[Federal Register Volume 76, Number 195 (Friday, October 7, 2011)]
[Notices]
[Pages 62431-62433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-25991]
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DEPARTMENT OF HOMELAND SECURITY
U.S. Customs and Border Protection
Notice of Issuance of Final Determination Concerning Certain
Ethernet Switches
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. Based upon the facts
presented, CBP has concluded that the programming operations performed
in the United States, using U.S.-origin software, substantially
transform the non-TAA country switches. Therefore, the country of
origin of the switches is the United States for purposes of U.S.
Government procurement.
DATES: The final determination was issued on October 4, 2011. 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 on or before November 7, 2011.
FOR FURTHER INFORMATION CONTACT: Heather K. Pinnock, Valuation and
Special Programs Branch: (202) 325-0034.
SUPPLEMENTARY INFORMATION: Notice is hereby given that on October 4,
2011, 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 Ethernet switches
which may be offered to the U.S. Government under an undesignated
government procurement contract. This final determination, HQ H175415,
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 operations
performed in the United States, using U.S.-origin software,
substantially transform the non-TAA country Ethernet switches.
Therefore, the country of origin of the switches 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: October 4, 2011.
Sandra L. Bell,
Executive Director, Regulations and Rulings, Office of International
Trade.
Attachment
October 4, 2011
HQ H175415
MAR OT:RR:CTF:VS H175415 HkP
CATEGORY: Origin
Josephine Aiello LeBeau, Esq.
Anne Seymour, Esq.
Wilson Sonsini Goodrich & Rosati, PC
1700 K Street, NW, Fifth Floor
Washington, DC 20006-3817
RE: U.S. Government Procurement; Country of Origin of Local Area
Network Switches; Substantial Transformation
Dear Ms. LeBeau and Ms. Seymour:
This is in response to your letter, dated July 6, 2011, requesting
a final determination on behalf of Arista Networks, Inc. (``Arista''),
pursuant to subpart B of part 177 of the U.S. Customs and Border
Protection (``CBP'') Regulations (19 C.F.R. Part 177). Under these
regulations, which implement Title III of the Trade Agreements Act of
1979 (``TAA''), as amended (19 U.S.C. Sec. 2511 et seq.), 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.
This final determination concerns the country of origin of Arista's
7048, 7050, 7100, 7124, and 7500 series (``7 Series'') local area
network (``LAN'') switches. We note that as a U.S. importer, Arista is
a party-at-interest within the meaning of 19 C.F.R. Sec. 177.22(d)(1)
and is entitled to request this final determination.
FACTS:
Arista is importing 7 Series Ethernet switches assembled in China.
The switches are designed to interconnect servers and storage
appliances in data centers. Each switch consists of one or more printed
circuit board assembly (``PCBAs''), chassis, top cover, power supply,
and fans. After importation, the switches will be programmed with U.S.-
origin software.
The following operations occur in China:
1. The chassis and top cover are manufactured from sheet metal.
2. The PCB is populated with various electronic components to make a
PCBA.
3. The PCBA is tested to ensure functionality.
4. The power supply and fans are installed in the chassis.
5. The PCBA is installed in the chassis.
6. The chassis and top cover are assembled together.
7. The serial numbers of the components are entered into the data
tracking system, and the switch is packaged and shipped to the United
States.
The following operations occur in the United States:
1. U.S.-origin EOSTM software is downloaded onto the flash
memory on the PCBA.
2. The switch is tested, packaged, and prepared for shipping.
Arista's EOSTM (Extensible Operating System) software is
designed to provide switching functionality, secure administration, and
reliability, and to optimize network management. Specifically, EOS
software provides the following capabilities and benefits to Ethernet
switches: in-service software upgrade, software fault containment,
fault repair, security exploit containment, and scalable management
interface. According to your submission, the units imported from China
could not function as network switches without this software, which was
developed in the United States at considerable cost to Arista. Since
2005, more than 140
[[Page 62432]]
software engineers have continued to develop the software and more than
80 percent of Arista's Research and Development spending has been on
EOS software development.
ISSUE:
What is the country of origin of the Arista's 7 Series Ethernet
switches for purposes of U.S. Government procurement?
LAW AND ANALYSIS:
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.), 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.
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 Data General v. United States, 4 Ct. Int'l Trade 182 (1982), the
court determined that for purposes of determining eligibility under
item 807.00, Tariff Schedules of the United States (predecessor to
subheading 9802.00.80, Harmonized Tariff Schedule of the United
States), 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 programming the imported PROMs, the U.S.
engineers systematically caused various distinct electronic
interconnections to be formed within each integrated circuit. The
programming bestowed upon each 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. This physical alteration, not
visible to the naked eye, could be discerned by electronic testing of
the PROM. The court noted that the programs were designed by a U.S.
project engineer with many years of experience in ``designing and
building hardware.'' While replicating the program pattern from a
``master'' PROM may be a quick one-step process, the development of the
pattern and the production of the ``master'' PROM required much time
and expertise. The court noted that it was undisputed that programming
altered the character of a PROM. The essence of the article, its
interconnections or stored memory, was established by programming. The
court concluded that altering the non-functioning circuitry comprising
a PROM through technological expertise in order to produce a
functioning read only memory device, possessing a desired distinctive
circuit pattern, was no less a ``substantial transformation'' than the
manual interconnection of transistors, resistors and diodes upon a
circuit board creating a similar pattern.
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.''
In C.S.D. 84-85, 18 Cust. B. & Dec. 1044, CBP stated:
We are of the opinion that the rationale of the court in the Data
General case may be applied in the present case to support the
principle that the essence of an integrated circuit memory storage
device is established by programming; [hellip] [W]e are of the opinion
that the programming (or reprogramming) of an EPROM results in a new
and different article of commerce which would be considered to be a
product of the country where the programming or reprogramming takes
place.
Accordingly, the programming of a device that changes or defines
its use generally constitutes substantial transformation. See also
Headquarters Ruling Letter (``HQ'') 558868, dated February 23, 1995
(programming of SecureID Card substantially transforms the card because
it gives the card its character and use as part of a security system
and the programming is a permanent change that cannot be undone); HQ
735027, dated September 7, 1993 (programming blank media (EEPROM) with
instructions that allow it to perform certain functions that prevent
piracy of software constitute substantial transformation); and, HQ
733085, dated July 13, 1990; but see HQ 732870, dated March 19, 1990
(formatting a blank diskette does not constitute substantial
transformation because it does not add value, does not involve complex
or highly technical operations and did not create a new or different
product); 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 imports it).
You believe that under the manufacturing scenario described in the
FACTS section above, Arista's 7 Series Ethernet switches are products
of the United States. You argue that without the EOS software, the
units exported from China lack the intelligence to perform as network
switches. In fact, you claim that the EOS software gives the switches
their essential character by providing network switching and routing
functionality, management functions, network performance monitoring,
security and access control, and by allowing interaction with other
switches. Further, programming the switches with the EOS software
creates a permanent change in the PCBAs that cannot be undone by third
parties during the normal course of business. The only reprogramming
operation that may be performed during the normal course of business is
either updating the installed software or entering licensing keys that
enable the activation of additional EOS software features. In support
of your position, you cite Data General (supra), HQ H052325 (Feb. 14,
2006) and HQ 735027 (Sept. 7, 1993), among others.
HQ H052325 concerned the country of origin of a switch and a
switch/router. The Brocade 7800 Extension Switch was assembled to
completion in China and programmed in the U.S. with U.S.-origin
operating system (OS) software and customer specified firmware and
software. The Brocade FX8-24 switch/router contained a PCBA that was
assembled and programmed in China and shipped to the U.S., where it was
assembled with other components to make the final product. The
completed unit was then programmed with U.S.-origin OS software and
customer firmware and software. In both cases, the U.S.-origin OS
software provided the devices with their functionality. Customs found
that in both cases, the processing performed in the United States,
including the downloading of the U.S.-origin OS software, resulted in a
substantial transformation of the foreign origin components, and that
the United States was the country of origin.
In HQ H014068, dated October 9, 2007, CBP determined that a
cellular phone designed in Sweden, assembled in either China or
Malaysia and shipped
[[Page 62433]]
to Sweden, where it was loaded with software that enabled it to test
equipment on wireless networks, was a product of Sweden. Once the
software was installed on the phones in Sweden, they became devices
with a new name, character and use, that is, network testing equipment.
As a result of the programming operations performed in Sweden, CBP
found that the country of origin of the network testing equipment was
Sweden.
In this case, hardware components are assembled into complete
Ethernet switches in China. The switches are then shipped to the U.S.,
where they are programmed with EOS software, developed in the U.S. at
significant cost to Arista and over many years. Since 2005, more than
140 software engineers have continued to develop the software and more
than 80 percent of Arista's Research and Development spending has been
on EOS software development. The U.S.-origin EOS software enables the
imported switches to interact with other network switches through
network switching and routing, and allows for the management of
functions such as network performance monitoring and security and
access control. Without this software, the imported devices could not
function as Ethernet switches. As a result of the programming performed
in the U.S., with software developed in the U.S., the imported switches
are substantially transformed in the U.S. See Data General, C.S.D. 84-
85, HQ 052325, HQ 558868, HQ 735027, and HQ 733085. The country of
origin of the switches is the United States.
Please be advised, however, that whether the switches may be marked
``Made in the U.S.A.'' or with similar words, is an issue under the
authority of the Federal Trade Commission (``FTC''). We suggest that
you contact the FTC, Division of Enforcement, 6th and Pennsylvania
Avenue, NW, Washington, DC 20508, on the propriety of markings
indicating that articles are made in the United States.
HOLDING:
Based on the facts provided, the programming operations performed
in the United States impart the essential character to Artista's 7
Series Ethernet switches. As such, the switches will be considered
products of the United States for purposes of U.S. Government
procurement.
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,
Sandra L. Bell,
Executive Director
Regulations and Rulings Office of International Trade
[FR Doc. 2011-25991 Filed 10-6-11; 8:45 am]
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