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HQ 951331

September 18, 1992

CLA-2 CO:R:C:M 951331 MBR


TARIFF NO.: 8471.99.60

Mr. John C. Dibble
Venable, Baetjer, Howard & Civiletti
Suite 1000
1201 New York Ave., N.W.
Washington, D.C.20005-3917

RE: Revocation of HQ 089596, HQ 089597, HQ 089277, HQ 089227, HQ 086035, HQ 086478, HQ 086615, NY 843415, and NY 852403; Local Area Network Interface Boards; LAN; Automatic Data Processing Machine; Units Suitable For Physical Incorporation

Dear Mr. Dibble:

This is in reply to your letter of March 12, 1992, on behalf of Western Digital Corporation, IBM Corporation, NCR Corporation and Madge Networks, regarding the classification of Local Area Network ("LAN") interface boards, under the Harmonized Tariff Schedule of the United States (HTSUS).


The merchandise in question is Local Area Network ("LAN") Interface Boards. These stuffed printed circuit boards are designed for physical incorporation into a personal computer (PC) or into an automatic data processing (ADP) system. LAN boards are connectable to other PCs and units (e.g., input units, output units, storage units, and gateway equipment) over a variety of local area network (LAN) media including coaxial cables and twisted pair wire. These LAN network interface boards (NIBs) convert, process, and format data so that several ADP machines or systems are able to communicate and function as a local area network.

The LAN boards perform two major functions. They receive binary information from a PC and convert this to digital data so that it can be used at other locations within the LAN. Examples of this conversion are character format conversion and file conversion. Once converted, this data is either formatted separately or grouped into units of data known as packets. This data is then transmitted to different locations within the LAN.

Once received by another NIB, the packets are converted into a form usable by the destination device. Thus, essentially, LAN boards process, translate, convert, and transmit data for use within the LAN. The NIBs also perform such additional functions as encoding, decoding, LAN protocol implementation, temporary memory storage, control logic for access to the host computer, and LAN processor local memory.

The LAN boards consist of various programmed chips (including microprocessors), resistors, transistors, and logic devices which operate within the network transmission and protocol software.


Are local area network interface boards classifiable under subheading 8517.82.00, HTSUS, which provides for: "[e]lectrical apparatus for line telephony or telegraphy, including such apparatus for carrier-current line systems: [o]ther apparatus: [t]elegraphic," or are they classifiable under subheading 8471.99.60, HTSUS, which provides for other units suitable for physical incorporation into ADP machines?


Since the HTSUS came into effect there has been a great deal of controversy regarding the classification of LAN boards. However, there is no clear classification guidance from either the HTSUS or the Harmonized Commodity Description and Coding System Explanatory Notes (ENs), primarily due to the technological advancements in this area.

There has never been any controversy that the instant networking boards are the foundation to a local area network. The Computer Glossary, Fourth Edition, Alan Freedman (1989), defines a "Local Area Network" as follows:

A local area network is a communications network that serves several users within a confined geographical area. Although the term may refer to any communications network within a building or plant, it typically refers to the interconnection of personal computers.

Personal computer local area networks function as distributed processing systems in which each computer, or node, in the network does its own processing and manages some of its data. Shared data is stored in a high- performance pc in the network, called a file server or network server, which acts as a remote disk drive to all the users in the network.

The printers that are attached to the network can function on a first-come, first-served basis, or they can be connected to a computer, called a print server, which collects the print
output and feeds it to the printer one job at a time.

A local area network is the backbone of office automation and allows electronic mail and other information to be communicated between all users of the system. Local area networks are becoming essential for small work groups that enter, share and exchange the same information.

With the use of a gateway, local area networks can connect to minicomputer and mainframe networks.

Baseband networks are all digital networks that require information in digital form. Examples are ARCNET, Token Ring, Ethernet and Starlan. All of these networks are driven by network management software that resides in the file servers and the work stations. Examples of network software are Microsoft's NetBIOS and LAN Manager, Apple Talk, TPC/IP and Novell's NetWare.

Broadband networks use carrier frequencies and can handle voice and video transmission as well, for example, Wang Computer's WangNET.

Customs first held that LAN boards were classifiable under heading 8471, HTSUS, because the submitted information was persuasive that the LANs' principal function was that of data processing (See HQ 086105, dated May 7, 1990).

Section XVI, Legal Note 3, provides direction for the classification of machines with more than one function. It states:

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 functions are to be classified as if consisting only of that component or as being that machine which performs the principal function. (Emphasis added).

There has been no dispute that the LANs have two complementary functions, i.e., transmission and data processing. Therefore, the issue has been one of which performs the principal function.

Subsequent to HQ 086105, it was determined that the principal function of the LANs was that of data transmission, directing classification under heading 8517, HTSUS, which provides for: "[e]lectrical apparatus for line telephony or telegraphy." See HQ 089596, HQ 089597, HQ 089277, HQ 089227, HQ 086035, HQ 086478, HQ 086615, NY 843415, and NY 852403.

Legal Note 5(B) to chapter 84, HTSUS, provides guidance regarding units of automatic data processing machines. It states:

Automatic data processing machines may be in the form of systems consisting of a variable number of separately housed units. A unit is to be regarded as being a part of the complete system if it meets all of the following conditions:

(a) It is connectable to the central processing unit either directly or through one or more other units; and

(b) It is specifically designed as part of such a system (it must, in particular, unless it is a power supply unit, be able to accept or deliver data in a form (code or signals) which can be used by the system).

You argue that the networking boards are essential to the ADP systems they serve because they process and format the data of the computers they serve. We now agree. In fact, in the future, LAN boards or their antecedents may be incorporated into PCs at the time of manufacture. Apparently, the only reason they are not presently incorporated at manufacture is because of the myriad number of different types of LAN systems, which cannot necessarily communicate or interact with each other. Therefore, end users must choose the type of LAN system that best suits their needs.

It is also important to note that the ENs, page 1299-1300, describe separately presented ADP units as follows:

This heading also covers separately presented constituent units of data processing systems. Constituent units are those defined in Parts (A) and (B) above as being parts of a complete system.

Apart from central processing units and input and output units, examples of such units include:

(4) Control and adaptor units such as those to effect interconnection of the central processing unit to other digital data processing machines, or to groups of input or output units which may comprise visual display units, remote terminals, etc.

This category includes channel to channel adaptors used to connect two digital systems to each other.

(5) Signal Converting units. At input, these enable an external signal to be understood by the machine, while at output, they convert the output signals that result from the processing carried out by the machine into signals which can be used externally.

The network interface boards do in fact effectuate interconnection of the CPU unit to other units or ADP machines, thereby serving control and adaption functions, as well as performing signal conversion. These facts further lend authority for classification in heading 8471, HTSUS, which provides for ADP machines and units thereof.

Our diligent fact finding, and research and analysis of this issue, has been continually ongoing. Therefore, we have learned more about this merchandise, its functions, and its geometrically progressive technological developments. Furthermore, we have consulted with the Customs Administrations of other countries regarding their legal analysis of this issue. We have found that a substantial majority of other Administrations are classifying this merchandise in heading 8471, of the HS. While the views of the other Administrations are not binding on the U.S. Customs Service, they were useful in the analysis of this issue.

Therefore, based on the new information submitted, and in an effort to expeditiously and accurately address this classification issue, we have reconsidered our position. It is now our conclusion that the data processing features do in fact represent the principal function of the LAN boards, directing classification in subheading 8471.99.60, HTSUS, which provides for other units suitable for physical incorporation into automatic data processing machines or units thereof.


The instant local area network interface boards are classifiable under subheading 8471.99.60, HTSUS, which provides for: "[a]utomatic data processing machines and units thereof: [o]ther: [o]ther: [o]ther: [u]nits suitable for physical incorporation into automatic data processing machines or units thereof." The rate of duty is Free.


For the reasons stated above, the following rulings are revoked under authority of Section 177.9(d), Customs Regulations: HQ 089596, dated September 17, 1991, HQ 089597, dated September 5, 1991, HQ 089277, dated August 14, 1991, HQ 089227, dated July 24, 1991, HQ 086035, dated August 2, 1990, HQ 086478, dated April 9, 1990, HQ 086615, dated April 20, 1990, NY 843415, dated August 8, 1989, and NY 852403, dated May 31, 1990.


Sam Banks, Assistant Commisioner
Office of Commercial Operations

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