[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]
 BILLING CODE 9111-14-P