OT:RR:CTF:VS H107335 HkP
Stuart P. Seidel, Esq.
Baker & McKenzie LLP
815 Connecticut Avenue, NW
Washington, DC 20006-4078
RE: Request for Final Determination on the Country of Origin of APC InfraStruXure® Solutions and of certain Units
Dear Mr. Seidel:
This is in response to your letter dated May 19, 2010, requesting a final determination on behalf of APC by Schneider Electric (“APC”), 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. 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 APC’s “InfraStruXure®” Solutions (“ISX”) that are assembled at customer’s premises to provide uninterruptible power supplies (UPS). This final determination also concerns certain individual units of the ISX: (1) the Symmetra PX UPS, and (2) the Symmetra MW UPS. At your request, the final determination on the Rack Enclosures/Assemblies for the ISX, when imported separately, will be addressed in other correspondence. We note that as a U.S. manufacturer, producer and/or importer of the named products, APC is a party-at-interest within the meaning of 19 C.F.R. § 177.22(d)(1) and is entitled to request this final determination. Photographs were submitted with your request.
FACTS:
According to the information submitted, an ISX provides a systematic approach to building data center infrastructure utilizing standardized and reassembled components. They can be contained in a wiring closet, computer room, or a small, medium or large data center. In this case, the ISX incorporates UPS units (either Symmetra PX UPS or Symmetra MW UPS), power distribution units (PDUs), cooling or chilling units such as computer room air conditioners and InRow Cooling Units, Rack PDUs, Rack Assemblies and Enclosures, and a thermal containment system. The units will be integrated and monitored by the NetBotz and InfraStruXure Central Security environmental appliances and centralized management systems. These items are independently shipped and are assembled at the end user’s (customer’s) premises in the United States.
Every ISX in the U.S. is designed by certified APC sales/systems engineers based in the U.S. The design process involves site visits, surveys and audits of the customer’s facility and can take from several hours to several days. Once the customer’s requirements are known and the components imported, the systems are assembled, configured, networked, programmed and integrated by APC field service engineers at the customer’s facility. This process can take from several hours for small systems to several weeks for large systems and must be performed by trained technicians and licensed electricians.
InfraStruXure Solution (ISX)
For purposes of this request, “typical” small, medium and large ISX have been described as having the following units (described infra).
Small system:
1 40 kW N+1 Symmetra PX UPS
1 40 kW InfraStruXure PDU with pre-fabricated circuits
10 NetShelter SX enclosures
20 Rack power distribution units
4 InRow RD air-cooled cooling units and condensers
4 NetBotz security and environmental appliances
1 InfraStruXure central basic monitoring/management system
Start-up, assembly and configuration services
Programming, assembly and installation of a small system typically take three days to complete.
Medium system:
1 250 kW Symmetra PX UPS
1 288 kW InfraStruXure PDU with pre-fabricated circuits
50 NetShelter SX enclosures
50 Rack power distribution units
16 InRow RC water-cooled cooling units and chillers
17 NetBotz security and environmental appliances
1 InfraStruXure central basic monitoring/management system
Start-up, assembly and configuration services
Programming, assembly and installation of a medium system typically take five to seven days to complete.
Large system:
1 1000 kW (1 MW) Symmetra MW UPS
16 288 kW InfraStruXure PDU with pre-fabricated circuits
200 NetShelter SX enclosures
200 Rack power distribution units
64 InRow RC chilled water-cooled cooling units and chillers
68 NetBotz security and environmental appliances
1 InfraStruXure central basic monitoring/management system
Start-up, assembly and configuration services
Programming, assembly and installation of a large system typically take 12-15 days to complete.
Units
As noted above, the ISX is comprised of various units. One unit, a UPS, is described as power protection for servers and voice and data networks. Specifically, the Symmetra PX UPS is a modular system made up of dedicated and redundant modules: power, intelligence, battery, and bypass. Its architecture can scale power and runtime as demand grows or as higher levels of availability are required. The Symmetra PX is referred to as a “family” as it is available in different sizes. It serves as the core powertrain that drives the APC InfraStruXure systems for small and medium data centers but can also power individual zones of larger data centers. It has self-diagnostic capabilities and standardized modules which mitigate the risk of human error.
The UPS modules for the Symmetra PX are assembled in the Philippines. The total assembly time depends on the specific modules or components to be included. Power modules are the main component and take approximately one hour to be assembled. Subcomponents require under an hour to be assembled and the UPS frame takes approximately two hours to be assembled. The assembly operation involves soldering, welding, and the installation of firmware (programming instructions stored in the read only memory (ROM) rather than being implemented through software) at the board and module levels. The firmware provides the functionality for diagnostic testing. Fully functioning firmware is installed in the United States after complete assembly and integration of the full system at the end user’s premises. Also installed in the Philippines is a version of the operating system (OS) developed in the U.S., Denmark and Ireland. However, the OS is configured to the customer’s requirements at the customer’s premises in the U.S. when the system is assembled to completion. This configuration is a separate step from the system configuration that is required at the time of start up.
The components of the Symmetra PX UPS unit are imported from the Philippines in basic modules and take about one to three days to be assembled. The technicians inspect the components, assemble the modules, level the UPS enclosure/frame, and connect the UPS units to the frame and to other components in the system through cables and other wiring (ground and control). In order to physically attach the UPS enclosure to other enclosures, the side panels of the UPS enclosure, which has no wiring knock-outs, must be swapped with the opposite side panels from the PDU and XR Battery enclosures. In addition, the battery enclosure communication cables must be connected and the XR frame addresses selected, and the control wiring between the PDU and UPS and between various boards and enclosures must be installed.
Symmetra MW UPS – a high-power fault-tolerant UPS in the 400-1600 kW range. It is designed for large data centers, complete buildings, healthcare and other critical facility protection requirements. As with the Symmetra PX, the MW UPS is available in different sizes. It can be scaled for rigorous and changing electrical demands and provides increased availability through internal N+1 configurability, predictive failure notification and multi-module paralleling features. It features slide-in/out power modules, manageable external batteries and self-diagnosis, can be combined with a wide range of line-up and match options, and is a customizable system in a standardized design for any large on-demand network-critical physical infrastructure.
The main components of the Symmetra MW are assembled in India by soldering, welding and screwing. Each module takes two to three days to be completed. In the U.S., certified technicians assemble the full system to completion at the customer’s premises from the basic modules assembled in India. The installation of the complete system takes seven to 10 days for a two-man crew. As described above in relation to the assembly of the PX UPS, technicians inspect the components, assemble the modules, level the UPS enclosure/frame, and connect the UPS units to the frame and to other components in the system through cables and other wiring. Firmware, partly developed in the United States, is stored and updated on an internal memory chip in the UPS unit and is custom configured in the U.S. during installation based on the options required for that particular installation.
Power Distribution Unit (PDU) - the PDU has a logic controller which serves as the PDU’s brain. It includes a network management card, the input/output contacts and the memory chips for the PDU firmware. The logic card is located in the Row PDU and not in the UPS.
Row PDU – a modular power distribution unit mitigates the need to predict the future requirements and configurations of an end user’s data center. It enables rapid expansion or reconfiguration through expansion modules (including circuit breaker, power cord, and power connection) which can be plugged into a touch-safe backplane in minutes, eliminating the need for risky hot work and shielding users from dangerous amperage. It also features output metering, branch current/circuit monitoring and auto-detection by the InfraStruXure suite of management options. The Modular Remote Power Panel and Row PDU are manufactured in the Philippines, while the distribution modules are manufactured in the United States.
Rack PDU - provides power distribution via a single input with multiple output receptacles and distributes power from low amperage single phase circuits to higher power 3-phase solutions. Rack PDUs are available in basic, metered and switched versions.
Most component parts are manufactured in India and China and a small number in the United States and European Union countries. Complete testing of each part is performed in the country of manufacture. Firmware for diagnostic testing is developed in the U.S. but used in the country of manufacture. After testing, it is removed and replaced with firmware for operations, which is developed in the U.S. and India. Final configuration for the metered and switched versions of the Rack PDU is performed at the customer’s premises in the U.S.
NetShelter SX Rack Enclosure – rack enclosures/assemblies have a strong focus on cooling, power distribution, cable management, and environmental monitoring. Their main components are: a vertical cable organizer, split doors, side panels with locks (and keys), frame posts, adjustable leveling feet, casters, a reversible curved door, vertical mounting flanges, a 1070-mm roof, and a 1200-mm roof. The hardware necessary to assemble the pieces together is: plastic cup washers, M6 x16 Phillips slot screws, M5 x12 screws, cage nuts, and 7-mm hole plugs.
The main components are mostly sourced in China and account for 25.3% of the enclosures and 90% of their cost. Some of the minor components, such as bolts, washers, hole plugs and cable ties, come from suppliers in the U.S., as do labels, packaging sheets, product literature, warranty cards, and installation manuals. Shipping and packaging materials for the enclosures, such as corner
posts, a pallet, and fork-lift guards are also sourced in the U.S. Together, these U.S.-sourced materials account for 68.7% of the total material used in the assembly of rack enclosures and 8.4% of their cost. The remaining components are from Germany and Korea.
The rack assemblies are imported unassembled and are assembled in the U.S. by teams of six people. Final set-up is at the customer’s premises and involves unpacking, setting in place and setting-up for the mounting of equipment – lowering of leveling feet, screwing and otherwise assembling together vertical and horizontal pieces, resetting the mounting rail depth, attaching grounding to the enclosure, securing the enclosures to the floor and, when attaching two or more enclosures together, baying them in a row. Based on the diagrams submitted, a fully assembled enclosure resembles a large rectangular three-dimensional frame, with panels on two opposing sides and on the top but not on any of the remaining three sides (including the side secured to the floor). Set-up takes between 15 minutes and two hours per enclosure, depending on customer requirements.
InRow Cooling Units - prevents hot air recirculation from IT loads while improving cooling predictability and allowing for a “pay as you grow” environment. The units are available with and without humidity control and are designed to meet the diverse requirements for medium to large data centers. They are assembled in China and firmware, designed in the U.S. but installed in China, is used in the units. The firmware is upgraded when the unit is installed in a completed system at the customer’s premises in the U.S. Installation of the unit requires on-site piping and connection to building systems.
InRoom Cooling Units - offer cooling solutions for lower density racked and non-racked IT loads as well as a flexible, assemble-to-order solution that provides variable fan technology and intelligent control for greater efficiency. They are manufactured in the United States using processes involving sheet metal work, soldering, brazing, and welding. The units use firmware developed and installed in the United States.
Chillers - air-cooled chillers are used for large data center environments. They are manufactured in the U.S. in a process that involves brazing and/or welding. The chillers use firmware that completely controls the chiller and that interfaces with building management and other systems.
Thermal Containment System - available in rack or aisle level configurations and is designed to completely separate the supply and return air paths of IT equipment. Thermal containment is available for 300 mm, 600 mm and 750 mm wide NetShelter Racks, UPS and PDU units, and InRow Cooling products. The units are manufactured in Canada and require additional assembly at the customer’s premises.
NetBotz and InfraStruXure Central - a management system that provides a centralized dashboard to the client’s InfraStruXure system and offers features such as a centralized repository, trending, alerting, alarming and escalation. The units are manufactured in the Philippines and India and have printed circuit board (PCB) and sheet metal components. Firmware, which is installed in India or in the Philippines, is designed in the U.S. and can be further tailored to meet customer requirements on installation by APC trained engineers. Additional assembly is required at the customer’s premises.
Assembly and Installation
The assembly and installation process for an ISX in the U.S. is as follows:
Position the ISX power system, UPS and external battery cabinets in accordance with the site plan;
Assemble racks and enclosures;
Install all applicable system modules and rack mounted devices;
Ensure that the enclosures are aligned, leveled, and the brackets tightened; verify rack mounted ISX distribution systems are installed to manufacturer specifications;
Install NetShelter accessories (cabling, troughs, ladders, baying units);
Route all power cabling through the troughs;
Install data distribution system including cable heads and data distribution panel;
Move cooling system into place and assemble ductwork;
Install PEX flexible fluid piping, terminate connections, check for leaks;
Mount any remote sensors;
Install cooling system modules and rack mounted devices; and
Unpack management components and mount devices in the rack, install data cabling to all devices to be managed.
All firmware is proprietary to APC and is developed by APC in the United States, Denmark, and Ireland. Each release costs significant amounts of money and requires several thousand man-hours to develop. It takes trained and certified technicians several hours to install and configure the firmware at customers’ premises.
LAW AND ANALYSIS:
Pursuant to Subpart B of Part 177, 19 CFR § 177.21 et seq., which implements Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. § 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. § 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. § 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. § 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. § 25.403(c)(1).
You contend that the final assembly, integration, configuration or programming results in a substantial transformation in the U.S., in which the individual modules, components, parts and accessories are substantially transformed into a new end product (“ISX”).
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 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 alters 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 determining whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 573 F. Supp. 1149 (Ct. Int’l Trade 1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). See also Carlson Furniture Industries v. United States, 65 Cust. Ct. 474, 482 (1970) (“And the end result of the activities performed on the imported articles … is the transformation of parts into a functional whole – giving rise to a new and different article within the principle of the Gibson-Thomsen case.”) Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation.
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 HQ 559255, dated August 21, 1995, a device referred to as a “CardDock” was under consideration for country of origin marking purposes. The CardDock was a device which was installed in IBM PC compatible computers. After installation, the units were able to accept PCMCIA cards for the purpose of interfacing such PCMCIA cards with the computer in which the CardDock unit was installed. The CardDock units were partially assembled abroad but completed in the United States. The overseas processing included manufacturing the product’s injection molded plastic frame and installing integrated circuits onto a circuit board along with various diodes, resistors and capacitors. After such operations, these items were shipped to the United States for further processing that included mating a U.S.-origin circuit board to the foreign-origin frame and board. The assembled units were thereafter subjected to various testing procedures. In consideration of the foregoing, CBP held that the foreign-origin components, i.e., the ISA boards, frame assemblies and connector cables, were substantially transformed when assembled to completion in the United States. In finding that the name, character, and use of the foreign-origin components had changed during processing in the United States, CBP noted that the components had lost their separate identity during assembly and had become an integral part of a new and distinct item which was visibly different from any of the individual foreign-origin components.
In HQ 735027, dated September 7, 1993, a device that software companies used to protect their software from piracy was under consideration for country of origin marking purposes. The device, referred to as the “MemoPlug”, was assembled in Israel from parts that were obtained from Taiwan (such as various connectors and an Electronically Erasable Programmable Read Only Memory, or “EEPROM”) and Israel (such as an internal circuit board). After assembly, these components were shipped to a processing facility in the United States where the EEPROM was programmed with special software. Such processing in the United States accounted for approximately 50 percent of the final selling price of the MemoPlugs. In finding that the foreign-origin components were substantially transformed in the United States, CBP noted that the U.S. processing transformed a blank media, the EEPROM, into a device that performed functions necessary to the prevention of software piracy.
In Headquarters Ruling Letter (HQ) 563012, dated May 4, 2004, CBP considered whether components of various origins would be substantially transformed when assembled to form a fabric switch. Most of the assembly of computer hardware was to be performed in China. Then, in either Hong Kong or the U.S., the hardware would be completed and the U.S.-origin software, which would provide the finished product with its "distinctive functional characteristics," would be downloaded onto the hardware. In the scenario where the fabric switch would be assembled to completion in Hong Kong and the software downloaded to the switch in that country, CBP determined that the country of origin for marking purposes would be Hong Kong. Likewise, were assembly and configuration to take place in the United States, CBP concluded that the country of origin would be the U.S.
InfraStruXure Solutions
We note that while several subassemblies and components are manufactured in other countries, after importation these individual units are assembled into systems at the customer’s premises in the United States by trained technicians. As discussed below, several of the units comprising the ISX undergo assembly and programming in the U.S. Further, some of the units, the InRoom Cooling Units and Chillers, are entirely manufactured in the U.S. As a part of the assembly and installation process, the diagnostic firmware present in many of the units (UPS, Rack PDU, InRow Cooling units, NetBotz and InfraStruXure Central) is either replaced or upgraded, that is, the systems are programmed to perform their operational function by trained technicians. Most of the design and a high percentage of the original firmware and OS programming are developed in the U.S. See FACTS supra. Depending on the size of the system, programming, assembly and installation generally take from three to 15 days to complete.
As a result of the assembling, programming and installation of the units by highly trained APC technicians that takes place after importation, we agree with your contention that the units are substantially transformed in the U.S. from non-functional or partly functional devices into an intelligent and fully functional network or data center UPS system. Consequently, the country of origin of the typical small, medium and large InfraStruXure Solutions will be the United States.
In addition, you seek a final determination on certain units that may be sold separately (most likely as add-ons after the ISX has been in use for a while, but sometimes as replacement units).
Symmetra PX UPS and Symmetra MW UPS
After importation, the components of the UPS units (power, intelligence, battery, and bypass/static switch modules) must be assembled together in the UPS frame by trained technicians. Both models of UPS units are imported with firmware installed for diagnostic testing. In addition the Symmetra PX UPS is imported with a version of the operating system which APC technicians configure
to the customer’s requirements. APC technicians also install fully functional firmware onto both models of UPS units after complete assembly and integration into the full ISX system at the customer’s premises. Assembly, installation and programming take between one and 10 days depending on the model of UPS unit.
Given the complexity of the devices and of the mechanical and electrical connections which must be made in the U.S. by highly trained technicians, and the fact that the units will be programmed in the United States using firmware developed in part in the U.S., we find that both models of UPS units would be substantially transformed in the United States and that the U.S. would be their country of origin. See Data General and Belcrest Linens, supra.
HOLDING:
Based on the facts provided, the assembly and programming operations performed in the United States on the units of the ISX give rise to a new and different article (an ISX) and impart the essential character of the ISX. Likewise, the assembly and programming operations performed in the United States on the components of the UPS units of the ISX give rise to a new and different article (a UPS unit). As such, the ISX and the UPS units described in this ruling are to be considered products of the United States for purposes of government procurement.
Notice of this final determination will be given in the Federal Register, as required by 19 C.F.R. § 177.29. Any party-at-interest other than the party which requested this final determination may request, pursuant to 19 C.F.R. § 177.31, that CBP reexamine the matter anew and issue a new final determination. Pursuant to 19 C.F.R. § 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