# **HQ 966961**

May 3, 2004

## 

### CLA-2 RR:CR:GC 966961 NSH

**CATEGORY:** Classification

**TARIFF NO**.: GRI 5(b); 8543.81.0000

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]{.underline}, 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]{.underline}, 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]{.underline}, 2 CIT 278, 534 F. Supp. 818 (1981),
affirmed 1 Fed. Cir. (T.) 16, 69 F.2d 1387 (1982).[^1] In [Holly
Stores]{.underline}, 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

[^1]: [Holly Stores]{.underline} involved the applicability of the
    Tariff Schedule of the United States (TSUS), which preceded the
    HTSUS. However, Customs has recognized the position in [Holly
    Stores]{.underline} as corresponding to GRI 5(b) of the HTSUS (*See,
    e.g*., HQ 084068, dated July 21, 1989 and HQ 961973, dated August
    13, 1999).