HQ 958314 - SecurID Card; "Smart" Cards; Parts of Automatic Data Processing (ADP) Machines; Integrated Circuits; Printed Circuit Boards; Liquid Crystal Displays; Essential Character; GRI 3(b); Headings 8471, 8473, 8531, 8542, 9013 - United States International Trade Commision Rulings

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HQ 958314

November 29, 1995

CLA-2 RR:TC:MM 958314 RFA

CATEGORY: CLASSIFICATION

TARIFF NO.: 8542.11.80

Ms. Mary E. Wright
Mr. Harold I. Loring
Grunfeld, Desiderio, Lebowitz & Silverman 245 Park Avenue
New York, NY 10167-0002

RE: SecurID Card; "Smart" Cards; Parts of Automatic Data Processing (ADP) Machines; Integrated Circuits; Printed Circuit Boards; Liquid Crystal Displays; Essential Character; GRI 3(b); Headings 8471, 8473, 8531, 8542, 9013

Dear Ms. Wright and Mr. Loring:

This is in response to your letter dated March 30, 1995, to the Area Director of Customs in New York, on behalf of Security Dynamics Inc. ("SDI"), concerning the tariff classification of "SecurID" Cards under the Harmonized Tariff Schedule of the United States (HTSUS). Your letter and samples were referred to this office for a response.

FACTS:

The merchandise, labeled as "SecurID Card", which is no larger than a credit card, consists of an integrated circuit (IC), a printed circuit board (PCB), a lithium battery, six capacitor chips, and a liquid crystal display (LCD) in a steel backing with a vinyl cover. After importation, the SecurID Card will undergo further processing so that it can function as a user identification and authentication card which, in conjunction with an Access Control Module ("ACM"), will provide security access to automatic data processing (ADP) machines. SDI will input programming called a 64-bit "seed" in binary code into the SecurID Card and the ACM. The "seed" generates a 4-8 digit code number ("Passcode") which changes in a pseudo-random pattern (most commonly every 30 or 60 seconds). This code number is displayed on the SecurID Card's LCD panel. The changing numbers in the SecurID Card and ACM are synchronized. Thus, when a user logs onto his computer, the ACM software prompts the user to enter the pseudo-random number Passcode then showing on the SecurID Card's LCD display panel, as well as a personal identification number ("PIN"). If the ACM software makes a valid match between its own generated Passcode and the card's Passcode, the user is then authorized access into the computer. The U.S. programming performed after importation also inputs the personal identification number ("PIN") into the SecurID Card as well as customer-specified functionality such as the number of digits, frequency of the display changes, and the life of the card.

The time synchronization algorithm is manufactured into the chip abroad, prior to importation. This manufacturing process is as follows:

The microprocessor in the card is purchased from Sanyo in Japan. The firmware that was developed in the U.S. is put into micro code and sent to Japan to be "burned" into the chip. This is called a "mask." The mask is proprietary to SDI but is physically placed on the chip by Sanyo. This mask contains the instruction sets (algorithms) to process the information which will later be directly programmed into the assembled SecurID Card in the U.S. From time to time SDI employees change the mask and re-ship the revised mask to Japan to be burned onto the chip. Sanyo then ships the chip with the mask directly to the manufacturing plant in China where it is assembled into a raw card. The raw card is then shipped to SDI's headquarters in Cambridge, MA. The assembled raw card is not functional at this point. Showing on the card's LCD display is only a flashing diamond. The card is in "sleep" mode. Until it receives certain information (in binary code) which is programmed at SDI, the raw card is useless.

When the card arrives in the U.S. it is inspected for defects and then serialized. It is then sent into card programming. Using a PC, and a manufacturing software program ("ACEPROG"), developed in the U.S. by SDI engineers, the unique seed (a random 64 bit Hexadecimal number) for the card is calculated and all of the "custom" parameters ordered by the customer are processed. Using other manufacturing equipment designed and developed by SDI technical personnel including a mechanical robot, a synchronization station and an interface with a purchased quartz monitor, the card is programmed, taking the information calculated by the ACEPROG software and converting it into binary code and then mechanically programming the RAM [random access memory] of the microprocessor chip. The information supplied by SDI's programming process, combined with the instruction set (algorithms) already on the chip's mask, allow the card to function.

ISSUE:

Is the SecurID Card classifiable as a "smart" card under heading 8542, HTSUS, or as an adapter for ADP machines under heading 8471, HTSUS, or as a part of ADP machines under heading 8473, HTSUS?

LAW AND ANALYSIS:

Classification of merchandise under the HTSUS is in accordance with the General Rules of Interpretation (GRI's). GRI 1 provides that classification shall be determined according to the terms of the headings and any relative section or chapter notes.

Heading 8542, HTSUS, provides for electronic integrated circuits and microassemblies. The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the HTSUS. While not legally binding or dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 FR 35127, 35128 (August 23, 1989). EN 85.42, page 1400, states, in pertinent part, that:

Monolithic integrated circuits may be presented:

(iv) In the form of cards commonly known as "smart" cards which have embedded in them one or more electronic integrated circuits incorporating a microprocessor chip, and which may or may not have a magnetic stripe.

We believe that the SecurID Card is a composite good consisting of a "smart" card, prima facie classifiable under heading 8542, HTSUS, and an LCD panel, prima facie classifiable under headings 8531 or 9013, HTSUS. Because classification in a single heading cannot be determined by applying GRI 1, we must apply the other GRI's. GRI 2(a) is not applicable here because the merchandise is not incomplete or unfinished. GRI 2(b) states that if a product is a mixture or combination of materials or substances that are, prima facie, classifiable in two or more headings, then GRI 3 applies.

GRI 3(a) states that if a product is classifiable in two or more headings by application of GRI 2(b), then the:
heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

Because the "smart" card and the LCD panel fall under separate headings in the tariff schedule which describe only a portion of the SecurID Card, the headings are to be regarded as equally specific under GRI 3(a). Therefore, GRI 3(a) fails in establishing classification, and GRI 3(b) becomes applicable. GRI 3(b) provides that composite goods consisting of different materials or made up of different components, shall be classified as if they consisted of the material or component which gives them their essential character. EN IX to GRI 3(b), page 4, states:

[f]or the purposes of this Rule, composite goods made up of different components shall be taken to mean not only those in which the components are attached to each other to form a practically inseparable whole but also those with separable components, provided these components are adapted one to the other and are mutually complementary and that together they form a whole which would not normally be offered for sale in separate parts. (emphasis in original)

Because the merchandise is a composite good, we must determine which component provides the essential character. EN VIII to GRI 3(b), page 4, states that the factors will vary as between different kinds of goods to determine the essential character of an article. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods.

We find that the essential character of the SecurID Card is imparted by the "smart" card components because those components are needed to calculate the Passcode. The LCD panel merely allows the information calculated by the SecurID Card to be displayed in 4 to 8 digits. Without the IC and PCB and capacitor chips, the LCD panel cannot display the information needed by the user. Under the authority of GRI 3(b), we find that the SecurID Card is classifiable under heading 8542, HTSUS.

In your letter, you indicated that the SecurID Card, at the time of importation, is classifiable under heading 8542, HTSUS. Additionally, you requested that we determine the classification of the SecurID Card which will have been subjected to subsequent programming performed in the U.S. after importation. This request is based upon the finding in HQs 733085 (June 13, 1990) and 558868 (February 23, 1995) of a substantial transformation of the SecurID Card for marking purposes. We recognize that certain rules have been proposed in the Federal Register on May 5, 1995 (60 FR 22312), which may make the requested information relevant. However, no changes in the rules of substantial transformation have been enacted. Therefore, at the present time, Customs will not issue classification opinions or rulings on merchandise which will undergo alteration after importation. If the proposed rules are adopted, we request that you make a submission at that time so that we may address this issue.

HOLDING:

The SecurID Card is classifiable under subheading 8542.11.80, HTSUS, which provides for: "[e]lectronic integrated circuits and microassemblies. . . : [m]onolithic integrated circuits: [d]igital: [o]ther. . . . " The general, column one rate of duty is free.

Sincerely,

John Durant, Director
Tariff Classification Appeals Division

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