CLA-2 CO:R:C:G 086035 MBR
Mr. Richard T. Deane
Northern Telecom, Inc.
77 Oriskany Drive
Tonawanda, NY 14150
RE: Reconsideration of NY 843415 (August 8, 1989) regarding the
Northern Telecom Digital Packet Network (DPN) from Canada.
Dear Mr. Deane:
This is in reply to your letter of September 25, 1989, on
behalf of Northern Telecom, Inc., requesting reconsideration of
NY 843415 (August 8, 1989), regarding the classification of the
Digital Packet Network, under the Harmonized Tariff Schedule of
the United States Annotated (HTSUSA).
FACTS:
The Digital Packet Network (DPN) is designed to handle large
scale, wide area data networks supporting from less than 100
lines to over 1,000,000 lines. This enables users to send data
between multiple points - usually host computers and terminals.
Typical user applications include electronic funds transfers,
electronic mail, file transfers between computers, and point of
sale or credit card authorization terminal transaction processing
with a host computer. These applications usually involve
industries such as banking, utilities, government, public
telephone companies, large corporations and retail industries.
The DPN requires an external modem in order to transmit and
receive data over carrier current line systems. However, the DPN
is dedicated to the transmission between two points of electrical
impulses representing text and/or images and other data using a
line connection connecting the transmitting station to the
receiving station. The DPN is not intended for the transmission
of speech or other sounds.
ISSUE:
Whether the Northern Telecom Digital Packet Network is
classifiable under 8471, Harmonized Tariff Schedule of the United
States Annotated (HTSUSA), which provides for "[a]utomatic data
processing machines," or under 8517, HTSUSA, which provides for
"[e]lectrical apparatus for line telephony or telegraphy"?
LAW AND ANALYSIS:
The General Rules of Interpretation (GRI's) to the HTSUSA
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...
You argue that the Digital Packet Network is classifiable as
an automatic data processing machine as defined by Legal Note
5(A)(a) to Chapter 84, HTSUSA. However, 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." You argue this Legal Note is met because "Service Data"
is downloaded into the processors. "Service Data" defines
protocol, packet size, and password/security selections of the
resident program. However, it is Customs position that the
Digital Packet Network is not freely programmed, and therefore is
not classifiable under heading 8471.
Heading 8517, HTSUSA, 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 (EN) to heading
8517 of the HTSUSA, 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. (Emphasis
added).
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). The Digital Packet Network is clearly a combination of
articles and materials intended, adapted and necessary for the
accomplishment of a specific purpose, i.e., that of processing
and preparing data for the transmission of line telegraphy.
Therefore, the Digital Packet Network and each of its components
can be appropriately termed "apparatus" for line telegraphy, even
though the DPN requires the addition of a modem.
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 (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.
You argue that the DPN is designed for the switching of user
data, not the switching of voice or "telephony signals" which, by
definition, you argue, is the transmission of speech or other
sounds. However, heading 8517 includes line telegraphy for the
transmission of symbols representing written messages, images or
other data. The definition of "telegraphic apparatus" is found
within the Harmonized Commodity Description and Coding System
Explanatory Note (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)
Clearly, the Digital Packet Network is telegraphic apparatus
designed for the transmission of data between two points.
Therefore, it is Customs position that the Digital Packet Network
is properly classifiable under subheading 8517.30.50, which
provides for: "[e]lectrical apparatus for line telephony or
telegraphy...: [t]elegraphic or telephonic switching apparatus:
[o]ther." See HQ 086478 (April 9, 1990), NY 843415 (August 8,
1989), NY 838270 (March 24, 1989).
HOLDING:
We concur with NY 843415 (August 8, 1989). The Northern
Telecom Digital Packet Network is classifiable under subheading
8517.30.50, HTSUSA, (whether imported together or as separate
components) which provides for: "[e]lectrical apparatus for line
telephony or telegraphy...: [t]elegraphic or telephonic switching
apparatus: [o]ther."
Goods classifiable under subheading 8517.30.50, HTSUSA,
which have originated in Canada, under the United States - Canada
Free Trade Agreement, will be entitled to a 2.8% percent ad
valorem rate of duty, upon compliance with all applicable
regulations.
Sincerely,
John Durant, Director
Commercial Rulings Division