[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]


=======================================================================
-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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]
 BILLING CODE 9111-14-P