OT-RR:CTF:VS H025023 GOB
Terrie A. Gleason, Esq.
Stuart P. Seidel, Esq.
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, DC 20006-4078
RE: 19 U.S.C. § 1304; Country of Origin Marking; Brocade 5000
Dear Ms. Gleason and Mr. Seidel:
This is in response to your letter of March 3, 2008 on behalf of Brocade Communications Systems, Inc. (“Brocade”), requesting a ruling concerning the country of origin for marking purposes of the Brocade 5000 Fibre Channel fabric switch for Storage Area Networks (“Brocade 5000”).
FACTS:
You state that the Brocade 5000 was formerly known as the SW5000, which was the subject of an advisory ruling in HQ H006162, dated April 5, 2007. At the time HQ H006162 was requested and issued, certain operations were to be performed in China and final assembly operations and software development were to be performed in the United States. Brocade has now decided to complete some of the Brocade 5000 operations in the Czech Republic, rather than the United States. The Brocade 5000 also has some additional features and added programming that were not included in the SW5000.
You advise that the Brocade 5000 belongs to Brocade's product line of SAN equipment, which is designed to provide an open and secure environment for rapidly growing mission-critical electronic storage applications. The Brocade 5000 allows 16, 24, or 32 port-conductivity, with 1, 2, or 4 gigabits per second line speed per port through auto-sensing of existing SAN environment configurations. The unit is shipped to customers with a minimum of 16 ports enabled. The additional 8 or 16 ports are activated through a software licensing upgrade. Through utilization of Brocade's Inter-Switch Link ("ISL") trunking, up to 32 gigabits per second is possible.
The SW5000 consists of a printed circuit board assembly ("PCBA”), chassis, top cover, power supplies with integrated fans, A/C line filter, the Brocade Fabric Operating System (“FOS”), and a suite of advanced software options. You state that the software is designed to boost transmission rates, provide additional security, increase reliability, and optimize fabric traffic management. The FOS software allows full backwards and forwards compatibility with other Brocade Silkworm switches and works with environments running Windows, Linux, UNIX, Solaris, and AIX. The PCBA will not function without the FOS software and firmware which is developed in the United States and will be loaded, integrated and tested in the Czech Republic.
You state that, similar to the SW4100 and the SW5000, the Brocade 5000 will be partially manufactured in China and assembled to completion with software and customer specified firmware loaded, safety and environmental testing, system test and integration, and final distribution taking place in another country. The Brocade 5000 serves the same functional purpose as the SW5000 with similar assembly operations occurring in China. The significant difference between the two is that the Brocade 5000 will be completed in the Czech Republic, rather than the United States, although you state that the FOS software was developed at considerable expense in the United States. In addition, 16 small-form factor pluggable transceivers (“SFPs”) will be installed. The U.S. developed software has been enhanced to provide support for these SPFs which were not included in the original country of origin submission for the SW5000, but were included in a submission for SW5300 (NY N017920, dated October 31, 2007).
You describe the various operations that occur in China, the United States, and the Czech Republic as follows.
China
1. A bare metal chassis bottom mechanical assembly is built.
2. A metal top cover is manufactured.
3. A bare printed circuit board is populated with various electrical components to form a printed circuit assembly ("PCA"). Diagnostic software is downloaded onto the PCA. The basic diagnostic software enables functional testing of the PCA and chassis hardware. The basic diagnostic software allows limited diagnostic test information to travel to and from the ports on the PCA to the automated test equipment (ATE) interface where the unit is functionally tested.
4. The PCA undergoes what is described as the standard battery of tests to ensure the functionality of its components, connections, and circuitry. Examples of such tests are the In Circuit Test ("ICT") and the Environmental Stress Screen ("ESS").
5. The two power supplies with integral fans (made in either China or Thailand) are assembled into the chassis.
6. The AIC filter (made in either Canada or Mexico) is installed into the chassis.
7. The PCA is installed into the chassis base.
8. The console port connector (RJ45) is installed
9. The interconnect cables are assembled to the chassis bottom.
10. The cover is installed for testing and shipping.
11. Serial numbers from the PCA and power supply are collected and appended to the unit serial number in a data tracking system.
United States
The FOS software is developed in the United States at a significant cost.
Czech Republic
1. Upon completion of the initial testing procedures, the US.-origin Brocade FOS software is downloaded into a 1 GB compact flash memory circuit on the PCBA.
2. Mechanical configuration is carried out as per individual customer requirements.
3. A "hi-pot" test is performed per safety agency standards and requirements.
4. Customer-specific firmware and software configurations are loaded and the final tests are performed.
5. Dust caps are placed on the connectors and ports, and an ethernet plug is installed on the console port connector.
6. Final quality assurance tests are performed and final system configuration is recorded including all assembly and serial numbers.
7. A minimum of 16 small form-factor pluggable transceivers (“SFPs”) are individually tested and installed into the unit in order to provide interfaces between the 5000 switch and external networks.
8. After completion of all assembly steps, software and firmware downloads, functional and environmental testing, final system testing, and quality assurance inspection, the completed products are packaged and prepared for domestic and international shipment.
You state that the units, as exported from China, lack the functional "intelligence" characteristics of the completed Brocade 5000s and that such characteristics are imparted by the U.S.-origin software and firmware that is loaded in the Czech Republic. Additionally, you state this provides the end product with its functionality, storage connectivity management potential, SAN fabric performance monitoring capability (for example, the ability to control multiple switches from a central point), network security and access control, and other features that enable the Brocade 5000 to function as a fully configured network switch. With regard to the programming operations, you indicate that such programming generates a permanent change in the PCBA that cannot be undone by third parties during the normal course of operation. In this respect, we are advised that the only reprogramming operations that may be performed upon the completed product during the normal course of operation include either updating the installed software to a different Brocade proprietary system or entering licensing keys, which enable the activation of additional software features that are already present and preloaded into the system.
You state: “Based upon the similarity in both function and assembly process, it is our view that the country of origin of the Brocade 5000, like that of the SW5000 and the SW5300, will be the country where the final assembly, software installation, programming, system testing with the FOS firmware and software occurs and that substantial transformation occurs where these complex operations are performed. In the case of the Brocade 5000, this will be the Czech Republic, unless CBP concludes that because of the importance of the FOS, the origin of the FOS software determines the origin, in which case the United States would be the origin.”
ISSUE:
What is the country of origin of the Brocade 5000 for purposes of 19 U.S.C. § 1304?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. § 1304), provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit, in such manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article.
Part 134, Customs and Border Protection (“CBP”) Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. Section 134.1(b), CBP Regulations (19 CFR § 134.1(b)), defines the country of origin of an article as the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the country of origin for country of origin marking purposes.
Thus, the critical issue in determining the country of origin of the Brocade 5000 is whether its components of foreign origin are substantially transformed as a result of the operations performed in the Czech Republic.
In determining whether a substantial transformation has occurred, the courts and CBP consider the programming operations performed to analyze the extent of processing performed. In Data General v. United States, 4 Ct. Int'l Trade 182 (1982), the court found 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 Programmable Read-Only Memory ("PROM") chip, substantially transformed the PROM into a U.S. article. The court noted that it is undisputed that programming alters the character of a PROM, effecting a physical change. The essence of the article, its interconnections or stored memory, is 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 constituted "substantial transformation."
CBP has employed similar rationale in several analogous rulings. In HQ 563012, dated May 4, 2004, CBP considered whether components of various origins were substantially transformed when assembled to form a fabric switch. This product was similar to the product in the instant case in that it involved the combination of computer hardware and software. Most of the assembly of the hardware was performed in China. Then, in either Hong Kong or the United States, the hardware was completed and the U.S.-origin software was downloaded onto the hardware. CBP noted that the U.S.-developed software provided the finished product with its "distinctive functional characteristics" and concluded that the product was substantially transformed in the United States, where the fabric switch was assembled to completion in the United States. In the scenario where the fabric switch was assembled to completion in Hong Kong, CBP determined the origin for marking purposes was Hong Kong.
In HQ 968000, supra, CBP ruled that the country of origin for marking purposes of the SW 4100, an earlier version of the product in the instant case, was the United States. Like the Brocade 5000 and the SW5000, the assembly of the hardware for the SW 4100 occurred in China. Then, the resulting electromechanical assembly was shipped to the United States, where U.S.-origin software was installed, configured, and tested. As in the instant case, the U.S.-origin software imparted the functional characteristics of the end product.
As you point out, supra, the Brocade 5000 serves the same functional purpose as the SW5000, which was the subject of HQ H006162, with similar assembly operations occurring in China. The significant difference between the two is that the Brocade 5000 will be completed in the Czech Republic, rather than the United States, although the FOS software was developed in the United States. In addition, 16 small-form factor pluggable transceivers (“SFPs”) will be installed. The U.S. developed software has been enhanced to provide support for these SPFs which were not included in the original country of origin submission for the SW5000. In HQ H006162, CBP found that the processing performed in the United States resulted in a substantial transformation. See also, HQ 558868, dated February 23, 1995 (programming of Secure ID 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, September 7, 1993, (programming blank media with instructions that allow the media to perform certain functions of preventing piracy of software constituted substantial transformation); and HQ 732870, dated March 19, 1990 (formatting a blank diskette did not constitute a substantial transformation because it does not add value, does not involve complex or highly technical operations and does not create a new or different product). Accordingly, the programming of a device that changes or defines its use generally constitutes substantial transformation.
Based on the totality of the circumstances and consistent with the pertinent authorities, we find that the processing performed in the Czech Republic, including the downloading of the FOS software, results in a substantial transformation. Therefore, based upon the facts presented, pursuant to 19 U.S.C. § 1304 the country of origin for marking purposes of the Brocade 5000 is the Czech Republic.
HOLDING:
Based on the information provided, the processing performed in the Czech Republic, including the downloading of the FOS software, results in a substantial transformation. Therefore, pursuant to 19 U.S.C. § 1304 the country of origin for marking purposes of the Brocade 5000 will be the Czech Republic.
A copy of this ruling letter should be attached to the entry documents filed at the time the subject goods are entered. If the documents have been filed without a copy, this ruling letter should be brought to the attention of CBP.
Sincerely,
Monika R. Brenner
Chief
Valuation & Special Programs Branch