HQ 964880

December 21, 2001

> **CLA-2 RR: CR: GC** 964880 TPB
>
> **CATEGORY:** Classification

# TARIFF NO.: 8471.3000; 8524.39.4000; 8524.99.4000

> Donald Fischer
>
> PricewaterhouseCoopers
>
> 333 Market Street
>
> San Francisco, CA 94105
>
> **RE:** Palm VII™ and Palm VIIx™ handheld electronic devices; Palm
> VII™ Series Retail Sets; Revocation of NY F89667.
>
> Dear Mr. Fischer:
>
> This is in response to your letter dated February 27, 2001, requesting
> reconsideration of New York Ruling Letter F89667, dated August 10,
> 2000, which was issued to counsel on behalf of Palm, Inc. ("Palm"),
> whom you are now representing. NY F89667 dealt with the classification
> of the Palm VII™ and Palm VIIx™ handheld electronic devices under the
> Harmonized Tariff Schedule of the United States ("HTSUS"). In that
> ruling, the Palm VII™ and VIIx™ were classified under subheading
> 8470.10.0060, HTSUS, which provides for pocket-size data recording,
> reproducing and displaying machines with calculating
> functions...other.
>
> Pursuant to 625 (c), Tariff Act of 1930 (19 U.S.C. 1625 (c)), as
> amended by section 623 of Title VI (Customs Modernization) of the
> North American Free Trade Agreement Implementation Act, Pub. L.
> 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed
> revocation of NY F89667 was published on November 21, 2001, in the
> [Customs Bulletin]{.smallcaps}, Volume 35, Number 47. No comments were
> received in response to that notice.
>
> **FACTS:**

The merchandise under consideration is the Palm VII™ and Palm VIIx™
handheld electronic devices. The Palm VII™ and Palm VIIx™ both measure
5.25 inches (13.34 cm) in height by 3.25 inches (8.26 cm) in width by
.75 inches (1.91 cm) deep. The Palm VII™ and Palm VIIx™ employ the Palm
Operating System version 3.2.0 ("Palm OS®") that

controls the running of programs and the standard applications such as
the date book, memo pad and calculator which are stored in saved memory
and executed upon command. The Palm VII™ utilizes a Motorola M68EZ328
(16 MHz Microprocessor) central processing unit ("CPU") and comes with 2
MB of installed random access memory ("RAM") and 2 MB of installed read
only memory ("ROM"). The Palm VIIx™ uses a Motorola M68VZ328 (24 MHz
Microprocessor) CPU and comes equipped with 8 MB of installed RAM and 8
MB of installed ROM.

Both these Palm models include built-in two-way wireless radios with
integrated antennas. They allow integrated wireless data access to the
Internet without use of accessories. It is noted that the radio function
is limited to Internet access and operates separately from most of the
basic program functions. Both Palm models also include a touch sensitive
keyboard, handwriting recognition software (Graffiti®) keyboard, an
Infrared Port and LCD display screen.

The Palm VII™ and VIIx™ have pre-installed applications that feature a
date book, address book, memo pad, to do list, desktop e-mail
connectivity, expense tracking, calculator, HotSync® software (allowing
local and remote synchronization with a user's desktop computer),
iMessenger™ application, Web clipping applications, and Internet-ready
connectivity (with TCP/IP software to support Internet based
applications). Additionally, the devices contain sufficient memory for
the installation of other program functions available for the Palm
series devices. The Palm VII™ and VIIx™ come with desktop organizer
software (for installation on a desktop computer) which features a date
book, address book, to do list, memo pad, expense report templates, TAB
delimiter, TXT and desktop e-mail connectivity. As indicated by the
handbook included with the sample, the software may be on a CD-ROM or
diskettes.

The Palm OS® is an open operating system which has programming tools
readily available to any user either directly from Palm™ or other
commercial sources that allow a user to create various programs, either
directly on the Palm™ device, or on a host computer that can be
downloaded to the Palm™, and executed on demand. A variety of software
applications are available for the user from multiple sources (i.e.,
freeware, shareware, commercial sources).

Although the Palm VII™ or VIIx™ may be imported separately, the devices
also are imported as a set which includes: a Palm VII™ or VIIx™ handheld
electronic device, a HotSync® cradle, Palm Desktop organizer software,
handbook, getting started guide, batteries, DB-25 adapter and a
protective carrying case.

**ISSUE:**

Are the Palm VII™ and VIIx™ handheld electronic devices properly
classified under heading 8470, HTSUS, as pocket-size data recording,
reproducing and displaying machines with calculating functions; heading
8471, HTSUS, as hand-held computers; or under heading 8525, HTSUS, as
transmission apparatus?

**LAW AND ANALYSIS:**

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 may then be applied.

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.

The HTSUS provisions under consideration are as follows:

8470. Calculator machines and pocket-size data recording, reproducing
      and displaying machines with calculating functions; accounting
      machines, postage-franking machines, ticket issuing machines and
      similar machines incorporating a calculating device; cash
      registers:

      0.  Electronic calculators capable of operation without an
          external source of electric power and pocket-size data
          recording, reproducing and displaying machines with
          calculating functions

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:

> 8471.30.00 Portable digital automatic data processing machines
> weighing not more than 10 kg, consisting of at least a central
> processing unit, a keyboard and a display

8524. Records, tapes and other recorded media for sound or other
      similarly recorded phenomena, including matrices and masters for
      the production of records, but excluding products of chapter 37:

      39. Other:

          4000. For reproducing representations of instructions, data,
                sound and image, recorded in a machine readable binary
                form, and capable of being manipulated or providing
                interactivity to a user, by means of an automatic data
                processing machine; proprietary format recorded discs.

      ```{=html}
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      ```
      99. Other:

          4000. Other.

> 8525 Transmission apparatus for radiotelephony, radiotelegraphy,
> radiobroadcasting or television, whether or not incorporating
> reception apparatus or sound recording or reproducing apparatus;
> television cameras; still image video cameras or other video camera
> recorders:

You state in your letter that the Palm VII™ series of electronic devices
are digital devices that are classifiable as automatic data processing
machines under heading 8471, HTSUS. Automatic data processing ("ADP")
machines are commonly and commercially known as computers. Note 5(A) to
chapter 84, HTSUS, provides a definition for the term "automatic data
processing machines" for the purposes of heading 8471. The definition is
expressed in terms of the abilities an ADP machine possesses. Chapter
84, Note 5 (A)(a) states that a digital machine must be capable of:

(1) storing the processing program or programs and at least the data
    immediately necessary for execution of the program;

(2) being freely programmed in accordance with the requirements of the
    user;

(3) performing arithmetical computations specified by the user; and

(4) executing, without human intervention, a processing program which
    requires them to modify their execution, by logical decisions during
    the processing run.

We take the arguments you make in your submission into consideration
when making a determination as to whether or not the Palm VII™ series
meets the requirements of Note 5(A) of chapter 84.

> **[Note 5(A)(a)(1): Storing the Processing Program or Programs and at
> Least the Data Immediately Necessary for Execution of the
> Program]{.underline}**
>
> The Palm VII™ and VIIx™ satisfy Note 5(A)(a)(1) in that they are
> capable of storing the processing program or programs and at least the
> data immediately necessary for the execution of programs in their RAM
> and ROM by (1) incorporating an operating system that controls the
> running of other programs, and (2) containing sufficient memory to
> store and execute standard applications such as the date book, memo
> pad and calculator, as well as other programs which may be added or
> created by the user.
>
> **[Note 5(A)(a)(2): Being Freely Programmed in Accordance with the
> Requirements of the User]{.underline}**
>
> Customs has previously dealt with the issue of whether an ADP machine
> is capable of being freely programmed in accordance with the
> requirements of the user, or "freely programmable." In HQ 952862,
> dated November 1, 1994, Customs considered the classification of
> systems for radio frequency collection and transmission of data for
> industrial control. In that ruling, Customs determined that the data
> collection devices, while having some processing capability, were not
> "freely programmable." In determining whether a particular machine was
> "freely programmable," Customs examined the definition of the terms
> "computer" and "personal computer." HQ 952862 indicated that:
>
> A computer, which is freely programmable, is a \"\[g\]eneral-purpose
> machine that processes data according to a set of instructions that
> are stored internally either temporarily or permanently.\" A.
> Freedman, The Computer Glossary, Sixth Edition, pg. 95 (1993). A
> personal computer \"is functionally similar to larger computers, but
> serves only one user. It is used at home and in the office for almost
> all applications traditionally performed on larger computers.\"
> Computer Glossary (1993), pg. 400. Personal Computers \"are typically
> used for applications, such as word processing, spreadsheets, database
> management and various graphics-based programs, such as computer-aided
> design (CAD) and desktop publishing. They are also used to handle
> traditional business applications, such as invoicing, payroll and
> general ledger. At home, personal computers are primarily used for
> games, education and word processing.\" A. Freedman, The Computer
> Glossary, Fourth Edition, pg. 524 (1989). Because they can perform any
> of the above-listed applications, personal computers are considered to
> be \"freely programmable.\"
>
> Customs notes the rapid evolution of the modern day digital computer
> and its expansion in capabilities over the years. The so-called "first
> generation" of computers was characterized by the use of wired
> circuits containing vacuum tubes and used punched cards as the main
> storage medium. These machines, such as Colossus (designed to decode
> German messages during World War II), the Harvard Mark I and ENIAC
> ("Electronic Numerator, Integrator, Analyzer, and Computer"; some
> sources have "and Calculator") were enormous in size and utilized
> made- to-order operating instructions to accomplish specific tasks.
> Each computer had a different binary-coded program, called a "machine
> language," that instructed it on how to operate. Changing the
> programming of the computer required an operator to change the wiring
> of that machine, often by changing a plug board on the side of a
> computer.
>
> "Second generation" computers were defined by the replacement of
> vacuum tubes with solid-state components. The invention of the
> transistor allowed computers to become smaller, faster and more
> reliable. By 1965, most businesses routinely used second generation
> computers to process financial information. Using magnetic-core
> memory, these computers were able to store programs. Because programs
> were now contained inside a computer's memory, the computer could run
> a specific function, and then quickly change to perform another
> function, without the need to physically change the machine. More
> sophisticated programming languages, such as FORTRAN (Formula
> Translator) and COBOL (Common Business-Oriented Language) replaced the
> binary code of the computers predecessors, and new careers such as
> computer programmer and analyst were created.
>
> "Third generation" computers benefited from the invention of
> integrated circuits and semiconductors. These are also the first
> computers to utilize an operating system that would allow the computer
> to run a variety of programs at once with a central program that
> monitored and coordinated the computers' memory.
>
> "Fourth generation" computers became smaller and more affordable. By
> the mid-1970's, computers were brought to the general public by
> companies such as Commodore, Radio Shack and Apple. IBM introduced the
> personal computer ("PC") in the early 1980's. These computers became
> more powerful and entire software industries were created to provide
> programs that utilized the processing functions of these machines.
>
> Now, the "fifth generation" of computers is in its infancy, and is
> characterized by the utilization of superconductors and parallel
> processing, which allows many CPU's to work as one.
>
> Throughout this span, the ability of the computer to be freely
> programmed in accordance with the requirements of the user has become
> simpler. From machines that were dedicated to a single purpose (such
> as Colossus) to having the ability to switch between programs to serve
> different functions, computers have become more adaptable, and thus
> become freely programmable.
>
> Customs believes that a freely programmable ADP machine is one that
> applications can be written for, does not impose artificial
> limitations upon such applications, and will accept new applications
> that allow the user to manipulate the data as deemed necessary by the
> user.
>
> The Palm VII™ series handhelds satisfy Note 5(A)(a)(2) in that they
> are freely programmed in accordance with the requirements of the user
> in several ways:
>
> [Directly on the Palm VII™ series]{.underline}: various commercial
> development tools can be used to program the Palm VII™ series devices
> without any host computer, such as Pocket C, Quatrus Forth and LispMe.
> Programs are written by the user in a third generation language on the
> Palm memo pad and then compiled using the computer. The compiled
> program is then stored to be executed on demand on the device.
>
> [With a host computer to generate a generic application]{.underline}:
> a generic program can be developed in a host computer using the
> appropriate high-level development environment (e.g., Java). The
> program is checked and encoded in a generic way. It can then be
> downloaded to the Palm VII™ series via the Hotsync, where it is stored
> and retained. When loaded, it can be executed on demand on top of the
> related runtime engine to complete the task required by the user.
>
> [With a host computer to generate a native application]{.underline}: a
> Palm specific program can be developed for the Palm VII™ series
> handheld device with a host computer (with Windows, Macintosh, Unix,
> etc. OS) using the appropriate development tools and third generation
> language (e.g., Code Warrior C, C). The program is compiled in machine
> language, which the computer can read, and downloaded to the Palm,
> where it is stored and retained. The program can then be executed on
> demand.
>
> In analyzing whether Note 5(A)(a)(2) is satisfied, we also considered
> the following pertinent factors:

(a) the Palm Operating System is an open operating system;

(b) programming tools are readily available to any user either directly
    from Palm or from other commercial sources;

(c) the fact that hundreds of software applications are currently
    available for the Palm OS through a variety of vendors who
    distribute them either as freeware, shareware, or commercial
    applications. These range in function and utility from business
    (such as code-scanning inventory trackers) and educational (such as
    grade-calculating spreadsheets) programs to engineering (such as
    car-engine diagnostics) and other programs.

> **[Note 5(A)(a)(3): Performing Arithmetical Computations Specified by
> the User]{.underline}**
>
> The Palm VII™ series handhelds satisfy Note 5(A)(a)(3) in that the
> Palm VII™ series each contain a Motorola microprocessor which can
> perform complex arithmetic computations. For example, using a computer
> programming language, the user may create a program which instructs
> the device to add simple integers together, or compute more complex
> arithmetical instructions.
>
> **[Note 5(A)(a)(4): Executing, Without Human Intervention, a
> Processing Program Which Requires Them to Modify Their Execution, by
> Logical Decision During the Processing Run]{.underline}**
>
> The Palm VII™ series handhelds appear to satisfy Note 5(A)(a)(4) in
> that they can execute, without human intervention a processing program
> which requires the devices to modify their execution, by logical
> decision during a processing run. It is possible to write a program
> using the aforementioned applications that contain logic instructions.
> Using logical operators such as "and," "or," "not" and using Pocket C,
> one can compile and then execute the program without human
> intervention.

After careful consideration and examination of your arguments as to the
features, functions and capabilities of the Palm VII™ series, for the
preceding reasons, we have come to the conclusion that the Palm VII™ and
VIIx™ meet the requirements set forth in Note 5(A)(a) of chapter 84.

The Palm VII™ and VIIx™ are handheld electronic devices combined with a
two-way wireless radio. As such, they are composite machines under
Section XVI, Note 3, HTSUS, which provides as follows:

> Unless the context otherwise requires, composite machines consisting
> of two or more machines fitted together to form a whole and other
> machines adapted for the purpose of performing two or more
> complementary or alternative functions are to be classified as if
> consisting only of that component or as being that machine which
> performs the principal function.

As noted above, the articles consist of a handheld electronic device
that is coupled with a two-way wireless transmitter/receiver with its
own integrated antenna. The wireless radio component of the Palm VII
series allows two-way wireless connections to the Internet. The articles
at issue here principally function as handheld electronic devices whose
capabilities are enhanced by the addition of wireless and infrared
connectivity to enable the transmission and reception of data. Even
without the wireless capabilities, the Palm VII series would still be
able to function as organizers, address books, or run various other
utility programs available for the devices. For this reason, we find
that by the terms of Note 3 to Section XVI, the articles do not fall to
be classified in heading 8525.

Through application of GRI 1, utilizing the terms of the headings and
relative section and chapter notes, Customs finds that the Palm VII™
series handheld electronic devices meet the terms of heading 8471,
HTSUS. For the foregoing reasons, the Palm VII™ series handheld
electronic devices are classified under subheading 8471.30.00, HTSUS,
which provides for: "\[a\]utomatic 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: Portable digital automatic data
processing machines weighing not more than 10 kg, consisting of at least
a central processing unit, a keyboard and a display."

Because the Palm VII™ series of handheld electronic computers are
defined for tariff purposes as ADP machines of heading 8471, HTSUS, they
are precluded from classification under heading 8470, HTSUS. The ENs to
heading 8470 indicate that the heading **does not cover**: (a) data
processing machines of **heading 84.71** (emphasis original, page 1401).

**[Palm Retail Sets]{.underline}**

As indicated above, the Palm VII™ and VIIx™ could be imported both
separately in bulk or as retail sets packaged with additional components
such as a HotSync cradle, Palm Desktop Software, a handbook and guide,
two AAA batteries, a DB-25 adapter and a protective carrying case. If
imported as packaged sets, the goods are ready for retail sale without
the need for repackaging.

The classification of goods put up in sets for retail sale is governed
by GRI 3(b). GRI 3(b) provides, in relevant part, that goods put up for
retail sale shall be classified as if they consisted of the material or
component which gives them their essential character. According to the
ENs for GRI 3(b), "goods put up in sets for retail sale" refers to goods
which:

(1) consist of at least two different articles which are, *prima facie*,
    classifiable in different headings;

(2) consist of products or articles put up together to meet a particular
    need or carry out a specific activity; and

(3) are put up in a manner suitable for sale directly to users without
    repacking.

As indicated in your letter, the Palm series handheld retail sets meet
all three of the ENs criteria for "goods put up in sets for retail
sale." First, the Palm VII™ handheld retail sets consist of numerous
articles, which, if imported separately, would be classifiable in
different headings. Second, all of the components placed in the Palm
VII™ handhelds retail sets are put up together to allow the Palm VII™
handhelds to function as portable computers. Third, in their imported
condition, the Palm VII™ handheld retail sets are packaged in a manner
suitable for retail sale to the ultimate purchaser, without the need for
further repackaging. Accordingly, pursuant to GRI 3(b), the Palm VII™
series handheld retail sets are properly classified, as are single
units, under subheading 8471.30.00, HTSUS, which is the subheading under
which the Palm VII™ series handhelds, which provide the retail sets with
their essential character, are classified.

However, Chapter 85, Note 6 states 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." Thus, the applicable subheading for the Palm Desktop
organizer software on a CD-ROM will be 8524.39.40, HTSUS, which provides
for "\[r\]ecords, tapes and other recorded media for sound or other
similarly recorded phenomena...\[d\]iscs for laser reading systems:
\[o\]ther: \[f\]or reproducing representations of instructions, data,
sound and image, recorded in a machine readable binary form, and capable
of being manipulated or providing interactivity to a user, by means of
an automatic data processing machine..."

The applicable subheading for the Palm Desktop organizer software on
diskettes will be 8524.99.40, HTSUS, which provides for "\[r\]ecords,
tapes and other recorded media for sound or other similarly recorded
phenomena...\[o\]ther: \[o\]ther: \[o\]ther."

**HOLDING:**

For the reasons stated above, the Palm VII™ and VIIx™ handheld
computers, when imported separately, are to be classified under
subheading 8471.30.00, HTSUS, which provides for "\[a\]utomatic 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:
Portable digital automatic data processing machines weighing not more
than 10 kg, consisting of at least a central processing unit, a keyboard
and a display."

The applicable classification for the Palm VII™ series retail set will
also be subheading 8471.30.00, HTSUS.

The applicable subheading for the Palm Desktop organizer software on a
CD-ROM will be 8524.39.40, HTSUS, which provides for "\[r\]ecords, tapes
and other recorded media for sound or other similarly recorded
phenomena...\[d\]iscs for laser reading systems: \[o\]ther: \[f\]or
reproducing representations of instructions, data, sound and image,
recorded in a machine readable binary form, and capable of being
manipulated or providing interactivity to a user, by means of an
automatic data processing machine..."

The applicable subheading for the Palm Desktop organizer software on
diskettes will be 8524.99.40, HTSUS, which provides for "\[r\]ecords,
tapes and other recorded media for sound or other similarly recorded
phenomena...\[o\]ther: \[o\]ther: \[o\]ther."

**EFFECT ON OTHER RULINGS:**

NY F89667, dated August 10, 2000, is revoked. In accordance with 19
U.S.C. 1625 (c), this ruling will become effective 60 days after its
publication in the [Customs Bulletin]{.smallcaps}.

> Sincerely,

John Durant, Director

Commercial Rulings Division