[Federal Register Volume 80, Number 50 (Monday, March 16, 2015)]
[Notices]
[Pages 13589-13591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-05954]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Certain 
Notebook Computer Products

AGENCY: U.S. Customs and Border Protection, Department of Homeland 
Security.

ACTION: Notice of final determination.

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SUMMARY: This document provides notice that U.S. Customs and Border 
Protection (``CBP'') has issued a final determination concerning the 
country of origin of certain notebook computer products known as the 
EliteBook 840-G1 Notebook. Based upon the facts presented, CBP has 
concluded that in all four scenarios, the country of origin of the 
notebook computer is Country A for purposes of U.S. Government 
procurement.

DATES: The final determination was issued on March 10, 2015. A copy of 
the final determination is attached. Any party-at-interest, as defined 
in 19 CFR 177.22(d), may seek judicial review of this final 
determination within April 15, 2015.

FOR FURTHER INFORMATION CONTACT: Grace A. Kim, Valuation and Special 
Programs Branch, Regulations and Rulings, Office of International Trade 
(202) 325-7941.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on March 10, 
2015, pursuant to subpart B of Part 177, U.S. Customs and Border 
Protection Regulations (19 CFR part 177, subpart B), CBP issued a final 
determination concerning the country of origin of certain notebook 
computer products known as the EliteBook 840-G1 Notebook, which may be 
offered to the U.S. Government under an undesignated government 
procurement contract. This final determination, HQ H240199, was issued 
under procedures set forth at 19 CFR part 177, subpart B, which 
implements Title III of the Trade Agreements Act of 1979, as amended 
(19 U.S.C. 2511-18). In the final determination, CBP concluded that in 
all four scenarios, the processing in Country D or F does not result in 
a substantial transformation. Therefore, the country of origin of the 
notebook computer in all four scenarios is Country A for purposes of 
U.S. Government procurement.
    Section 177.29, CBP Regulations (19 CFR 177.29), provides that a 
notice of final determination shall be published in the Federal 
Register within 60 days of the date the final determination is issued. 
Section 177.30, CBP Regulations (19 CFR 177.30), provides that any 
party-at-interest, as defined in 19 CFR 177.22(d), may seek judicial 
review of a final determination within 30 days of publication of such 
determination in the Federal Register.

    Dated: March 10, 2015.
Glen E. Vereb,
Acting Executive Director, Regulations and Rulings, Office of 
International Trade.

HQ H240199

March 10, 2015

OT:RR:CTF:VS H240199 GaK

CATEGORY: Origin

Mr. Carlos Halasz
Hewlett-Packard Company
8501 SW 152 St.
Palmetto Bay, FL 33157

RE: U.S. Government Procurement; Country of Origin of Computer 
Notebook; Substantial Transformation

Dear Mr. Halasz:

    This is in response to your letter dated March 14, 2013, and 
your supplemental submission dated March 10, 2014 requesting a final 
determination on behalf of Hewlett-Packard Company (``HP'') pursuant 
to Subpart B of Part 177 of the U.S. Customs and Border Protection 
(``CBP'') Regulations (19 CFR part 177). Under these regulations, 
which implement Title III of the Trade Agreements Act of 1979 
(``TAA''), as amended (19 U.S.C. 2511 et seq.), CBP issues country 
of origin advisory rulings and final determinations as to whether an 
article is or would be product of a designated country or 
instrumentality for the purposes of granting waivers of certain 
``Buy American'' restrictions in U.S. law or for products offered 
for sale to the U.S. Government. This final determination concerns 
the country of origin of HP's EliteBook 840-G1 Notebook 
(``Elitebook''). As a U.S. importer, HP is a party-at-interest 
within the meaning of 19 CFR 177.22(d)(1) and is entitled to request 
this final determination. A meeting was held at our office on 
January 5, 2015.
    In your letter, you requested confidential treatment for certain 
information contained in the file. Pursuant to 19 CFR 177.2(b)(7), 
the identified information has been bracketed and will be redacted 
in the public version of this final determination.

FACTS:

    The Elitebook is a commercial notebook computer. The components 
of the Elitebook are sourced from various countries. The components 
include:
     Base Unit: The base unit is the bottom of the finished 
notebook made of a metal frame, with metal or plastic skins. The 
base unit includes antennae, a printed circuit assembly (``PCA''), 
the central processing unit (``CPU''), the BIOS chip, the keyboard, 
cables, connectors and speakers. The CPU is sourced in Country A, 
[******] or Country G, [******]. The base unit is assembled in 
Country A, a non-TAA designated country.
     Hinge-Up: The hinge-up is the top of the finished 
notebook. It consists of an LCD display, surrounding frame, and 
hinges for attachment to the base unit. The hinge-up is assembled in 
Country A.
     Hard Disk Drive/Solid State Drive: The drives store 
data, including the operating system and value-added software. Both 
drives are sourced in Country A or Country B, [******] a TAA 
designated country.
     WLAN Card: The WLAN card establishes wireless 
connections with other devices. It consists of a printed circuit 
board, radio frequency transmit/receive components and baseband 
processor. The country of origin of the WLAN card is Country A.
     Random Access Memory (RAM): The RAM are integrated 
circuits affixed to a printed circuit board. It has direct access to 
the CPU and is the main memory system. It is produced in Country A, 
Country B, or Country C, [******] a TAA designated country.
     Battery: The country of origin of the battery is 
Country A.
     BIOS: The BIOS executes the instructions that start the 
notebook and prepares the hardware for use. It loads the operating 
system and passes control of many functions to the operating system. 
The BIOS is developed and written at HP's laboratory in Country D, 
[******] a TAA designated country.
     Operating system (``OS''): The OS works with 
application programs to perform user interface, job management, task 
management, data management, device management, and security. The OS 
is a third-party product that HP downloads onto most Elitebooks, and 
is developed in Country D.
     Other minor components such as cables, brackets, 
screws, CD's and manuals are sourced from a variety of countries, 
and comprise less than 2% of the Elitebook.
    The BIOS is electronically transmitted from Country D to Country 
E, [******] a TAA designated country, where it is maintained by a HP 
team. BIOS maintenance includes adding device support, such as a new 
wireless LAN card, and improving field issues that were not 
discovered during standard testing. HP states that the Elitebook is 
non-functional without the BIOS because it executes the instructions 
that start the notebook and provides the basic instructions for 
controlling the system hardware, and includes all necessary hardware 
drivers and provides a uniform interface for the OS to access the 
hardware. HP further states that the BIOS authenticates the 
hardware, OS, and application programs before they are loaded.
    According to your letter, HP will assemble the Elitebook by one 
of the four scenarios described below.
    Scenario 1: This scenario applies when all the components are 
imported to Country F, [******] a TAA designated country for 
assembly.
    1. The base unit is placed over the hinge-up.
    2. The hinges are closed and screwed shut.
    3. Cables for the display and the antennae are routed and 
secured to avoid damage.

[[Page 13590]]

    4. The unit is moved to a station where the memory, hard disk/
solid state drive, and WLAN are installed into the unit, connected 
and secured in place.
    5. The battery is inserted into the base unit.
    6. The unit is moved to the next station where the OS is 
downloaded onto the hard disk/solid state drive. The BIOS is 
downloaded on the flash device (BIOS chip) that is inside the base 
unit.
    After assembly is complete, the unit goes through a testing 
phase, where the operator performs tests as indicated by HP 
developed diagnostic software and addresses any problems that arise. 
The acceptable units are sent to packaging and 4% of the units are 
reviewed for quality assurance, which consists of a ``hood off'' 
audit to ensure that all components are present, a ``pre-test'' 
using a software diagnostic program, and a ``run-in'' software 
diagnostic program to identify possible errors that are fixed after 
the run. After packaging, 2% of the units are opened for an ``out of 
the box audit'' to ensure that all accessories are included and the 
``run-in'' test is executed.
    Scenario 2: This scenario is identical to Scenario 1 except that 
the base unit and the hinge-up are combined in Country A and 
imported into Country F for remaining assembly processes, testing, 
quality control and packaging.
    Scenario 3: This scenario is identical to Scenario 1 except that 
all the hardware components are assembled in Country A before they 
are imported to Country F. The production/assembly that occurs in 
Country F are the BIOS and the OS download as well as the testing, 
quality control and packaging.
    Scenario 4: In this scenario, all the hardware components are 
assembled in Country A and imported to Country D. The BIOS and the 
OS is downloaded in Country D then the notebook goes through 
testing, quality control and packaging.

ISSUE:

    In each scenario, what is the country of origin of the Elitebook 
for purposes of U.S. government procurement?

LAW AND ANALYSIS:

    Pursuant to Subpart B of Part 177, 19 CFR 177.21 et seq., which 
implements Title III of the Trade Agreements Act of 1979, as amended 
(19 U.S.C. 2511 et seq.), CBP issues country of origin advisory 
rulings and final determinations as to whether an article is or 
would be a product of a designated country or instrumentality for 
the purposes of granting waivers of certain ``Buy American'' 
restrictions in U.S. law or practice for products offered for sale 
to the U.S. Government.
    Under the rule of origin set forth under 19 U.S.C. 2518(4)(B):

    An article is a product of a country or instrumentality only if 
(i) it is wholly the growth, product, or manufacture of that country 
or instrumentality, or (ii) in the case of an article which consists 
in whole or in part of materials from another country or 
instrumentality, it has been substantially transformed into a new 
and different article of commerce with a name, character, or use 
distinct from that of the article or articles from which it was so 
transformed.

    See also 19 CFR 177.22(a).

    In determining whether the combining of parts or materials 
constitutes a substantial transformation, the determinative issue is 
the extent of operations performed and whether the parts lose their 
identity and become an integral part of the new article. Belcrest 
Linens v. United States, 573 F. Supp. 1149 (Ct. Int'l Trade 1983), 
aff'd, 741 F.2d 1368 (Fed. Cir. 1984). Assembly operations that are 
minimal or simple, as opposed to complex or meaningful, will 
generally not result in a substantial transformation. See C.S.D. 80-
111, C.S.D. 85-25, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51, and 
C.S.D. 90-97. If the manufacturing or combining process is a minor 
one which leaves the identity of the article intact, a substantial 
transformation has not occurred. Uniroyal, Inc. v. United States, 3 
Ct. Int'l Trade 220, 542 F. Supp. 1026 (1982), aff'd 702 F. 2d 1022 
(Fed. Cir. 1983).
    ``The term `character' is defined as `one of the essentials of 
structure, form, materials, or function that together make up and 
usually distinguish the individual. ''' Uniden America Corporation 
v. United States, 120 F. Supp. 2d. 1091, 1096 (citations omitted) 
(Ct. Int'l Trade 2000), citing National Hand Tool Corp. v. United 
States, 16 Ct. Int'l Trade 308, 311 (1992). In Uniden (concerning 
whether the assembly of cordless telephones and the installation of 
their detachable A/C (alternating current) adapters constituted 
instances of substantial transformation), the Court of International 
Trade applied the ``essence test'' and found that ``[t]he essence of 
the telephone is housed in the base and the handset.
    In Data General v. United States, 4 Ct. Int'l Trade 182 (1982), 
the court determined that for purposes of determining eligibility 
under item 807.00, Tariff Schedules of the United States 
(predecessor to subheading 9802.00.80, Harmonized Tariff Schedule of 
the United States), the programming of a foreign PROM (Programmable 
Read-Only Memory chip) in the United States substantially 
transformed the PROM into a U.S. article. In programming the 
imported PROMs, the U.S. engineers systematically caused various 
distinct electronic interconnections to be formed within each 
integrated circuit. The programming bestowed upon each circuit its 
electronic function, that is, its ``memory'' which could be 
retrieved. A distinct physical change was effected in the PROM by 
the opening or closing of the fuses, depending on the method of 
programming. This physical alteration, not visible to the naked eye, 
could be discerned by electronic testing of the PROM. The court 
noted that the programs were designed by a U.S. project engineer 
with many years of experience in ``designing and building 
hardware.'' In addition, the court noted that while replicating the 
program pattern from a ``master'' PROM may be a quick one-step 
process, the development of the pattern and the production of the 
``master'' PROM required much time and expertise. The court noted 
that it was undisputed that programming altered the character of a 
PROM. The essence of the article, its interconnections or stored 
memory, was established by programming. The court concluded that 
altering the non-functioning circuitry comprising a PROM through 
technological expertise in order to produce a functioning read only 
memory device, possessing a desired distinctive circuit pattern, was 
no less a ``substantial transformation'' than the manual 
interconnection of transistors, resistors and diodes upon a circuit 
board creating a similar pattern.
    In Texas Instruments v. United States, 681 F.2d 778, 782 (CCPA 
1982), the court observed that the substantial transformation issue 
is a ``mixed question of technology and customs law.''
    In C.S.D. 84-85, 18 Cust. B. & Dec. 1044, CBP stated:

    We are of the opinion that the rationale of the court in the 
Data General case may be applied in the present case to support the 
principle that the essence of an integrated circuit memory storage 
device is established by programming; . . . [W]e are of the opinion 
that the programming (or reprogramming) of an EPROM results in a new 
and different article of commerce which would be considered to be a 
product of the country where the programming or reprogramming takes 
place.

    Accordingly, the programming of a device that confers its 
identity as well as defines its use generally constitutes 
substantial transformation. See also Headquarters Ruling Letter 
(``HQ'') 558868, dated February 23, 1995 (programming of SecureID 
Card substantially transforms the card because it gives the card its 
character and use as part of a security system and the programming 
is a permanent change that cannot be undone); HQ 735027, dated 
September 7, 1993 (programming blank media (EEPROM) with 
instructions that allow it to perform certain functions that prevent 
piracy of software constitute substantial transformation); and, HQ 
733085, dated July 13, 1990; but see HQ 732870, dated March 19, 1990 
(formatting a blank diskette does not constitute substantial 
transformation because it does not add value, does not involve 
complex or highly technical operations and did not create a new or 
different product); and, HQ 734518, dated June 28, 1993, 
(motherboards are not substantially transformed by the implanting of 
the central processing unit on the board because, whereas in Data 
General use was being assigned to the PROM, the use of the 
motherboard had already been determined when the importer imported 
it).

Scenario 1 and 2:

    In Scenario 1, the base unit containing a PCA, CPU, BIOS chip, 
amongst other components is placed over the hinge-up (which contains 
a LCD display) in Country F. The hard disk drive and WLAN are 
installed and the OS and BIOS are downloaded. In Scenario 2, the 
base unit and hinge-up are already assembled in Country A before 
importation into Country F. After the hardware components are 
assembled, the BIOS is downloaded onto the flash device.
    HP claims that as a result of the assembly operations performed 
in Country F, the various foreign components undergo a substantial 
transformation, such that the finished Elitebook becomes a product 
of Country F for purposes of U.S. Government

[[Page 13591]]

procurement. HP cites HQ 560677, dated February 3, 1998, to support 
the argument that the assembly operations coupled with the BIOS 
download transform discrete and inoperable components into a 
finished product with a different name, character and use. In HQ 
560677, CBP considered two different notebook computers manufactured 
in the U.S. with parts and components from various countries. In the 
first scenario, the imported chassis included the LCD and the CPU 
from various countries, but the BIOS and memory modules were not 
included. Other imported components were the hard disk drive 
(Thailand), BIOS chip (U.S.), floppy disk drive (China), AC adapter 
(China), CD ROM (Japan), fax modem cards (U.S.), a docking station 
(Taiwan), and memory board (Korea, Japan, or Singapore). The 
assembly process in the U.S. consisted of installing the BIOS chip 
(which was of U.S. origin), the memory modules, the hard disk drive, 
the network interface card, and downloading the flash BIOS into non-
volatile RAM. In the second scenario, the imported chassis included 
the LCD screen (Taiwan), the floppy disc drive (China), and the BIOS 
chip but neither the keyboard, the CPU nor other primary chips were 
included. Similar components as in the first scenario were imported 
and the assembly process in the U.S. consisted of installing the CPU 
processor module (of U.S. origin), the hybrid cooler, the keyboard, 
the memory modules, the hard disk drive, the PCMCIA modem card, and 
downloading the flash BIOS into non-volatile RAM. CBP concluded that 
the foreign components used in the manufacture of the notebook 
computers lost their separate identities and became an integral part 
of a notebook computer as a result of the operations performed in 
the U.S.
    HQ H241177, dated December 3, 2013, Ethernet switches were 
assembled to completion in Malaysia and then shipped to Singapore, 
where U.S.-origin software was downloaded onto the switches. CBP 
found that the software downloading performed in Singapore did not 
amount to programming and that the country of origin was Malaysia, 
where the last substantial transformation occurred.
    In this case, the base unit is assembled in Country A and it 
includes the antennae, printed circuit assembly, CPU, BIOS chip, 
keyboard, cables, connectors, and speakers. The base unit is 
imported into Country F and the BIOS from Country D is downloaded. 
Based on the facts in this case and consistent with the Customs 
rulings cited above, we find that under Scenarios 1 and 2, the last 
substantial transformation of the Elitebook components occurs in 
Country A. Most of the major components are sourced in Country A, 
unlike HQ 560677, where the components came from various countries 
and in each scenario a major component (BIOS chip or CPU) was of 
U.S. origin, where the assembly occurred. Further, downloading the 
BIOS does not substantially transform the Elitebook. Therefore, we 
find that the country of origin for purposes of U.S. Government 
procurement in Scenarios 1 and 2 is Country A.

Scenario 3:

    In Scenario 3, all of the hardware components are assembled in 
Country A and imported into Country F. The operations that occur in 
Country F are BIOS download, OS download, testing, quality control 
and packaging. The issue is whether the downloading of the BIOS and 
OS substantially transforms the notebook computer. As indicated 
above, the programming of a device that defines its use generally 
constitutes a substantial transformation. Software downloading by 
itself, however, does not amount to programming, which involves 
writing, testing and implementing code necessary to make a computer 
function in a certain way. See HQ H241177 (Dec. 3, 2013) supra, see 
also Data General supra.
    Consistent with the Customs rulings cited above, we find that 
the BIOS and OS downloading does not result in a substantial 
transformation in Country F. Given these facts, we find that the 
country where the last substantial transformation occurs is Country 
A, where the major assembly processes are performed. The country of 
origin for purposes of U.S. Government procurement in Scenario 3 is 
Country A.

Scenario 4:

    Here, all of the hardware components are assembled in Country A 
and imported into Country D. In Country D, the BIOS and OS are 
downloaded and the Elitebook is tested for quality assurance and 
packaged. As indicated above, software downloading by itself does 
not result in a substantial transformation. Consistent with the 
Customs rulings cited above, we find that the country where the last 
substantial transformation occurs is Country A, where the major 
assembly processes are performed. The country of origin for purposes 
of U.S. Government procurement in Scenario 4 is Country A.

HOLDING:

    Based on the facts of this case, we find that in Scenarios 1, 2, 
3, and 4, the last substantial transformation takes place in Country 
A. The country of origin of the Elitebook is Country A for purposes 
of U.S. Government procurement and country of origin marking.
    Notice of this final determination will be given in the Federal 
Register, as required by 19 CFR Sec.  177.29. Any party-at-interest 
other than the party which requested this final determination may 
request, pursuant to 19 CFR Sec.  177.31, that CBP reexamine the 
matter anew and issue a new final determination. Pursuant to 19 CFR 
Sec.  177.30, any party-at-interest may, within 30 days of 
publication of the Federal Register Notice referenced above, seek 
judicial review of this final determination before the Court of 
International Trade.

Sincerely,

Glen E. Vereb
Acting Executive Director, Regulations and Rulings, Office of 
International Trade

[FR Doc. 2015-05954 Filed 3-13-15; 8:45 am]
BILLING CODE 9111-14-P