CLA-2 RR:TC:SM 559634 MLR
District Director
U.S. Customs Service
Port of Dallas/Fort Worth
P.O. Box 619050
DFW Airport, Texas 75261
RE: Application for Further Review of Protest No. 5501-95-100329; Denial of duty-free treatment of cordless
telephones/answering machines and answering machines
under the Generalized System of Preferences (GSP); tape;
battery pack
Dear Sir:
This is in reference to your memorandum dated December
27, 1995, forwarding a protest and application for further
review filed by Panasonic Company ("Panasonic"), which
contests the denial of duty-free treatment to certain
cordless telephone/answering machines and answering machines
from Malaysia under the Generalized System of Preferences
(GSP). Counsel filed additional information on May 3, 1996.
Samples were submitted.
FACTS:
The record indicates that the articles at issue were
entered on February 23, 1995, the entries were liquidated on
May 26, 1996, and the protest was timely filed on July 28,
1995.
Your office states that three models of cordless
telephone/answering machines are at issue, which consist of
the following component parts:
Component Part HTSUS Classification Country
of Origin
telephone base with answering machine heading 8525 Malaysia
transceiver handset heading 8525 Malaysia
removable rechargeable battery pack heading 8507 Japan
AC adaptor heading 8504 Malaysia
micro cassette tape heading 8523 Japan
wall cord with telephone jack connectors heading 8544 unmarked - presumed to be Malaysia
plastic wall mounting adaptor heading 3926 unmarked
- presumed to be Malaysia
Your office states that together these items carry out the
specific activity of telephonic communication, and as
imported they were packaged together for retail sale and
were classified by application of GRI 3(b) under subheading
8525.20.50, HTSUS, based on the components that imparted the
essential character to the telephone.
The other article at issue is an answering machine which
consists of an answering machine classifiable under heading
8520, HTSUS, and two micro cassettes classifiable under
heading 8523, HTSUS. Your office states that together these
items carry out the specific function of answering and
recording telephone calls, and as imported they were
packaged together for retail sale and were classified under
subheading 8520.20.40, HTSUS, based on the essential
character of the answering machine. The country of origin
of the answering machine is Malaysia, and the two micro
cassette tapes were from Japan.
The record contains a GSP declaration for all four
articles, including a GSP cost analysis, and production
costs.
ISSUE:
Whether the removable rechargeable battery pack and/or
micro cassette tapes from Japan disqualified the
telephone/answering machines and answering machines imported
from Malaysia from duty-free treatment under the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible articles the growth, product or
manufacture of a designated beneficiary developing country
(BDC) which are imported directly into the customs territory
of the U.S. from a BDC may receive duty-free treatment if
the sum of
(1) the cost or value of materials produced in the BDC, plus
(2) the direct costs of the processing operations performed
in the BDC, is equivalent to at least 35 percent of the
appraised value of the article at the time of entry into the
U.S. See 19 U.S.C. 2463(b).
At the time the articles were entered into the U.S.,
Malaysia was a designated BDC for purposes of the GSP. At
the time the telephone/answering machines at issue were
entered into the U.S., they were classified under subheading
8525.20.50, HTSUS, which was a GSP-eligible provision. The
answering machines were classified under heading 8520.20.40,
HTSUS, which also was a GSP-eligible provision. The record
also contains the documentary requirements for GSP
eligibility indicating that the 35 percent value-content
requirement was satisfied for the telephone/answering
machines and answering machines.
Therefore, the only issue remaining is whether the
telephone/answering machines, along with the removable
rechargeable battery pack and micro cassette tapes from
Japan, and the answering machines with the micro cassette
tapes from Japan, were "products of" Malaysia.
The "product of" requirement means that to receive
duty-free treatment, an article either must be made entirely
of materials originating in the BDC, or if made of materials
imported into the BDC those materials must be substantially
transformed in the BDC into a new or different article of
commerce.
Your office denied GSP treatment per T.D. 91-7 (January
8, 1991), which states that sets, mixtures, and composite
goods entered on or after August 20, 1990, are eligible for
GSP preference only if all of the items or components in the
collection are considered "products of" the BDC. Cited also
is Headquarters Ruling Letter (HRL) 555999 dated November
20, 1991, (toy sets containing figures from Mexico and China
were not entitled to duty-free treatment under the GSP
because the sets were not a "product of" Mexico), and HRL
555222 dated November 26, 1990.
Protestant states that the manufacturing process for the
telephone/answering machines at issue are described in HRL
557208 dated July 24, 1993. In 557208, Customs held that
cordless telephones which were produced in Mexico underwent
the double substantial transformation necessary to qualify
for the GSP. The first substantial transformation occurred
when the individual electronic components were assembled
onto a printed circuit board. The second substantial
transformation occurred when the printed circuit boards were
assembled with other parts into a finished cordless
telephone. Protestant claims that although the articles at
issue are telephone/answering machines, the manufacturing
process for these products was the same two-step process
used for the cordless telephones in HRL 557208, that is, the
assembly of components into a printed circuit board, and the
final assembly of the boards into the finished article.
Protestant also states that Legal Note 6, Chapter 85,
HTSUS, applies. Protestant states that the tapes were
separately classified under 8523.11, HTSUS, which covers
"magnetic tape" and duty was paid at the rate of 3.4
percent. It is claimed that the telephone/answering
machines were separately classified under 8525.20.50, HTSUS
(cordless). The answering machines were separately
classified under 8520.20.00, HTSUS.
As is correctly indicated, the telephone/answering
machines at the time of entry were classified, in accordance
with General Rule of Interpretation (GRI) 3(b), as a set
under subheading 8525.20.50, HTSUS. See Headquarters Ruling
Letter (HRL) 559010 dated March 14, 1996.
In T.D. 91-7, Customs held that as a general rule, a
collection classifiable in one subheading pursuant to the
GRI's will receive GSP treatment only if all of the items or
components in the collection are considered "products of"
the beneficiary country.
However, the micro cassette tapes were prima facie
classifiable in heading 8523, HTSUS. Chapter 85, Legal Note
6 provides:
[r]ecords, tapes and other media of heading 8523 or 8524
remain classified in those headings, whether or not they
are entered with the apparatus for which they are
intended.
Therefore, the micro cassette tapes were not classified
as part of the set, but rather were classified separately in
heading 8523, HTSUS. See HRL 951507 dated July 2, 1992.
Accordingly, the inclusion of the micro cassettes from Japan
in the retail package did not disqualify the
telephone/answering machines and the answering machines from
GSP eligibility.
In regard to the inclusion of the removable rechargeable
battery packs in the handsets of the telephone/answering
machines, we find that HRL 557208 is applicable. In that
case, as in this case, the assembly of the printed circuit
boards and various other electronic components, including a
removable rechargeable battery pack, into a cordless handset
resulted in a substantial transformation of the components,
and, therefore, the handset was considered a "product of"
Malaysia. Accordingly, in this case, it is our opinion that
the removable rechargeable battery pack inside the handset
was substantially transformed into a handset and was a
"product of" Malaysia. Since the battery pack was not
entered as a separate readily identifiable article, it was
not considered as a separate item in the set. Therefore,
the removable rechargeable battery pack contained inside the
handset did not disqualify the telephone/answering machine
from duty-free treatment under the GSP. We note that this
is contrasted to a situation where batteries are separate
articles and are packaged in a set for retail sale. See HRL
559032 dated October 25, 1995; and HRL 955897 dated April
15, 1994. See also HRL 559010 dated March 14, 1996 (GE
cordless telephone set consisting of a base unit, cordless
handset, desk mounting bracket, AC/DC converter power supply
with power supply cord, two telephone cords, and an
instruction booklet only did not qualify for duty-free
treatment under the GSP since the AC/DC converter power
supply from a non-BDC was an integral component of the
entire GE cordless telephone set and was not substantially
transformed by the packaging operation in the Philippines).
HOLDING:
Based on the information and samples provided, we are of
the opinion that the telephone/answering machines and
answering machines qualified for duty-free treatment under
the GSP, as the micro cassettes were separately entered and
classified in accordance with Chapter 85, Legal Note 6,
HTSUS. Additionally, the removable rechargeable battery
pack inside the handset was substantially transformed into a
"product of" Malaysia. Accordingly, this protest should be
granted.
In accordance with Section 3A(11)(b) of Customs
Directive 099 3550-065 dated August 4, 1993, Subject:
Revised Protest Directive, this decision should be attached
to Customs Form 19, Notice of Action, and be mailed by your
office to the protestant no later than 60 days from the date
of this letter. Any reliquidation of the entry in
accordance with the decision must be accomplished prior to
mailing the decision. Sixty days from the date of the
decision the Office of Regulations and Rulings will take
steps to make the decision available to customs personnel
via the Customs Rulings Module in ACS and the public via the
Diskette Subscription Service, Freedom of Information Act
and other public access channels.
Sincerely,
John Durant, Director
Tariff Classification Appeals
Division