file conversion. Once converted, this data is either formatted separately or grouped into units of data known as packets. This data is then transmitted to different locations within the LAN. Once received by another NIC, the packets are converted into a form usable by the destination device. Thus, the NICs essentially process, translate, convert, and transmit data for use within the LAN. The NICs also perform such additional functions as encoding, decoding, LAN protocol implementation, temporary memory storage, control logic for access to the host computer, and LAN processor local memory.

The NICs consist of various programmed chips (including microprocessors), resistors, transistors, and logic devices which operate within the network transmission and protocol software.

The "TDI" (Two-wire Direct Interface) Adapter is UNISYS connectivity hardware used to attach a single personal computer via the RS232C connector to a poll-select two-wire direct interface communications line for a local area network.

ISSUE:

Whether the CLIMA, PEP, and Step communications boards, and the TDI adapter are classifiable under heading 8473, HTSUS, which provides for parts of automatic data processing machines, or under heading 8517, HTSUS, which provides for "[e]lectrical apparatus for line telephony or telegraphy"?

LAW AND ANALYSIS:

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:

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

The instant local area networking data communication boards are not classifiable as automatic data processing machines, as defined by Legal Note 5(A)(a) to Chapter 84, HTSUSA. 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." Although they do perform some forms of data processing (such as service data which defines protocol, packet size, etc.) it is Customs position that they are not freely programmed, and therefore are not classifiable under heading 8471.

The submitted literature clearly shows that the instant networking boards are the foundation to a local area network and are dedicated to data communication. The Computer Glossary, Fourth Edition, Alan Freedman (1989), defines a "Local Area Network" as follows:

A local area network is a communications network that serves several users within a confined geographical area. Although the term may refer to any communications network within a building or plant, it typically refers to the interconnection of personal computers.

Personal computer local area networks function as distributed processing systems in which each computer, or node, in the network does its own processing and manages some of its data. Shared data is stored in a high-performance pc in the network, called a file server or network server, which acts as a remote disk drive to all the users in the network.

The printers that are attached to the network can function on a first-come, first-served basis, or they can be connected to a computer, called a print server, which collects the print output and feeds it to the printer one job at a time.

A local area network is the backbone of office automation and allows electronic mail and other information to be communicated between all users of the system. Local area networks are becoming essential for small work groups that enter, share and exchange the same information.

With the use of a gateway, local area network can connect to minicomputer and mainframe networks.

BASEBAND NETWORKS
Baseband networks are all digital networks that require information in digital form. Examples are ARCNET, Token Ring, Ethernet and Starlan. All of these networks are driven by network management software that resides in the file servers and the work stations. Examples of network software are Microsoft's NetBIOS and LAN Manager, Apple Talk, TPC/IP and Novell's NetWare.

BROADBAND NETWORKS
Broadband networks use carrier frequencies and can handle voice and video transmission as well, for example, Wang Computer's WangNET.

The protestant argues that the networking boards are "parts" of automatic data processing machines. However, the fact that each board at issue requires the attachment of another article (the PC) in order to be capable of performing its function (data communication) does not render each board a "part," since there is
no requirement that a machine must be "self-activating." Nord Light, Inc. v. United States, 49 CCPA 12, C.A.D. 786 (1961). Although, when imported, the boards are incapable of functioning unless placed in a configuration with certain other boards and devices, in their final use they nevertheless are in and of themselves, network data communication (electrical telegraphic) apparatus specifically provided for in heading 8517, HTSUS. Westinghouse Electric International Co. v. United States, 28 Cust. Ct. 209, C.D. 1411 (1952), cited with approval by Fairchild Camera & Instrument Corp., Inter-Maritime Forwarding Co., Inc. v. United States, 53 CCPA 122, 126, C.A.D. 887 (1966). Similarly, the fact that they need to be incorporated within a system housing or chassis does not mandate their classification as a part. General Electric Company v. United States, 2 CIT 84, (1981).

It has been argued that the instant merchandise constitutes integral elements of the operation of the computer or of the data processing system by transferring data from one location to another and, as such, is a "part" or "unit" of an ADP machine. However, the network interface cards do not constitute "integral elements" of the computer itself. The networking cards are integral to the establishment of a local area network, i.e., the operation of transferring data from one location to another. This specific function is encompassed by heading 8517, HTSUS.

Heading 8517, HTSUS, 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 (ENs) to heading 8517 of the HTSUS, 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.

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). There can be no controversy that these boards are data communication boards for local area networking.

Therefore, the instant data communications devices, are a combination of articles and materials intended, adapted and necessary for the accomplishment of a specific purpose, i.e., that of local area network data communication (LAN).

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, a definition of data communication packet switching (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.

Certainly, these local area network data communications devices are apparatus designed for the transmission of data between two points, by variation of an electric current connecting the transmitting station to the receiving station, as described above.

Heading 8517, HTSUSA, specifically includes line telegraphy for the transmission of symbols representing written messages, images or other data. The definition of "telegraphic apparatus" is found within the 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).

The issue has been raised whether or not these three local area network data communication cards should be considered "modems" for tariff purposes. The Computer Glossary, Fourth Edition, by Alan Freedman (1989), defines "Modem" as follows:

(Modulator-DEModulator) A modem is a device that adapts a terminal or computer to a communications network. Modems turn digital pulses from the computer into frequencies (modulate) within the audio range of the telephone system and convert the frequencies back into digital pulses (demodulate) on the receiving side. Specialized modems are used to connect personal computers to a broadband local area network, which, similar to the telephone system, use electromagnetic waves for transmission signals, but at different frequencies. The telephone industry also refers to a modem as a dataset.

The modem handles the dialing and answering of the call and also generates the speed of the transmission, which is measured in bits per second. Modems used on telephone lines transmit at speeds of 300, 1200, 2400, 4800, 9600 and 19200 bits per second. The effective data rate is 10% of the bit rate; thus, 300 bits per second (bps) is equivalent to 30 characters per second (cps). It would take a full minute to fill up a video screen at that rate; 15 seconds at 1,200 bps and about seven seconds at 2,400 bps. Due to noisy lines in the dial-up telephone system, the higher speeds can be problematic, and private lines may be required.

In order to have a personal computer dial up and communicate with another computer or public information service, more than a modem is required. The computer must have a serial port available into which the modem is connected. In addition, a communications program must be used in order to direct the computer to do the transmitting and receiving.

As this definition delineates, "[m]odems turn digital pulses from the computer into frequencies (modulate) within the audio range of the telephone system and convert the frequencies back into digital pulses (demodulate) on the receiving side." None of the
articles in question performs these particular, specialized functions.

Based upon the design and intended applications of the instant merchandise, it is Customs opinion that the instant boards (for Local Area Networking) are not principally used for carrier current line systems.

The importer repeatedly states that the TDI converters "do not at any time connect to or through telephone lines." However, this fact does not change the design and function of the TDI from one of data communication, i.e., the transmission of data.

Therefore, the instant CLIMA, PEP, and Step local area network data communication system boards and TDI converter are classifiable under subheading 8517.82.00, which provides for: "[e]lectrical apparatus for line telephony or telegraphy, including such apparatus for carrier-current line systems: [o]ther apparatus: [t]elegraphic."

For similar holdings regarding similar data communications merchandise, see HQ 089596, dated September 17, 1991, HQ 089597, dated September 5, 1991, HQ 089277, dated August 14, 1991, HQ 089227, dated July 24, 1991, HQ 086035, dated August 2, 1990, HQ 086478, dated April 9, 1990, HQ 087468, dated January 8, 1991, HQ 086615, dated April 20, 1990, HQ 085661, dated February 15, 1990, and NY 852403, dated May 31, 1990.

HOLDING:

The "CLIMA," "PEP," and "Step" local area network data communication system boards and TDI converter are classifiable under subheading 8517.82.00, which provides for: "[e]lectrical apparatus for line telephony or telegraphy, including such apparatus for carrier-current line systems: [o]ther apparatus: [t]elegraphic."

The protest should be denied in full. A copy of this decision should be attached to the Customs Form 19 and provided to the protestant as part of the notice of action on the protest.

Sincerely,

John Durant, Director

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