[Federal Register Volume 84, Number 24 (Tuesday, February 5, 2019)]
[Notices]
[Pages 1775-1777]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-01115]
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DEPARTMENT OF HOMELAND SECURITY
U.S. Customs and Border Protection
Notice of Issuance of Final Determination Concerning Certain
Ethernet Switches, Routers and Network Cards
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 switches, routers and network
cards. Based upon the facts presented, CBP has concluded in the final
determination that the United States is the country of origin of the
Ethernet switches, routers and network cards for purposes of U.S.
Government procurement.
DATES: The final determination was issued on January 29, 2019. A copy
of the final determination is attached. Any party-at-interest, as
defined in 19 CFR Sec. 177.22(d), may seek judicial review of this
final determination within March 7, 2019.
FOR FURTHER INFORMATION CONTACT: Tebsy Paul, Entry Process and Duty
Refunds Branch, Regulations and Rulings, Office of Trade (202) 325-
0195.
SUPPLEMENTARY INFORMATION: Notice is hereby given that on January 29,
2019, 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
switches, routers and network cards, which may be offered to the U.S.
Government under an undesignated government procurement contract. This
final determination, HQ H290670, 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, based upon the facts presented, the
programming and downloading operations performed in the United States,
using U.S.-origin software, substantially transform non-TAA country
Ethernet switches, routers and network cards. Therefore, the country of
origin of the Ethernet switches, routers and network cards is the
United States 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: January 29, 2019.
Alice A. Kipel,
Executive Director, Regulations and Rulings, Office of Trade.
HQ H290670
January 29, 2019
OT:RR:CTF:VS H290670 TP
CATEGORY: Origin
Mr. Stuart P. Seidel
Baker & McKenzie, LLP
815 Connecticut Ave., N.W.
Washington, D.C. 20006-4078
RE: U.S. Government Procurement; Country of Origin; Ethernet
Switches, Routers and Network Cards; Substantial Transformation
Dear Mr. Seidel:
This is in response to your letter dated September 20, 2017,
requesting a final determination on behalf of ALE USA, Inc.
(``ALE'') pursuant to subpart B of Part 177 of the U.S. Customs &
Border Protection (``CBP'') Regulations (19 C.F.R. Part 177). This
final determination concerns the country of origin of ALE's Ethernet
switches, routers and network cards. As a U.S. importer, ALE is a
party-at-interest within
[[Page 1776]]
the meaning of 19 C.F.R. Sec. 177.22(d)(1) and is entitled to
request this final determination.
Per your letter dated September 20, 2017, we have reviewed your
request for confidentiality pursuant to 19 C.F.R. Sec. 177.2(b)(7)
with respect to certain information submitted. As that information
constitutes privileged or confidential matters, it has been
bracketed and will be deleted from any published versions.
FACTS:
ALE manufactures and imports a group of Ethernet switches,
routers and network cards. The group of products consists of the
following: OmniSwitch[supreg] OS6900-X72, OS6900-Q32, OS6900-C32,
OS6900-CX72, OS6860/6860E family, OS 6560 family, OS 6450 family and
OS 6865-U28X. You state that the hardware for these products was
designed in Taiwan and manufactured in China. You state that the
final programming of the EEPROM on the device and majority of the
programming for the Alcatel Operating System (``AOS'') are completed
and compiled in the United States and will be downloaded in the
United States. You also account for the labor hours spent and the
qualifications of the coders and developers who worked on
developing, programming, and downloading the software in the United
States.
You state that the assembly process is the same for all the
products mentioned above. The metal fabrication consists of simple
punching, bending and painting of sheet steel or aluminum metals to
create the protective case. This occurs in Taiwan and takes
approximately 20 minutes to complete. The remaining hardware
assembly takes place in China. ALE states that the individual
components of the hardware include resistors, capacitors, diodes,
transistors, memory, application specific integrated circuits,
memory modules, CPUs, printed circuit cards, and metal housings. ALE
states that the countries of origin for these components are from
various parts of Asia, including Singapore, Taiwan and China.
ALE describes the hardware assembly in China as follows:
1. The Surface Mount technology (``SMT'') installation involves
the mounting of a preprogrammed [XXXXX] program. SMT involves the
mounting of electronic components directly on to the printed circuit
board. The [XXXXX] program is compiled codes that allows the CPU to
have the necessary configurations to support computer function by
using a set of commands. The [XXXXX] program is required to boot the
device so that it can load the ALE programs. However, the devices
cannot function until the U.S.-developed and programmed software and
EEPROM are loaded in the United States.
2. An in circuit test (``ICT'') is performed. This process
allows for the ICT to program a complex programmable logic device
(``CPLD'') image into the CPLD programmable application-specific
integrated circuit (``ASIC''). The CPLDs are integrated circuits
that are configured to implement digital hardware and by programming
them into an ASIC, the integrated circuits can be suited for a
specific purpose, rather than general-purpose use. In this case, the
CPLD image contains code that allows the CPU to boot the device for
testing. Additionally, the EEPROM is programmed with critical
information that is retrieved from ALE's servers.
3. The hardware undergoes mechanical assembly.
4. Installation of a diagnostic file to allow for thorough
testing. The purpose of the software that is downloaded on to the
hardware in China is to perform diagnostic testing to assure the
circuit paths on the printed circuit board are made and function
properly.
5. The hardware undergoes functional testing.
6. An environment stress screening (``ESS'') test is performed.
This is considered a type of burn-in test to identify manufacturing
quality issues.
7. The hardware is packaged.
ALE contends that the programming undertaken in China is to
verify that the product has been manufactured correctly.
Specifically, the partial tests ensure that the surface mounting of
electronic components is complete. You state that at this point, the
hardware is missing the majority of programming leaving it incapable
of performing the necessary functions of Institute of Electrical and
Electronics Engineers (``I.E.E.E.'') Ethernet router functionality;
therefore the product enters the United States in a non-functional
state. Additionally, you state that in the United States, the
systems are unpacked and presented to ALE test executives for proper
configuration and labeling through a U.S. secure server. The
assembly process in the United States involves the following steps:
(1) the EEPROM is re-programmed with valid, proper information
originating solely from ALE USA's propriety product Data Management
tool; (2) the AOS is loaded onto an electronic storage medium; (3)
final tests are conducted; (4) the product is packaged; (5) and
quality control mechanisms are carried out which are validated to
allow for release of the products to be shipped.
You state that the AOS software enables the OmniSwitch products
to function as a switch/router. You assert that the AOS contains the
specialized routing algorithms that transform merchant silicon into
a functional OmniSwitch/Router and that, as stated above, the
software was almost completely architected, developed, programmed
and compiled in the United States. The EEPROM is also reprogrammed
to incorporate product specific information allowing it to operate
as a Layer 2, 3 and 6 device. You state that Layers 2, 3 and 6 refer
to the layers that comprise an Open System Interconnection (``OSI'')
networking model. You state that the layers are a controlled
hierarchy where information is passed from one layer to the next
creating a blueprint for how information is passed from physical
electrical impulses to applications. The AOS is downloaded onto
storage within the device. The software is compiled many times until
a final version is approved. Quality checks occur to certify that
the code is ready and manufacturing test engineers work with
engineering personnel to test the AOS software.
ISSUE:
What is the country of origin of the Ethernet switches, routers
and network cards 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 C.F.R. 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. 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 C.F.R. Sec. 177.22(a).
In rendering 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
C.F.R. 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 Trade Agreements Act. See 48 C.F.R.
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.'' See 48 C.F.R
Sec. 25.003.
In Data General v. United States, 4 C.I.T. 182 (1982), the court
determined that the programming of a foreign Programmable Read-Only
Memory chip (``PROM'') 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''); HQ 735027, dated September 7, 1993 (programming blank media
(EEPROM) with instructions that allow it to perform certain
functions that
[[Page 1777]]
prevent piracy of software constitutes a substantial
transformation); 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 had
already been determined when the importer imported it).
CBP has examined the effect of downloading U.S.-developed
software in previous decisions. For example, in HQ H258960, dated
May 19, 2016, CBP considered the country of origin of network
transceivers in two different scenarios. In Scenario One, the
importer purchased ``blank'' transceivers from Asia. The
transceivers were then loaded with U.S.-developed software in the
United States, which made the transceivers functional. In Scenario
Two, the importer purchased the transceivers with a generic program
preinstalled, which was then removed so that the U.S.-developed
software could be installed. CBP held that, in Scenario One, because
the transceivers could not function as network devices without the
U.S.-developed software, the transceivers were substantially
transformed as a result of the downloading of the U.S.-developed
software performed in the United States. However, in Scenario Two,
because the transceivers were already functional when imported, the
identity of the transceivers was not changed by the downloading
performed in the United States, and no substantial transformation
occurred.
Similarly, in 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.
In China, the printed circuit board assemblies, chassis, top cover,
power supply, and fan were assembled. Then, in the United States,
U.S.-origin software, which gave the hardware the capability of
functioning as local area network devices, was loaded onto the
hardware. CBP noted that the U.S.-origin software ``enables the
imported switches to interact with other network switches'' and that
``[w]ithout this software, the imported devices could not function
as Ethernet switches.'' Under these circumstances, CBP held that the
country of origin of the local area network devices was the United
States. 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).
In this case, the hardware is imported from China in a fully
assembled state. However, at the time of importation the devices are
not functional because they lack the software needed to run. Here,
unlike Scenario Two in HQ H258960, the programming that occurs in
China is to perform diagnostic testing to assure the circuit paths
on the printed circuit board are made and function properly.
Furthermore, contrary to Scenario Two in HQ H258960, the identity of
the switches changes after the U.S.-origin software is downloaded
onto the switches. Moreover, as in HQ H175415, HQ H052325, and HQ
H258960, it is only after the installation of U.S.-origin software
that the devices obtain their essence and functionality as switches
and routers. Without the U.S. proprietary software, the devices
cannot function as a network device in any capacity. Here, the AOS
is developed and downloaded in the United States. The development,
configuration, and downloading of the AOS helps transform the
essence of the products at issue from merchant silicon into fully
functional network devices that are capable of performing the
intended switching and routing functions. The devices at issue here
derive their core functionality as switches and routers from the
installation of the U.S.-developed software. The U.S.-developed
software enables the system to interact with other network switches
or routers through network switching and routing protocols, and
allows for the management of functions such as network performance
monitoring and security and access control.
Under these circumstances, and consistent with previous CBP
rulings, we find that the country of origin of the final product is
the United States, where the non-functional devices are
substantially transformed as a result of downloading performed in
the United States, with software developed in the United States.
Furthermore, in the present case, the essence of the articles
depends on the information technology found in the software, which
allows the devices to communicate with other network switches or
routers for their ultimate purpose. For country of origin
determinations, it should be noted that the final determination
differs based on each article's specific purpose, makeup, and
applicable technology.
HOLDING:
The country of origin of the Ethernet switches, routers and
network cards for purposes of U.S. Government procurement is the
United States.
Notice of this final determination will be given in the Federal
Register, as required by 19 C.F.R. Sec. 177.29. Any party-at-
interest other than the party which requested this final
determination may request, pursuant to 19 C.F.R. Sec. 177.31, that
CBP reexamine the matter anew and issue a new final determination.
Pursuant to 19 C.F.R. 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,
Alice A. Kipel,
Executive Director, Regulations and Rulings, Office of Trade.
[FR Doc. 2019-01115 Filed 2-4-19; 8:45 am]
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