[Federal Register Volume 81, Number 127 (Friday, July 1, 2016)]
[Notices]
[Pages 43219-43221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-15692]
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DEPARTMENT OF HOMELAND SECURITY
U.S. Customs and Border Protection
Notice of Issuance of Final Determination Concerning Certain
Network Cables and Transceivers
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 transceivers imported separately and
certain imported network cables containing transceivers. Based upon the
facts presented, CBP has concluded in both instances that the country
of origin of the merchandise is China for purposes of U.S. Government
procurement.
DATES: The final determination was issued on June 14, 2016. 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 August 1, 2016.
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 June 14,
2016, 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 network
cables and transceivers, which may be offered to the U.S. Government
under an undesignated government procurement contract. This final
determination, HQ H273091, 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 the processing of the imported
merchandise in the U.S. does not result in a substantial
transformation. Therefore, the country of origin of the transceivers
and of the network cables containing transceivers is China 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: June 14, 2016.
Joanne R. Stump,
Acting Executive Director, Regulations and Rulings, Office of
International Trade.
HQ H273091
June 14, 2016
OT:RR:CTF:VS H273091 GaK
CATEGORY: Origin
Janet C. Wallett
FCI USA LLC.
825 Old Trail Road
Etters, PA 17319
RE: U.S. Government Procurement; Country of origin of copper cables
containing transceivers and of the fiber optic transceiver;
Substantial Transformation
Dear Ms. Wallett:
This is in response to your letter dated January 6, 2016,
requesting a final determination on behalf of FCI USA LLC (``FCI''),
pursuant to subpart B of part 177 of the U.S. Customs & 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. Sec. 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. This final
determination concerns the country of origin of FCI's Copper Direct
Attach Copper (``DAC'') cable--HPL500 (``Cable'') and Fiber Optic
Transceivers--HPL512 (``Transceivers''). We note that as a U.S.
importer, FCI is a party-at-interest within the meaning of 19 CFR
Sec. 177.22(d)(1) and is entitled to request this final
determination.
[[Page 43220]]
FACTS:
Cable
The Cable is a copper 10 gigabit Ethernet cable containing an
active or passive Twinax (twinaxial) cable assembly. The Cable is
used to connect routers and switches in data centers. Each end of
the Cable has a small form-factor pluggable (``SFP+''), which
connects directly into a SFP+ housing. SFP+ is a compact, hot-
pluggable transceiver used for telecommunication and data
communications applications. SFP+ is designed to interface with a
network device motherboard switch, router, media converter, or
similar device and to connect that device to a fiber optic or copper
networking cable. The SFP+ contains an EEPROM chip.
All of the Cable hardware components are of Chinese origin,
assembled in China and imported into the U.S. The software
development process starts with research, eighty percent in the U.S.
and twenty percent in China. Then development of a graphical user
interface, development and writing of software specifications and
architecture, programming of source code, software build, and
testing and validation are conducted in China. FCI states that the
Cable is completely non-functional as a network accessory at the
time of importation. After importation, FCI's proprietary software
is downloaded onto the EEPROM chip.
Transceiver
The Transceiver is referred to as a fiber optic transmitter and
receiver, and is used for photoelectric conversion. The transmitter
end of the Transceiver takes in and converts the electric signal
into light; then the receiver end converts the light signal into an
electrical signal. Both the receiver and the transmitter ends have
their own circuitry and can handle transmissions in both directions.
A Chinese origin printed circuit board assembly (``PCBA'') is
imported into the U.S. and German firmware is downloaded in the U.S.
The German firmware is ``compiled'' (process that converts the
written program into an executable program) in the U.S. The PCBA is
exported to China and built up to a Transceiver with all Chinese
origin components. The manufacturing process in China also includes
defining and optimizing the values of the PCBA, which is described
as specific values for tuning the amplifiers and drivers for each
individual PCBA. The Transceiver is imported into the U.S. In the
U.S., FCI downloads the proprietary software that enables the
Transceiver to function as intended. The proprietary software
downloaded onto the Transceivers is developed in Germany (research,
development of a graphical user interface, development and writing
of software specifications and architecture, programming of source
code, software build, and testing and validation).
ISSUE:
What is the country of origin of the Cable and Transceivers for
purposes of U.S. Government procurement?
LAW AND ANALYSIS:
Pursuant to Subpart B of Part 177, 19 CFR Sec. 177.21 et seq.,
which implements Title III of the Trade Agreements Act of 1979, as
amended (19 U.S.C. Sec. 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. Sec.
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 Sec. 177.22(a).
In rendering advisory rulings and final determinations for
purposes of U.S. government procurement, CBP applies the provisions
of subpart B of part 177 consistent with the Federal Acquisition
Regulations. See 19 CFR Sec. 177.21. In this regard, CBP recognizes
that the Federal Acquisition Regulations restrict the U.S.
Government's purchase of products to U.S.-made or designated country
end products for acquisitions subject to the TAA. See 48 CFR Sec.
25.403(c)(1). The Federal Acquisition Regulations define ``U.S.-made
end product'' as:
. . .an article that is mined, produced, or manufactured in the
United States or that is substantially transformed in the United
States 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 transformed.
48 CFR Sec. 25.003.
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 transformed the card because it gave the card its
character and use as part of a security system and the programming
was a permanent change that could not be undone); HQ 735027, dated
September 7, 1993 (programming blank media (EEPROM) with
instructions that allowed it to perform certain functions that
prevented piracy of software constituted substantial
transformation); and, HQ 733085, dated July 13, 1990; but see HQ
732870, dated March 19, 1990 (formatting a blank diskette did not
constitute substantial transformation because it did not add value,
did not involve complex or highly technical operations and did not
create a new or different product); and, HQ 734518, dated June 28,
1993, (motherboards were 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).
The hardware components of the Cable are all Chinese origin and
assembled in China. While eighty percent of the research conducted
to develop the proprietary software is done in the U.S. and twenty
percent is done in China, all other development processes are
conducted in China. CBP has held that the country of origin of a
software was determined by the country where the object code was
created, software executable files were made, source
[[Page 43221]]
code was programmed, and testing and validation were conducted. See
HQ H243606, dated December 4, 2013. Therefore, since the entire
development and writing of software specifications, programming of
source code, and software build occur in China, the country of
origin of FCI's proprietary software is China.
CBP has considered several cases dealing with country of origin
of electronic products that are manufactured abroad and imported
into the U.S. for software download. In HQ H034843, dated May 5,
2009, CBP held that USB flash drives were products of Israel
because, though the assembly process began in China, the software
and firmware were developed in Israel, and the installation and
customization of the firmware and software that took place in Israel
made the USB flash drives functional, permitted them to execute
their security features, and increased their value. In HQ H175415,
dated October 4, 2011, CBP held that Ethernet switches were products
of the U.S. because, though the hardware components were fully
assembled into Ethernet switches in China, they were programmed with
U.S.-origin operating software enabling them to interact and route
within the network, and to monitor, secure, and access control of
the network.
In 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 software downloading did not amount to programming, which
involved writing, testing and implementing code necessary to make
the computer function a certain way. See also HQ H240199, dated
March 10, 2015 (notebook computer was not substantially transformed
when the computer was assembled in Country A, imported into Country
F, and Country D-origin BIOS was downloaded). CBP concluded in HQ
H241177, 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 Cable is fully assembled in China and imported
into the U.S., and in its imported condition, it is completely non-
functional. The Chinese proprietary software enables the Cable to
function as intended. Without the proprietary software, the Cable
cannot function as a network device in any capacity. However,
downloading does not amount to programming. See HQ H241177, supra.
Here, the software is developed in China and the download occurs in
the U.S. Given these facts, we find that the country where the last
substantial transformation occurs is China, that is, where the major
assembly processes are performed and the software was developed. The
country of origin of the Cable for purposes of U.S. Government
procurement is China.
The manufacturing process for the Transceivers is similar to the
Cable. The Transceiver is fully assembled in China and imported into
the U.S., and in its imported condition, it is completely non-
functional. The German software is downloaded and enables the
Transceiver to function as intended. As stated above, and in
accordance with HQ H241177, downloading does not amount to
programming and the Transceiver is not substantially transformed in
the U.S. Given these facts, we find that the country where the last
substantial transformation occurs is China, where the major assembly
processes are performed. The country of origin of the Transceiver
for purposes of U.S. Government procurement is China.
HOLDING:
Based on the facts in this case, we find that the last
substantial transformation of the Cable and Transceiver occurs in
China. As such, the Cable and Transceiver will be considered
products of China for purposes of U.S. Government procurement.
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,
Joanne R. Stump,
Acting Executive Director, Regulations and Rulings, Office of
International Trade
[FR Doc. 2016-15692 Filed 6-30-16; 8:45 am]
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