CLA-2 RR:CTF:EMAIN H264746 PF
David Newman, Esq.
45 Village Gate Way
Nyack, NY 10960
RE: Revocation of NY N257812; Classification of LG Chromebase (Model Number 22CV241-W); Note 5(A) to Chapter 84, HTSUS
Dear Mr. Newman:
This letter is to inform you that U.S. Customs and Border Protection (“CBP”) has reconsidered New York Ruling Letter (“NY”) N257812, dated October 24, 2014, in response to your request, dated February 23, 2015, on behalf of LG Electronics U.S.A., Inc. (“LGEUS”). In NY N257812, CBP classified the LG Chromebase (model number 22CV241-W) under subheading 8543.70.9650 of the Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for “Electrical machines and apparatus …: Other machines and apparatus: Other: Other: Other: Other.”
We have reviewed NY N257812 and found it to be in error based on the revised facts set forth in the request for reconsideration and two supplemental submissions, dated July 13, 2016 and July 25, 2016. Accordingly, for the reasons set forth below, CBP is revoking NY N257812.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. § 1625(c)(1)), as amended by section 623 of Title VI, notice of the proposed action was published on July 6, 2016, in Volume 50, Number 27, of the Customs Bulletin. Two substantially similar comments were received in response to this notice, and they are addressed in the ruling below.
FACTS:
In NY N257812, CBP described the LG Chromebase as follows:
The merchandise in question is referred to as a Chromebase (Model #22CV241-W) and is described as an All-in-one computer. The Chromebase is equipped with a 21.5” LED monitor, a 1.4 GHz processor, 2 GB of memory, a 15 GB solid state hard disk drive, and comes with the Chrome Operating System (OS) pre-installed. This All-in-one unit includes wired and wireless communication, built-in speakers, a microphone, and a webcam. The unit is packaged with a separate keyboard and mouse.
The Chromebase allows a user to conduct general computing tasks like web browsing, e-reading, document creation and editing, and minor photo and video editing capabilities. Users are provided with a cloud[-]based file storage solution, antivirus and security software, and photo editing applications. The unit relies on the Internet for many of its main features, but the Chromebase can operate as a standalone unit and users are able to perform some tasks that are not dependent on web connectivity. However, while in a standalone mode, some core attributes like the cloud[-]based storage do not function.
We note that software applications are limited to Chrome specific programs, and must be acquired exclusively from Chrome’s Web Store. Further, users of the Chromebase are prevented or blocked from loading an alternative OS, web browser [other than Google Chrome] , or antivirus software of their choosing other than what is available from the Chrome Web Store.
Prior to issuing NY N257812, CBP had considered and rejected classification under subheading 8471.49.00, HTSUS, which provides for “Automatic data processing machines and units thereof …: Other automatic data processing machines: Other, entered in the form of systems.” In NY N257812, CBP explained as follows:
Based on the additional information you provided, the Chromebase is not freely programmable by the end user. It is limited in its capabilities since it is not able to do its own processing. Thus it does not meet all the requirements of Note 5A to Chapter 84, HTSUS.
The request for reconsideration states at the outset that it is “based upon additional facts that were not before … CBP.” The salient additional facts, which are supported by independent documentary evidence, including the product specifications, are as follows:
The native OS is stored and processed on the machine itself, but the LG Chromebase can be programmed by the end users to run a different OS.
Access to cloud-based storage is not a core functionality for the LG Chromebase, as the OS and many applications can function when the machine is in standalone mode (i.e., without Internet connectivity).
The LG Chromebase is not limited to fixed programs and there are no hardware or software blocks preventing the end users from downloading off-the-shelf, third party applications.
The Chrome Web Store is not the exclusive source of applications that can be downloaded for use on the LG Chromebase; other sources are available online and programs can be manually created by the end users.
It has been confirmed by LGEUS, through legal counsel, that all of the facts listed above described the specific LG Chromebase model in issue at the time of submission of the original ruling request that resulted in the issuance of NY N257812.
ISSUE:
Whether the LG Chromebase (model number 22CV241-W) is classified as “automatic data processing machines” of heading 8471, HTSUS, or as other “electrical machines” of heading 8543, HTSUS.
LAW AND ANALYSIS:
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRIs”). 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. 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 GRIs 2 through 6 may then be applied in order.
The HTSUS headings under consideration in this case are as follows:
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
8543 Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof
The applicable legal note is Note 5(A) to Chapter 84, HTSUS, which states as follows:
For the purposes of heading 8471, the expression "automatic data processing machines" means machines capable of:
Storing the processing program or programs and at least the data immediately necessary for the execution of the program;
Being freely programmed in accordance with the requirements of the user;
Performing arithmetical computations specified by the user; and
Executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run.
In understanding the language of the HTSUS, the Explanatory Notes (“ENs”) of the Harmonized Commodity Description and Coding System, which constitute the official interpretation of the Harmonized System at the international level, may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the HTSUS. See T.D. 89-80, 54 Fed. Reg. 35127 (August 23, 1989).
EN(A) to heading 8471 addresses automatic data processing machines and states, in relevant part, as follows:
The automatic data processing machines of this heading must be capable of fulfilling simultaneously the conditions laid down in Note 5 (A) to this Chapter. …
Thus, machines which operate only on fixed programs, i.e., programs which cannot be modified by the user, are excluded even though the user may be able to choose between a number of such fixed programs.
These machines have storage capability and also stored programs which can be changed from job to job. …
(emphasis in original).
We note that NY N257812 properly took the position that a machine that is inoperable without Internet access is not classifiable under heading 8471; but, it has been confirmed that the LG Chromebase does, in fact, contain such functionality. The first requirement set forth in Note 5(A) to Chapter 84 is that an automatic data processing machine of heading 8471 must be capable of “[s]toring the processing program or programs and at least the data immediately necessary for the execution of the program.” Note 5(A)(i) to Chapter 84, HTSUS. The LG Chromebase contains a hard drive as well as memory and cache capable of storing programs and data immediately necessary for program execution. The native Chrome OS is stored and processed on the machine itself, although the end users may install a different OS. Moreover, the end users can write or download native Chrome OS applications and other web-based applications, a significant portion of which remain functional on the LG Chromebase regardless of whether there is Internet connectivity.
The applications described above must also comport with the second requirement set forth in Note 5(A) to Chapter 84, which is that an automatic data processing machine of heading 8471 must be capable of “[b]eing freely programmed in accordance with the requirements of the user.” Note 5(A)(ii) to Chapter 84, HTSUS. In Headquarters Ruling Letter (“HQ”) H075336, dated May 16, 2011, CBP analyzed the meaning of “freely programmable” in this context and explained as follows:
In Optrex America Inc. v. United States, 4[27] F. Supp. 2d. 1177 (Ct. Int’l Trade 2006), aff’d, [47]5 F.3d 1367 (Fed. Cir. 2007) (“Optrex”), the U.S. Court of Appeals for the Federal Circuit (“CAFC”) upheld CBP’s longstanding interpretation that a “freely programmable” ADP machine is one that: (i) applications can be written for, (ii) does not impose artificial limitations upon such applications, and (iii) will accept new applications that allow the user to manipulate the data as deemed necessary by the user. [47]5 F.3d at 1368. See also Headquarters Ruling Letter (“HQ”) 964880, dated December 21, 2001. The Optrex court noted that “[CBP’s] interpretation is supported by the World Customs Organization’s Explanatory Notes […] which provide that ‘machines which operate only on fixed programs, that is, programs which cannot be modified by the user, are excluded [from heading 8471] even though the user may be able to choose from a number of such fixed programs.’ Explanatory Note 84.71(I)(A).” Id. The court added that “[a]pplication programs are not ‘fixed’ because they can be installed or deleted from a machine.” 427 F. Supp. 2d at 1197.
The LG Chromebase is freely programmable under the criteria set forth because it is not limited to fixed programs and there are no hardware or software blocks preventing the end user from downloading off-the-shelf, third party applications. Moreover, the Chrome Web Store is not the exclusive source of applications that can be downloaded for use by the end user for installation on the LG Chromebase; other sources are available online and programs can be manually created by the end users.
Both of the comments received in response to the proposed notice of revocation are in agreement that the LG Chromebase is freely programmable; but, they claim that CBP should reach the same conclusion even if the Chrome Web Store were the sole source of applications that end users could install on the LG Chromebase. CBP is concerned that, as a general proposition, a sole source for applications could impose artificial limitations by restricting end user access to only certain kinds of applications that satisfy the preferences of the owner of the sole source. This concern arose in HQ H075336, with respect to applications available for use on the iPod Touch from Apple’s App Store, and CBP addressed it as follows:
We note that Apple’s application screening process does not effectively limit the applications available to its user because it only affects the apps intended for distribution via the App Store. As discussed above, web apps and native apps obtained through a third party’s website, or through the iOS Developer Program, are not subject to Apple’s screening process; they can be loaded onto a device without the company’s approval and without harming the device or voiding its warranty.
Similarly, the LG Chromebase is not limited to the applications available in the Chrome Web Store and so CBP need not analyze whether the Chrome Web Store imposes any artificial limitations upon the applications available through it for use on the LG Chromebase.
Except for what is discussed above, none of the other requirements for automatic data processing machines of heading 8471, HTSUS, is in controversy in this case; and, in light of the discussion, the LG Chromebase is properly classified under subheading 8471.49.00, HTSUS. See, e.g., HQ H075336, cited above (classifying the Apple iPod Touch under heading 8471, HTSUS). We note that CBP’s classification of the LG Chromebase under subheading 8543.70.9650, HTSUS, in NY N257812 was the direct result of inaccurate factual statements proffered by LGEUS.
HOLDING:
By application of GRIs 1 and 6, the LG Chromebase (model number 22CV241-W) is classified under heading 8471, HTSUS, and specifically under subheading 8471.49.00, HTSUS, which provides for “Automatic data processing machines and units thereof …: Other automatic data processing machines: Other, entered in the form of systems.” The column one, general rate of duty is free.
Duty rates are provided for your convenience and subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided at www.usitc.gov.
EFFECT ON OTHER RULINGS:
NY N257812, dated October 24, 2014, is hereby REVOKED.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division