[Federal Register Volume 83, Number 24 (Monday, February 5, 2018)]
[Notices]
[Pages 5139-5141]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02244]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Certain 
Ethernet Switch 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 ethernet switch products known as Nyquist 
Ethernet Switches. Based upon the facts presented, CBP has concluded 
that the country of origin of the Nyquist Ethernet Switches is Mexico 
for purposes of U.S. Government procurement.

DATES: The final determination was issued on January 30, 2018. 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 March 7, 2018.

FOR FURTHER INFORMATION CONTACT: Yuliya A. Gulis, Valuation and Special 
Programs Branch, Regulations and Rulings, Office of Trade, at (202) 
325-0042.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on January 30, 
2018 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 ethernet 
switch products known as Nyquist Ethernet Switches, which may be 
offered to the U.S. Government under an undesignated government 
procurement contract. This final determination, HQ H282390, 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 Mexico. Therefore, the 
country of origin of the Nyquist Ethernet Switches is Mexico 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

[[Page 5140]]

177.22(d), may seek judicial review of a final determination within 30 
days of publication of such determination in the Federal Register.

    Dated: January 30, 2018.
Alice A. Kipel,
Executive Director, Regulations and Rulings, Office of Trade.

HQ H282390

January 30, 2018

OT:RR:CTF:VS H282390 YAG
CATEGORY: Origin

Ms. Carolyn Muhlstein
Senior Manager, Global Customs
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134

RE: U.S. Government Procurement; Country of Origin of Ethernet 
Switch; Substantial Transformation

Dear Ms. Muhlstein:

    This is in response to your letter, dated May 6, 2016, on behalf 
of Cisco Systems, Inc. (``Cisco''), requesting a final determination 
concerning the country of origin of Cisco's Nyquist Ethernet Switch 
(``NES''), pursuant to subpart B of Part 177, U.S. Customs and 
Border Protection (``CBP'') Regulations (19 CFR Sec.  177.21, et 
seq.). As a domestic importer of merchandise, Cisco is a party-at-
interest within the meaning of 19 CFR Sec.  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 Sec.  177.2(b)(7), with respect to certain information 
submitted.

FACTS:

    Cisco plans to import the NES from Mexico. The NES is designed 
to interconnect devices on a computer network, while offering new 
capabilities, such as enabling new applications, differentiated 
security, dense wireless, and simplified and diverse network 
architecture. Each NES consists of one or more printed circuit board 
assemblies (``PCBA''), two power supplies, an uplink module, a 
protective metal housing, and ancillary devices to support 
additional features. The NES is configured with Cisco's 
configuration data. The configuration data programs the logic gates 
of the hardware components on the PCBA, which imparts physical 
changes to the patterns of interconnections in the hardware 
circuitry, defining the behavior of each component. The NES operates 
using Cisco's Polaris Operating System Software (``Polaris OS'').
    In China, PCBAs are manufactured using: application specific 
integrated circuit (``ASIC'') components, which are assembled to 
final form in Korea incorporating materials from Taiwan and Japan in 
a process that takes between 12 and 25 weeks; central processing 
unit (``CPU'') components from Taiwan; synchronous dynamic random 
access memory (``SDRAM'') components from Taiwan or Korea; and, 
flash components from Korea and China. The PCBAs are tested to 
ensure that the PCBA components can properly interact with one 
another, and they are packaged and shipped to Mexico.
    In Mexico, the following operations take place:
    1. One or more PCBAs are installed into the NES chassis.
    2. Two power supplies are installed in the NES chassis.
    3. One uplink module is installed in the NES chassis.
    4. Ancillary devices that support additional NES features are 
installed into the chassis.
    5. A metal housing is added to complete the NES chassis 
assembly.
    6. The power-on and bootloader initialization take place to 
activate the power system and fan modules of the NES, followed by 
the activation and preliminary testing of the CPU, ASIC, and 
ancillary devices.
    7. The Polaris OS and configuration data developed in the United 
States are loaded onto a non-volatile flash memory, and then pushed 
out to the components of the PCBA.
    8. The NES is tested to ensure the product functions as 
designed.
    Cisco states that the Polaris OS and configuration data are 
downloaded onto the NES using in-circuit programming. According to 
Cisco, traditionally, each component of a PCBA (e.g., ASICs) is 
completely programmed at or prior to assembly onto the PCBA; 
however, with in-circuit programming the hardware components are 
designed to be programmed after the PCBA is completely assembled. 
Cisco states that while the Polaris OS and configuration data are 
simultaneously downloaded onto the NES through the in-circuit 
programming, the Polaris OS and configuration data have different 
purposes and affect the NES differently and in sequence. Cisco 
explains that the configuration data does not operate on the 
hardware in the manner that the Polaris OS does. Rather, the 
configuration data completes the hardware programming, and the 
Polaris OS runs on the completed hardware.
    According to Cisco, the PCBAs will have no commercial 
functionality when exported from China to Mexico because without the 
configuration data and the Polaris OS, the NES cannot function as 
intended. Cisco states that the NES will have large quantities of 
configurable elements, which require the configuration data to 
provide the firmware, modes and configuration settings, timing 
parameters, and physical properties for the components to function 
in the NES. Cisco states that the Polaris OS will provide I/O 
processor, route processor, and forwarding processor capabilities to 
the hardware, allowing the components to communicate with each 
other. Cisco notes that approximately 95 percent of the 
configuration data and 70 to 80 percent of the software code that 
will be loaded onto the NES in Mexico will be completely new and 
tailored based on customer needs and specifications.

ISSUE:

    What is the country of origin of the NES for purposes of U.S. 
Government procurement?

LAW AND ANALYSIS:

    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, 
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.).
    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 Sec.  177.22(a). In order to determine whether a 
substantial transformation occurs when the components of various 
origins are assembled to form completed articles, CBP considers the 
totality of the circumstances and makes decisions on a case-by-case 
basis.
    In Data General v. United States, 4 C.I.T. 182 (1982), the court 
determined that 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 the United States, the 
programming bestowed upon each integrated 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. The 
essence of the article, its interconnections or stored memory, was 
established by programming. See also, Texas Instruments v. United 
States, 681 F.2d 778, 782 (CCPA 1982) (stating the substantial 
transformation issue is a ``mixed question of technology and customs 
law'').
    Accordingly, the programming of a device that defines its use 
generally constitutes substantial transformation. See Headquarters 
Ruling (``HQ'') 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 a 
substantial transformation); but see 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).
    Cisco argues that the country of origin of the NES will be 
Mexico because the final assembly of the NES and installation of the 
Polaris OS and configuration data onto the NES in Mexico will 
substantially transform the PCBA into the NES. While the 
configuration data is specific to the NES,

[[Page 5141]]

Cisco notes that the ASIC is not, and can be used in other Cisco 
products with different configuration data. Additionally, Cisco 
states that the Polaris OS allows the NES to switch and route 
packets, which is the critical functional element of the NES. Cisco 
states that the configuration data physically changes the electrical 
values of the logic gates present in the ASICs and other components, 
by connecting the gates in combinations that tell the components how 
to function and communicate within the system. Cisco argues that the 
configuration data installed on the NES should be distinguished from 
software installations because the configuration data completes the 
hardware programming, physically changing the hardware itself. Cisco 
states the software's incorporation onto the NES is different 
because it runs on the completed hardware as opposed to being a part 
of the hardware itself.
    Cisco cites HQ 563012, dated May 4, 2004, in support of its 
position. In HQ 563012, CBP held that the PCBA and casing that were 
manufactured for a switch in China, were substantially transformed 
in the United States or Hong Kong, where U.S.-origin software was 
loaded, and the PCBA was further assembled with a power supply, 
fans, and an A/C filter of various origins to form the final fabric 
switch. CBP noted that in addition to the actual assembly, the 
configuration and software download operations performed in either 
Hong Kong or in the United States transformed the switch from a non-
functional device into a fabric switch that was capable of 
performing various storage network functions.
    Similar to the scenario in HQ 563012, where Hong Kong was found 
to be the origin, in this case, the major components of the NES, 
particularly the PCBA comprised of the ASIC, CPU, SDRAM, and flash 
components, will be manufactured in China, and then shipped to 
another country where the final assembly (adding the casing, power 
supply, uplink modules, and ancillary devices to the PCBA), software 
loading, configuration, and testing take place. Here, the other 
country is Mexico, which is different from the country where the 
U.S.-origin software is developed. While CBP has normally focused on 
where the origin of the software and where the programming took 
place, applying CBP's precedent in HQ 563012 to Cisco's 
manufacturing operations in Mexico, we find that the PCBAs from 
China will be substantially transformed by the final assembly, 
software loading, configuration, and testing operations in Mexico, 
and thus the country of origin for purposes of U.S. Government 
procurement will be Mexico.\1\
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    \1\ See HQ H175415, dated October 4, 2011 (CBP held that 
imported Ethernet switches underwent a substantial transformation 
after U.S.-origin software was downloaded onto the devices' flash 
memory in the United States, which allowed the devices to function); 
see also HQ H052325, dated March 31, 2009 (holding that imported 
network devices underwent a substantial transformation in the United 
States after U.S.-origin software was downloaded onto the devices in 
the United States, which gave the devices their functionality); and, 
HQ H034843, dated May 5, 2009 (holding that Chinese USB flash drives 
underwent a substantial transformation in Israel when Israeli-origin 
software was loaded onto the devices, which made the devices 
functional). CBP has also held that when software is programmed in 
one country, and loaded onto a switch in different countries, the 
process of loading the software is not a sufficient operation by 
itself to result in a substantial transformation. See HQ H241177, 
dated December 3, 2013; and, HQ H240199, dated March 10, 2015.
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HOLDING:

    Based on the facts provided, the PCBAs from China will be 
substantially transformed into the NES by the processes that take 
place in Mexico. As such, the NES will be considered a product of 
Mexico 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. 2018-02244 Filed 2-2-18; 8:45 am]
 BILLING CODE 9111-14-P