CLA-2 RR:CR:SM 561520 KSG
Jim Wickstead
PBB Global Logistics
434 Delaware Avenue
Buffalo, NY 14202
RE: NAFTA preferential tariff treatment and country of origin marking for a software program;
19 CFR 102.11(a)(3)
Dear Mr. Wickstead:
This is in response to your letter of March 24, 1999, on behalf of TASKE Technology, Inc., requesting a binding ruling regarding the eligibility of the TASKE Call Center Management Tools for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”) and the appropriate country of origin marking. The Value Branch has already responded to your question regarding the valuation of the product (HQ 547355).
FACTS:
The product involved in this case consists of the TASKE Call Center Management Tools, which include a pre-recorded CD-ROM disk containing software, a pre-recorded floppy diskette containing license files, a software dongle, a registration card and a ring-bound operations manual and installation guide. You state that the country of origin of all the above is Canada except the dongle.
The software dongle is a connector that is made in France and sent to Canada where it is programmed. After being programmed, the software dongle ensures that users cannot install or use software modules that have not been purchased.
You state that the CD-ROM disk is classified in subheading 8524.91.0070 of the Harmonized Tariff Schedule of the United States (“HTSUS”), the floppy diskette is classified in subheading 8524.91.0070, HTSUS, the software dongle is classified in subheading 8471.80.9000, HTSUS, the manuals are classified in subheading 4901.99.0050, HTSUS, and the registration card is classified in subheading 4909.00.2000, HTSUS.
The TASKE Call Center Management Tools will be imported into the U.S. from Canada.
ISSUES:
Whether the product will qualify for preferential tariff treatment under the NAFTA when imported into the U.S. from Canada.
What are the country of origin marking requirements applicable to the imported software package?
LAW AND ANALYSIS:
Article 401 of the NAFTA is incorporated into General Note 12, HTSUS. General Note 12(a) provides, in pertinent part, that:
(ii) Goods that originate in the territory of a NAFTA party under subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules ....and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn followed by the symbol “MX” in parentheses, are eligible for such duty rate....
Thus, by operation of General Note 12, the eligibility of a particular article for NAFTA duty preference is predicated, in part, upon an origin determination under the NAFTA Marking Rules of either Canada or Mexico.
Section 102.11, Customs Regulations (19 CFR 102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for the purposes of country of origin marking and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2. Paragraph (a) of this section states that the country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
“Foreign material” is defined in 19 CFR 102.1(e) as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.” Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the dongles are made in France and therefore the imported article is neither wholly obtained or produced, nor produced exclusively from domestic materials. Since an analysis of sections 102.11(a)(1) and 102.11(a)(2) will not yield a country of origin determination, we look to section 102.11(a)(3).
Section 102.11(a)(3) provides that the country of origin is the country in which “each foreign material incorporated in that good undergoes an applicable change in tariff classification as set forth in 19 CFR 102.20...”
Because this product is a set, it would be classified according to GRI 3(b), which provides that goods put up in sets for retail sale, shall be classified as if they consisted of the material or component which gives them their essential character. In cases involving similar products, Customs determined that in software sets of this type, the essential character is the software. See Headquarters Ruling Letter (“HRL”)956490, dated August 19, 1994, in which Customs ruled that the essential character of the Microsoft “Mouse and Windows” retail software set is the software and HRL 956960, dated September 19, 1994, involving the Organizer Link II software program. Based on the information provided, the software program involved in this case (contained on the CD-Rom) would be classified at heading 8524, HTSUS.
The applicable tariff shift rule found in section 102.20(o) provides as follows:
HTSUS Tariff Shift and/or other requirements
8524..........................A change to heading 8524 from any other heading.
In the instant case, the only foreign (non-Canadian) material is the software dongle, which you state is classified at subheading 8471.80.9000, HTSUS. Therefore, the foreign material undergoes the applicable tariff shift in Canada. However, section 102.17, Customs Regulations (19 CFR 102.17), provides, in pertinent part, as follows:
A foreign material shall not be considered to have undergone an applicable change in tariff classification specified in section 102.20 or 102.21 or to have met any other applicable requirements of those sections merely by reason of one or more of the following:
(c) Simple packing, repacking or retail packaging without more than
minor processing;
The various operations which comprise “minor processing” are set forth in section 102.1(m), Customs Regulations (19 CFR 102.1(m)).
In this case, the French-origin software dongle is programmed in Canada and then packaged with the other items in the set prior to the set’s importation into the U.S. Programming is not included in the list of operations considered “minor processing” in 19 CFR 102.1(m). Therefore, since programming constitutes “more than minor processing,” we find that the foreign material’s change in tariff classification in Canada is not disqualified by 19 CFR 102.17.
Accordingly, as the only foreign material in the set (the software dongle) undergoes the applicable tariff shift in Canada, pursuant to 19 CFR 102.11(a)(3), the country of origin of the software program set is Canada and it must be marked as such.
General Note 12(b) provides, in pertinent part, the following:
For purposes of this note, goods imported into the Customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as goods originating in the territory of a NAFTA party only if:
(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico, and/or the United States; or
(ii) they have been transformed in the territory of Canada, Mexico, and/or the United States so that-
except as provided in subdivision (f) of this note, each of the non-originating material used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or
(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Based on the information presented, the software program package is classified in heading 8524, HTSUS. With respect to General Note 12(b)(ii)(A), the applicable tariff shift rule under General Note 12(t)/85.76 provides for a change in tariff classification to headings 8523 through 8524 from any other heading, including another heading within that group. Since you state that the CD-Rom disk, the floppy diskette, registration card, and manual and installation guide are made in Canada, we are assuming for the purposes of this ruling that those items are NAFTA originating. Further, the software dongle, which is classified in subheading 8471.80.90, HTSUS, undergoes the applicable tariff shift. Accordingly, the software program is eligible for preferential tariff treatment as a good of Canada under the NAFTA.
HOLDING:
Based on the information provided, the TASKE Call Center Management Tools software program is eligible for preferential tariff treatment under the NAFTA and is considered a product of Canada under the NAFTA Marking Rules.
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