CLA-2 RR:CR:GC 966961 NSH
Mr. John M. Peterson
Neville Peterson LLP
17 State Street
19th Floor
New York, NY 10004
RE: Radio Frequency Identification (RFID) Tags; GRI 5(b)
Dear Mr. Peterson:
This is in response to your request dated January 22, 2004, on behalf of your client, Target Corporation, concerning the classification under the Harmonized Tariff Schedule of the United States (HTSUS) of radio frequency identification (RFID) tags that are imported attached to other goods. In response to our requests, by correspondence of March 31, 2004 and April 6, 2004, you provided additional information. Samples have been provided with your request.
FACTS:
The subject merchandise consists of a RFID transponder circuit (an electronically programmed radio frequency tag) embedded in a plastic or paper card. The transponder circuit interfaces with a separate antenna or coil, which emits radio signals to activate the tag and read and write data to it. The antenna serves as the conduit between the tag and the transceiver, which controls the system’s data acquisition and communications.
The RFID tags at issue are both the “active” and “passive” type. Active RFID tags are powered by an internal battery and are typically capable of having tag data that can be rewritten and/or modified. In some cases they are capable of repetitive use. Passive RFID tags do not contain an internal battery, but receive their power from a separate external reader that sends out an electronic signal to activate the tag. Passive tags are relatively light weight, inexpensive and have a virtually unlimited operational lifetime. The identifying information contained in a RFID tag can be used to identify and track merchandise in a supply chain, as well as other retail or security applications.
ISSUE:
Whether the subject RFID tags are classified as packing materials as provided for in GRI 5(b) of the HTSUS when attached to the articles for which they are intended.
LAW AND ANALYSIS:
Merchandise is classifiable under the HTSUS in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the remaining GRIs.
The Explanatory Notes (ENs) to the Harmonized Commodity Description and Coding System represent the official interpretation of the tariff at the international level. The ENs, although neither dispositive or legally binding, facilitate classification by providing a commentary on the scope of each heading of the HTSUS, and are generally indicative of the proper interpretation of these headings. See T.D. 89-80.
In classifying the subject products, we note initially that Customs has recently reclassified electronic hang tags similar to the RFID tags at issue under subheading 8543.81.00, HTSUS. See HQ 966784, dated January 21, 2004, HQ 966785, dated January 21, 2004 and HQ 966786, dated January 21, 2004. In those rulings, Customs classified electronic hang tags imported unattached to other articles of commerce, holding they were not of the class or kind of the exemplars to heading 8531 or EN 85.31, the heading under which they were previously classified. Rather, they were found to be electronic proximity tags as described in EN 85.43, which provides, in pertinent part, as follows:
This heading includes, inter alia:
…
(14) Proximity cards or tags and electronic proximity cards/tags, which may or may not have a magnetic stripe. Proximity cards/tags usually consist of an integrated circuit with a read only memory, which is attached to a printed antenna. The card/tag operates by creating a field interference (the nature of which is determined by a code contained in the read only memory) at the antenna in order to affect a signal transmitted from, and reflected back to, the reader. This type of card/tag does not transmit data. [Emphasis in original.]
You urge that the RFID tags should be considered as packing materials of the kind provided for in GRI 5(b) when attached to the articles for which they are intended. GRI 5(b) provides, in pertinent part, as follows:
Subject to the provisions of rule 5(a) …, packing materials and packing containers entered with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use.
In considering the above rule, three criteria must be met if Customs is to classify RFID tags as normal packing materials of the kind provided for therein and therefore classified with the goods they are packaged with: (1) The items must be entered with the goods for which they are intended; (2) The packing materials must be of a kind normally used for packing such goods; and (3) The packing materials must not be suitable for repetitive use.
It is undisputed that the RFID tags are entered with the goods for which they are intended, either directly attached to the goods or else attached to other packing materials, thereby satisfying the first criterion; if they are not entered with the goods for which they are intended, classification would be under subheading 8543.81.00, HTSUS.
Regarding the second criterion, Customs has previously recognized ordinary hang tags as packing materials. See HQ 545154, dated June 3, 1994, where Customs affirmed its earlier position that hang tags were “packing costs” within the meaning of 19 U.S.C. 1401a (h) (3) (although this HQ ruling entailed a determination on value and not on classification, it is instructive for purposes of examining how Customs viewed other types of hang tags) and HQ 965722, dated September 12, 2002. We note that because the RFID tags at issue often are used as hang tags on garments, prior Customs rulings that address ordinary hang tags on garments are applicable. Additionally, Customs recognizes that continuing advances with RFID technology are resulting in the increasingly common use of RFID tags as packaging materials within the retail industry. See RFID Journal, “Michelin Embeds RFID Tags in Tires” [January 27, 2003], RFID Journal, “Wal-Mart Expands RFID Mandate,” [August 18, 2003] and RFID Journal, “Target Issues RFID Mandate” [February 20, 2004]. This increased use of the technology within the industry leads us to conclude that RFID tags be considered normal packaging materials when they are entered attached to the goods for which they are intended. We note that this finding is consistent with Customs prior decisions of recognizing innovations within the packing industry, such as the placement of UPC bar codes on products, which in many cases replaced product information previously printed in text on a packing container. See NY F84396, dated March 31, 2000 (UPC bar code recognized as packing materials).
Finally, in regard to the third criterion, it is necessary to examine (1) the meaning of the term “suitable for repetitive use”; and (2) the type of repetitive use to which the RFID tags may be put. The EN to GRI 5(b) holds that “this provision is not binding when such packing materials … are clearly suitable for repetitive use, for example, certain metal drums or containers of iron or steel for compressed or liquefied gas.” [Emphasis added]. Customs has repeatedly adhered to this standard, holding that packing clearly suited for repetitive use is separately classified. See HQ 965573, dated August 28, 2002, HQ 964767, dated April 20, 2001 and HQ 889128, dated September 14, 1993. The term “suitable for use,” which is substantially similar to the GRI 5(b) term “suitable for repetitive use,” was addressed in Keer, Maurer Company v. United States, 46 CCPA 110, C.A.D. 710 (1959). The court therein held that the term “suitable for use” means “actually, practically, and commercially fit” for the use concerned. Therefore, “such suitability does not require that the merchandise be ‘chiefly’ used (the TSUS predecessor to “principal use”) for the stated purpose.” In HQ 961973, dated August 13, 1999, Customs cites to the analysis applied in Keer, i.e. that the language of GRI 5(b), “clearly suitable for repetitive use,” is not a “principal use” provision or an “actual use” provision, although the standard required to find suitability is greater than evidence of casual, incidental, exceptional or possible use. As pertains to the RFID tags at issue, their suitability for repetitive use must be considered independently from the use to which they are actually put. If the RFID tags are found to be suitable for repetitive use, they would not qualify as packing materials under GRI 5(b), even if they are not in fact reused. See also HQ 114360, dated June 18, 1998 (holding that hangers of durable construction were “physically capable of, and suitable for, reuse or repetitive use”).
In considering the type of repetitive use to which the RFID tags may be put, it must be determined if that use is of a commercial nature. The leading case addressing the issue of commercial reuse is Holly Stores, Inc. v. United States, 2 CIT 278, 534 F. Supp. 818 (1981), affirmed 1 Fed. Cir. (T.) 16, 69 F.2d 1387 (1982). In Holly Stores, the CIT found that the stipulation that GRI 5(b) is inapplicable when the packing materials or containers are “clearly suitable for repetitive use” applies only to reuse in the commercial sense, i.e. measured by commercial practices. To distinguish between commercial use and use considered to be incidental or fugitive, the court considered several factors, holding that the reuse is considered commercial if it is for a transportation or shipping purpose, a reuse in the general course of standard acceptable commercial practice in the industry or reuse in a manner consistent both as to substance and degree with the original use. In considering the above factors, the court examined the price of the packing material, the physical characteristics that make it capable of reuse and the way in which the packing material is used.
Our examination of the RFID tags submitted as samples, which are “passive” RFID tags, reveals that they are intended to be packing materials for merchandise and are not suitable for repetitive use, commercial or otherwise. Target Corporation uses these “passive” type RFID tags, applying them to their associated good or packing container by an adhesive or else as a disposable hang tag for garments, in effect making them incapable of subsequent use on other merchandise. They are of relatively low value and usually discarded once their purpose has been fulfilled, either prior to the purchase of merchandise to which they may be attached, or by the consumer subsequent to the purchase. Furthermore, even if a consumer purchases merchandise that still has an RFID tag attached to it, this in no way enhances the value of the merchandise or allows the consumer to put the tag to further use.
The samples submitted in this case are representative of the design and use of “passive” RFID tags throughout the retail industry. We find, based upon the above analysis, that these “passive” RFID tags are packing materials within the meaning of GRI 5(b) because they are imported with the articles for which they are intended, are of a kind normally used with such goods, and are not suitable for repetitive commercial use.. Therefore, they are classified with the goods with which they are entered.
In contrast, “active” RFID tags contain a battery and have the ability to have their tag data rewritten and/or modified. They also usually cost more to produce, incorporate a sturdier design and therefore potentially may be utilized once again as packing for commercial use. Because these products are still in the early stages of development and information with respect to all of its potential uses has not been fully provided to Customs, we must classify the “active” RFID tags on a case-by-case basis. In the present situation, the subject “active” RFID tags are susceptible for reuse based on their ability to have their data rewritten and/or modified. Because of this ability, and given the lack of available information to the contrary, we find that the subject “active” RFID tags will not qualify as packing pursuant to GRI 5(b) and therefore cannot be classified with the goods to which they are attached. Consequently, they should be separately classifiable as an article of commerce under subheading 8543.81.00, HTSUS.
HOLDING:
Pursuant to GRI 5(b), the subject “passive” RFID tags imported with the merchandise are normal packing materials and classified with the goods with which they are entered.
Because the subject “active” RFID tags are suitable for repetitive use, they are not classified with the goods with which they are entered. Such tags are classified under subheading 8543.81.0000, HTSUS, as “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter …: Other machines and apparatus: Proximity cards and tags.” The column one rate of duty is “Free.”
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division