OT:RR:CTF:TCM HQ H237642 AMM
Mr. Steve Zisser
Zisser Group
9355 Airway Road, Suite 1
San Diego, CA 92154
RE: Classification and Country of Origin Marking of Refurbished Automatic Data Processing Machines
Dear Mr. Zisser:
This is in response to your North American Free Trade Agreement (NAFTA) advance ruling request, dated November 8, 2012, filed on behalf of Technical Solutions and Services, Inc. (TSSI), regarding the classification and country of origin marking of certain refurbished automatic data processing (ADP) machines.
FACTS:
According to the information you submitted, TSSI purchases used, non-working ADP machines from various sources located in the United States. They consist of a housing which contains a motherboard, central processing unit (CPU), basic input/output system (BIOS), and a hard drive storage unit, as well as other internal components. The housing does not contain any input or output devices. Keyboards and mice are included as separate components. The machines themselves are manufactured in various countries in Asia and Latin America. You assert that the machines are not marked with a country or origin, and that the seller has no knowledge of where any individual machine was produced.
The ADP machines, keyboards, and mice are delivered to TSSI’s facility in Mexico, where they are inspected, tested, and sorted according to whether or not it is economically feasible to repair and refurbish them. Machines which are determined to be “scrap” are retained in TSSI’s inventory and broken down for spare parts. Machines destined for repair may or may not require cleaning, replacement of certain non-working hardware components, replacement or repair of external housing components, and software updates. Any component that is replaced is taken from a “scrap” machine retained in TSSI inventory.
Once the ADP machines are repaired and refurbished, they are exported to the United States together with a mouse and a keyboard, but without an output unit of any kind (such as a monitor or printer).
ISSUES:
I. What is the correct tariff classification of the instant refurbished and repaired ADP machines upon importation into the United States?
II. Do the instant refurbished and repaired ADP machines qualify for NAFTA duty preference for country of origin marking purposes?
LAW AND ANALYSIS:
I. Classification
Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRI). GRI 1 provides that classification 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 GRI may then be applied.
The 2013 HTSUS provisions at issue are as follows:
8471 Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included:
8471.50.01 Processing units other than those of subheading 8471.41 or 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units
Note 5(A) to Chapter 84, HTSUS, states:
For the purposes of heading 8471, the expression "automatic data processing machines" means machines capable of:
(i) Storing the processing program or programs and at least the data immediately necessary for the execution of the program;
(ii) Being freely programmed in accordance with the requirements of the user;
(iii) Performing arithmetical computations specified by the user; and
(iv) Executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run.
You assert that the instant ADP machines to be exported are repaired and refurbished computers. When delivered to Mexico for repair and refurbishment, they are used, non-working computers. You state that all imported machines contain a motherboard, CPU, BIOS, and a hard drive. You also state that the machines are freely programmable both when they arrive in Mexico and when they are exported to the United States. At the time of export, they are shipped together with a keyboard and a mouse, but without an output unit of any kind (such as a monitor or printer).
Based on the information you have provided to CBP, we find that the ADP machines you describe conform to the definition provided in Note 5(A) to Section 84, HTSUS, and are properly classified under heading 8471, HTSUS, specifically under subheading 8471.50.01, HTSUS, which provides for “Automatic data processing machines and units thereof …: Processing units other than those of subheading 8471.41 or 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units”.
II. Country of Origin Marking
A. NAFTA Eligibility
General Note (GN) 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. GN 12, HTSUS, provides, in pertinent part:
(a) Goods originating in the territory of a party to the North American Free Trade Agreement (NAFTA) are subject to duty as provided herein. For the purposes of this note—
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(ii) Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States 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, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
(b) For 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—
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(v) they are goods enumerated in subdivision (u) of this note and meet all other requirements of this note.
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(u) Goods that shall be considered originating goods. For the purposes of subdivision (b)(v) of this note, notwithstanding the provisions of subdivision (t) above, the automatic data processing machines, automatic data processing units and parts of the foregoing that are classifiable in the tariff provisions enumerated in the first column and are described opposite such provisions, when the foregoing are imported into the customs territory of the United States from the territory of Canada or of Mexico, shall be considered originating goods for the purposes of this note:
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8471.30, 8471.41, 8471.49, 8471.50 Automatic data processing machines (ADP)
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As discussed above, the instant refurbished computers are properly classified under subheading 8471.50, HTSUS. Accordingly, they are eligible for the “Special” “MX” rate of duty, regardless of whether they qualify to be marked as goods of Mexico. See GN 12(a)(ii), (b)(v), and (u)(1), HTSUS; See also HQ H074136.
B. Marking
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), requires that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit in such manner as to indicate to the ultimate purchaser the English name of the country of origin of the article. The regulations implementing the requirements and exceptions to 19 U.S.C. §1304 are set forth in Part 134, CBP Regulations (19 C.F.R. Part 134).
Section 134.1(b), CBP Regulations (19 C.F.R. §134.1(b)), defines “country of origin” as:
The country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 134.1(j), CBP Regulations (19 C.F.R. §134.1(j)), provides that the “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g), CBP Regulations (19 C.F.R. §134.1(g)), defines a “good of a NAFTA country” as an article for which the country of origin is Canada, Mexico or the United States, as determined under the NAFTA Marking Rules.
Part 102, CBP Regulations (19 C.F.R. Part 102), sets forth the NAFTA Marking Rules. See 19 C.F.R. §102.0. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes. See 19 C.F.R. §102.11. Applied in sequential order, the required hierarchy establishes that the country of origin of a good is the country in which:
(a)(1) The good is wholly obtained or produced;
(a)(2) The good is produced exclusively from domestic materials; or
(a)(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.
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TSSI purchases used, non-functioning ADP machines in lots of several hundred to a few thousand. You assert that the seller does not track the country of origin of these goods. After the goods are delivered to TSSI’s Mexican facility, they are inspected and separated into two categories: those machines to be refurbished, and those to be used for spare parts. The exact nature of the repair is dependent on the state of the specific machine. Some may require only simple cosmetic or software updates, while others may require the replacement on hardware components. Once the machine is fully repaired and refurbished, it is made available for export and sale. Machines used for spare parts are retained in inventory at the Mexican facility. You assert that the seller does not track the country of origin of the machines.
CBP finds that 19 C.F.R. §102.11(a) is not applicable in this situation. Paragraphs (a)(1) and (a)(2) are inapplicable because the machines are not wholly obtained or produced in any one country and are not produced exclusively from the domestic materials of any one country. Turning then to 19 C.F.R. §102.11(a)(3), we must consider whether each foreign material incorporated in the ADP machines undergoes an applicable change in tariff classification set out in 19 C.F.R. §102.20(o), which states, in pertinent part:
8470.10-8471.50 A change to accounting machines of subheading 8470.90 from any other good of subheading 8470.90, provided that the change is not the result of a simple assembly; or
A change to any other good of subheading 8470.90 from accounting machines of subheading 8470.90, provided that the change is not the result of a simple assembly; or
A change to analog or hybrid automatic data processing machines of subheading 8471.30 through 8471.50 from any other good of subheading 8471.30 through 8471.50, provided that the change is not the result of a simple assembly; or
A change to any other good of subheading 8471.30 through 8471.50 from analog or hybrid automatic data processing machines of subheading 8471.30 through 8471.50, provided that the change is not the result of a simple assembly; or
A change to subheading 8470.10 through 8471.50 from any subheading within that group or from heading 8473, provided that the change is not the result of a simple assembly; or
A change to subheading 8470.10 through 8471.50 from any other subheading outside that group, except from heading 8473.
The instant ADP machines are properly classified under subheading 8471.50, HTSUS, when they arrive in Mexico. You state that, in some cases, only cosmetic repairs or software updates are required to repair or refurbish the machine. In those cases, because the classification of the good remains unchanged, the required tariff shift does not occur, and 19 C.F.R. §102.11(a)(3) cannot be applied.
You also state that, in other cases, the machines are repaired using parts obtained from other machines (that had been designated as beyond repair). You assert that, because these parts would be classified under heading 8473, HTSUS (which provides for “Parts and accessories … suitable for use solely or principally with machines of headings 8469 to 8472”), that the required tariff shift does not occur. We also note that disassembling a machine so that parts may be replaced is a non-qualifying operation under 19 C.F.R. §102.17(b). Furthermore, we note that the foreign-sourced goods (specifically, the keyboard and mouse) which are simply re-packed with the instant machine at the time of export do not undergo a required tariff shift because repacking is a non-qualifying operation under 19 C.F.R. §102.17(c). Accordingly, we find that when the required tariff shift does not occur, and 19 C.F.R. §102.11(a)(3) cannot be applied, the analysis will proceed to 19 C.F.R. §102.11(b), which provides:
Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good, or
(2) If the material that imparts the essential character to the good is fungible, has been commingled, and direct physical identification of the origin of the commingled material is not practical, the country or countries of origin may be determined on the basis of an inventory management method provided under the appendix to part 181 of this chapter.
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CBP has previously determined that the single material that imparts the essential character to an ADP machine is a motherboard which contains a CPU and a BIOS. See, e.g., NY N025291, dated April 25, 2008; NY N025222, dated April 24, 2008; and NY R04005, dated June 22, 2006. Without these components an ADP machine cannot perform the functions described in Note 5(A) to Chapter 84, HTSUS (discussed in the Classification section above).
If, during the initial inspection of the ADP machines, it is discovered that the motherboard/CPU/BIOS is marked with the country of origin, then this component imparts the country of origin in accordance with 19 C.F.R. §102(b)(1). However, in the case where the motherboard/CPU/BIOS is not marked with a country of origin when it arrives at your facility, and the seller has no record of the country where it was obtained or produced, then a determination under 19 C.F.R. §102.11(b)(1) would be impossible.
To the extent that the motherboard/CPU/BIOS is not marked as a good of a NAFTA country, section 102.19(a), CBP Regulations (19 C.F.R. §102.19(a)), which contains the NAFTA preference override, states:
Except in the case of goods covered by paragraph (b) of this section, if a good which is originating within the meaning of § 181.1(q) of this chapter is not determined under § 102.11(a) or (b) or § 102.21 to be a good of a single NAFTA country, the country of origin of such good is the last NAFTA country in which that good underwent production other than minor processing, provided that a Certificate of Origin (see § 181.11 of this chapter) has been completed and signed for the good.
Section 181.1(q), CBP Regulations (19 C.F.R. §181.1(q)), states: “Originating, when used with regard to a good or a material, means a good or material which qualifies as originating in the United States, Canada and/or Mexico under the rules set forth in General Note 12, HTSUS, and in the appendix to this part.” As discussed above, the instant products are considered “goods originating in the territory of a NAFTA party” under GN 12, HTSUS. Therefore, they are “originating” within the meaning of 19 C.F.R. §181.1(q).
Furthermore, as discussed above, the country of origin of the instant products cannot be determined under 19 C.F.R. §102.11(a) or (b). Therefore, in accordance with 19 C.F.R. §102.19(a), the country of origin of the instant products is “the last NAFTA country in which that good underwent production other than minor processing[.]”
The term “production” means “[m]anufacturing, processing, or assembling a good.” See 19 C.F.R. §102.1(n); Section 2 of the Appendix to 19 C.F.R. Part 181. The term “minor processing” includes the following:
(2) Cleaning, including removal of rust, grease, paint, or other coatings;
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(7) Testing, marking, sorting, or grading;
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See 19 C.F.R. §102.1(m).
The term “production” is broadly defined. Any ADP machine which has undergone any manufacturing, processing, or assembly, in Mexico would be eligible to be marked with “Mexico” as the country of origin under 19 C.F.R. §102.19(a). The replacement of internal hardware, the replacement of housings, and software updates are not considered “minor processing,” and would fall under the scope of the term “production,” and would qualify to be marked as goods of Mexico. See 19 C.F.R. §102.1(n); 19 C.F.R. §102.19(a).
In your ruling request, you state that the merchandise may require cosmetic updates, software updates, and the replacement of damaged parts. You also indicate that the computers are tested to determine whether they can be repaired, and sorted according to the level of damage. As indicated above, testing and sorting are considered “minor processing.” See 19 C.F.R. §102.1(n)(7). Likewise, a cosmetic update which consisted merely of cleaning would be considered “minor processing.” See 19 C.F.R. §102.1(n)(2). A machine subjected only to cleaning, testing and sorting could not be marked as a product of Mexico under 19 C.F.R. §102.19(a).
The remaining merchandise to be considered are ADP machines delivered to your facility in Mexico which are only subjected to minor processing, wherein: the machine is not marked with the country of origin; the motherboard/CPU/BIOS assembly is not marked with the country of origin; the machine is not subjected to the replacement of any internal or external components, and no software updates are required; and the only processing which takes place is cleaning, testing, or sorting. We note that, as goods enumerated in GN 12(u), HTSUS, they are not subject to the “qualify to be marked as goods of Mexico” language contained in GN 12(a)(ii), HTSUS, in order to qualify for the NAFTA preference, which is the purpose of 19 C.F.R. §102.19. The product described here is a fully functional ADP machine, which requires no considerable repair or refurbishment. Nonetheless, they are required to be marked pursuant to 19 U.S.C. §1304. Accordingly, we must resort to the remainder of the hierarchy to determine the correct country of origin.
Section 102.11(c), CBP Regulations (19 C.F.R. §102.11(c)), is not applicable to this good, because that rule only applies to goods described as a set or mixture. Therefore, we resort to 19 C.F.R. §102.11(d), which states:
Where the country of origin of a good cannot be determined under paragraph (a), (b) or (c) of this section, the country of origin of the good shall be determined as follows:
(1) If the good was produced only as a result of minor processing, the country of origin of the good is the country or countries of origin of each material that merits equal consideration for determining the essential character of the good;
(2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin of the good is the country of origin of those parts; or
(3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
The country of origin of the merchandise remaining to be considered is asserted to be unknown. Therefore, 19 C.F.R. §102.11(d)(1) and (d)(2) are inapplicable. We then resort to 19 C.F.R. §102.11(d)(3). You assert that all machines delivered to your facility in Mexico are tested for functionality, and sorted according to their level of damage. Although this is considered “minor processing,” it still falls within the definition of “production” contained in 19 C.F.R. §102.1(n), because it is “processing.” Therefore, machines which match this remaining scenario may be properly marked with “Mexico” as the country of origin, in accordance with 19 C.F.R. §102.11(d)(3).
HOLDING:
Based upon the information presented, the instant refurbished automatic data processing machines will be considered as NAFTA originating pursuant to General Note 12(b), whether or not they qualify to be marked as products of Mexico. By application of GRI 1, the products are properly classified under heading 8471, HTSUS, specifically under subheading 8471.50.01, HTSUS, which provides for “Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included: Processing units other than those of subheading 8471.41 or 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units”. The 2013 column one, special rate of duty is free.
If the instant goods arrive in Mexico, and upon inspection, it is found that the machine itself is not marked with the country of origin, but that the country of origin of the motherboard/CPU/BIOS assembly is known, then the machine must be marked with the country of origin of that component when exported to the United States, in accordance with 19 C.F.R. §102.11(b)(1).
If the instant goods arrive in Mexico, and upon inspection, it is found that neither the machine itself nor the motherboard/CPU/BIOS assembly is marked with a country of origin, and the operation in your facility includes the replacement of internal components, the replacement of external components (such as the housing), or software updates, then the machine may be marked with “Mexico” as the country of origin, in accordance with 19 C.F.R. §102.19(a).
If the instant goods arrive in Mexico, and upon inspection, it is found that neither the machine itself nor the motherboard/CPU/BIOS assembly is marked with a country of origin, and the machine is subjected merely to cleaning, testing, and sorting, then it may be marked with “Mexico” as the country of origin, in accordance with 19 C.F.R. §102.11(d)(3).
U.S. Customs and Border Protection NAFTA Regulations, 19 C.F.R. §181.100 (a)(2), provide that each NAFTA ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of an advance ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the advance ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the advance ruling was based. If any of the facts are materially different or a condition has not been satisfied, the treatment specified in the advance ruling will not be applied to the actual transaction.
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 CBP officer handling the transaction.
Sincerely,
Ieva O’Rourke, Chief
Tariff Classification and Marking Branch