[Federal Register Volume 81, Number 230 (Wednesday, November 30, 2016)]
[Notices]
[Pages 86334-86337]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28790]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Country of 
Origin of Computer Notebook Hard Disk Drives

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 computer notebook hard disk drives.

DATES: The final determination was issued on November 22, 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 December 30, 2016.

FOR FURTHER INFORMATION CONTACT: Robert Dinerstein, Valuation and 
Special Programs Branch, Regulations and Rulings, Office of Trade (202-
325-0132).

SUPPLEMENTARY INFORMATION: Notice is hereby given that on November 22, 
2016, pursuant to subpart B of Part 177, Customs and Border Protection 
(CBP) Regulations (19 CFR part 177, subpart B), CBP issued a final 
determination concerning the country of origin of computer notebook 
hard disk drives which may be offered to the United States Government 
under an undesignated government procurement contract. This final 
determination, HQ H261623, was issued at the request of Seagate 
Technology 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 was 
presented with two scenarios on how the hard disk drives are produced. 
In the first scenario, the firmware for the hard disk drives is 
primarily written and installed onto the hard disk drives in the same 
country. CBP concluded for purposes of U.S. Government procurement, 
that the country of origin of the notebook hard disk drives will either 
be Singapore or South Korea. In the second scenario, the firmware is 
written in a different country from where it is downloaded. In the 
second scenario, for purposes of U.S. Government procurement, the 
country of origin of the notebook hard disk drives will be the country 
where

[[Page 86335]]

the components for the devices are finally assembled, either 
[redacted].
    Section 177.29, CBP Regulations (19 CFR 177.29), provides that 
notice of final determinations 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: November 22, 2016.
Myles B. Harmon,
Acting Executive Director, Regulations and Rulings, Office of Trade.

HQ H261623

November 22, 2016

OT:RR:CTF:VS H261623 RSD

CATEGORY: Origin

Stuart P. Seidel, Esq.
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006

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

Dear Mr. Seidel:

    This is in response to your letter dated February 6, 2015, on 
behalf of Seagate Technology (Seagate), of Cupertino, California, 
requesting a final determination pursuant to subpart B of Part 177 
of the U.S. Customs and Border Protection (``CBP'') Regulations (19 
CFR Part 177, subpart B). 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 a 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 the ``Notebook'' family of hard disk storage devices under 
two scenarios. As a U.S. importer, Seagate is a party-at-interest 
within the meaning of 19 CFR 177.22(d)(1) and is entitled to request 
this final determination. In addition, we have reviewed and granted 
the importer's request for confidentiality pursuant to section 
177.2(b)(7) of the CBP Regulations (19 CFR 177.2(b)(7)), with 
respect to certain information submitted.

FACTS:

    The products at issue in this final determination are a family 
of hard disk drives (HDD) known as ``Notebook'' (``NS''). The NS 
line currently consists of the following brand names: Ultra Mobile 
HDD, Laptop Ultrathin HDD, Laptop HDD, and Samsung Spinpoint. You 
describe two scenarios in which the HDDs will be produced. The HDDs 
use mechanical and electromagnetic components that are designed or 
specified by Seagate in one or more of Seagate's five design centers 
located in the United States. Each family of HDDs consists of 
approximately ten products offered each year. The annual person 
hours required to fully design an average recording head and 
recording media (media), fit for integration into the HDD, was 
provided along with the various countries that contribute to the 
design. The design of the head incorporates semiconductor design, 
magnetic design, mechanical design, and a manufacturing process 
design into an integrated recording reader and writer. The design of 
the media integrates thin film magnetics mechanical surface design, 
and a manufacturing process design. On average, three heads and two 
media are assembled into a HDD.
    The design of each family of HDDs integrates electromagnetic 
recording position engineering firmware design, ASIC design, and 
overall system design. Manufacturing and test engineering is also 
sourced from the design centers. The design for the NS laptop 
product is mostly conducted by the Singapore Science Park with 
support from the United States. The design of the Spinpoint product 
is mostly conducted by the South Korea Design Center with support 
from the United States.
    The HDD components are manufactured internally by Seagate 
factories located throughout Asia, or externally at Seagate's supply 
partners throughout Asia. These components are shipped to a HDD 
assembly site in [ ]. The head disk assembly is assembled from the 
raw components of magnetic media, read write heads, a head actuator 
assembly, and an airtight metal enclosure. This assembly takes only 
a matter of minutes to perform. The head disk assembly is mated to a 
printed circuit board assembly containing the disc drive 
electronics. This assembly takes a few seconds. Next, the drive is 
loaded into the factory testing system and tested. Firmware is 
downloaded into the drive to facilitate media certification. At this 
point, the drive is only functional for testing and it can perform 
no useful disc drive functions at the computer interface. The drive 
stays in a sequence of a media certification operation for one day 
depending upon the capacity of the media.
    Following successful media qualifications, the drive testing 
firmware is replaced with a generic basic disc drive firmware solely 
to allow the drive computer interface functions to be tested. With 
this firmware, the operation of the disc drive interface is tested. 
The basic disc drive firmware in the previous step is removed, 
rendering the device useless for any functional disc drive purpose. 
After completion of the interface testing, the drive is ``forced 
blocked'' from label and shipment (so that it is no longer treated 
as the standard HDD). The drive as shipped from [ ] does not 
function as a HDD because it lacks firmware and does not have the 
ability to serve as a storage device without loading the final 
firmware.
    Final assembly and configuration are done in Singapore or South 
Korea for Scenario I, or in the United States for the second 
scenario. Once the disk drives have been imported into Singapore, 
Korea, or the United States, Seagate employees perform: security 
preparation, visual mechanical inspection, and installation of the 
firmware for each HDD. The firmware will have all features and 
functions of the firmware for a standard HDD. The firmware will also 
include additional code required to configure the firmware to the 
customer's specifications and requirements. In addition, certain 
models will have additional security programming such as encryption. 
The architecture for encryption features was designed in the United 
States. The encryption installation is performed in Singapore or the 
United States during the firmware installation. During this time 
period, the drive is processed for security preparation and the 
encryption is enabled, the security interface is enabled, debug 
ports are locked, credentials are loaded, and the certificates are 
loaded. The firmware, primarily developed and programmed in the 
United States and South Korea, is installed and tested. After 
completion of the firmware loading and testing, a final quality 
assurance inspection is performed; the drive receives a new part 
number and a label; and it is shipped to Seagate. You explain that a 
drive cannot function until the firmware is loaded onto it. 
According to your submission, the purchased value of a fully 
assembled HDD is approximately 16 to 66 times the value of an 
assembled recording head, depending on the family, capacity, and the 
security features.

ISSUE:

    What is the country of origin of the Notebook HDDs for purposes 
of U.S. government procurement in the two described scenarios?

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).
    ``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

[[Page 86336]]

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 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.

    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.'' 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 constitutes 
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 does 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 has already been determined when the 
importer imported it).
    Essentially, programming an information processing device will 
not in every case result in a substantial transformation of the 
device. It will depend on the nature of the programming, as compared 
to the nature and complexity of the information processing device on 
which the programming is completed. In other words, installing a 
relatively simple program on a complex information technology device 
will generally, by itself, not result in a substantial 
transformation of the device.
    In this case, firmware is installed on the HDDs to enable to 
them operate. The website ``techterms.com'' explains firmware as 
follows:

Firmware is a software program or set of instructions programmed on 
a hardware device. It provides the necessary instructions for how 
the device communicates with the other computer hardware. But how 
can software be programmed onto hardware? Good question. Firmware is 
typically stored in the flash ROM of a hardware device. While ROM is 
read-only memory, flash ROM can be erased and rewritten because it 
is actually a type of flash memory.

Additionally, the website http://pcsupport.about.com/od/termsf/g/Firmware.htm, notes that firmware is software that is embedded in a 
piece of hardware. Firmware is simply ``software for hardware.''
    In HQ H241362, dated August 14, 2013 published in the Federal 
Register on August 21, 2013, (78 Fed. Reg. 51737), CBP considered 
whether the programming of HDDs resulted in a substantial 
transformation of the HDDs. In that particular instance, CBP issued 
a final determination concerning the country of origin of HDDs and 
self-encrypting drives produced by Seagate. In that case, Seagate 
imported fully assembled HDDs from two different countries. The HDDs 
were designed in the United States, but assembled in one of two 
other countries from components manufactured by Seagate outside of 
the United States or obtained by Seagate from a supplier in Asia. 
The fully assembled HDDs were shipped to the United States, and in 
their imported condition they could not function as storage media 
devices. The disk heads could not move, they could not store or 
retrieve data, and they could not be recognized or listed on a 
computer system or a network in the United States. In the United 
States, the imported HDD was unblocked and programmed with two types 
of firmware. The first type of firmware was Servo firmware, which 
controlled all motor, preamp and servo function without which the 
motors media and heads would not operate and the HDD would not work. 
The second type of firmware was non-security controller firmware 
which managed all communication between the host and target drives, 
as well as all data within the drive. This type of firmware 
permitted data files to be stored on the HDDs media so that the data 
files could be found and listed within a particular application and 
allowed the stored data to be saved, retrieved, and overwritten. 
Consequently, we determined that the firmware caused the imported 
HDDs to function as digital storage devices. Approximately 80 
percent of the work hours spent on combined firmware design was 
allocated to work in the United States at Seagate's design center, 
and approximately 20 percent in another country. Combined, the 
compiled firmware code was approximately 2 MB in size and contained 
approximately one million lines of code. The firmware loaded onto 
the HDDs in the United States made them fully functioning generic 
storage devices. In addition, some of the HDDs were programmed with 
security controller firmware to allow them to be secured through 
encryption. The security controller firmware was mostly written in 
the United States. Because of the nature and the complexity of the 
firmware, CBP found in HQ H241362 that the installation of the 
firmware significantly altered the character of the Seagate HDDs. 
Therefore, the HDDs were considered products of the United States 
for purposes of U.S. Government procurement.
    CBP has also considered a scenario (in HQ H241177 dated December 
3, 2013) in which a device was manufactured in one country, the 
software used to permit that device to operate was written in 
another country, and the installation of that software occurred in a 
third country. In that case, switches were assembled to completion 
in Malaysia and then shipped to Singapore, where EOS software 
developed in the United States was downloaded. It was claimed that 
the EOS software enabled the imported switches to interact with 
other network switches through network switching and routing, and 
allowed for the management of functions such as network performance 
monitoring and security, and access control; without this software, 
the imported devices could not function as Ethernet switches. But, 
CBP found that the software downloading performed in Singapore did 
not amount to programming. We explained that programming involves 
writing, testing and implementing code necessary to make a computer 
function in a certain way. See Data General, supra; see also 
``computer

[[Page 86337]]

program'', Encyclopedia Britannica (2013), (9/19/2013) http://www.britannica.com/EBchecked/topic/130654/computer-program, which 
explains, in part, that ``a program is prepared by first formulating 
a task and then expressing it in an appropriate computer language, 
presumably one suited to the application.'' While the programming 
occurred in the United States, the downloading occurred in 
Singapore. Given these facts, we found that the country where the 
last substantial transformation occurred was Malaysia, namely, where 
the major assembly processes were performed. Therefore, we found 
that the country of origin for purposes of U.S. Government 
procurement was Malaysia.
    In HQ H240199 dated March 10, 2015, four different scenarios for 
the production of a computer were presented. In the third scenario, 
all of the hardware components were assembled in Country A and 
imported into Country F. The operations that occurred in Country F 
were that the BIOS and the OS were downloaded. The issue was whether 
the downloading of the BIOS and OS substantially transformed the 
notebook computer. We reiterated that programming a device that 
defines its use generally constitutes a substantial transformation. 
Software downloading, however, does not amount to programming. 
Consistent with previous CBP rulings cited above, we found that the 
BIOS and OS downloading did not result in a substantial 
transformation in Country F. Given these facts, we found that the 
country where the last substantial transformation occurred was 
Country A, where the major assembly processes were performed.
    The facts involved in this case are very similar to the facts 
described in HQ H241362, except that in the second scenario 
presented, the firmware that is installed on the HDDs is largely 
written in a country other than the country where it will be 
installed. Although some of the work in writing the firmware is done 
in the United States, the overwhelming majority of the time and 
money expended in developing the firmware was expended in Singapore 
and not in the United States. In fact, according to the submission, 
in developing the firmware, more than five times the amount of time 
and money is expended in Singapore than in the United States. In the 
second scenario the only major operation that occurs in the United 
States to produce the finished HDDs, is the installation of the 
largely foreign written firmware.
    For the first scenario, we find that the country of origin of 
the HDDs will be the country where the firmware is largely written 
and installed onto the HDDs, Singapore for the NS drives, and South 
Korea for the Samsung Spinpoint. As in H241362, the firmware, mostly 
created in either Singapore or South Korea and downloaded in those 
countries, imparts the essential character of the HDDs. The use of 
the HDDs is solely dictated by the firmware and it otherwise has no 
use. However, in the second scenario, the HDDs are assembled in one 
country, the firmware is largely written in another country, and 
downloaded in a third country, the United States. While counsel 
contends that the country of origin of the HDDs should similarly be 
the country where the firmware is downloaded because the HDD cannot 
function without the firmware being installed, that is not the 
correct test used to determine the country of origin of a product. 
The country of origin of a product is determined based on where the 
last substantial transformation occurs. As the holdings of HQ 
H241177 and HQ H240199 make clear, it is CBP's position that mere 
downloading of software that is written in another country onto an 
information processing device is not sufficient to be considered a 
substantial transformation of that device. While the downloading 
does make the HDD functional, the country where that occurs is not 
where a substantial transformation occurs. As the entire assembly 
process occurs in either [ ], we find that the country of origin of 
the HDDs will either be [ ]. This finding regarding the country of 
origin of the HDDs will apply both for purposes of government 
procurement, as well as for country of origin marking.

HOLDING:

    Based on the facts of this case, in first scenario, we find for 
purposes of U.S. Government procurement, the country of origin of 
the Notebook HDDs will either be Singapore or South Korea, where the 
firmware is both written and installed onto the HDDs. In the second 
scenario, where the firmware is written in a different country from 
where it is downloaded onto the HDDs, for purposes of U.S. 
Government procurement and country of origin marking, the country of 
origin of the Notebook HDDs will be the country where the last 
substantial transformation takes place, namely the country where the 
device components are finally assembled, which in this case will 
either be [ ].
    Notice of this final determination will be given in the Federal 
Register, as required by 19 CFR 177.29. Any party-at-interest other 
than the party which requested this final determination may request, 
pursuant to 19 CFR 177.31, that CBP reexamine the matter anew and 
issue a new final determination. Pursuant to 19 CFR 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,

Myles B. Harmon,

Acting Executive Director Regulations and Rulings Office of Trade.

[FR Doc. 2016-28790 Filed 11-29-16; 8:45 am]
 BILLING CODE 9111-14-P