CLA-2 RR:C:SM 560050 DEC
Port Director
United States Customs Service
Dallas/Fort Worth Area Port
1205 Royal Lane
Dallas/Fort Worth Airport, Texas 75261
RE: Ruling Request concerning classification and GSP eligibility
of cordless telephone sets imported from the Philippines;
"Product of"; 19 U.S.C. 2463(a); General Note 3(a); General
Note 4(a); de minimis; sets; T.D. 91-7; HRL 559634; HRL
557208; HRL 559032; HRL 955897; HRL 556451; HRL 556798; HRL
559010; HRL 559453
Dear Sir:
This is in response to your memorandum dated August 30,
1996, forwarding a request for internal advice from Uniden
America Corporation (UAC) concerning the proper classification
and duty eligibility under the Generalized System of Preferences
(GSP) of cordless telephone sets imported into the U.S. from the
Philippines. A meeting was held at Customs Headquarters between
representatives of UAC and Customs on January 16, 1997.
FACTS:
UAC is an importer of cordless telephones which are
manufactured in the Philippines. Each cordless telephone
consists of a handset, a base telephone unit, and a plug-in
regulator/AC adapter. UAC states that the handset and the base
telephone unit are produced in the Philippines from printed
circuit boards and various other components. The handset
contains a nickel-cadmium battery pack which is exclusively made
for use in UAC's cordless telephone. The battery pack is made in
either Japan or
China. The plug-in regulator/AC adapter is also made in China
exclusively for UAC's telephones. UAC states in its submission
that both the battery pack and the plug-in AC/adapter are
essential components of the cordless telephone. The battery pack
represents the telephone's sole power source for the handset,
without which the telephone cannot operate. The plug-in
AC/adapter is an essential part of the cordless telephone because
it enables the base unit to operate from a standard alternating
current wall outlet.
ISSUE:
Whether the cordless telephones sets are eligible for
duty-free treatment under the GSP when imported into the U.S.
LAW AND ANALYSIS:
Classification of the UAC Cordless Telephones
The General Rules of Interpretation (GRI's) set forth the
manner in which merchandise is to be classified under the
Harmonized Tariff Schedule of the United States (HTSUS). GRI 1
requires that classification be determined first according to the
terms of the headings of the tariff and any relative section or
chapter notes and, unless otherwise required, according to the
remaining GRI's, taken in order.
Cordless telephone sets were classified under subheading
8525.20.50, Harmonized Tariff Schedule of the United States
(HTSUS), which provided for "[c]ordless handset telephones" prior
to 1996. In 1996, subheading 8525.20.50, HTSUS, was deleted.
Heading 8517, HTSUS, has been amended to include "line telephone
sets with cordless handsets", while subheading 8517.11.00, HTSUS,
which provides as follows, has been added:
[e]lectrical apparatus for line telephony or
line telegraphy, including line telephone
sets with cordless handsets and
telecommunication apparatus for carrier-
current line systems or for digital line
systems; video phones; parts therefore:
[t]elephone sets; video phones:
line telephone sets with
cordless handsets.
Accordingly, the UAC cordless telephone set (consisting of a
handset, a base telephone unit, and a plug-in regulator/AC
adapter) is properly classifiable under subheading 8517.11.00,
HTSUS, pursuant to GRI 1.
GSP Eligibility
Under the GSP, eligible articles the growth, product or
manufacture of a 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 in the BDC, is equivalent to at
least 35% of the appraised value of the article at the time of
entry into the U.S. See, 19 U.S.C. 2463(a).
General Note 3(a)(iii), HTSUS, states that special rates of
duty under one or more of the special tariff treatment programs
(including GSP) apply to those products which are classified
under a provision for which a special rate is indicated in the
"Special" subcolumn and for which all of the legal requirements
for such program(s) have been met. Therefore, if the "Special"
subcolumn opposite the subheading under which the UAC cordless
telephone set is classified contains a special duty rate for a
particular tariff preference program, then the entire set would
be entitled to that special rate, assuming compliance with the
program's requirements.
As stated in General Note 4(a), HTSUS, the Philippines is a
designated BDC. The UAC cordless telephone sets are
classifiable under subheading 8517.11.00, HTSUS. Articles
provided for in this provision are eligible for duty-free
treatment under the GSP provided that they are a "product of" a
BDC, they are imported directly from a GSP country, and the 35%
value-content requirement is met.
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 an association of countries, such as
ASEAN, treated as one 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.
In Treasury Decision (T.D.) 91-7, Customs held that as a
general rule, a collection of articles classifiable in one
subheading pursuant to the GRI's will receive GSP or Caribbean
Basin Initiative (CBI) treatment only if all of the items or
components in the collection are considered "products of" the
BDC. To illustrate the application of the "product of"
requirement to sets, we used the example of a hairdressing set
consisting of a comb, brush, and scissors manufactured in Jamaica
from materials originating in Jamaica, as well as an electric
hair clipper manufactured in Taiwan (a non-BDC country) and
imported into Jamaica for packaging with the other items of the
set. We also stated that in cases where the entire imported set
is not the "product of" a BDC, as required by the statute,
neither the set nor any part thereof would be entitled to
duty-free treatment under this program. The above requirements
also exist under
the GSP statute. As previously stated, the entire collection of
articles in the UAC cordless telephone set is classified as a
single unit pursuant to GRI 1 under subheading 8517.11.00, HTSUS.
Therefore, in the instant case, pursuant to T.D. 91-7, the entire
cordless telephone set must be a "product of" a GSP country in
order for it to receive duty-free treatment.
UAC states that the plug-in regulator/AC adapter is made in
China and the battery pack is made in either Japan or China.
With respect to the plug-in regulator/AC adapter, mere packaging
of this non BDC-origin component with the other items in the set
will not substantially transform it into a "product of" the
Philippines. See 19 U.S.C. 2463(a)(2)(B)(i) (no article of a BDC
shall be eligible for GSP treatment by virtue of having merely
undergone simple combining or packaging operations). We are not
persuaded by UAC's argument that since the cordless telephone is
a single integrated device consisting of components that cannot
work independently that the non-BDC plug-in regulator/AC adapter
is substantially transformed into a product of the Philippines.
Mere packaging will not substantially transform the non-BDC
cordless telephone plug-in regulator/AC adapter into a product of
the Philippines.
UAC states that the cordless telephone headset will contain
the nickel-cadmium battery pack. In Headquarters Ruling Letter
(HRL) 559634, dated August 8, 1996, Customs addressed the
eligibility of telephone/answering machines which also included
removable rechargeable battery packs in the handsets of the
telephone/answering machines. Citing HRL 557208, dated July 24,
1983, Customs determined that 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.
Therefore, the non-BDC origin removable rechargeable battery pack
did not disqualify the cordless telephone from duty-free
treatment under the GSP. We note that this is contrasted with a
situation in which batteries are merely packaged in a set or if
they are separately put up for retail sale as separate articles.
See HRL 559032, dated October 25, 1995 and HRL 955897, dated
April 15, 1994. Therefore, the assembly of a number of
components, including the nickel-cadmium battery pack, into the
UAC cordless telephone headset at issue substantially transforms
the battery pack into a product of the Philippines.
UAC also argues that the value of the non-BDC component when
compared to the cost of the production of the entire cordless
telephone set is relatively insignificant. Customs has
consistently held that a component or item is considered to be de
minimis for purposes of determining the "product of" requirement
under the GSP if:
1. The value of the component is very small
as compared to the total value of the
entire article, and
2. The component does not constitute an
integral component of the entire article
without which the entire article is
rendered inoperable.
In HRL 556451, dated January 28, 1992, Customs held that the
presence of two non-Israeli origin items out of 60 in a "toy
energy and lab kit", representing approximately three percent of
the total value of the kit, were de minimis and did not preclude
the kit from otherwise meeting the "product of" requirement under
the GSP. The two items in HRL 556451 were a magnifier and an eye
dropper, which Customs held "did not constitute integral
components of the entire set without which the set is rendered
inoperable". Customs stated that, although there were 60
components in the kit, only 18 components were used for the
chemistry experiments, one of which was the eyedropper. In HRL
556798, dated September 23, 1993, Customs held that Malaysian
origin latex gloves, which were included in catheter kits from
Mexico, were considered to be de minimis and did not preclude the
kit from being considered a "product of" Mexico. Customs stated
that the gloves were considered to be de minimis because they
only represented between approximately 1 to 5 percent of the
entire value of the kit and did not constitute an integral
component of the entire kit without which the kit is rendered
inoperable.
However, in HRL 556451, supra, Customs also considered
whether a "toy junior science lab kit" imported from Israel which
included a microscope of Taiwanese origin was considered to be a
"product of" Israel for purposes of GSP eligibility. Customs
held that, because the microscope constituted an integral part of
the entire lab kit, it was not considered to be de minimis.
Thus, because the microscope was not considered to be de minimis
and it was not an Israeli-origin component, it precluded the
entire toy chemistry kit from being a "product of" Israel.
Accordingly, neither the set nor any part thereof was entitled to
duty free treatment under the GSP.
In HRL 559010, dated March 14, 1996, Customs addressed the
eligibility for duty-free entry under the GSP for a 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. Customs
held that the cordless telephone unit did not qualify for
duty-free treatment under the GSP since the AC/DC converter power
supply was a product of a non-BDC. The AC/DC converter power
supply was found to be an integral component of the entire
cordless telephone set which was not substantially transformed by
the packaging operation in the Philippines. See also HRL 559453,
dated July 16, 1996 (for purposes of country of origin marking,
Customs found that the cordless telephone's power cord which was
packaged with the cordless telephone was not substantially
transformed and that the power cord plays an integral role of
recharging the battery which is critical to the operation of the
telephone).
.
In this case, we find that the plug-in regulator/AC adapter
which is included with the UAC cordless telephone set is not
considered to be de minimis. Like the AC/DC converter power
supply in HRL 559010, the power supply clearly constitutes an
integral component of the entire UAC cordless telephone set
without which the cordless telephone is rendered inoperable. We
also find that the plug-in regulator/AC adapter is not
substantially transformed into a "product of" the Philippines as
a result of merely being packaged with the cordless telephone
set. Thus, because the entire imported UAC cordless telephone
set is not a "product of" the Philippines, as required by the GSP
statute, neither the cordless telephone set nor any part thereof
is entitled to duty-free treatment under this program.
HOLDING:
The UAC cordless telephone set, as described above, is
properly classifiable under subheading 8517.11.00, HTSUS.
The plug-in regulator/AC adapter, an item which is imported
into the Philippines and packaged with the UAC cordless telephone
set, is not substantially transformed in that country as a result
of the packaging operation. Accordingly, plug-in regulator/AC
adapter is not a "product of" the Philippines. The plug-in
regulator/AC adapter constitutes an integral component of the
entire UAC cordless telephone set without which the cordless
telephone is rendered inoperable, and thus is not considered to
be de minimis. Because the entire imported UAC cordless
telephone set is not a "product of" the Philippines, as required
under the GSP statute, neither the cordless telephone nor any of
the components in the set are entitled to duty-free treatment
under this program.
A copy of this ruling letter should be attached to the entry
documents filed at the time this merchandise is entered. If the
documents have been filed without a copy, this ruling should be
brought to the attention of the Customs officer handling the
transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division