[Federal Register Volume 78, Number 162 (Wednesday, August 21, 2013)]
[Notices]
[Pages 51737-51740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-20425]
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DEPARTMENT OF HOMELAND SECURITY
U.S. Customs and Border Protection
Notice of Issuance of Final Determination Concerning Certain Hard
Disk Drives and Self-Encrypting Drives
AGENCY: U.S. Customs and Border Protection, Department of Homeland
Security.
ACTION: Notice of final determination.
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[[Page 51738]]
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 digital storage devices known as hard disk
drives (``HDDs'') and self-encrypting drives (``SEDs''). Based upon the
facts presented, CBP has concluded that the programming operations
performed in the United States, using U.S.-origin firmware,
substantially transform non-TAA country HDDs. Therefore, the country of
origin of the HDDs and SEDs is the United States for purposes of U.S.
Government procurement.
DATES: The final determination was issued on August 14, 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 September 20, 2013.
FOR FURTHER INFORMATION CONTACT: Heather K. Pinnock, Valuation and
Special Programs Branch: (202) 325-0034.
SUPPLEMENTARY INFORMATION: Notice is hereby given that on August 14,
2013, 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 digital
storage devices known as HDDs and SEDs, which may be offered to the
U.S. Government under an undesignated government procurement contract.
This final determination, HQ H241362, 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 firmware, substantially transform non-TAA country
HDDs. Therefore, the country of origin of the HDDs and SEDs 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: August 14, 2013.
Sandra L. Bell,
Executive Director, Regulations and Rulings, Office of International
Trade
Attachment
HQ H241362
MAR OT:RR:CTF:VS H241362 HkP
CATEGORY: Origin
Stuart P. Seidel, Esq.
Baker & McKenzie
815 Connecticut Avenue NW
Washington, DC 20006-4078
RE: Government Procurement; Trade Agreements Act; Country of Origin
of Hard Disk Drives and Self-Encryption Drives; Substantial
Transformation
Dear Mr. Seidel:
This is in response to your letter, dated April 24, 2013,
requesting a final determination on behalf of Seagate Technology,
LLC (``Seagate''), 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. In
reaching our decision, we have taken into account additional
information submitted on June 3, 2013.
This final determination concerns the country of origin of three
lines of Seagate's Hard Disk Drives (``HDDs'') designated as: (1)
``Mission Critical''; (2) ``Business Critical''; and, (3) ``Personal
Storage''. We note that as a U.S. importer, Seagate 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. Your request for
confidential treatment regarding all cost and price information
contained in your request is granted and such information will not
be disclosed to the public.
FACTS:
Seagate imports fully assembled HDDs from [non-TAA country] or
[non-TAA country]. An HDD is a digital storage device. The products
at issue are three lines of HDDs: (1) Mission Critical, sold under
the brand names ``Cheetah'', ``Savvio'', and ``Enterprise
Performance''; (2) Business Critical, sold under the brand names
``Constellation'', ``Enterprise Capacity'', and ``Enterprise
Value''; and, (3) Personal Storage, sold under the brand names
``Barracuda'' and ``Desktop''.
HDDs are designed in the United States and assembled either in
[non-TAA country] or [non-TAA country] from components manufactured
by Seagate outside the United States or obtained by Seagate from
suppliers in Asia. The assembly process in [non-TAA country] or
[non-TAA country] is as follows:
The Head Disk Assembly (``HDA''), usually comprised of two
magnetic recording media (``Media'') and three read/write recording
heads (``Heads''), a head actuator assembly, and an airtight metal
enclosure is assembled in minutes.
The HDA is mated to a printed circuit board (``PCB'') containing
disk drive electronics to create an HDD. It is assembled in seconds.
The HDD is loaded into the factory testing system, and testing
firmware is downloaded onto the HDD to facilitate media
certifications. The HDD stays in a sequence of media certification
operations for one or more days, as necessary.
Following successful media certification, the HDD testing
firmware is replaced with generic, basic firmware that only allows
the HDD's computer interface functions to be tested. Testing lasts
between [xxx] and [xxx].
After testing, the generic firmware is removed and the drive is
``forced blocked'', that is, it is blocked from being able to have
software loaded onto it or to be further tested. It is stated that
force blocking renders the HDD unable to function as a storage
drive.
The Heads in the HDA incorporate semiconductor, magnetic,
mechanical, and manufacturing process design into an integrated
recording reader and writer. It takes approximately [xxx] hours to
design a Head, [xxx] of which are allocated to design work in the
U.S., [xxx] hours to design work in [non-TAA country], and [xxx]
hours to design work in [non-TAA country]. The Media in the HDA
incorporates thin film magnetics, mechanical surface design and
manufacturing process design. It takes approximately [xxx] hours to
design Media, [xxx] of which are allocated to work done in the U.S.,
[xxx] hours to work done in [TAA country], and [xxx] hours to work
done in [non-TAA country].
Fully assembled HDDs are shipped to the United States. According
to the information submitted, in their imported condition, HDDs
cannot function as storage media. The disk heads cannot move, data
cannot be stored or retrieved and, were the HDDs to be installed on
computers or networks, they would not be recognized or listed. They
do, however, have a rudimentary serial port that enables the HDD to
communicate with a computer using a proprietary Seagate protocol so
that firmware may be installed and tests performed.
In the U.S., the imported HDD is unblocked and programmed with
two types of firmware:
1. Servo Firmware, which controls all motor, preamp and servo
functions without which the motors, Media, and Heads will not
operate and the HDD will not work; and
2. Non-Security Controller Firmware, which manages all
communications between the host and target drives as well as all
data within the drive. It allows data files to be stored on the
Media in the HDD, to be found and listed within applications, and to
be saved, retrieved and overwritten.
Installation and testing of the Servo and Non-Security
Controller Firmware takes between [xxx] and [xxx], depending on the
capacity and model of the HDD. Both types of firmware are developed
in the U.S. and [TAA country]. Approximately 80% of the work hours
spent on combined firmware
[[Page 51739]]
design is allocated to work performed in the United States at
Seagate's design centers and approximately 20% to work performed in
[TAA country]. Combined, the compiled firmware code is approximately
2 MB in size and contains approximately one million lines of code.
The firmware loaded onto the HDD in the U.S. makes the HDD a fully
functional, generic storage device.
During programming operations, approximately 25% of the generic
HDDs are reformatted based on specific customer requirements, such
as security features, format sizes, and format modes. Customer-
specific code is developed in the United States. Security Controller
Firmware, which may be added on to Non-Security Controller Firmware
as a part of a customer's code, allows the HDDs to be secured
through encryption, which involves enabling an encryption program
and security interface, locking the debug ports, and loading
credentials and certificates. The Security Controller Firmware is
written in the U.S. (85-90%) and in [TAA country] (10-15%), based on
architecture totally designed in the U.S. involving thousands of
hours and millions of dollars. After the HDDs are configured to
customer security requirements, the HDDs are known as self-
encrypting drives (SEDs). SEDs encrypt data as it is being written
and decrypts data as it is being read.
After programming is complete, the HDDs and SEDs are validated
or tested. A final quality assurance inspection is performed, after
which the HDDs and SEDs receive new part numbers and labels, and are
sold.
ISSUE:
What is the country of origin of Seagate's Hard Disk Drives and
Self-Encrypting Drives 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 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 C.F.R. Sec. 177.21. In this regard, CBP
recognizes that the Federal Procurement 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 Procurement Regulations
define ``U.S.-made end product'' as:
[A]n 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.
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 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 (Apr. 2, 1984), 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 . . . . [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); 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).
HQ H052325, dated February 14, 2006, 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
[[Page 51740]]
origin components, and that the United States was the country of
origin.
In HQ H175415, dated October 4, 2011, hardware components were
assembled into complete Ethernet switches in China. The switches
were then shipped to the U.S., where they were programmed with EOS
software, developed in the U.S. The U.S.-origin EOS software enabled
the imported switches to interact with other network switches
through network switching and routing, and allowed 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., CBP found that the imported switches were substantially
transformed in the U.S.
In HQ H215555 (July 13, 2012), fully assembled SheevaPlug
microcomputers were imported into the United States, where they were
programmed with Pwnie Express proprietary software developed in the
U.S. The custom software provided a web-based interface for
configuring the microcomputers into Pwn Plugs. In addition, the U.S.
software allowed Pwn Plugs to provide secure, persistent and
reliable remote access over a variety of network protocols and
customer environments. Without the U.S.-origin Pwnie Express
software, an imported microcomputer could not function as a Pwn
Plug. As a result of the programming performed in the U.S., with
software developed in the U.S., we found that the imported
microcomputers were substantially transformed in the U.S. and that
the country of origin of Pwn Plugs was the United States.
In this case, fully assembled digital storage devices are
imported into the United States. Mechanically, the HDDs consist of
magnetic heads and a PBC. Their purpose is to store data.
Accordingly, in their imported condition they are completely non-
functional, in that, their disk heads cannot move, they cannot store
or retrieve data, and they cannot be recognized or listed by a
computer or network. The imported HDDs only have a basic ability to
communicate through a serial port using a proprietary Seagate
protocol that is used solely to install firmware and to test the
devices. They are programmed in the U.S. with U.S.-origin Servo
firmware, which causes the HDD to function mechanically by
controlling the motors, preamp and servo mechanisms, which operate
the recording media and disk heads in the HDA. They are also
programmed in the U.S. with U.S.-origin Controller firmware, which
manages all communication between the host and target drives as well
as all data management within the drive. In particular, Controller
firmware allows data files to be stored on the recording media in
the HDA, found and listed within applications, and saved, retrieved
and overwritten. Together, the U.S.-origin firmware causes the
imported HDDs to function as digital storage devices. As a result of
the programming performed in the U.S., with software primarily
developed in the U.S., we find that the imported HDDs are
substantially transformed in the U.S. See Data General, C.S.D. 84-
85, HQ 215555, HQ 052325, HQ 558868, HQ 735027, and HQ 733085. The
country of origin of the HDDs is the United States.
Counsel also argues that SEDs are different products than
standard HDDs because they undergo an additional substantial
transformation. Specifically, counsel states that the U.S.-origin
security firmware with which HDD is programmed in the U.S. converts
a standard HDD into a SED, a controlled encryption device for U.S.
export control purposes. In addition, counsel states that the SED
performs different functions than a standard HDD, has different
labeling and part numbers, is marketed and sold in a different
market than the HDD (a separate portion of the Seagate website is
devoted to security devices such as SEDs), and is priced
differently. We agree. To the extent that the HDDs are programmed
with additional U.S.-origin security firmware, the country of origin
of the SEDs will be the United States.
Nonetheless, this determination concerns whether the HDDs and
SEDs are products 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. Consequently, the question of whether
additional programming performed in the U.S., using U.S.-origin
firmware incorporating an encryption code, transforms the HDD into a
SED subject to U.S. export control jurisdiction is outside the scope
of this determination.
Please be advised that whether the HDDs 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
Seagate's hard disk drives. As such, the HDDs are 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. 2013-20425 Filed 8-20-13; 8:45 am]
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