[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