[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21389-21392]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08349]
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DEPARTMENT OF HOMELAND SECURITY
U.S. Customs and Border Protection
Notice of Issuance of Final Determination Concerning Certain
Ultrasound Systems
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 ultrasound systems. Based upon the facts
presented, CBP has concluded in the final determination that the U.S.
is the country of origin of the ultrasound systems for purposes of U.S.
government procurement.
DATES: The final determination was issued on April 3, 2013. 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 May 10, 2013.
FOR FURTHER INFORMATION CONTACT: Elif Eroglu, Valuation and Special
Programs Branch: (202) 325-0277.
SUPPLEMENTARY INFORMATION: Notice is hereby given that on April 3,
2013, pursuant to subpart B of part 177, Customs Regulations (19 CFR
part 177, subpart B), CBP issued a final determination concerning the
country of origin of the Siemens Medical S2000 and Antares ultrasound
systems which may be offered to the U.S. Government under an
undesignated government procurement contract. This final determination,
Headquarters Ruling Letter (``HQ'') H219597, was issued at the request
of Siemens Medical Solutions USA 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 has concluded that, based upon the facts presented,
the assembly of the S2000 and Antares ultrasound systems in the U.S.,
from parts made in Japan, Korea, Italy, China, and the U.S.,
constitutes a substantial
[[Page 21390]]
transformation, such that the U.S. is the country of origin of the
finished articles for purposes of U.S. government procurement.
Section 177.29, Customs Regulations (19 CFR 177.29), provides that
notice of final determinations 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: April 3, 2013.
Sandra L. Bell,
Executive Director, Regulations and Rulings, Office of International
Trade.
Attachment
HQ H219597
April 3, 2013
OT:RR:CTF:VS H219597 EE
CATEGORY: Marking
Alan W. H. Gourley
Crowell & Moring LLP
1001 Pennsylvania Ave., NW
Washington, DC 20004
RE: U.S. Government Procurement; Title III, Trade Agreements Act of
1979 (19 U.S.C. Sec. 2511); Subpart B, Part 177, CBP Regulations;
Ultrasound Systems
Dear Mr. Gourley:
This is in response to your correspondence of January 30, 2012
and additional information you submitted on May 22, 2012, July 23,
2012, August 29, 2012, and September 4, 2012, requesting a final
determination on behalf of Siemens Medical Solutions USA, Inc.
(``Siemens Medical''), pursuant to subpart B of part 177, U.S.
Customs and Border Protection (``CBP'') Regulations (19 C.F.R. Sec.
177.21 et seq.). A meeting between counsel and this office occurred
on November 13, 2012 to allow counsel the opportunity to discuss the
case and present further arguments. Counsel submitted an additional
supplemental submission on November 16, 2012. Under the pertinent
regulations, which implement 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 purpose 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 the
Siemens Medical S2000 and Antares ultrasound systems. We note that
Siemens Medical 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:
The merchandise at issue are two Siemens Medical ultrasound
units, known as the S2000 and Antares ultrasound systems,
engineered, designed, and subject to final assembly in the U.S. from
U.S. and foreign components. The S2000 and Antares ultrasound
systems are diagnostic imaging systems that transmit sound waves and
then receive and process the echoes of those waves to create a
visual representation of a patient's tissues and organs. You state
these systems comprise three core elements: (1) the transducers that
send and receive the acoustic signals from the patient; (2) the
electronics module that processes signals and ``beamform'' the data
to convert it into a form that can be used by Siemens' proprietary
application software; and (3) the application software that
manipulates and displays the patient image data to allow for
diagnostic and prescriptive use by healthcare professionals.
One of the most critical elements required for the manufacture
of a functional ultrasound system is the transducer which is the
handset that is passed over the surface of the patient's body, where
it produces high-frequency sound waves that penetrate the area of
the body being scanned. The transducer focuses the sound-wave beam
of pulses into specific dimensions as well as scans the beam over
the region of interest in the patient's anatomy. The transducer then
receives the ``echo'' of these sound waves as they rebound from the
patient's internal organs and tissue, and transmits this returned
data (as electrical impulses) to the electronics module. The quality
of the beam and return echo define the quality of the signal and
resulting image which is of key significance to the diagnostician
employing the ultrasound. The typical customer-ordered S2000 or
Antares ultrasound systems will have three or more transducers that
allow for application-specific usage. The transducers are
manufactured in Korea.
The electrical signals from the transducer are processed by the
electronics module and, once converted to usable digital data,
manipulated by the application software and then displayed on the
machine's monitor for the clinical user. The proprietary software is
run on what are essentially commoditized computer hardware
components.
The application software is stated to be the key element that
enables the electronics module to ``translate'' the data received
from the transducer into an image to be displayed on the monitor.
The software performs a variety of functions including standard work
flow items such as archiving and displaying patient data as well as
image data manipulation/transformation, custom display, and
analytics/calculations. Depending on the specific customer's
intended end-use (e.g., cardio or prenatal) and requirements,
different aspects of the software may be activated/enabled through
the use of licensing keys.
Manufacturing Process
Electronics Module Assembly:
You state that the manufacturing of the electronics module in
China involves: (1) the incorporation and testing of the Chinese-
origin circuit boards (printed wiring assemblies) to specification;
and (2) the incorporation of Chinese-origin real-time manager
assembly, which includes a commercial computer motherboard, CPU,
hard drive, and video card. These assembly operations also require
the installation of Chinese-origin subcomponents and sub-assemblies
including:
A ``backplane'' which is a circuit board that connects
the various system boards;
A ``cardcage'' which is a mechanical structure to which
the backplane is bolted;
A ``continuous beamformer'' used for Doppler imaging to
depict both visual images and audio interpretation of blood flow;
A power supply system (including a U.S.-origin
transformer, Japanese-origin power supplies for both the analog and
digital portions of the system, and the alternating current tray and
cable that will connect to the external power receptacle); and
A trolley frame assembly, which is the structure that
houses the CPU and that ultimately will house the other components
added after importation into the U.S. (i.e., the monitor, the
control panel, connecting cables, transducers, etc.).
Following assembly of the electronics module, the test version
of the Siemens Medical's operating system software, which is
designed, engineered, and written in the U.S., is uploaded onto the
real-time manager assembly hard drive to test the hardware to
correct any manufacturing defects. The testing involves the use of a
temporary licensing schema (via the use of a USB license key tool)
to temporarily enable various application features. Once the testing
is completed and the USB thumb drive is removed, the software is no
longer enabled. You state that the condition of the system when it
leaves Shanghai is a tested, but incomplete electronics module. You
state that even with the application of power, the addition of a
control panel, monitor, and transducers, the electronics module, in
its form as exported from China, could not be used as a diagnostics
ultrasound machine.
Ultrasound System Integration and Testing:
After importation, the partially completed electronics module
initially arrives to the facility of a Siemens Medical contract
manufacturer in San Jose, CA for completion of the electronics
module. This includes the installation of the Italian-origin
monitor, the U.S.-origin control panel, and the U.S.-origin outer
covers that cover the electronics, the alternating current tray, and
the transformer.
In addition, depending on the specific customer order at issue,
the assembly may also include installation of the ``Physio Module''
(a component that provides the system with an interface to patient
respiration and electrocardiogram (ECG) data, whereby that data can
be overlaid on the ultrasound image such that a video clip of the
imaging data will include ECG and respiration data in real time) and
a digital video recorder assembly.
Once the assembly is completed, the following series of tests
and system adjustments are performed:
Electrical safety testing of the components.
Calibration of the Italian-origin display monitor using
a specific ultrasound imaging procedure.
[[Page 21391]]
Diagnostic and imaging tests using Korean-origin
``slave'' transducers to ensure proper functioning of the control
panel and monitor.
24 hours of reliability testing for any latent
failures. This involves a series of power-on and power-off
operations, customer use simulations, stress testing of the real-
time manager assembly, automated software tests, and tests of
numerous standby operations.
At the conclusion of the reliability testing, the system is
checked for cosmetic acceptance, which involves a physical review of
the product against certain customer criteria. The system is then
packaged and shipped to Siemens Medical's Buffalo Grove, Illinois
location for final assembly, configuration and testing.
Final Assembly, Configuration, and Testing:
Upon arrival at Siemen's Medical's Buffalo Grove facility, the
system is ``whitewashed'', where the test version of the software is
wiped from the system in its entirety. Next, the most current
version of the operating system software, which is designed,
developed, and written in the U.S., is uploaded to each unit using
DVDs. The application software is enabled by loading the permanent
licensing keys into the system using a web-based tool that
interfaces with Siemen's enterprise resource planning system (SAP).
You state that every feature and system type has a unique license
key. The web-based tool identifies the features and system type as
shown in the customer's order in the SAP and creates the
corresponding license key file on a DVD or USB drive. That file, in
turn, is uploaded to the unit and enables only the purchased
features in the systems software. Next, the equipment is adjusted
and configured to meet customer requirements for line voltage
(including addition of the appropriate power cord), language
(control panel overlay and system software settings), and
documentation devices (printer etc.). An electrical safety test is
then performed on the system's final configuration. The final test
process is the execution of the Customer Relevant Simulation
Testing, which is a high-level imaging process that uses the
customer ordered Korean-origin transducers and capitalized
transducers to fully test the functionality of the complete
ultrasound system (including customized applications, transducers,
system, and peripherals). You state that this test requires a highly
trained skilled diagnostician as it is intended to replicate the
customer's intended user environment.
The S2000 ultrasound system is comprised of approximately 19
subassemblies and additional components. It takes approximately 23-
24 hours to produce the finished S2000 ultrasound system of which
13-14 hours takes place in the U.S. The Antares ultrasound system is
comprised of 17 subassemblies and additional components. It takes
approximately 24-25 hours to produce the finished Antares ultrasound
system of which 14-15 hours takes place in the U.S.
You submitted the costed bill of materials for the S2000 and
Antares ultrasound systems. You also submitted a copy of the product
brochures for the S2000 and Antares systems. Additionally, you
provided pictures of various transducers, the electronics
components, the partially completed electronics module, the list of
printed wire assemblies and functions, and the manufacturing process
flow chart.
ISSUE:
What is the country of origin of the S2000 and Antares
ultrasound systems for the purpose of U.S. government procurement?
LAW AND ANALYSIS:
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.), 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 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 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 TAA. 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.
48 C.F.R. Sec. 25.003.
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.''
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.
HQ H203555, dated April 23, 2012, concerned the country of
origin of certain oscilloscopes. CBP considered five 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
[[Page 21392]]
the oscilloscopes in Singapore, the final programming and assembly
of the oscilloscopes was in Singapore and hence represented the last
substantial transformation. Therefore, CBP found that the country of
origin of the oscilloscopes was Singapore.
HQ H170315, dated July 28, 2011, concerned the country of origin
of satellite telephones. CBP was asked to consider six scenarios
involving the manufacture of PCBs in one country and the programming
of the PCBs with second country software either in the first country
or in a third country where the phones were assembled. In the third
scenario, the application and transceiver boards for satellite
phones were assembled in Malaysia and programmed with U.K.-origin
software in Singapore, where the phones were also assembled. CBP
found that no one country's operations dominated the manufacturing
operations of the phones and that the last substantial
transformation occurred in Singapore. See also HQ H014068, dated
October 9, 2007 (CBP determined that a cellular phone designed in
Sweden, assembled in either China or Malaysia and shipped 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, substantial manufacturing operations are performed
in China, the U.S., Korea, and Italy. The electronics module, which
is partially assembled in China, is imported into the U.S., where it
is assembled with other core components, including the Korean-origin
transducers that send and receive the acoustic signals, the Italian-
origin monitor that permits display of images, and the U.S.-origin
control panel that serves as the user interface. The completely
assembled ultrasound systems are then uploaded with U.S. designed,
developed, and written operating system software and application
software. You state that the software is necessary for the
ultrasound systems to perform their intended function of providing
diagnostic information (an observable image with related data). As
previously noted, it takes approximately 23-24 hours to produce the
finished S2000 ultrasound system of which 13-14 hours takes place in
the U.S. It takes approximately 24-25 hours to produce the finished
Antares ultrasound system of which 14-15 hours takes place in the
U.S. You claim that the assembly, integration, and testing in the
U.S. is conducted by specialized technicians. You also state that
all of the research & development, product engineering and design
investment occur in the U.S. Based on the totality of the
circumstances, we find that the last substantial transformation
occurs in the U.S., the location where the final assembly and
installation of the operating system software and application
software occurs. Prior to the assembly and programming in the U.S.,
the products are unable to carry out the functions of ultrasound
systems. However, the assembly and programming in the U.S. creates a
new product that is capable of providing diagnostic information.
Consequently, we find that the country of origin of the ultrasound
systems is the U.S.
HOLDING:
The imported components that are used to manufacture the S2000
and Antares ultrasound systems are substantially transformed as a
result of the assembly and software installation operations
performed in the U.S. Therefore, we find that the country of origin
of the S2000 and Antares ultrasound systems for government
procurement purposes is the U.S.
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 after 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. 2013-08349 Filed 4-9-13; 8:45 am]
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