OT-RR:CTF:VS H052325 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 7800 Extension Switch and Brocade FX8-24 Extension Switch Blade
Dear Ms. Gleason and Mr. Seidel:
This is in response to your letter of February 11, 2009 on behalf of Brocade Communications Systems, Inc. (“Brocade”), requesting a ruling concerning the country of origin for marking purposes of the Brocade 7800 Extension Switch (“Brocade 7800”) and the Brocade FX8-24 Extension Switch Blade (“Brocade FX8-24”).
FACTS:
Brocade 7800
You describe the Brocade 7800 as follows. It combines Fibre Channel switching and routing capabilities with powerful hardware-assisted Fibre Channel over Internet Protocol (“FCIP”) traffic forwarding over IP-wide area networks (“WAN”). The Brocade 7800 features 16 8Gb/s Fibre Channel ports and 6 1 Gigabit Ethernet ports and is an ideal solution for remote storage and SAN connectivity. It integrates a variety of best-in-class capabilities, such as fibre channel routing, Storage Optimized TCP (“SO-TCP”), hardware-based compression, write and read acceleration for disk and tape, IP Security (“IPSec”) encryption, trunking and adaptive rate limiting to deliver a high-performance, highly reliable, and secure distance-connectivity solution. The Brocade 7800 is strategic for a variety of IT initiatives, including business continuance, site mirroring, replication, and data migration across virtually unlimited distances.
You describe the various operations for the Brocade 7800 that occur in China and the United States as follows.
Operations Performed in China – Brocade 7800
1. A bare printed circuit board is populated with various electronic components to form a printed circuit board assembly ("PCBA"). Diagnostic software is downloaded onto the PCBA. The basic diagnostic software enables functional testing of the PCBA and chassis hardware. The basic diagnostic software also allows limited diagnostic test information to travel to and from the ports on the PCBA to the automated test equipment (“ATE”) interface where the unit is functionally tested.
2. The PCBA undergoes a series of standard battery tests to ensure its functionality and the proper operation of its components, connections, and circuitry. Examples of such tests are the In Circuit Test ("ICT") and the Environmental Stress Screen ("ESS").
3. The two power supplies with integral fans (made in either China or Thailand) and an A/C filter assembly (made in either Canada or Mexico) are assembled into the chassis.
4. The PCBA is installed into the chassis base.
5. The console port connector (RJ45) is installed and the interconnect cables are assembled to the chassis bottom.
6. The dummy cover is installed for testing.
7. Serial numbers from the PCBA and power supply are collected and appended to the unit serial number in a data tracking system.
8. A “system test” and a “run in” test are performed using ATE scripts and diagnostics software.
9. The dummy cover is removed. The tested chassis is put into a plastic electrostatic sensitive device (“ESD”) bag for shipping.
Operations Performed in the United States – Brocade 7800
1. Upon completion of the foregoing initial testing procedures, the U.S.-origin Brocade Fabric OS (FOS) software, which has been developed in the U.S. at a significant cost to Brocade, is downloaded into a 1 GB compact flash memory integrated 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 specified firmware and software configurations are loaded and the final systems tests are performed.
5. Dust caps are placed on the connectors and ports.
6. Final quality assurance tests are performed and final system configuration is recorded including all assembly and serial numbers.
7. 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.
Brocade FX8-24
You describe the Brocade FX8-24 as follows. The Brocade FX8-24 combines Fibre Channel switching and routing capabilities with powerful hardware-assisted FCIP traffic forwarding over IP WAN. It features 12 8Gb/s Fibre Channel ports, 10 1 Gigabit Ethernet ports and 2 10 Gigabit Ethernet ports. The Brocade FX8-24 integrates a variety of best-in-class capabilities, such as Fibre Channel routing, SO-TCP, hardware-based compression, write and read acceleration for disk and tape, IPSec encryption, trunking and adaptive rate limiting to deliver a high performance, highly reliable, and secure distance-connectivity solution. The Brocade FX8-24 is strategic for a variety of IT initiatives, including business continuance, site mirroring, replication, and data migration across virtually unlimited distances.
Operations Performed in China – Brocade FX8-24
1. A bare printed circuit board is populated with various electronic components to form a PCBA. Diagnostic software is downloaded onto the PCBA. The basic diagnostic software enables functional testing of the PCBA and chassis hardware. The basic diagnostic software also allows limited diagnostic test information to travel to and from the ports on the PCBA to the ATE interface where the unit is functionally tested.
2. The PCBA then goes through an X-ray inspection test.
3. The PCBA is then tested for internal continuity ICT.
4. Some minor pre-assembly is done to install heat sinks and/or SFP (small form-pluggable device) cages.
A quality control check is performed.
6. The PCBA now goes through a mechanical assembly process where metal pans are added for further configuration and protection.
7. A series of additional tests (Board Functional Test (“BFT”) and Environmental Stress Screening (“ESS”)) are performed for further assurance of quality standards.
8. Final quality assurance is done and the PCBA is packed for shipment overseas.
Operations Performed in the United States – Brocade FX8-24
1. The PCBA is assembled into a larger chassis in the mechanical assembly station.
2. A “hi-pot” test is performed per safety agency standards and requirements.
3. The complete chassis is run in tested for 24 hours at 45 degrees Celsius.
4. After a successful run in test, the PCBA is removed from the chassis.
5. Upon completion of the foregoing initial testing procedures, the U.S.-origin Brocade Fabric OS (FOS) software, which has been developed in the U.S. at a significant cost to Brocade, is downloaded into a 1 GB compact flash memory integrated circuit on the PCBA.
6. The PCBA is configured to OEM requirements. Customer specific firmware is downloaded and a final test is performed in a dummy chassis.
The final quality assurance inspection is performed.
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 7800 and Brocade FX8-24 and that such characteristics are imparted by the U.S.-origin software and firmware that is loaded in the United States. Additionally, you state the software 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 7800 and Brocade FX8-24 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. As a result of this programming operation, only Brocade approved or developed reprogramming operations may be performed upon the completed system during the normal course of operation such as updating the installed software/firmware base to a different revision of the proprietary system or entering customer purchased licensing keys which enable the activation of additional hardware and software features that are already present and preloaded into the system.
ISSUE:
What is the country of origin of the Brocade 7800 and the Brocade FX8-24 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 7800 and the Brocade FX8-24 is whether its components of foreign origin are substantially transformed as a result of the operations performed in the United States.
You state that it is your view that the country of origin of the Brocade 7800 and FX8-24 will be the United States, the country where the final assembly, software installation, programming, system testing with the FOS firmware and software occurs and that a substantial transformation occurs where these complex operations are performed.
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 (the predecessor provision 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 reasoning 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 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, dated February 14, 2006 and issued to Brocade, CBP ruled that the country of origin for marking purposes of the Brocade Silkworm SW 4100 Fibre Channel fabric switch for Storage Area Networks (“SW 4100”), was the United States. 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.
In HQ H006162, dated April 5, 2007, issued to Brocade with respect to its Brocade SilkWorm 5000 Fibre Channel Fabric Switch for Storage Area Networks (“Brocade SW 5000”), U.S.-developed software was downloaded in the U.S. onto the flash memory of the PCBA. CBP found that the processing in the U.S. resulted in a substantial transformation of foreign-origin components.
In the instant case, based on the totality of the circumstances and consistent with the pertinent authorities, we find that the processing performed in the United States, including the downloading of the FOS software (which was developed in the United States), results in a substantial transformation of the foreign-origin components. Therefore, pursuant to 19 U.S.C. § 1304, the country of origin for marking purposes of the Brocade 7800 and the Brocade FX8-24 is the United States.
HOLDING:
Based on the information provided, the processing performed in the United States, including the downloading of the FOS software (which was developed in the United States), results in a substantial transformation of the foreign-origin components. Therefore, pursuant to 19 U.S.C. § 1304, the country of origin for marking purposes of the Brocade 7800 and the Brocade FX8-24 is the United States.
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