HQ 0952812 - ISDN Teleset; Voice and Data Transmission; ISDN Personal Computer Adapter; Network Interface Board; Automatic Data Processing Machine; Telephone Set; 8471; 8517; - United States International Trade Commision Rulings

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HQ 952812

December 30, 1992

CLA-2 CO:R:C:M 952812 MBR

CATEGORY: CLASSIFICATION

TARIFF NO.: 8517.10.00; 8471.99.15

Mr. Terry Gartman
Lodestar Technology Inc.
3101 Maguire Blvd., Suite 251
Orlando, Florida 32803

RE: ISDN Teleset; Voice and Data Transmission; ISDN Personal Computer Adapter; Network Interface Board; Automatic Data Processing Machine; Telephone Set; 8471; 8517;

Dear Mr. Gartman:

This is in reply to your letter of September 8, 1992, on behalf of Lodestar Technology Inc., regarding the classification of the "ISDN Teleset" and the "ISDN Personal Computer Adapter," under the Harmonized Tariff Schedule of the United States (HTSUS). Your letter was forwarded to this office for reply.

FACTS:

The two articles at issue are the "ISDN Teleset" and the "ISDN PC Adapter."

The "ISDN Teleset" is essentially a telephone set integrated with a data interface. Therefore, it is possible to simultaneously use this telephone for voice transmission as well as data transmission. The telephone set provides all of the standard advanced telephone features such as "hold," "conference," "drop," "last number redial," etc. The Teleset also has a 40 X 4 character LCD display for messaging such as caller ID, calendar, clock, etc.

The "ISDN PC Adapter" is designed to be incorporated into a personal computer. It performs packet switching of data using X.25 protocol and circuit switching of data using either X.25 or V.120 protocols. It is also possible to attach an analogue telephone to the B-Channel using the RJ-11 connector jack on the adapter's back bracket.

ISSUE:

Are the "ISDN Teleset" and the "ISDN PC Adapter" classifiable under heading 8517, HTSUS, which provides for: "[e]lectrical apparatus for line telephony or telegraphy, including such apparatus for carrier-current line systems," or are they classifiable under heading 8471, HTSUS, which provides for: "[a]utomatic data processing machines and units thereof"?

LAW AND ANALYSIS:

Since the HTSUS came into effect there has been a great deal of controversy regarding the classification of ADP data transmission and reception apparatus. However, there is no clear classification guidance from either the HTSUS or the Harmonized Commodity Description and Coding System Explanatory Notes (ENs), primarily due to the technological advancements in this area.

The instant ISDN PC Adapter is a plug-in card that is inserted into an XT, AT or compatible PC and attaches to an ISDN basic rate interface. "ISDN" stands for Integrated Services Digital Network. The ISDN PC Adapter card integrates various data transmission and reception (such as data, facsimile, and image) and voice transmission, into a specialized digital transmission network. The Computer Glossary, Fourth Edition, Alan Freedman (1989), defines a "Local Area Network," "Baseband," and "Broadband 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 networks 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.

Customs first held that LAN boards were classifiable under heading 8471, HTSUS, because the submitted information was persuasive that the LANs' principal function was that of data processing (See HQ 086105, dated May 7, 1990).

Section XVI, Legal Note 3, provides direction for the classification of machines with more than one function. It states:

Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary functions are to be classified as if consisting only of that component or as being that machine which performs the principal function. (Emphasis added).

There has been no dispute that LANs have two complementary functions, i.e., transmission and data processing. Therefore, the issue has been one of which performs the principal function.

Subsequent to HQ 086105, it was determined that the principal function of the LANs was that of data transmission, and were classifiable under heading 8517, HTSUS, which provides for: "[e]lectrical apparatus for line telephony or telegraphy."

However, Legal Note 5(B) to chapter 84, HTSUS, provides guidance regarding units of automatic data processing machines. It states:

Automatic data processing machines may be in the form of systems consisting of a variable number of separately housed units. A unit is to be regarded as being a part of the complete system if it meets all of the following conditions:

(a) It is connectable to the central processing unit either directly or through one or more other units; and

(b) It is specifically designed as part of such a system (it must, in particular, unless it is a power supply unit, be able to accept or deliver data in a form (code or signals) which can be used by the system).

It was argued that the networking boards were essential to the ADP systems they serve because they process and format the data of the computers they serve. We now agree. In fact, in the future, LAN boards or their antecedents may be incorporated into PCs at the time of manufacture. Apparently, the only reason they are not presently incorporated at manufacture is because of the myriad of different types of LAN systems, which cannot necessarily communicate or interact with each other. Therefore, end users must choose the type of LAN system that best suits their needs.

It is also important to note that the ENs, page 1299-1300, describe separately presented ADP units as follows:

This heading also covers separately presented constituent units of data processing systems. Constituent units are those defined in Parts (A) and (B) above as being parts of a complete system.

Apart from central processing units and input and output units, examples of such units include:

(4) Control and adaptor units such as those to effect interconnection of the central processing unit to other digital data processing machines, or to groups of input or output units which may comprise visual display units, remote terminals, etc.

This category includes channel to channel adapters used to connect two digital systems to each other.

(5) Signal Converting units. At input, these enable an external signal to be understood by the machine, while at output, they convert the output signals that result from the processing carried out by the machine into signals which can be used externally.

The instant ISDN PC Adapter does in fact effectuate interconnection of the CPU unit to other units or ADP machines, thereby serving control and adaption functions, as well as performing signal conversion. We find these ADP functions to be the principal function.

Our diligent fact finding, and research and analysis of this issue, has been continually ongoing. Therefore, we have learned more about this type of merchandise, its functions, and its geometrically progressive technological developments. Furthermore, we have consulted with the Customs Administrations of other
countries regarding their legal analysis of this issue. We have found that a substantial majority of other Administrations are classifying this merchandise in heading 8471, of the HS. While the views of the other Administrations are not binding on the U.S. Customs Service, they were useful in the analysis of this issue.

Therefore, it is now our conclusion that the data processing features do in fact represent the principal function of the ISDN PC Adapter, directing classification in subheading 8471.99.15, HTSUS, which provides for control or adapter units.

However, the "ISDN Teleset" is quite different merchandise. It is a telephone set that also integrates two RS232 ports for asynchronous and synchronous data communications. Therefore, the ISDN Teleset is also a "machine adapted for the purpose of performing two or more complementary functions." You have provided no data regarding principal function, however, it is Customs position that this is simply an advanced telephone set that provides the user with additional features for expanded use. We can envision a time not that far in the future when all telephone sets will have a data port to facilitate the transmission and reception of data. Therefore, the function of the telephone set is found to impart the principal function. Thus, the "ISDN Teleset" is classifiable in subheading 8517.10.00, HTSUS, which provides for: "[e]lectrical apparatus for line telephony or telegraphy, including such apparatus for carrier-current line systems: [t]elephone sets."

HOLDING:

The instant ISDN PC Adapter is classifiable under subheading 8471.99.15, HTSUS, which provides for: "[a]utomatic data processing machines and units thereof: [o]ther: [o]ther: [c]ontrol or adapter units." The rate of duty is Free.

The "ISDN Teleset" is classifiable in subheading 8517.10.00, HTSUS, which provides for: "[e]lectrical apparatus for line telephony or telegraphy, including such apparatus for carrier- current line systems: [t]elephone sets." The rate of duty is 8.5% ad valorem.

Sincerely,

John Durant, Director

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