H308234

HQ H308234 June 3, 2020 OT:RR:CTF:VS H308234 EGJ CATEGORY: Origin Ania Wierzbowska-Fuller A.N. Deringer, Inc. 173 West Service Road Champlain, NY 12919 RE: Tariff Classification and NAFTA-eligibility of the Start Me Stick and the Fix Me Stick; Section 301 Duties; Valuation Dear Ms. Wierzbowska-Fuller: This is in response to your request for a ruling on behalf of your client, FixMeStick Technologies, Inc., regarding the tariff classification under the Harmonized Tariff Schedule of the United States (“HTSUS”), eligibility for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”), the applicability of Section 301 duties, and the basis of appraisement for two different products: the Start Me Stick and the Fix Me Stick. FACTS: Both products are USB flash drives which are loaded with proprietary software. The Start Me Stick plugs into the user’s computer, and then runs the program from its own internal operating system. The device allows the user to browse the Internet securely and privately from any computer. Once removed, there is no trace of the Start Me Stick’s programming left on the computer. The Fix Me Stick is a USB virus removal device that boots up from its own internal trusted operating system. The device connects to the Internet, downloads the latest malware definitions, and removes threats from the computer. The device then reboots the computer and scans for viruses again. You indicate that the printed circuit board assemblies (“PCBAs”) for both of these products will be manufactured in Taiwan from components made in Taiwan. These components include the flash memory storage chip and the controller chip. After assembly, the PCBAs are shipped to China for further processing. In China, the PCBAs are attached to a plastic PCBA holder and are then inserted into the device’s external casing. Both the PCBA holder and the external casing are made in China. Afterwards, the external casing is etched with the product’s name and serial number. The blank USB devices are then shipped to Canada. Your client imports the blank USB devices into Canada under subheading 8523.51, which provides for “solid-state non-volatile storage devices.” In Canada, the blank flash drives are plugged into a custom designed duplication system. Once one or more blank drives are plugged in, an operator selects a SKU from a computer screen (for example Fix Me Stick for Mac, Fix Me Stick for PC, Start Me Stick, etc.). The duplication system then writes the compiled object code onto the drive, reads all the bytes back to ensure they were written correctly, and then registers the drive serial number in a database mapping the serial number to the selected SKU. If the registration step is not done, the stick will not be authorized to run. You note that all of the source code for the relevant software was written and developed in Canada. You take the view that the flash drives loaded with software will still be classified under subheading 8523.51, HTSUS, when they are exported to the United States. With regard to the proper basis of appraisement for the instant flash drives, you note that none of the parties involved in the transaction are related to each other. Therefore, for the purposes of this ruling, we will assume that the transaction value applies to the instant merchandise. You have requested that we examine whether the value of the merchandise should be the value of the blank flash drive, or whether the value should include the cost of the downloaded software. You have also asked us to assess whether the flash drives are eligible for preferential tariff treatment under NAFTA, which must include ascertaining the proper tariff classification of the merchandise. You have also asked us to determine the country of origin for the purpose of assessing duties under Section 301. ISSUES: Are the Fix Me Stick and the Start Me Stick properly classified under subheading 8523.51.00, HTSUS, as “solid-state non-volatile storage devices?” Is the subject merchandise eligible for preferential tariff treatment under NAFTA? What is the country of origin of the subject merchandise for the purposes of assessing the applicability of Section 301 duties? Should the transaction value of the instant merchandise be based upon the cost of the blank USB device, or should the transaction value include the cost of the software downloaded onto the device? LAW AND ANALYSIS: Tariff Classification Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI”). 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 may then be applied. Under GRI 6, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis, to GRIs 1 through 5. Note 5(a) to Chapter 85, HTSUS, provides as follows: For the purposes of heading 8523: (a) "Solid-state non-volatile storage devices" (for example, "flash memory cards" or "flash electronic storage cards") are storage devices with a connecting socket, comprising in the same housing one or more flash memories (for example, "FLASH E²PROM") in the form of integrated circuits mounted on a printed circuit board. They may include a controller in the form of an integrated circuit and discrete passive components, such as capacitors and resistors; Subheading 8523.51.00, HTSUS, provides as follows: 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: 8523.51.00 Solid-state non-volatile storage devices * * * * * In understanding the language of the HTSUS, the Explanatory Notes (“ENs”) of the Harmonized Commodity Description and Coding System may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the Harmonized System at the international level. See T.D. 89-80, 54 Fed. Reg. 35127 (August 23, 1989). EN 85.23 provides, in pertinent part, as follows: (C) Semiconductor Media Products of this group contain one or more electronic integrated circuits. Thus, this group includes: (1) Solid-state, non-volatile data storage devices for recording data from an external source (See Note 5 (a) to this Chapter). These devices (also known as “flash memory cards” or “flash electronic storage cards”) are used for recording data from an external source, or providing data to, devices such as navigation and global positioning systems, data collection terminals, portable scanners, medical monitoring appliances, audio recording apparatus, personal communicators, mobile phones, digital cameras and automatic data processing machines. Generally, the data are stored onto, and read from, the device once it has been connected to that particular appliance, but can also be uploaded onto or downloaded from an automatic data processing machine. The media use only power supplied from the appliances to which they are connected, and require no battery. These non-volatile data storage devices are comprised of, in the same housing, one or more flash memories (“FLASH E2PROM/EEPROM”) in the form of integrated circuits mounted on a printed circuit board, and incorporate a connecting socket to a host appliance. They may include capacitors, resistors and a microcontroller in the form of an integrated circuit. Example of solid state non-volatile storage devices are USB flash drives (emphasis added). * * * * * We note that the instant

Tariff ClassificationClassification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI”).  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 may then be applied. Under GRI 6, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis, to GRIs 1 through 5. Note 5(a) to Chapter 85, HTSUS, provides as follows:For the purposes of heading 8523:(a) "Solid-state non-volatile storage devices" (for example, "flash memory cards" or "flash electronic storage cards") are storage devices with a connecting socket, comprising in the same housing one or more flash memories (for example, "FLASH E²PROM") in the form of integrated circuits mounted on a printed circuit board. They may include a controller in the form of an integrated circuit and discrete passive components, such as capacitors and resistors;Subheading 8523.51.00, HTSUS, provides as follows: 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:8523.51.00 Solid-state non-volatile storage devices* * * * *In understanding the language of the HTSUS, the Explanatory Notes (“ENs”) of the Harmonized Commodity Description and Coding System may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the Harmonized System at the international level. See