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NY H81028




August 10, 2001

CLA-2-95:RR:NC:2:224 H81028

CATEGORY: CLASSIFICATION

TARIFF NO.: 9504.10.0000

Kathy Bartlett
Microsoft Corporation
One Microsoft Way
Redmond WA 98052-6399

RE: Electronic video game console; the tariff classification and status under the North American Free Trade Agreement (NAFTA); General Notes 12(b)(i) and (ii), and 12(t)/95.4, Customs Regulations; Article 509.

Dear Ms. Bartlett:

In your letters of March 13 and April 15, 2001, you requested a ruling on the tariff classification status, NAFTA eligibility, and the country of origin marking of the Microsoft Xbox video game console system from Mexico. We regret the delay in responding.

The Xbox is the code name for the Microsoft-branded home video game system. The system console is an interactive media player designed for connection to a television set. It has a 733mhz Central Processing Unit, a 256 MHz graphics processor chip, and a Media Communications Processor chip that performs definitive multimedia processing for broadband connectivity, communications, and high performance audio capabilities with the game. The Xbox game console has a built-in hard disk drive, is internet-enabled for online gaming and downloading of digital content, has DVD movie playback capabilities, and four USB-based game controller ports to which controllers can be connected. In some instances, the console will be imported with an Xbox game controller, a game input device held in two hands.

Microsoft imports most of the components of the Xbox system from Pacific Rim countries into Mexico and has contracted with Flextronics International ltd. to assemble the components into Xbox video game consoles and manufacture the final hardware. The foreign-originated components include graphics processor, media communication processor, memory controller, and central processor chips for the motherboard, a DVD drive, a hard disc drive, a hand controller and a power supply assembly. The finished consoles are then shipped to the United States for sale at retail.

Classification

Classification under the Harmonized Tariff Schedule of the United States Annotated (HTSUSA) is made in accordance with the General Rules of Interpretation (GRI). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes.

It is our position that the Xbox video game system is primarily designed for the home video game market and will be principally used to deliver video games on a console machine. Microsoft says it targets the Xbox to the console game player market. Under the authority of GRI 1, The Xbox video gaming system, as described, is provided for in the game provisions of heading 9504 of the HTSUSA. The applicable tariff subheading for the Xbox will be 9504.10.0000, HTSUSA, which provides for articles for arcade, table or parlor games, including pinball machines, bagatelle, billiards and special tables for casino games; automatic bowling alley equipment; parts and accessories thereof: video games of a kind used with a television receiver and parts and accessories thereof. The general rate of duty is free.

NAFTA eligibility

To be eligible for tariff preferences under the NAFTA, goods must be an “originating good” within the rules of origin in General Note 12(b), HTSUSA. The rule for determining whether this good is an originating good and therefore eligible for NAFTA treatment is found at General Notes 12(b)(i) and (ii), which state:

For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA
they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or they have been transformed in the territory of Canada, Mexico and/or the United States so that—
except as provided in subdivision (f) of this note, each of the non- originating materials used in the production of such goods undergoes a change in tariff classification described in subdivision (s) and (t) of this note or the rules set forth therein***.

Because the Xbox video game console is composed mostly of parts and components originating in countries other than Mexico, Canada or the United States, General Note 12(b)(i), HTSUSA, does not apply. We must resort to General Note 12(b)(ii)(A).

General Note 12(b)(ii)(A), HTSUSA, specifies in part that merchandise will qualify as originating goods for NAFTA eligibility if the non-originating material – in this case, the components previously listed (as well as a number of minor components) - undergo a change in tariff classification described in subdivision (t). The rule applicable to the subject game console merchandise is found in General Note 12(t), Chapter 95, Rule 4, which states “a change to headings 9503 through 9505 from any other chapter.” This rule is applicable to the subject merchandise as the finished video game console is classified within heading 9504, HTSUSA. Therefore, the rule indicates that all non-originating components of the Xbox console must be classifiable within a chapter of the HTSUSA other than chapter 95 for the finished video game console to be an originating good for NAFTA purposes and qualifiable for NAFTA preferential treatment. A review of the hundreds of non-originating parts and components for the Xbox console, including the various electronic processor chips and the DVD assembly and hard disc drive, indicatew they are classifiable in chapters other than 95 or under headings other than 9503 through 9505, HTSUSA. Consequently, they undergo the required shift to subheading 9504.10, HTSUSA. As a result, the Xbox console system satisfies the requirement of General Note 12(t)/95.4, HTSUSA, and qualifies as originating goods for NAFTA purposes.

Country of Origin

The last issue presented is whether the Xbox video game console system will be considered to be a good of Mexico for country of origin marking purposes. The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C 1304.

Section 134.1(b), of the Customs Regulations defines the term “country of origin” as:
the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the ‘country of origin’ within this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. (Emphasis added).

Section 134.1(j) of the regulations provides that the “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) defines a “good of a NAFTA country” as an article for which the country of origin is Canada, Mexico or the U.S. as determined under the NAFTA Marking Rules.

In this case, components of various countries of origin are exported to Mexico for assembly into video game consoles, which are then imported into the U.S. In order to determine the appropriate marking requirements for the imported merchandise, we must determine under the NAFTA Marking Rules the country of origin of the completed Xbox video game systems imported from Mexico.

Part 102, Customs Regulations (19 CFR Part 102), sets forth the “NAFTA Marking Rules.” Section 102.11, Customs Regulations sets forth the required hierarchy for determining the country of origin for marking purposes. Section 102.11(a) states that “the country of origin of a good is the country in which:

The good is wholly obtained or produced;
The good is produced exclusively from domestic materials: or Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.”

“Foreign material” is defined in section 102.1(e) as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.”

In the situation here, Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the Xbox video game console is processed and assembled in Mexico of foreign material and components and these components are neither “wholly obtained or produced,” nor “produced exclusively from domestic (Mexican) materials.” Therefore, for purposes of determining a country of origin for the imported good, we must look next to section 102.11(a)(3). Under this rule, the country of origin of a good is the country in which “each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20***.” Section 102.20 of the rules sets forth the specific tariff classification changes and/or other operations which are specifically required in order for country of origin to be determined on the basis of operations performed on the foreign materials contained in a good.

The completed Xbox video game console systems imported from Mexico are classifiable under subheading 9504.10.0000, HTSUSA (see above). The applicable change in tariff classification set out in section 102.20(s), Section XX, Chapters 94 through 96, of the regulations provides:

9504.10-9506.29 . A change to subheading 9504.10 through 9506.29 from any other subheading, including another subheading within that group.

In this case, the foreign components are classified in headings other than 9504 through 9506, HTSUSA. They undergo the applicable change in tariff classification or “tariff shift” set out in section 102.20(s). Pursuant to 19 C.F.R. 102.11(a)(3), the country of origin of the Xbox video game consoles is the country where the foreign materials undergo the tariff shift, which is Mexico.

This ruling is being issued under the provisions of Part 181 of the Customs Regulations (19 C.F.R. 181).

A copy of this ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Tom McKenna at 212-637-7015.

Sincerely,

Robert B. Swierupski
Director,
National Commodity

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