• HQ 961210
• Apr 02, 1999

• Type : Classification • HTSUS :
•  Related:   958629; 959655   

CLA-2 RR:CR:GC 961210 JAS

Mark Neville
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154

RE: Digital Video Disc (DVD) Production Equipment; Mastering and Replicating Machinery for Producing Video Discs

Dear Mr. Neville:

In a letter, dated June 24, 1998, on behalf of Panasonic Disc Services Corporation, you request a classification ruling under the Harmonized Tariff Schedule of the United States (HTSUS), on equipment for producing digital video discs. Descriptive literature and a schematic were submitted.

You supplemented this ruling request with additional arguments in a letter, dated October 29, 1998, and incorporated by reference submissions dated August 12 and November 21, 1997, from the client’s previous representative. At a meeting in our office on January 26, 1999, you presented a video of the machines in operation, after which you summarized all factual and legal arguments in the case.

FACTS:

The merchandise is a series of machines and machinery for producing Digital Video Discs (DVDs), which are metal-coated plastic discs for home video imagery (i.e., motion pictures), audio, and computer software. DVDs measure approximately 120 mm. (4.75 in.) in diameter and 1.2 mm. in thickness, and contain audio and video data, in digital format, either on one or both sides. The machines in issue perform a variety of individual - 2 -

functions in the manufacture of DVDs, which you condense into two overall operations, mastering and replicating. The submitted schematic and accompanying narrative, which explain the respective operations, indicate these are two separate and discrete groupings of machines.

In the mastering stage, a glass disc substrate is first chemically cleaned and then mechanically polished. In a series of machines referred to as an in-line mastering system, each glass disc is brush-cleaned, spray rinsed, and dried, coated with light-sensitive photoresist material, and oven baked. The glass disc is then converted into a recorded “master” utilizing a laser-transfer machine. This machine encodes data in digital format onto the photoresist coating of the glass substrate. Next, a developing unit removes the exposed portions of the photoresist, thus producing a pattern of pits which represents the digital data in the photoresist. In the last step of the in-line mastering system, the developed glass master is sputter-coated with a thin layer of nickel to make the photoresist surface conductive. Except for the laser encoder, all components of the in-line mastering system are within a glass or hard plastic enclosure designed to create positive air pressure within. This keeps outside dirt and other contaminants from entering. The nickel/glass disc substrate is then plated with an additional layer of nickel to impart the required thickness. This electrolytic nickel layer is a master disc known as the “stamper.” Each stamper is electrically cleaned in an alkali solution to remove excess photoresist, after which an ashing machine utilizing an oxygen plasma heat process final cleans the stamper’s surface. The last step in the mastering stage involves removing the encoded nickel stamper from the surface of the glass substrate, then polishing and center hole-punching.

In the replicating stage, an injection molding machine, with the stamper in the mold cavity, compresses plastic resin under high pressure and velocity into disc-shaped replicas of the stamper. Each single sided replica is then sputter coated with a reflective coating of aluminum and bonded with adhesive onto a clear plastic disc. Double sided replicas are sputter coated with gold on one side and aluminum on the other. The aluminum and gold coated discs are then stacked on separate spindles. Both the aluminum and gold sputter coaters and the stacker are within an enclosure similar to the one for components of the in-line mastering system. Next, an optical inspection machine or - 3 -

laser scanner checks each disc for defects such as scratches, irregular coating thicknesses, and other physical abnormalities, after which a graphic label is affixed to the backside of each disc by an offset printing method. The finished DVDs are then boxed, the individual boxes wrapped, and multiple wrapped boxes placed in larger boxes.

You state that the appropriate classification for the described equipment is subheading 8477.10.40, HTSUS, which encompasses injection molding machines for use in the manufacture of video laser discs (VLDs) from plastics. In your opinion, DVD production equipment is successor technology to and represents a technological advancement over an earlier generation of equipment for producing 12-inch diameter VLDs for the digital recording of motion pictures, but nevertheless bears what you refer to as an essential resemblance to the latter. You claim that, except for size, VLDs and DVDs have the same physical characteristics and are sold through the same channels of trade. From this, you conclude the machines that make VLDs and DVDs are identical, with the actual production steps varying from one another “only to the slightest degree.” Alternatively, you state that an equivalent provision in subheading 8479.89.95, HTSUS, which provides for other machines and mechanical appliances having individual functions, not specified or included elsewhere in Chapter 84, for the manufacturing of video laser discs, describes the DVD production equipment in issue.

Among the provisions under consideration are the following:

8477 Machinery for working rubber or plastics or for the manufacture of products from these materials, not specified or included elsewhere in [chapter 84]; parts thereof:

8477.10 Injection molding machines:

8477.10.40 For use in the manufacture of video laser discs

8477.10.90 Other

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* * * *

8479 Machines and mechanical appliances having individual functions, not specified or included elsewhere in [chapter 84]; parts thereof: 8479.89 Other:

8479.89.85 ...machines for the manufacturing of video laser discs

8479.89.97 Other

ISSUE:

Whether machines, machinery, or equipment that comprise mastering equipment and replicating equipment for the production of DVDs are provided for either in heading 8477 or in heading 8479.

LAW AND ANALYSIS:

Merchandise is classifiable under the Harmonized Tariff Schedule of the United States (HTSUS) in accordance with the General Rules of Interpretation (GRIs). GRI 1 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, and provided the headings or notes do not require otherwise, according to GRIs 2 through 6.

Section XVI, Note 3, HTSUS, states that unless the context otherwise requires, 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. Section XVI, Note 4, HTSUS, states, in part, that where a machine including a combination of machines consists of individual components intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85, then the whole is to be classified in the heading appropriate to that function.

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Concerning your argument that DVD production equipment represents successor technology to equipment for producing VLDs, the fact that VLDs and DVDs may be sold through the same retail outlets does not warrant the conclusion that they are commercially interchangeable, and there is virtually no evidence that the machines that produce them represent related technology. VLDs and DVDs are not commercially interchangeable. Certainly, VLDs cannot be played on DVD players. More significantly, DVD mastering machinery is incapable of making VLD masters because DVDs are encoded in digital format while VLDs are encoded in analog format.

For any claim either under heading 8477 or under heading 8479 to prevail, all of the components of the DVD mastering equipment and the DVD replicating equipment each qualify as a a functional unit. In our opinion, the components that comprise the DVD mastering equipment are not a functional unit provided for in heading 8477 because the production of metal stampers is not a clearly defined function described in the 8477 heading text. Likewise, the components of the DVD replicating equipment are not a functional unit classifiable in heading 8477 because the production of plastic discs sputter coated with aluminum is not a clearly defined function described in the 8477 heading text. Moreover, neither the DVD mastering equipment nor the DVD replicating equipment constitutes a functional unit classifiable in heading 8479 because that heading does not describe any machine or machines by specific function. See HQ 958629, dated February 21, 1996. For these reasons, the classification of the mastering equipment and the replicating equipment must be separately addressed.

As to the DVD mastering equipment, the chemical cleaning of the glass disc substrate is a form of cold working. The machine that performs this function is provided for in HTSUS heading 8464 as a machine tool for cold working glass. The glass polishing machine that utilizes a grinding pad is also provided for in heading 8464 as a polishing machine for cold working glass. The function of the laser encoder is not described by any heading of the HTSUS. While the available evidence does not permit us to independently determine whether any other HTSUS provision might apply, the positioning and focusing of the laser beam necessarily involves a mechanical operation appropriate to machines and mechanical appliances of heading 8479. The remaining components of the in-line mastering system qualify as a composite machine under Section XVI, Note 3, HTSUS, because they are fitted - 6 -

together to form a whole, as that Note requires. The components are therefore classifiable as being that machine which performs the principal function. The sputter coating of the stamper’s surface with nickel provides the substrate which is the outline of the finished stamper. In our opinion, the sputter coater imparts the essential character to the composite machine. Sputter coating is a function distinct from that performed by the other components of the in-line mastering system, and such a machine is not covered more specifically by any other heading of the Nomenclature. As such, it is provided for in heading 8479 as a machine and mechanical appliances. The components of the in-line mastering system that qualify as a composite machine are provided for in heading 8479.

The electrolytic plating machine that deposits an additional layer of nickel to the disc and the electrolytic cleaning machine which operates by an electrical process to clean the nickel stamper of excess photoresist, both operate electrically and are not covered more specifically by any other heading in the HTSUS. Both are electrical machines or apparatus provided for in heading 8543. The ashing machine removes minute quantities of photoresist and nickel from the stamper’s surface utilizing the plasma arc process. This is a function appropriate to machine tools of heading 8456. The lapping machine which polishes the back of the stamper is provided for in heading 8460 as a honing or lapping machine. Finally, the center-hole punching is a machine tool function performed by a punching or notching machine provided for in heading 8462.

The classification of the components of the DVD replicating equipment involves a preliminary discussion of HQ 959655, dated April 3, 1997. In that decision, a compact disc replicating machine, consisting of an injection molding component and replicating apparatus, was held to be classifiable in subheading 8479.89.95, HTSUS. The device in that case was a single machine and the available evidence did not confirm that it was a composite machine under Section XVI, Note 3, HTSUS. As the machine’s principal purpose, replicating, was not described in any heading of Chapter 84, it was classified in heading 8479, as required by Chapter 84, Note 7, HTSUS.

As to the DVD replicating equipment, the injection molding machine is provided for in heading 8477 as machinery for working rubber or plastics or for the manufacture of products from these materials. The available evidence does not support your - 7 -

contention that it is principally used in the manufacture of video laser discs, so as to be classifiable in subheading 8477.10.40, HTSUS. The aluminum sputter coater, the gold sputter coater and the stacker are within a glass or hard plastic enclosure similar to the inline mastering enclosure. These components constitute a composite machine whose principal function is sputter coating. As previously stated, sputter coaters perform a mechanical function independent of the function of any other machine among the replicating equipment, and are not covered more specifically by any other heading in the HTSUS. They are provided for in heading 8479. However, the available evidence does not support your contention that sputter coating is principally used in manufacturing VLDs, so as to support classification in subheading 8479.89.85, HTSUS. The bonding machine utilizes resin under heat and pressure to bond together two replicated plastic discs. But, it is not within the enclosure previously described and, consequently, is not included as a component of the composite machine. However, as it appears to be principally, if not solely used in a process of manufacturing DVDs, rather than VLDs, we find that it is not provided for in the appropriate subheading of heading 8479, as a machine or mechanical appliance for the manufacturing of video laser discs. The laser scanner is a measuring or checking machine of heading 9031. The machine that applies the graphic label to the backside of each disc is an offset printing machine of heading 8443. Finally, separate machines fill boxes with DVDs, wrap the boxes, then fill larger boxes with the smaller wrapped boxes. These machines are connected by wiring or cables and constitute a functional unit under Section XVI, Note 4, HTSUS. As the functions of filling boxes and wrapping them are described in different subheadings of heading 8422, by application of GRI 6 at the subheading level, we find that filling the boxes is the function these machines perform because there are two filling operations but only one wrapping operation. HOLDING:

Under the authority of GRI 1 , the components of the DVD mastering equipment are classifiable as indicated. The glass cleaning machine is provided for in heading 8464. It is classifiable in subheading 8464.90.90, HTSUS, as other machine tools for cold working glass. The glass polishing machine is provided for in heading 8464. It is classifiable in subheading 8464.20.50, HTSUS, as other grinding or polishing machines. The components of the in-line mastering system, as - 8 -

described, constitute a composite machine and are provided for in heading 8479. They are classifiable in subheading 8479.89.97, HTSUS, as other machines and mechanical appliances not elsewhere specified or included. The laser encoder is not within the composite machine and is separately classifiable in subheading 8479.89.97. The electrolytic plating machine is provided for in heading 8543. It is classifiable in subheading 8543.30.00, HTSUS, as machines and apparatus for electroplating, electrolysis or electroplating. The electrolytic cleaning machine is likewise provided for in heading 8543. It is classifiable in subheading 8543.89.96, HTSUS, as other electrical machines and apparatus. The ashing machine performs a machine tool function and is provided for in heading 8456. It is classifiable in subheading 8456.99.90, HTSUS, as other machine tools for working/removing material by a plasma arc process. The lapping machine is provided for in heading 8460. It is classifiable in subheading 8460.40.40, HTSUS, as a numerically controlled lapping machine. The center hole punching machine is provided for in heading 8462. It is classifiable in subheading 8462.41.00, HTSUS, as a numerically controlled punching machine.

Under the authority of GRI 1, the components of the DVD replicating equipment are classifiable as indicated. The injection molding machine is provided for in heading 8477. It is classifiable in subheading 8477.10.90, HTSUS, as other injection-molding machines. The aluminum and the gold sputter coaters and the stacker are a composite machine under Section XVI, Note 3, the principal function being performed by the sputter coaters, which are described by heading 8479. The whole is therefore classifiable in subheading 8479.89.97, HTSUS, as other machines and mechanical appliances. The bonding machine is provided for in heading 8479. It is classifiable in subheading 8479.89.97, HTSUS, as other machines and mechanical appliances. The optical laser scanner is provided for in heading 9031. It is classifiable in subheading 9031.49.90, HTSUS, as other optical measuring or checking instruments and appliances. The machine that applies graphic information to each disc by an offset printing method is provided for in heading 8443. It is - 9 -

classifiable as other offset printing machinery, in subheading 8443.19.10, subheading 8443.19.50, or in subheading 8443.19.90, HTSUS, depending on weight. Finally, the wrapping and boxing machine is a functional unit provided for in heading 8422. It is classifiable in subheading 8422.30.90, HTSUS, as other box filling machinery.


Sincerely,

John Durant, Director
Commercial Rulings Division