CLA–2 OT:RR:CTF:TCM H168206 AMM
Ms. Amy Johannesen
Cerny Associates, P.C., Attorneys at Law
24 Smith Street Building 2, Suite 102
Pawling, NY 12564
RE: Revocation of New York Ruling Letters N011540; NY R04440; NY R04024; NY M80734; NY L89889; NY L88309; Classification of USB Flash Drives
Dear Ms. Johannesen,
This is in reference to New York Ruling Letter (NY) N011540, dated June 18, 2007, issued to Kingston Technology Company, Incorporated (Kingston) regarding the classification under the Harmonized Tariff Schedule of the United States (HTSUS) of four USB flash drives, identified as the DataTraveler "R" for ReadyBoost, DataTraveler II with software security, DataTraveler Secure Privacy Edition, and the DataTraveler Mini USB. In that ruling, Customs and Border Protection (CBP) classified the articles under heading 8471, HTSUS, which provides for “Automatic data processing machines and units thereof”. We have reviewed this ruling and found it to be incorrect. For the reasons set forth below, we intend to revoke this ruling.
Pursuant to section 625(c), Tariff Act of 1930, (19 U.S.C. §1625(c)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed revocation relating to the tariff classification of certain USB flash drives was published on December 18, 2013, in the Customs Bulletin, Volume 47, Number 50. Comments from one interested party were received on this proposal. The commenter agreed with the proposed classification of the instant USB flash drives. A discussion of the comments and CBP’s reasoning are found in the “Law and Analysis” section below.
FACTS:
In NY N011540, CBP described the four products at issue in the following manner:
The merchandise under consideration includes four external flash memory devices: DataTraveler "R" for ReadyBoost (DTR/1GB), DataTraveler II with software security (KUSBDTII/512MB), DataTraveler Secure Privacy Edition (DTSP/512MB), and the DataTraveler Mini USB (DTMini/512MB). The KUSBDTII and DTSP are encrypted with 256-bit AES Hardware Based Encryption and password protection.
* * *
The USB Flash drives are storage devices that employ Single-Level Cell Not AND (NAND) Flash and a controller in a capsulated portable case. The built-in Flash memory controller manages the interface with the host computer, and reads and writes to the Flash chips on the Flash storage device. The USB Flash drives meet Note 5 (C) to Chapter 84, Harmonized Tariff Schedule of the United States (HTSUS). These storage devices connect to a computer’s central processing unit (CPU) directly through the USB port. They are able to accept or deliver data in a form which can be used by the computer system.
Pictures of the products at issue are included below:
Data Traveler “R” for ReadyBoost
(DTR/1GB)
Data Traveler II with software security
(KUSBDTII/512MB)
Data Traveler Secure Privacy Edition
(DTSP/512MB)
Data Traveler Mini USB
(DTMini/512MB) has red cover
In a correspondence dated January 31, 2012, Kingston confirmed that all four products at issue contained a printed circuit board within the housing.
ISSUE:
Whether the four USB flash drives at issue in NY N011540 are classifiable under heading 8523, HTSUS, as solid state non-volatile storage devices, and if so, whether this is the more specific provision over heading 8471, HTSUS, the provision for units of ADP machines.
LAW AND ANALYSIS:
Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRI). GRI 1 provides that classification shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRI may then be applied.
The 2013 HTSUS provisions at issue are:
8471 Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included:
8471.70 Storage units:
Other storage units:
8471.70.90 Other
--------------------------------------
8523 Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37:
Semiconductor media:
8523.51.00 Solid-state non-volatile storage devices
GRI 3 states, in pertinent part:
When, by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:
(a) The heading which provides the most specific description shall be preferred to headings providing a more general description.
* * *
Note 5(C) to Chapter 84, HTSUS, states, in pertinent part:
(C) Subject to paragraphs (D) and (E) below, a unit is to be regarded as being part of an automatic data processing system if it meets all of the following conditions:
(i) It is of a kind solely or principally used in an automatic data processing system;
(ii) It is connectable to the central processing unit either directly or through one or more other units; and
(iii) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.
Separately presented units of an automatic data processing machine are to be classified in heading 8471. However, keyboards, X-Y co-ordinate input devices and disk storage units which satisfy the conditions of paragraphs (C) (ii) and (C) (iii) above, are in all cases to be classified as units of heading 8471.
* * *
Note 4 to Chapter 85, HTSUS, states, in pertinent part:
For the purposes of heading 8523:
(a) “Solid-state non-volatile storage devices” (for example, “flash memory cards” or “flash electronic storage cards”) are storage devices with a connecting socket, comprising in the same housing one or more flash memories (for example, “FLASH E²PROM”) in the form of integrated circuits mounted on a printed circuit board. They may include a controller in the form of an integrated circuit and discrete passive components, such as capacitors and resistors;
* * *
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs), constitute the official interpretation of the Harmonized System at the international level. While neither legally binding nor dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of the headings. It is CBP’s practice to consult, whenever possible, the terms of the ENs when interpreting the HTSUS. See T.D. 89–80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
The EN to heading 85.23 states, in pertinent part:
In particular, this heading covers:
* * *
(C) Semiconductor Media
Products of this group contain one or more electronic integrated circuits.
Thus, this group includes:
(1) Solid-state, non-volatile data storage devices for recording data from an external source (See Note 4 (a) to this chapter). These devices (also known as “flash memory cards” or “flash electronic storage cards”) are used for recording data from an external source, or providing data to, devices such as navigation and global positioning systems, data collection terminals, portable scanners, medical monitoring appliances, audio recording apparatus, personal communicators, mobile phones, digital cameras and automatic data processing machines. Generally, the data are stored onto, and read from, the device once it has been connected to that particular appliance, but can also be uploaded onto or downloaded from an automatic data processing machine.
The media use only power supplied from the appliances to which they are connected, and require no battery.
These non-volatile data storage devices are comprised of, in the same housing, one or more flash memories (“FLASH E2PROM/EEPROM”) in the form of integrated circuits mounted on a printed circuit board, and incorporate a connecting socket to a host appliance. They may include capacitors, resistors and a microcontroller in the form of an integrated circuit. Example of solid state non-volatile storage devices are USB flash drives.
* * *
In NY N011540, dated June 18, 2007, CBP classified four external flash memory devices, known as USB flash drives, under heading 8471, HTSUS, which provides, in pertinent part, for “Automatic data processing machines and units thereof”. CBP did not consider whether these devices were properly classified under heading 8523, HTSUS, which provides, in pertinent part, for “[S]olid state non-volatile storage devices”.
To be classified under heading 8471, HSTUS, as a “unit thereof” of an automatic data processing machine, the products at issue must satisfy Note 5(C) to Chapter 84, HTSUS. According to NY N011540, the products are storage devices which connect to a computer’s central processing unit directly through a USB port. They are able to accept or deliver data in a form which can be used by the computer system. Therefore, the criteria of Note 5(C)(ii) and (iii) to Chapter 84, HTSUS, are satisfied.
The products at issue employ Single-Level Cell Not AND (NAND) Flash memory, which is based on semiconductor microchip technology rather than magnetic disks. The products at issue are not “disk storage units” as described in Note 5(C) to Chapter 84, HTSUS. Therefore, the products must be “of a kind solely or principally used in an automatic data processing system” in accordance with Note 5(C)(i) to Chapter 84, HTSUS. See BenQ Am. Corp. v. United States, 646 F.3d 1371, 1379-81 (Fed. Cir. 2011).
For articles governed by principal use, Additional U.S. Rule of Interpretation 1(a), HTSUS, provides that, in the absence of special language or context which otherwise requires, such use “is to be determined in accordance with the use in the United States at, or immediately prior to, the date of importation, of goods of that class or kind to which the imported goods belong, and the controlling use is the principal use.” In other words, the article's principal use at the time of importation determines whether it is classifiable within a particular class or kind of merchandise. See BenQ, 646 F.3d, at 1379-1380.
While Additional U.S. Rule of Interpretation 1(a), HTSUS, provides general criteria for discerning the principal use of an article, it does not provide specific criteria for individual tariff provisions. However, the courts have provided factors which are indicative but not conclusive, to apply when determining whether merchandise falls within a particular class or kind. They include: general physical characteristics, the expectation of the ultimate purchaser, channels of trade, environment of sale (accompanying accessories, manner of advertisement and display), use in the same manner as merchandise which defines the class, economic practicality of so using the import, and recognition in the trade of this use. See United States v. Carborundum Company, 63 CCPA 98, C.A.D. 1172, 536 F. 2d 373 (1976), cert. denied, 429 U.S. 979. CBP has applied this principle in subsequent rulings. See, e.g., HQ 082780, dated December 18, 1989. This principle has been carried over to the HTSUS, as courts have determined that principal use under the HTSUS is defined as the use which “exceeds all other uses.” See Lenox Collections v. United States, 20 C.I.T. 194, 196 (Ct. Int’l. Trade, 1996).
The products at issue are flash memory storage devices designed to interface with laptops, personal computers, and other electronic devices. These products provide increased reliability from their lack of moving parts, decreased power consumption and noise, and increased speed compared to traditional compact disk or floppy disk drives. Kingston’s product literature indicates that the products “incorporate NAND Flash and a controller in a capsulated case. USB Flash drives work with the vast majority of computers and devices that incorporate the Universal Serial Bus interface, including most PCs, PDAs, and MP3 players.” Kingston markets their USB Flash Drive products directly to individual consumers, enterprises, and governments. The products are designed to be inserted directly into a USB port, which is in turn connected to an automatic data processing unit. Based on the Carborundum factors and the information above, we find that the principal use of the products at issue is in an ADP machine, and that Note 5(C)(i) to Chapter 84, HTSUS, is satisfied.
Because the products at issue satisfy Note 5(C) to Chapter 84, HTSUS, they are properly classified under Heading 8471, HTSUS. Specifically, the products are classified under subheading 8471.70.90, HTSUS, which provides for: “Automatic data processing machines and units thereof; …: Storage units: Other storage units: Other”.
Effective February 3, 2007, Chapter 85 of the HTSUS was revised by Presidential Proclamation 8097, pursuant to Section 1206(a) of the Omnibus Trade and Competitiveness Act of 1988 (19 U.S.C. §3005(a)). See 72 Fed. Reg. 453. The proclamation states, in pertinent part:
In order to modify the HTS to conform it to the Convention or any amendment thereto recommended for adoption, to promote the uniform application of the Convention, to establish additional subordinate tariff categories, and to make technical and conforming changes to existing provisions, the HTS is modified as set forth in Annex I of Publication 3898 of the United States International Trade Commission, entitled, "Modifications to the Harmonized Tariff Schedule of the United States Under Section 1206 of the Omnibus Trade and Competitiveness Act of 1988, " which is incorporated by reference into this proclamation.
See 72 Fed. Reg. 453, 456. The modifications to the HTSUS set forth in Annex I of Publication 3898 of the United States International Trade Commission (ITC) were included in the 2007 version of the HTSUS.
Prior to this date, heading 8523, HTSUS (2006), provided for “Prepared unrecorded media for sound recording or similar recording of other phenomena, other than products of chapter 37”. After the revision, heading 8523, HTSUS (2007), provided, in pertinent part, for “solid-state non-volatile storage devices”. In addition, certain chapter notes were renumbered, and new ones were added. For instance, Note 4 to Chapter 85, HTSUS (2007), was added, providing specific definitions for the phrases “solid state non-volatile storage devices” and “smart cards”. Therefore, CBP must consider whether the products at issue in NY N011540, dated June 18, 2007, are properly classified under the revised version of heading 8523, HTSUS.
To be classified as a “solid state non-volatile storage device” under heading 8523, HTSUS, the products must satisfy Note 4(a) to Chapter 85, HTSUS. This Note lists four criteria, namely: that it is a storage device; with a connecting socket; that it has flash memory in the same housing as the connecting socket; and that the flash memory be in the form of an integrated circuit mounted on a printed circuit board. There is no dispute that the instant merchandise is a storage device. NY N011540 states that “[t]hese storage devices connect to a computer’s central processing unit (CPU) directly through the USB port.”
The term “flash memory” is defined as “[A] type of EEPROM that can only be erased in blocks; it cannot be erased one byte at a time. In this regard, it resembles a disk drive that is divided into sectors. Flash memory is usually used for storing large amounts of data, like a disk; …”. See Dictionary of Computer and Internet Terms, 10th Ed. (2009), at pp. 193-194. The term “EEPROM”, which stands for Electrically Erasable Programmable Read-Only Memory, is defined as a type of memory chip whose contents can both be recorded and erased by electrical signals, but do not go blank when power is removed.” See Id. at p. 162. A “chip”, or “integrated circuit”, is defined as “an electronic device consisting of many miniature transistors and other circuit elements on a single silicon chip.” See Id. at pp. 90, 254.
According to NY N011540, the products at issue are storage devices which contain a flash memory and a controller in a capsulated portable case. Furthermore, the products incorporate an adapter which connects to a computer through the USB port. Kingston also admitted to CBP that the products at issue contain a printed circuit board, in correspondence dated January 31, 2012.
Hence, the products at issue in NY N011540 are storage devices with a connecting socket, comprising in the same housing one or more flash memories in the form of integrated circuits mounted on a printed circuit board. See Note 4(a) to Chapter 85, HTSUS. Therefore, they are properly classified under heading 8523, HTSUS, as “solid state non-volatile storage devices”.
According to GRI 1, the products at issue are properly classified under headings 8471 and 8523, HTSUS. Therefore, we must resort to GRI 3 to determine which heading is the correct one. According to GRI 3(a), “[t]he heading which provides the most specific description shall be preferred to headings providing a more general description.” The description provided by heading 8523, HTSUS, “[S]olid state non-volatile storage devices”, is more specific than the description provided by heading 8471, HTSUS, “[U]nits thereof”, because heading 8523, HTSUS, is “the provision with requirements that are more difficult to satisfy and, that describe the article with the greatest degree of accuracy and certainty.” Pomeroy Collection, Ltd. v. United States, 559 F. Supp. 2d 1374, 1393 (Ct. Int’l. Trade 2008). Therefore, by operation of GRI 3(a), the products at issue in NY N011540 are correctly classified under heading 8523, HTSUS.
With regard to classification at the subheading level, CBP must consider whether the instant merchandise is “semiconductor media.” The term “media” has been previously defined by CBP as “a material that stores or transmits data.” See Headquarters Ruling Letter (HQ) H097659, dated August 31, 2010; HQ 962507, dated May 22, 2002 (citing The Computer Glossary, 6th Ed. (1993) p. 346). The products at issue in NY N011540 constitute “semiconductor media” as defined above, because they are data storage devices comprised of a flash memory, a type of integrated circuit incorporating semiconductor technology. As such, the products at issue are specifically classified under subheading 8523.51.00, HTSUS, which provides for “[S]olid state non-volatile storage devices …: Semiconductor media: solid state non-volatile storage devices”.
CBP notes that one interested party submitted comments generally agreeing that the instant products are properly classified under heading 8523, HTSUS, by operation of GRI 3(a). The commenter also suggested that CBP should classify all “flash memory” devices under heading 8523, HTSUS, regardless of their form factor or input/output format. However, this heading specifically covers “solid-state non-volatile storage devices”, and the scope of this term is clearly defined in Note 4(a) to Chapter 85, HTSUS.
CBP notes that several rulings classified merchandise similar to the products at issue under heading 8471, HTSUS. See NY R04440, dated July 27, 2006; NY R04024, dated June 5, 2006; NY M80734, dated March 31, 2006; NY L89889, dated January 20, 2006; and NY L88309, dated October 28, 2005. These rulings were published before the new text of heading 8523, HTSUS, took effect on February 3, 2007. Therefore, these rulings were revoked by operation of law on that date, in accordance with Presidential Proclamation 8097.
HOLDING:
By application of GRI 3(a), the DataTraveler “R” for ReadyBoost (DTR/1GB), DataTraveler II with software security (KUSBDTII/512MB), DataTraveler Secure Privacy Edition (DTSP/512MB), and the DataTraveler Mini USB (DTMini/512MB) are classified under heading 8523, HTSUS, specifically under 8523.51.00, HTSUS, which provides in for “Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37: Semiconductor media: solid state non-volatile storage devices”. The column one, general rate of duty is free.
Duty rates are provided for convenience only and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at www.usitc.gov.
EFFECT ON OTHER RULINGS:
NY N011540, dated June 18, 2007, is hereby REVOKED. In accordance with 19 U.S.C. §1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.
Furthermore, CBP notes that NY R04440, dated July 27, 2006, NY R04024, dated June 5, 2006, NY M80734, dated March 31, 2006, NY L89889, dated January 20, 2006, and NY L88309, dated October 28, 2005, were REVOKED by operation of law on February 3, 2007, in accordance with Presidential Proclamation 8097.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division