HQ 0953453 - Internal Advice No. 74/92; desktop computer terminal with telephone components; composite machine; Note 3, Section XVI; data processing; telephone communications; HRL 086553; General EN (VI); principal function; GRI 3(c); 8471.91.00 - United States International Trade Commision Rulings

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HQ 953453

July 16, 1993

CLA-2 CO:R:C:M 953453 KCC

CATEGORY: CLASSIFICATION

TARIFF NO.: 8517.10.00

District Director
U.S. Customs Service
Lincoln Juarez Bridge, Building #2
P.O. Box 3130
Laredo, Texas 78044-3130

RE: Internal Advice No. 74/92; desktop computer terminal with telephone components; composite machine; Note 3, Section XVI; data processing; telephone communications; HRL 086553; General EN (VI); principal function; GRI 3(c); 8471.91.00

Dear District Director:

This is in response to your memorandum of October 21, 1992, requesting internal advice regarding the tariff classification of desktop computer terminals with telephone components under the Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The articles at issue are the "Rolm Cedar" and "Rolm Cypress" units. You state that, pursuant to General Rule of Interpretation (GRI) 3(c), HTSUS, the Cedar and Cypress units are properly classified under subheading 8517.10.00, HTSUS, which provides for "Electrical apparatus for line telephony or telegraphy, including such apparatus for carrier-current line systems; parts thereof...Telephone sets...." However, Rolm Systems (Rolm) contends that the Cedar and Cypress units are classified under subheading 8471.20.00, HTSUS, which provides for "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...Digital automatic data processing machines, containing in the same housing at least a central processing unit and an input and output unit, whether or not combined...."

The Cedar is described by Rolm's brochure as "A Complete Personal Communication Computer." It integrates an IBM-compatible computer with an extremely flexible digital telephone system. A complete Cedar unit includes a monitor (CRT screen, dashboard and disk drives), keyboard and telephone system. As imported, the Cedar lacks the keyboard, telephone handset and personal data module. The personal data module is where all information entered by the user,
such as phone numbers, terminal profiles and log-on sequences is contained.

The Cedar's data processing machine is an IBM PC compatible personal computer with two disk drives and 384KB of usable memory. The Cedar also contains Personal Communications Software (PCS). The PCS is a module attached to the CBX unit and is not in diskette form. The PCS allows easy access to data bases stored in mainframes, minicomputers and public information services via rapid transfer of data files. The Cedar provides terminal emulation, data communication capability, the ability to run DOS compatible personal computer applications, calculator, reminders, telephone list, and other features.

The Cedar's digital telephone is used for both voice and data communication (telecommunication). The telephone can be used at any time, regardless of the other tasks being performed by the computer or whether the computer is turned on or not.

The Cypress is described by Rolm's brochures as "A Personal Communication Terminal with an Integrated Digital Telephone." The Cypress is a personal communication terminal which combines a digital telephone, productivity, and communication services, and a high-quality computer terminal in one unit. It has the same features as the Cedar, except that it does not include disk drives and does not provide the personal computer compatibility. As imported, the Cypress also lacks the keyboard, telephone handset, and personal data module. It is described as a device that combines the information retrieval capabilities of a smart terminal with the flexibility of a sophisticated digital telephone.

ISSUE:

Are the Cedar and Cypress units classified under heading 8471, HTSUS, as automatic data processing machines, or under heading 8517, HTSUS, as telephone apparatus?

LAW AND ANALYSIS:

The classification of merchandise under the HTSUS is governed by the General Rules of Interpretation (GRI's). GRI 1, HTSUS, states, in part, that "for legal purposes classification shall be determined according to the terms of the headings and any relative section or chapter notes."

Headings 8471 and 8517 fall within Section XVI, making the Section XVI Notes applicable to the classification of the Cedar and Cypress units. Note 3, Section XVI, HTSUS, states that:

...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 or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.

The Cedar and Cypress units are fitted together to form a whole by means of being incorporated together and mounted together. They perform at least two alternative functions, data processing and telecommunication. Therefore, the Cedar and Cypress units are composite machines pursuant to Note 3, Section XVI, HTSUS.

In Headquarters Ruling Letter (HRL) 086553 dated May 11, 1990, we classified a similar composite machine, the Navigator, as a telegraphic apparatus under subheading 8517.82.00, HTSUS. The Navigator was an integrated telephone, facsimile machine and personal computer. HRL 086553 held that the degree of physical and functional integration of the Navigator's functions made it difficult to isolate one of the functions and identify it as the principal function. Additionally, the Navigator's functions were not just physically integrated; they were complementary functions which were used with each other. The Navigator was marketed as an integrated office machine and not one of the three complementary functions was significantly emphasized over the others. Since no principal function could be found, the Navigator was classified pursuant to GRI 3(c), HTSUS, under the last subheading among the subheadings which equally merited consideration.

Rolm contends that the principal function of its products is the data processing function, i.e. the monitor, keyboard and disk drives for the Cedar, and the monitor and keyboard for the Cypress. Rolm states that HRL 086553 does not apply to their products because the Cedar and Cypress provide only two functions which are significantly different in complexity. Rolm contends that the Cedar and Cypress telephone functions are less sophisticated than the Navigators in HRL 086553. Rolm states that it is easy to separate the telephone function from the data processing function; even if the data processing function is not powered on, the telephone (ring, hold, transfer and connect buttons) still function so that a call can be made or answered.

We are not convinced that the data processing function is the principal function or that it can be separated from the telecommunication (voice and data) function. As stated in HRL 086553, certain data processing operations which are associated with telecommunication functions would be attributed to those functions for classification purposes. See, Note 5, Chapter 84, HTSUS, which states, in part, that "Heading 8471 does not cover machines incorporating or working in conjunction with an automatic data processing machine and performing a specific function. Such machines are classified in the headings appropriate to their respective functions...." The PCS operations associated with the telecommunication functions are performed by components within the monitor and would not be considered as separate articles for classification purposes. The data processing functions would include the PCS operations of reminders, calculators, date/time,
etc., whereas the telecommunication functions would include the PCS operation of phone lists.

Moreover, the information provided by Rolm states that their products integrate a personal communication computer (Cedar) or personal communication terminal (Cypress) with an extremely flexible digital telephone system to provide both the productivity tools of data processing and superior digital communications capabilities. Additionally, the digital telephone operates in conjunction with PCS in both the Cedar and Cypress to greatly simplify data access and information gathering. Therefore, the physical and functional integration of the data processing and data communication functions makes it difficult to identify the principal function.

It is our opinion that no single function can be determined to be the principal function of the Cedar or Cypress units. The Cedar and Cypress units cannot be classified according to GRI 1 through 3(b), HTSUS, Therefore, they are classified pursuant to GRI 3(c), HTSUS. Additionally, General Explanatory Note (VI) to Section XVI of the Harmonized Commodity and Description Coding System (HCDCS) (pg. 1133), states that "[w]here it is not possible to determine the principal function, and where, as provided in Note 3 to the Section, the context does not otherwise require, it is necessary to apply GRI

GRI 3(c), HTSUS, provides that goods "...shall be classified under the heading which occurs last in numerical order among those which equally merit consideration." Of the headings which equally merit consideration, heading 8517, HTSUS, occurs last in numerical order. Therefore, both the Cedar and Cypress units are classified as telephone apparatus under subheading 8517.10.00, HTSUS.

HOLDING:

The Cedar and Cypress are classified as telephone apparatus under subheading 8517.10.00, HTSUS.

For your information, subheading 8517.10.00, HTSUS, is an eligible tariff provision for preferential treatment under the Generalized System of Preferences (GSP). However, as of July 4, 1993, the GSP program expired. If the GSP program is re-instated and if the articles meet the requirements of General Note 3(c)(ii), HTSUS, and section 10.171-10.178, Customs Regulations (19 CFR 10.171-10.178), they may receive duty-free treatment.

You should advise the internal advice applicant of this decision.

Sincerely,

John Durant, Director
Commercial Rulings Division

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