CLA-2 OT:RR:CTF:TCM H097659 RM
Area Port Director
Port of Anchorage
U.S. Customs and Border Protection
605 W. 4th Ave, Suite # 230
Anchorage, AK 99501
RE: Classification of Electronic Passport Covers, Module Inlays & Antennae; Application for Further Review of Protest No. 3195-09-100416
Dear Port Director:
The following is our decision regarding the Application for Further Review (“AFR”) of Protest 3195-09-100416, timely filed by counsel on behalf of Gemalto, Inc. (“Protestant”), concerning the classification of certain electronic passport covers, module inlays, and antennae under the Harmonized Tariff Schedule of the United States (“HTSUS”).
FACTS:
This protest concerns various entries of merchandise described as “electronic passport covers,” “module inlays” and “antennae.” The electronic passport covers are imported in sheets that are approximately 17 x 13 inches in size. Each cover comprises three sandwiched layers, secured by adhesive to one another. The first layer is an impregnated cloth (which becomes the outside cover of a passport book), the second layer is the inlay, and the third layer is teslin (a plastic material that becomes the inside cover of the passport). The inlay sandwiched between the impregnated cloth exterior and
the teslin interior layer houses a radio frequency (“RF”) 13.56 MHz microprocessor chip
and a printed antenna. The microprocessor chip is imported “blank” and is programmed only after importation with the passport holder’s information. When held in close proximity to a card reader (no contact is necessary), the radio field generated by the reader activates the chip, and the encrypted data stored on the chip is transferred to the reader.
The module inlays are imported as sheets that measure approximately 12.5 x 17 inches and contain 3 rows of 7 cards. Each card contains an RF 13.56 MHz microprocessor chip and a printed antenna. After importation, the inlays are programmed and sandwiched between two or more sheets of plastic to form an actual card (e.g., a bank card).
The antennae are constructed of thin copper wire and are inlayed in plastic sheets that measure 12.5 x 17 inches and typically contain 3 rows of 7 cards. Each card contains a 13.56 MHz wired antenna. The antennae are not functional until they are connected to a microprocessor chip via another inlay and are custom-made for “smart card” use only.
Protestant entered the merchandise on various dates between August 15 and November 15, 2008, under subheading 8523.52.00, HTSUS, as “… smart cards and other media for the recording of sound or other phenomena …: Semiconductor media: ‘Smart cards.’” On June 16, 2009, CBP issued a CF-29 Notice of Action wherein it reclassified the passport covers under subheading 8543.70.96, HTSUS, as “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in [chapter 85]; …: Other machines and apparatus: Other: Other,” and the module inlays and antennae under subheading 8543.90.88, HTSUS, as “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in [chapter 85]; parts thereof: Parts: Other: Other: Other.” On June 26 and September 25, 2009, CBP liquidated the merchandise accordingly. The instant Protest and AFR were filed on December 21, 2009.
ISSUE:
What is the proper classification under the HTSUS of the subject electronic passport covers, module inlays and antennae?
LAW AND ANALYSIS:
Initially, we note that the matter is protestable under 19 U.S.C. § 1514(a)(2) as a decision on classification. The Protest was timely filed, within 180 days of liquidation for all involved entries. See 19 U.S.C. § 1514(c)(3).
Further Review of Protest No. 3195-09-100416 was properly accorded to Protestant pursuant to 19 C.F.R. § 174.24(b) because the decision against which the protest was filed is alleged to involve questions of law or fact which have not been ruled upon by the Commissioner of CBP or his designee or by the customs courts. Specifically, Protestant submits that “parts” of goods classified as “smart cards” under heading 8523, HTSUS, are classified under that same heading pursuant to Note 2(b) to Section XVI.
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 2008 HTSUS provisions under consideration are the following:
8523 Discs, tapes, solid-state non-volatile storage devices, "smart cards" and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37:
Semiconductor media:
8523.52.00 “Smart cards” …
8523.59.00 Other …
* * *
8543 Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof:
8543.70 Other machines and apparatus:
8543.70.40 Electric synchros and transducers; flight data recorders; defrosters and demisters with electric resistors for aircraft …
* * *
Other:
Other:
Other …
* * *
Parts:
Other:
Other:
8543.90.88 Other …
* * *
Note 2 to Section XVI, HTSUS, provides:
Subject to note 1 to this section, note 1 to chapter 84 and note 1 to chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544, 8545, 8546 or 8547) are to be classified according to the following rules:
Parts which are goods included in any of the headings of chapters 84 and 85 (other than headings 8485 and 8548) are in all cases to be classified in their respective headings;
Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517;
All other parts are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate or, failing that, in heading 8487 or 8548.
Note 4(b) to Chapter 85, HTSUS, provides:
For the purposes of heading 8523:
The term “smart cards” means cards which have embedded in them one or more electronic integrated circuits (a microprocessor, random access memory (RAM) or read-only memory (ROM)) in the form of chips. These cards may contain contacts, a magnetic stripe or an embedded antenna but do not contain any other active or passive circuit elements.
The Harmonized Commodity Description and Coding System Explanatory Notes (“ENs”) constitute the official interpretation of the Harmonized System at the international level. While neither legally binding nor dispositive, the ENs provide 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, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
EN 85.23 provides, in relevant part:
This heading covers different types of media, whether or not recorded, for the recording of sound or of other phenomena (e.g., numerical data; text; images; video, or other graphical data; software). Such media are generally inserted into or removed from recording or reading apparatus and may be transferred from one recording or reading apparatus to another.
The media of this heading may be presented recorded, unrecorded, or with some pre-recorded information, but capable of having more information recorded on them.
…
In particular, this heading covers:
…
(C) SEMICONDUCTOR MEDIA
Products of this group contain one or more electronic integrated circuits.
Thus, this group includes:
…
(2) “Smart cards” (see Note 4(b) to [Chapter 85]) …
These “smart cards” also include certain articles known as “proximity cards or tags” if they meet the conditions of Note 4(b) to this Chapter. 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.
* * *
EN 85.43 provides, in relevant part:
This heading covers all electrical appliances and apparatus, not falling in any other heading of [Chapter 85, HTSUS], nor covered more specifically by a heading of any other Chapter of the Nomenclature, nor excluded by the operation of a Legal Note to Section XVI or to this Chapter.
…
The electrical appliances and apparatus of this heading must have individual functions. The introductory provisions of the Explanatory Note to heading 84.79 concerning machines and mechanical appliances having individual functions apply, mutatis mutandis, to the appliances and apparatus of this heading.
…
EN 84.79, which applies mutatis mutandis to EN 85.43 provides, in part:
[T]he following are to be regarded as having “individual functions”:
…
Mechanical devices which cannot perform their function unless they are mounted on another machine or appliance, or are incorporated in a more complex entity, provided that this function:
is distinct from that which is performed by the machine or appliance whereon they are to be mounted, or by the entity wherein they are to be incorporated, and
does not play an integral and inseparable part in the operation of such machine, appliance or entity.
Protestant avers that the electronic passport covers are classifiable under subheading 8523.52.00, HTSUS, as “[S]mart cards and other media for the recording of sound or other phenomena …: Semiconductor media: ‘Smart cards,’” because they meet the terms of Note 4(b) to Chapter 85. Further, Protestant argues that the module inlays and the separately-imported antennae are also classifiable under subheading 8523.52.00, HTSUS, pursuant to Note 2(b) to Section XVI, because they are both “parts suitable for use solely or principally with smart cards.”
i. Classification of the Electronic Passport Covers
Heading 8523, HTSUS, provides, in pertinent part, for “Smart cards and other media for the recording of sound or other phenomena, whether or not recorded ….” CBP has previously defined the term “media” as “a material that stores or transmits data.” See Headquarters Ruling Letter (“HQ”) 962507, dated May 22, 2002 (citing The Computer Glossary (Freedman, 6th ed., 1993, pg. 346)). We have also stated that all types of media function as instruments on which phenomena may be stored or retrieved upon demand from a host machine. Id. Furthermore, EN 85.23 explains that the “other phenomena” referenced in the heading includes “numerical data, text, images, software and video or other graphical data.” The EN adds that the heading covers “semiconductor media” i.e., media containing one or more integrated circuits.
The electronic passport covers at issue constitute “semiconductor media,” as defined above, because they are data storage devices comprised of a microprocessor chip attached to an antenna. Specifically, they are “smart cards” pursuant to Note 4(b) to Chapter 85 (“… cards which have embedded in them one or more electronic integrated circuits … in the form of chips. These cards may contain … an embedded antenna but do not contain any other active or passive elements”). When held in close proximity to a card reader, the radio field generated by the reader activates the chip, and the encrypted data stored on the chip is transferred to the reader. See EN 85.23(c). Accordingly, the passport covers are classifiable under heading 8523, HTSUS (subheading 8523.52.00), as smart cards.
Inasmuch as the merchandise is classifiable under heading 8523, HTSUS, it is precluded from classification under heading 8543, HTSUS, by the terms of that heading, because it is specified elsewhere in the tariff.
Classification of the Module Inlays
The module inlays are cards which contain a microprocessor chip attached to an antenna. Once programmed, the device functions as a “smart card.” See Note 4(b) to Chapter 85. See also EN 85.23(c). Accordingly, for the reasons set forth in section (i), we conclude that they are also classifiable under heading 8523, HTSUS (subheading 8523.52.00), as smart cards.
iii. Classification of the Antennae
We do not dispute Protestant’s assertion that the antennae are “parts” of smart cards. See Bauerhin Technologies Limited Partnership, & John V. Carr & Son, Inc. v. United States, 110 F.3d 774 (Fed. Cir. 1997) (“an imported item dedicated solely for use with another article is a ‘part’ of that article within the meaning of the HTSUS”) (citing United States v. Pompeo, 43 CCPA 9 (1955)). The antennae at issue are designed for exclusive use in smart cards, which are goods classifiable in heading 8523, HTSUS. As such, their classification is controlled by Note 2 to Section XVI, HTSUS.
Note 2(a) provides that “[s]ubject to note 1 to [Section XVI], note 1 to chapter 84 and note 1 to chapter 85 [not applicable here], parts of machines … which are goods included in any of the headings of chapters 84 and 85 (other than headings 8485 and 8548) are in all cases to be classified in their respective headings.” The instant antennae are transducers (i.e., electronic devices that transform energy from one manifestation into another). Specifically, they convert RF waves into electric current. Though the antennae cannot perform this function until they are mounted onto a microprocessor chip (which contains all of the supporting electronics), said function is (1) distinct from what which is
performed by the chip, and (2) does not play an integral and inseparable role part in the operation of such machine, which is to store media. See EN 84.79(B) (which defines “individual functions” and applies mutatis mutandis to EN 85.43). As such, we find that the antennae are goods described in heading 8543, HTSUS, as “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in [chapter 85] …”
Inasmuch as the antennae are classifiable in heading 8543, HTSUS, Note 2(b) to Section XVI, which covers “other parts, if suitable for use solely or principally with a particular kind of machine ...” does not apply. See Nidec Corporation v. United States, 861 F. Supp. 136, 142 (Ct. Int’l Trade 1994), aff’d, 68 F.3d 1333 (Fed. Cir. 1995) (concluding that parts which in themselves constitute an article covered by a heading of Section XVI are in all cases classified in their appropriate heading even if specifically designed to work as a part of a specific machine).
HOLDING:
By application of GRI 1 (Note 4(b) to Chapter 85), the electronic passport covers and the module inlays are classifiable under subheading 8523.52.00, HTSUS, as “… smart cards and other media for the recording of sound or other phenomena …: Semiconductor media: ‘Smart cards.’” The 2008 column one, general rate of duty is: Free.
By application of GRI 1 (Note 2(a) to Section XVI), the antennae are classifiable under subheading 8543.70.40, HTUS, as “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter …: Other machines and apparatus: Electric synchros and transducers.” The 2008 column one, general rate of duty is: 2.6% ad valorem.
You are instructed to ALLOW the protest with regard to the classification of the electronic passport covers and the module inlays. You are instructed to DENY the protest with regard the classification of the antennas. In accordance with the Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the Customs Form 19, to Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision.
Sixty days from the date of the decision the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public, on the CBP website located at www.cbp.gov, by means of the Freedom of Information Act and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division