[Federal Register Volume 82, Number 77 (Monday, April 24, 2017)]
[Notices]
[Pages 18923-18927]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08251]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Certain 
Network Tap 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 network tap products known as Net Optics 
Slim Tap network taps. Based upon the facts presented, CBP has 
concluded that the country of origin of the Net Optics Slim Tap network 
taps is China for purposes of U.S. Government procurement.

DATES: The final determination was issued on April 18, 2017. 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 May 24, 2017.

FOR FURTHER INFORMATION CONTACT: Antonio J. Rivera, Valuation and 
Special Programs Branch, Regulations and Rulings, Office of Trade, at 
(202) 325-0226.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on April 18, 
2017 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

[[Page 18924]]

concerning the country of origin of certain network tap products known 
as Net Optics Slim Tap network taps, which may be offered to the U.S. 
Government under an undesignated government procurement contract. This 
final determination, HQ 280619, 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 last substantial transformation 
took place in China. Therefore, the country of origin of the Net Optics 
Slim Tap network taps 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: April 18, 2017.
Alice A. Kipel,
Executive Director, Regulations and Rulings, Office of Trade.

Attachment

HQ H280619

April 18, 2017

OT:RR:CTF:VS H280619 AJR

CATEGORY: Origin

Mr. Jackson C. Pai
Bryan Cave LLP
120 Broadway, Suite 300
Santa Monica, CA 90401-2386

RE: U.S. Government Procurement; Country of Origin of Network Tap; 
Substantial Transformation
Dear Mr. Pai:
    This is in response to your letter, dated October 13, 2016, 
requesting a final determination on behalf of Ixia, 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 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 Ixia's 
Net Optics Slim Tap network tap (``Slim Tap''). We note that Ixia 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 grant the request for confidentiality pursuant to 19 CFR 
177.2(b)(7), with respect to certain information submitted.

FACTS:

    The Slim Tap is a network tap produced by Ixia. A network tap is a 
fiber optic device that provides a physical connection or access to a 
network. Network taps enable users to physically connect a computer or 
other monitoring device to a network for the purpose of evaluating, 
monitoring, or checking network issues.
    The Slim Tap consists of three optic to LC-LC adapters from Taiwan, 
two fiber optic splitters from China, a chassis from the United States, 
a foam tube holder from the United States, a bracket from the United 
States, screws from the United States, and three tamper proof labels 
from the United States. The components from Taiwan and China are 
imported into the United States, separately in different shipments at 
different times. In the United States, these foreign and domestic 
components are assembled into the finished product, the Slim Tap, by 
specially trained technicians. During this assembly process, the 
technicians must install the adapters from Taiwan and splitters from 
China in a specific manner per the wiring diagram for the Slim Tap, or 
else the finished product will not work properly. After assembly, the 
Slim Tap is tested to determine if the signal or line drops fall within 
acceptable parameters and to assure that the unit is otherwise 
functioning properly. According to Ixia, this assembly and testing 
process in the United States takes approximately 15 minutes.
    In correspondence with the National Commodity Specialist Division 
(``NCSD''), Ixia provided the following information concerning the 
imported adapter and splitter components:
    Adapters--the adapters connect the outside fiber connection to the 
internal fiber connections inside the tap. The adapter merges these two 
fiber optic connectors into one connection, which allows the light to 
pass with very little disruption.
    Splitters--the main source of the optical splitters is glass from 
glass fibers that are fused together, and these fused glass fibers are 
held in a protective aluminum tube. The fiber optic splitter allows 
light frequency to pass through at very high speeds over long 
distances. The splitters are considered completely passive because 
there is no change to the data that is passed through the splitters 
within the Slim Tap.\1\ According to Ixia, ``[t]he main purpose of 
splitters is the passing of data from one product to another, but 
splitting it into two signals allows the customer to input data into 
data analyzing tools.''
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    \1\ There is no change to data passing through the splitters in 
the Slim Tap because the splitters lack electronic components 
required to convert data in the form of light frequency into 
electronic data in digital form. For instance, data is delivered 
into and out of the Slim Tap via the adapters that are connected to 
external fiber connections, which permits data in the form of light 
frequency to enter and exit the Slim Tap with very little 
disruption. Within the Slim Tap, the adapters are connected to the 
fiber optic splitters, permitting the light frequency to pass 
through and exit the Slim Tap in the same form that it entered. The 
data remains in this form, as an untouched wavelength of light, 
until it reaches an external transceiver from another device, which 
converts the data into electronic form.
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    Ixia provided us with a product sample of the Slim Tap. We note 
that the three adapters on the front of the Slim Tap are labeled ``A'', 
``B'', and ``A/B'', with the ``A'' and ``B'' adapters having both an 
``in'' and ``out'' component, while ``A/B'' adapter only has two 
``out'' components. The reason for there being two ``in'' components 
and four ``out'' components is because the splitters splits one 
incoming signal into two outgoing signals.
ISSUE:
    What is the country of origin of the Slim Tap 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.


[[Page 18925]]


See also 19 CFR 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 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 25.403(c)(1). The Federal Acquisition 
Regulations define ``U.S.-made end product'' as:

[A]n 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 25.003.

    In order to determine whether a substantial transformation occurs 
when components of various origins are assembled into completed 
products, CBP considers the totality of the circumstances and makes 
such determinations on a case-by-case basis. See Nat'l Hand Tool Corp. 
v. United States, 16 CIT 308, aff'd, 989 F.2d 1201 (Fed. Cir. 1993); 
and Belcrest Linens v. United States, 573 F. Supp. 1149 (Ct. Int'l 
Trade 1983), aff'd, 741 F.2d 1368 (Fed. Cir. 1984). The primary 
consideration in substantial transformation cases is whether the 
processing of the components renders a product with a new name, 
character, and use. See Energizer Battery, Inc. v. United States, 2016 
CIT LEXIS 116, 12-15. In Energizer Battery, the court examined the 
name, character, and use test to determine that imported components did 
not undergo a substantial transformation when assembled into a 
flashlight in the United States. Id.
    With regard to a change in name, Energizer Battery stated that the 
``issue is not whether Plaintiff imported approximately fifty 
`flashlights,' but rather whether the Plaintiff's imported components 
retained their names after they were assembled into the [. . .] 
flashlight. Thus, the proper query would be whether the `lens ring with 
overmold' or the `switch lever' or the `TIR lens' or any of the LEDs or 
any other component would still be called by their pre-importation name 
after assembly into the finished flashlight, or whether they would be 
indistinguishable in name from the finished product.'' See id. at 25. 
It was also noted that a change in name was the least compelling of the 
factors in the name, character, and use test. Id. The court in 
Energizer Battery found that there was no change in name because the 
constituent components of the flashlight had not lost their individual 
names as a result of the post-importation assembly. Id.
    With regard to a change in character, Energizer Battery stated that 
there often needs to be a substantial alteration in the characteristics 
of the imported components. See id. at 18-19. It was noted that courts 
have been reluctant to find a change in character when the imported 
articles did not undergo a physical change. Id. Additionally, the court 
indicated that analyzing this factor may require comparing the imported 
articles to the ``essence'' of the completed article. Id. In Energizer 
Battery, the assembly process in the United States required completing 
the lens head subassembly which had already been partially assembled in 
China, and then assembling the completed lens head assembly with the 
remaining flashlight components. Id. The court in Energizer Battery 
held that there was no change in character because these assembly 
operations in the United States were not considered to have changed the 
shape or material composition of the imported components. Id.
    With regard to a change in use, Energizer Battery stated that 
previous courts have found a change in use when the end-use of the 
imported product was no longer interchangeable with the end-use of the 
product after post-importation processing. See id. at 26. Furthermore, 
Energizer Battery noted that ``the proper query for this case is not 
whether the components as imported have the form and function of the 
final product, but whether the components have a pre-determined end-use 
at the time of importation.'' To this extent, ``[w]hen articles are 
imported in prefabricated form with a pre-determined use, the assembly 
of those articles into the final product, without more, may not rise to 
the level of substantial transformation.'' Id. Here, the court in 
Energizer Battery held that there was no change in use because all of 
the imported components had a pre-determined end-use as parts and 
components of the flashlight at the time of importation. Id. The court 
noted that even the imported wire had been pre-cut to particular 
lengths needed to assemble the flash light. Id.
    In this case, we are similarly examining whether imported 
components undergo a substantial transformation when assembled into the 
final product in the United States. Namely, while network taps and 
flashlights are different products, both this case and Energizer 
Battery ultimately require an analysis of the same underlying 
scenario--whether the post-importation assembly of foreign 
subassemblies, where such assembly consists of physically connecting 
the subassemblies through wiring and relatively simple insertions and 
fastening, render the foreign subassemblies into a product with a new 
name, character, and use. For the following reasons, we find that the 
imported splitters and adapters do not change in name, character, or 
use.
    As noted above, the Slim Tap consists of three adapters from 
Taiwan, two splitters from China, a foam tube holder from the United 
States, brackets and screws from the United States, and labels from the 
United States. Per the assembly diagram provided by Ixia, the foreign 
subassemblies are removed from their packaging, with the adapters being 
snapped into the chassis and the splitters being inserted into the foam 
tube holder that has already been attached to the chassis. After the 
adapters and splitters are placed into their proper positions within 
the chassis, the adapters and splitters are connected according to the 
precise instructions of the wiring diagram. Once the adapters and 
splitters are properly wired, the bracket, labels, and chassis cover 
are attached with screws to complete the assembly of the Slim Tap.
    In examining whether a change in name occurred, we note that the 
foreign adapters and splitters do not lose their individual names as a 
result of this post-importation assembly process. Per the assembly 
description and wiring diagram, the adapters and splitters would still 
be identified as the adapter and splitter components of the Slim Tap. 
To this extent, each imported component retains its pre-importation 
name after post-importation assembly in the same manner that the 
various lenses retained their pre-importation name after their assembly 
into the flashlight. Accordingly, we find that the imported adapters 
and splitters do not change in name as a result of the post-importation 
assembly.
    We also find that the assembly of the Slim Tap in the United States 
does not render a change in character to the adapters and splitters. 
Like in Energizer Battery, the imported adapters and splitters do not 
change in shape or material composition as a result of the post-
importation assembly. See Ferrostaal Metals Corp. v. United States, 11 
CIT 470, 477 (1987) (holding that a change in character occurred when a 
continuous hot-dip galvanizing process

[[Page 18926]]

transforms a strong, brittle product which cannot be formed into a 
durable, corrosion-resistant product which is less hard, but formable 
for a range of commercial applications); and Nat'l Hand Tool, 16 CIT at 
311 (holding that a change in character did not occur when a heating 
process changed the microstructure of the materials, but did not change 
the chemical composition of the materials, and the form of the 
components remained the same). Here, through an examination of the 
wiring diagram and Slim Tap product sample, the imported adapters and 
splitters remain physically recognizable as such despite their further 
attachments resulting from the post-importation assembly. Moreover, the 
adapters and splitters are imported with a specific material 
composition that permits data in the form of light frequency to travel 
through these components without disruption. While the post-assembly 
importation physically connects the imported components with the other 
components of the Slim Tap, this process does not alter the material 
composition of the adapters and splitters.
    In examining whether a change in use occurred, we note that Ixia 
uses the imported adapters and splitters because such are comprised of 
precise materials that permit passing data through the Slim Tap in the 
manner required by the product. As in Energizer Battery, the imported 
materials are imported in a prefabricated form with a pre-determined 
end use as components of the Slim Tap. See Ferrostaal Metals, 11 CIT at 
477 (holding that there was a change in use because the galvanizing 
process resulted in steel that was only rarely interchangeable with the 
imported steel); and Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 
117, 121-122 (1996) (holding that there was no change in use because 
attaching handles to pans and covers did not change the use of the 
components, especially given the fact the use was predetermined at the 
time of importation). Here, the adapters and splitters are 
prefabricated with a specific material composition that serves the 
purpose of the Slim Tap. Though these imported components are attached 
to the other components of the Slim Tap, this post-importation assembly 
does not permanently alter the components in a manner that would 
prevent the components in the Slim Tap from being considered 
interchangeable with the imported components. Accordingly, we find that 
the imported adapters and splitters do not change in use as a result of 
the post-importation assembly.
    Therefore, through an analysis of the name, character, and use 
test, we find that the imported components do not undergo a substantial 
transformation when assembled into the Slim Tap in the United States. 
Nonetheless, Ixia makes two other arguments that the imported 
components are substantially transformed into the Slim Tap. First, Ixia 
argues that we should consider whether the Slim Tap would have 
originating status under the North American Free Trade Agreement 
(``NAFTA'') tariff shift rules when determining whether a substantial 
transformation occurred. However, as noted in Energizer Battery, the 
comparison to NAFTA ``is inapposite because NAFTA is a specialized 
trade regime, the benefits of which do not mirror the more generalized 
`most favored nation' treatment afforded to countries not party to the 
agreement in question.'' See id. at 32.
    Additionally, Ixia argues that the assembly of the Slim Tap results 
in a substantial transformation of the imported components because the 
assembly process in the United States requires skilled technicians to 
do a microscopic examination of the splitters, install the parts 
according to a complex wiring diagram, and engage through complex 
testing procedures. In support of this argument, Ixia cites Carlson 
Furniture Industries v. United States, 65 Cust. Ct 474 (1970) (holding 
imported unfinished chairs where substantially transformed into 
finished chairs by an assembly process that involved fitting and gluing 
the wooden parts together, cutting the parts to length, leveling the 
legs, and, in some cases, upholstering the chairs, and fitting the legs 
with glides and casters); and New York Ruling Letter (``NY'') N120765, 
dated September 24, 2010 (holding that a network security manager was 
substantially transformed by a process that involved assembling and 
wiring various imported hardware components together, as well as 
installing and configuring software onto the product).
    As noted by Ixia, examining whether a substantial transformed 
occurred may require the consideration of subsidiary factors such as 
the resources expended on product design and development, the extent 
and nature of post-assembly inspection and testing procedures, and the 
degree of skill required during the actual manufacturing process. See 
Energizer Battery, 2016 CIT LEXIS at 20. Moreover, in cases in which 
post-importation processing entails assembly, the nature of the 
assembly has been considered together with the name, character, and use 
test in making a substantial transformation determination. See id; 
Belcrest Linens, 741 F.2d at 1371; and Uniroyal, Inc. v. United States, 
542 F. Supp. 1026, 1031, aff'd, 702 F.2d 1022 (Fed. Cir. 1983). 
However, 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.
    Here, we find that the assembly process is not sufficiently complex 
or meaningful to render a substantial transformation of the imported 
components. We distinguish the comparisons to the assembly processes in 
Carlson Furniture and NY N120765 because such involve additional 
procedures (e.g. cutting wooden parts to length, downloading software, 
etc.) that do not take place in the present case. Rather, in this case, 
the assembly primarily consists of inserting and fastening the imported 
components into the chassis, and wiring the imported components 
together. Including the testing process after assembly, the total 
process in the United States takes about 15 minutes. In Energizer 
Battery, the process of assembling and testing about 50 components (of 
which about 40 percent consisted of fasteners) into flashlights in the 
United States took between 7 and 13 minutes, and was not considered to 
rise above the level of a simple assembly. See id at 27-28. Similarly, 
we find that the process of assembling and testing fewer components 
into the Slim Tap does not constitute a complex assembly and testing 
process that would render a substantial transformation of the imported 
components.
    Accordingly, in this case, there are two foreign components, 
neither of which are substantially transformed by the further 
processing in the United States. As a result, the Slim Tap cannot be 
considered a product of the United States for purposes of U.S. 
Government procurement. However, since the adapters are from a 
designated country (Taiwan) and the splitters are from a non-designated 
country (China), and both are incorporated into one end-product (the 
Slim Tap), it still needs to be determined which of these two countries 
is the country of origin of the Slim Tap for purposes of U.S. 
Government procurement.
    As noted in Energizer Battery, within the name, character, and use 
test, determining the country of origin through a substantial 
transformation analysis may require comparing the ``essence'' of the 
imported articles to that of the completed article. Here, we

[[Page 18927]]

note that the ``essence'' of a network tap is to enable users to 
physically connect a computer or other monitoring device to a network 
for the purpose of evaluating, monitoring, or checking network issues. 
Moreover, with the Slim Tap, users of this network tap can use data 
incoming from a single source on multiple analyzing tools because the 
splitter from China splits incoming data into two signals. While both 
the adapters and splitters permit this connection between external 
devices and networks without disruption, both permitting the ingress 
and egress of data via the Slim Tap, the splitters from China enable 
the actual splitting of the signal, which permits the user to access 
the data on multiple analyzing tools. Therefore, we find that China is 
the country of origin of the Slim Tap for purposes of U.S. Government 
procurement.
HOLDING:
    Based on the facts provided, the imported components will not be 
substantially transformed into the Slim Tap because the post-
importation assembly process in the United States does not change the 
name, character and use of the imported adapters and splitters. As 
such, because the imported splitters constitute the ``essence'' of the 
Slim Tap, China will be considered the country of origin of the product 
for purposes of U.S. Government procurement.
    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,

Alice A. Kipel, Executive Director
Regulations and Rulings
Office of Trade

[FR Doc. 2017-08251 Filed 4-21-17; 8:45 am]
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