[Federal Register Volume 85, Number 14 (Wednesday, January 22, 2020)]
[Notices]
[Pages 3707-3710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00947]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Certain 
Videoscopes

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 videoscopes (or remote visual inspection 
equipment). Based upon the facts presented, CBP has concluded that the 
country of origin of the videoscopes in question is Japan, for purposes 
of U.S. Government procurement.

DATES: The final determination was issued on January 14, 2020. 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 February 21, 2020.

FOR FURTHER INFORMATION CONTACT: Joy Marie Virga, Valuation and Special 
Programs Branch, Regulations and Rulings, Office of Trade, at (202) 
325-1511.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on January 14, 
2020, 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 videoscopes 
(IPLEX GT and GX Videoscopes), imported by Olympus Scientific Solutions 
Technologies Inc. (``OSST''), which may be offered to the U.S. 
Government under an undesignated government procurement contract. This 
final determination, Headquarters Ruling Letter (``HQ'') H303139, 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 
country of origin of the videoscopes is Japan 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 CFR177.22(d), may seek judicial 
review of a final determination within 30 days of publication of such 
determination in the Federal Register.

    Dated: January 14, 2020.
Alice A. Kipel,
Executive Director, Regulations and Rulings, Office of Trade.

HQ H303139

January 14, 2020

OT:RR:CTF:VS H303139 YAG/JMV

CATEGORY: Origin

Mr. Daniel Shapiro Olympus Scientific Solutions Americas 48 Woerd 
Avenue Waltham, MA 02453
RE: U.S. Government Procurement; Country of Origin of Videoscopes;

[[Page 3708]]

Title III, Trade Agreements Act of 1979 (19 U.S.C. 2511 et seq.); 
Subpart B, Part 177, CBP Regulations
Dear Mr. Shapiro:
    This is in response to your correspondence, dated March 12, 2019, 
requesting a final determination, on behalf of Olympus Scientific 
Solutions Technologies Inc. (``OSST''), concerning the country of 
origin of certain videoscopes, pursuant to subpart B of Part 177 of the 
U.S. Customs and Border Protection (``CBP'') Regulations (19 CFR 177.21 
et seq.).
    We note that OSST is a party-at-interest within the meaning of 19 
CFR 177.22(d)(1) and is entitled to request this final determination.

FACTS:

    OSST imports the IPLEX GT and GX Videoscope (remote visual 
inspection equipment), from Japan. This equipment allows for the non-
destructive inspection of turbines, heat exchangers, pipes, boiler 
tubes, and other products. According to OSST's submission, the 
videoscopes feature three main components: (1) An 8-inch touch screen 
or computer control unit (``CCU''); (2) a scope unit with a light 
source (``scope''); and, (3) a tip adapter. OSST states that the 
overall manufacturing process involves Olympus Japan, a parent company 
of OSST, designing the CCU and the scope, and assembling these 
components into an operational unit in Japan.
    The CCU base unit, which streams live images captured by the scope, 
has a wide video graphics array with a 5-step adjustable LCD backlight, 
a 100V to 240V AC power supply, 10.8V battery, HDMI video input, and a 
headset microphone CTIA plug. A third-party supplier manufactures the 
main components of the CCU in Thailand. The following steps of the CCU 
manufacturing process are performed in Thailand: printed circuit board 
(``PCB'') mounting, and assembling the LCD panel to the PCB assembly. 
The software for the CCU is wholly designed in Japan, but the core of 
the Japanese software (firmware) is installed in Thailand. In Japan, 
the latest version of the software and configurations are installed, 
and the CCU is inspected and tested. Final assembly and packaging of 
the CCU and scope are completed in Japan and shipped.
    The scope includes LED illumination, a 2-stage indicator for high 
temperature warning, and a handle with a true feel electronic scope tip 
articulation/fine mode articulation control using the touch screen 
menu. OSST claims that the scope represents the essence of the 
videoscope. According to the submission, a third-party Thai supplier 
assembles the handset of the scope unit by screwing the plastic 
handset, handset PCB, button and joystick together, and ships these 
components to Japan. Olympus Japan then connects the handset to the 
insertion tube, to create the scope unit subassembly.
    In addition to the handset, the scope unit subassembly includes the 
insertion tube and an optics assembly. The insertion tube is made of 
four layers: A stainless steel cord, a stainless steel braid, a Viton 
waterproof layer, and a tungsten braid. All four layers are created and 
assembled in Japan through wire brazing using a microscope, braiding of 
high durability tungsten, and soldering. At the end of the insertion 
tube is the optics assembly. Manufacturing of the optics assembly 
includes the creation and testing of micro lenses, and small parts 
assembly in a clean room. The optics assembly is essentially a small 
camera completely manufactured in Japan. The scope unit then undergoes 
software installation, calibration and product testing. The insertion 
tube and optics assembly, controlled by the handset, are what enable 
the videoscope to move around tight spaces and capture images.
    According to OSST, once Olympus Japan completes the manufacturing 
process for the CCU and the scope, it combines both units to make a 
functional videoscope in Japan by fitting a connector into both the CCU 
and the scope, centering the cable gasket to assure ingress protection 
(``IP'') rating and screwing the doors shut to complete the physical 
mating. OSST states that these steps allow the CCU and scope to 
communicate without which the scope and CCU as separate units would not 
have much practical application. Olympus Japan assembles all scope and 
CCU models together to make 12 different versions, which will then be 
imported into the United States.
    Tip adapters are necessary for the function of the scope but will 
be separately shipped to the United States due to the number of tip 
adapter models and variations that may apply. The tip adapters are 
wholly designed, manufactured and assembled in Japan to accommodate 
different field, and direction of view and depths of field. In a phone 
call with this office, OSST likened the tip adapter to an 
interchangeable lens on a camera. OSST claims that the tip adapter does 
not change the videoscope's ability to function, but it does enhance 
the videoscope's ability to focus or take clear pictures. Once imported 
into the United States, the videoscope will then be paired with the tip 
adapter per customer order by screwing the tip adapter to the scope.\1\
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    \1\ The IPLEX GT and GX Videoscopes operate by attaching the 
scope (with the light source) to the CCU and then inserting a tip 
adapter to the end of the scope to enhance focus. While the GT and 
GX models share the same hardware, the GX has enhanced software 
features to gain control, dynamic noise reduction, sharpness, 
saturation display, and note text options.
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    You have provided charts and cost figures to show that over 80 
percent of the total cost of the combined unit represents the portion 
of the cost incurred in Japan to develop and produce the CCU and scope 
units for the IPLEX GT and GX Videoscopes.

ISSUE:

    What is the country of origin of the videoscopes 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 177.21 et seq., which implements Title 
III of the Trade Agreements Act of 1979 (``TAA''), as amended (19 
U.S.C. 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 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 Procurement 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. The regulations define a ``designated country end product'' 
as:

    WTO GPA [World Trade Organization Government Procurement 
Agreement] country end product, an FTA [Free Trade Agreement] 
country end product, a least

[[Page 3709]]

developed country end product, or a Caribbean Basin country end 
product.

    A ``WTO GPA country end product'' is defined as an article that:

    (1) Is wholly the growth, product, or manufacture of a WTO GPA 
country; or
    (2) In the case of an article that consists in whole or in part 
of materials from another country, has been substantially 
transformed in a WTO GPA country 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. The term refers 
to a product offered for purchase under a supply contract, but for 
purposes of calculating the value of the end product includes 
services (except transportation services) incidental to the article, 
provided that the value of those incidental services does not exceed 
that of the article itself.

See 48 CFR 25.003.
    Japan is a WTO GPA country; however, Thailand is not.
    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. The country of origin of 
the item's components, extent of the processing that occurs within a 
country, and whether such processing renders a product with a new name, 
character, and use are primary considerations in such cases. 
Additionally, factors such as the resources expended on product design 
and development, the extent and nature of post-assembly inspection and 
testing procedures, and worker skill required during the actual 
manufacturing process will be considered when determining whether a 
substantial transformation has occurred. No one factor is 
determinative. 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.''
    The Court of International Trade has looked at the essential 
character of an article to determine whether its identity has been 
substantially transformed through assembly or processing. ``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, 24 
C.I.T. 1191, 1195 (2000), citing National Hand Tool Corp. v. United 
States, 16 C.I.T. 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 Uniroyal, Inc. v. United 
States, 3 C.I.T. 220, 225, 542 F. Supp. 1026, 1031, aff'd, 702 F.2d 
1022 (Fed. Cir. 1983), the court held that imported shoe uppers added 
to an outer sole in the United States were the ``very essence of the 
finished shoe'' and thus the character of the product remained 
unchanged and did not undergo substantial transformation in the United 
States.
    CBP has applied the Court of International Trade's analysis in 
Uniden to determine whether other minor components when combined with a 
larger and a more complex system would lose their separate identities 
to become part of that larger system. In Headquarters Ruling Letter 
(``HQ'') H100055 dated May 28, 2010, CBP ruled on the country of origin 
of a lift unit for an overhead patient lift system. Among the issues we 
considered was whether a battery charger, when inserted into the hand 
control unit inside the lift unit, was substantially transformed. 
Relying on the Uniden decision, we noted that the substantial 
transformation test should be applied to the product as a whole and not 
to each of the parts. We determined that the lift unit conveyed the 
essential character to the system and because the detachable hand 
control and the battery charger were parts of that system, they were 
substantially transformed when attached to the lift unit. Thus, we held 
that the country of origin of the hand control unit and battery charger 
when packaged with the lift unit was Sweden. See also HQ H112725, dated 
October 6, 2010, (inclusion of a battery charger did not alter the 
essential character of the AdfloTM respiration system which 
was designed to provide respiratory protection in a welding 
environment).
    While software is often essential to the function of a product, CBP 
generally does not find the downloading of software to be a substantial 
transformation. However, CBP may find a substantial transformation when 
the software is downloaded in the country where it was written and 
developed. CBP 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 software developed in the United States was 
downloaded. It was claimed that the U.S.-origin software enabled the 
imported switches to interact with other network switches and without 
this software, the imported devices could not function as Ethernet 
switches. 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 v. United States, 
4 C.I.T. 182 (1982); see also ``computer program,'' Encyclopedia 
Britannica (2013), (Nov. 26, 2019) 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; therefore, CBP found that the 
country where the last substantial transformation occurred was 
Malaysia, where the major assembly processes were performed. See also 
HQ H290670, dated January 29, 2019 (finding that fully assembled 
Ethernet Switches were substantially transformed when U.S.-origin 
firmware and software were downloaded onto the switches).
    When there are multiple manufacturing locations, the country of 
origin is the country where the last substantial transformation occurs. 
HQ H203555 dated April 23, 2012, concerned the country of origin of 
certain oscilloscopes under five distinct manufacturing scenarios. In 
the various scenarios, the motherboard and the power controller of 
either Malaysian or Singaporean origin were assembled in Singapore with 
subassemblies of Singaporean origin into oscilloscopes. CBP found that 
under the various scenarios, there were three countries under 
consideration where programming and/or assembly operations took place, 
the last of which was Singapore. CBP noted that no one country's 
operations dominated the manufacturing operations of the oscilloscopes. 
As a result, while the boards assembled in Malaysia were important to 
the function of the oscilloscopes, and the U.S. firmware and software 
were used to program the oscilloscopes in Singapore, the final 
programming and assembly of the oscilloscopes was in Singapore; hence, 
Singapore imparted the last substantial transformation, and the country 
of

[[Page 3710]]

origin of the oscilloscopes was Singapore.
    Based on the information provided in your letter and consistent 
with the CBP rulings cited above, we find the country of origin of the 
videoscopes to be Japan. We note that while many important components 
of the videoscopes are of Thai origin, and many processing operations 
occur in Thailand (specifically, with respect to the initial assembly 
of the CCU and the scope handset), the Japanese operations require more 
skill and precision, and impart the final product with its essential 
character. Many of the critical operations involved in completing the 
product, such as developing and installing the software; manufacturing 
the insertion tube, the optics assembly and the tip adapter; and 
assembling the components, are performed in Japan. The assembly of the 
scope in Japan includes assembling the optics, the stainless steel 
cord, the stainless steel braid, waterproof layer and the tungsten 
braid into the scope tube, which enable the scope to see and navigate 
small spaces. The scope imparts the videoscope with its identifying 
functionality, meaning it is a scope unit with the light source that 
enables the videoscope to nondestructively see, move, and video small 
areas of a product such as turbines or pipes. The videoscope's 
identifying function is further enhanced by the inclusion of the 
Japanese originating tip adapter. Additionally, while the CCU is 
assembled in Thailand, it is the software completely developed and 
largely installed in Japan that allows the user to control the scope 
and view the image the scope captures on the CCU. Finally, the assembly 
of components in Japan allows the CCU and the scope to communicate.
    We note that the software installed in Japan is also completely 
developed and programmed in Japan and the portion of the costs incurred 
in Japan to develop and produce the CCU and scope units for the 
videoscopes represents over 80% of the total cost of the combined unit. 
Consequently, we find that the imported videoscopes are substantially 
transformed because of the assembly operations performed in Japan to 
produce the fully functional and operational videoscopes. Based on the 
information presented, it is our opinion that the country of origin of 
videoscopes is Japan.

HOLDING:

    Based on the facts provided, the finished videoscopes will be 
considered a product of Japan 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. 2020-00947 Filed 1-21-20; 8:45 am]
 BILLING CODE 9111-14-P