CLA-2 CO:R:C:M 956962 LTO
Mr. Terry Wadowski
Lumuc Corporation
2380 Mississauga Road
Mississauga, Ontario
L5H 2L1 Canada
RE: Photocards Kiosk; Software; Chapter 85, note 6; HQs 086126,
086624, 086851, 950675; NAFTA; Article 509; general notes
12(b)(i), 12(b)(ii)(A), and 12(t)/90.25(A); Change in Tariff
Classification; NY 898735
Dear Mr. Wadowski:
This is in response to your letter of July 15, 1994, to
Customs in New York, concerning the applicability of the North
American Free Trade Agreement (NAFTA) and classification of
Photocards Kiosks under the Harmonized Tariff Schedule of the
United States (HTSUS). Your letter was referred to this office for
a response.
FACTS:
The article in question is a Photocards Kiosk, which is a
machine that allows a customer to design a photographic business
card. The Photocards Kiosk permits the user to select a background
image from a library of digital images. The Kiosk also permits the
user to add a picture by scanning a photograph, cropping it and
positioning it on the business card. The user can then add a logo
by choosing one from a library of logos or by scanning in the
customer's own logo. Text can be added by using the built-in word
processor. The design is saved on a disk until it is transferred
to a negative for printing.
The output of the Photocards Kiosk is a roll of exposed 35 mm
film which is processed using separate processing equipment
available in the photographic laboratory. The Kiosk does not
contain any film processing or printing equipment. As presently
configured, the Kiosk is sold only to photographic laboratories. - 2 -
The Kiosk contains the following components: a Ricoh KR-10M
SLR camera with Ricoh 35-70 mm lens; high resolution computer
monitor; a UMAX flat bed scanner; a computer (486DLC-33 with 250 Mb
hard disk drive) with monitor and mini keyboard; computer speakers;
touch screen; and video splitter/multiplier. The Kiosk uses
Canadian developed and produced software. The software, which is
described as the "heart" of the system, incorporates stereo sound,
recorded voice, photographic quality images and an interactive
touch screen to guide the user through the design process. The
software is permanently fixed in the Kiosk's hard disk drive, and
is designed to work only with the Photocards Kiosk.
In NY 898735, issued to you on June 28, 1994, the Kiosk was
held to be classifiable under subheading 9010.20.60, HTSUS, which
provides for other apparatus and equipment for photographic
laboratories, while the Kiosk's software was classified separately
under subheading 8524.90.40, HTSUS, which provides for records,
tapes and other recorded media for sound or other similarly
recorded phenomena. In this ruling, you were asked to provide more
information if you were seeking a ruling on the applicability of
the NAFTA.
ISSUE:
I. Whether the Photocards Kiosk and its software are classifiable
under subheading 9010.20.60, HTSUS, or whether its software is
separately classifiable under subheading 8524.90.40, HTSUS.
II. Whether the Photocards Kiosk and its software are eligible for
preferential treatment under the NAFTA.
LAW AND ANALYSIS:
I. CLASSIFICATION
The General Rules of Interpretation (GRI's) to the HTSUS
govern the classification of goods in the tariff schedule. GRI 1
states in pertinent part that "for legal purposes, classification
shall be determined according to the terms of the headings and any
relative section or chapter notes . . . ."
The Photocards Kiosk is a machine that allows a customer to
design and produce a photographic business card. The Kiosk creates
a standard 35 mm negative that can be processed using virtually any
photo processing equipment. The Kiosk, which is sold only to
photographic laboratories, is described under heading 9010, HTSUS,
which provides for "[a]pparatus and equipment for photographic
(including cinematographic) laboratories (including apparatus for
the projection of circuit patterns on sensitized semiconductor
materials), not specified or included elsewhere in this chapter
. . . ." Specifically, the Kiosk is classifiable under subheading
9010.20.60, HTSUS, which provides for other apparatus for - 3 -
photographic laboratories.
However, note 6 to chapter 85, HTSUS, provides that
"[r]ecords, tapes and other media of heading 8523 or 8524 remain
classified in those headings, whether or not they are entered with
the apparatus for which they are intended." The Photocards Kiosk
consists of software that is permanently fixed in the Kiosk's hard
disk drive. The software package is designed to work only with the
Photocards Kiosk and the Kiosk cannot operate without the software.
Customs has addressed the issue of whether chapter 85, note 6,
extends to permanently installed software. HQ 950675, dated
January 7, 1992, concerned the classification of a system that
measured, displayed and recorded the electrical currents generated
in a patient's heart during an electrophysiological study. The
system utilized proprietary software to analyze the recorded data
and compile the appropriate reports for display on the system's
monitor, or for subsequent printing. We held that the software,
whether imported in floppy disk form or downloaded onto the
system's hard disk drive, was classifiable under subheading
8524.90.40, HTSUS, whether or not entered with the rest of the
system. See also, HQ 086624, dated May 4, 1991; HQ 086851, dated
April 9, 1990; HQ 086126, dated March 6, 1990. Accordingly, the
Kiosk's software is classifiable under subheading 8524.90.40,
HTSUS.
II. NAFTA APPLICABILITY
You contend that the Photocards Kiosk is eligible for duty-
free treatment under the NAFTA. To be eligible for tariff
preferences under the NAFTA, goods must be "originating goods"
within the rules of origin in general note 12(b), HTSUS. General
notes 12(b)(i) and (ii)(A), HTSUS, state:
[f]or the 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 --
(A) except as provided in subdivision (f) of this
note, each of the non-originating materials
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 . . . - 4 -
The Kiosk contains a scanner, monitors, keyboard, video
splitter/multiplier, 35mm camera and a pair of speakers imported
into Canada from non-NAFTA countries. The Kiosk also contains a
computer that consists of a U.S.-made chip and hard disk drive (33%
U.S.). Because the Kiosk contains goods from countries other than
Mexico, Canada and/or the U.S., general note 12(b)(i) does not
apply. Consequently, we must resort to general note 12(b)(ii)(A),
HTSUS.
Because the Kiosk is provided for under subheading 9010.20.60,
HTSUS, a transformation is evident when a change in tariff
classification occurs which is authorized by general note
12(t)/90.25(A), HTSUS, which states:
[a] change to subheadings 9010.10 through 9010.30 from
any other heading . . .
Thus, any non-originating materials in the Kiosk must come
from a heading other than subheadings 9010.10, HTSUS, through
9010.30, HTSUS.
None of the non-originating materials are classifiable under
heading 9010, HTSUS. For example, the monitors, keyboard and
scanner are classifiable under heading 8471, HTSUS (automatic data
processing machines and units thereof), the camera is classifiable
under heading 9006, HTSUS (photographic cameras) and the speakers
are classifiable under heading 8518, HTSUS (loudspeakers, whether
or not mounted in their enclosures).
Consequently, a change in tariff classification does occur,
and the Photocards Kiosk, containing a scanner, monitor, keyboard,
video splitter/multiplier, television monitor, 35 mm camera, pair
of speakers, etc., from non-NAFTA countries, is eligible for
preferential treatment under the NAFTA.
The Canadian developed and produced software, which is
separately classifiable under subheading 8524.90.40, HTSUS, is also
eligible for preferential treatment under the NAFTA according to
general note 12(b)(i), HTSUS. If the software is developed and
produced in a non-NAFTA country, it is still eligible for
preferential treatment under the NAFTA according to general note
12(b)(ii)(A). Because the non-originating components of the
Photocards Kiosk went through the necessary transformation, the
Kiosk is an "originating good." Thus, the software, which is
separately classifiable, is also considered an "originating good."
HOLDING:
The Photocards Kiosk is classifiable under subheading
9010.20.60, HTSUS, which provides for other apparatus for
photographic laboratories. The Photocards Kiosk's software is
classifiable under subheading 8524.90.40, HTSUS, which provides for - 5 -
other recorded media.
The Kiosk and the software are eligible for preferential
treatment under the NAFTA. The Column 1 (Special) (CA) rate of
duty for articles of subheading 9010.20.60, HTSUS, is free. The
Column 1 (Special) (CA) rate of duty for articles of subheading
8524.90.40, HTSUS, is 3.8 cents/square meters of recording surface.
Sincerely,
John Durant, Director
Commercial Rulings Division