MAR-2-05 RR:CR:SM 563012 EAC
Ms. Monika Sandman
URUSAN Consulting
20063 La Roda Ct.
Cupertino, CA 95014
RE: Country of origin marking requirements applicable to the Brocade Silkworm 3200 Fabric Switch for Storage Area Networks; substantial transformation; China; Hong Kong; United States; 19 U.S.C. §1304
Dear Ms. Sandman:
This is in response to your letter, dated December 18, 2003, in which you requested a ruling on behalf of Brocade Communications Systems, Inc. (hereinafter “Brocade”), pertaining to the country of origin marking requirements applicable to the Brocade Silkworm 3200 Fabric Switch for Storage Area Networks (hereinafter the “SW 3200”) which is partially manufactured in China and assembled to completion in either Hong Kong or the United States. In making our determination, we have considered additional information provided by your supplemental letter of February 13, 2004, as well as the facsimiles of March 9 and April 2, 2004.
FACTS:
Citing Newton’s Telecom Dictionary, 18th Edition, you state that for purposes of this case the terms “fabric” and “storage area network” are defined as follows.
Fabric is a descriptive term referring to the physical structure of a
switch or network. Much like a piece of cloth, physical/logical
communication channels (threads) are interwoven from port-to-port
(end-to-end). Ideally data are transferred through this switch or
network on a seamless basis.
SAN (Storage Area Network) is a special purpose high-speed
network designed to transport database-intensive applications. A
SAN generally is in the form of a sub-network that is part of a
larger LAN (Local Area Network).
It is stated that Brocade storage area network (hereinafter “SAN”) equipment is designed to provide an open and secure environment for mission-critical electronic storage applications. The specific product under consideration in this case, the SW 3200, is described as an 8-port, 1 gigabit and 2 gigabit per second auto-sensing entry fabric switch that significantly increases the performance and functionality of small to medium sized SANs. The SW 3200 consists of a printed circuit board assembly (hereinafter “PCBA”), chassis, top cover, power supply, fans, A/C filter, fabric operating system (hereinafter “FOS”) and a suite of advanced software options. The software is designed to boost transmission rates, provide additional security, increase reliability, and optimize fabric traffic management. The SW 3200 is partially manufactured in China and assembled to completion in either Hong Kong or the United States.
You have described the various operations which occur in China and either Hong Kong or the United States as follows:
China
A bare metal chassis bottom mechanical assembly is built.
A metal top cover is manufactured.
A bare printed circuit board is populated with various electronic components to form a PCA. Diagnostic software is downloaded on the PCA, endowing the board with the necessary software to enable the testing of the hardware. The diagnostic software allows limited information to travel to and from the ports on the board.
The board 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”).
The bottom metal chassis, top cover, and PCA are exported as three separate elements to either the United States or Hong Kong for further processing.
Hong Kong or the United States
The power supply (made in either Hong Kong or Thailand) is assembled into the chassis.
Five fans (made in China) are assembled into the chassis.
A/C filter (made in either Canada or Mexico) is assembled into the chassis.
The PCA is installed into the chassis base.
The dummy cover is installed for testing.
The DBP connectors are assembled.
The power supply connector is assembled.
The fan cables are connected.
The permanent cable is assembled to the chassis bottom.
Serial numbers from the PCA, fan tray, and power supply are collected and appended to the unit serial number in a data tracking system.
Upon completion of the forgoing procedures, U.S.-origin software, which has been developed at a significant cost to Brocade, is downloaded and the following testing operations occur:
A “system test” is performed using automated scripts and diagnostics software.
A “run in” test is performed, including an automated system test at elevated temperatures and an ongoing reliability test.
A “hi-pot” test is performed per safety agency standards and requirements.
Software configuration and the final tests are performed. First, the FOS is downloaded. Then a full suite of customer-selected software options are downloaded. A dust cap is put on the DB9 connector and an ethernet plug is installed on the RJ45 connector.
Final quality assurances are performed.
After software download and testing, the completed products are packaged and prepared for shipment.
You state that the PCBA, as exported from China, lacks the “intelligence” characteristics which are present in a completed Brocade SAN and that such characteristics are imparted by the U.S.-origin software and subsequent processing that occurs within either Hong Kong or the United States. Additionally, you state that the processing that occurs within Hong Kong or the United States provides the end product with storage connectivity management potential, SAN fabric performance monitoring capability (for example, the ability to control multiple switches from a central point), security and access control, and other features which enable the interaction of the product with other Brocade legacy equipment. With regard to the programming operations, we note that, in the above-referenced facsimile of March 9, 2004, you indicated that such programming generates a permanent change in the PCBA that cannot be undone by third parties during the normal course of business. In this respect, we are advised that the only reprogramming operations that may be performed upon the completed product during the normal course of business include either updating the installed software to a different Brocade proprietary or entering licensing keys which enable the activation of additional software features that are already present on the switch.
ISSUE:
For marking purposes, what is the origin of the SW 3200?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930 (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 its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. §1304 was that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. “The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will.” United States v. Friedlander & Co., 27 C.C.P.A. 297 at 302 (1940).
Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. §1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines “country of origin” 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” within the meaning of the marking laws and regulations. The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98)(1940), provides that an article used in manufacture which results in an article having a name, character, or use differing from that of the constituent article will be considered substantially transformed and, as a result, the manufacturer or processor will be considered the ultimate purchaser of the constituent materials. In such circumstances, the imported article is excepted from marking and only the outermost container is required to be marked. See, 19 CFR 134.35(a).
With respect to the products under consideration in the instant case, we note that U.S. Customs and Border Protection (“CBP”) has not previously considered whether components of various origins are substantially transformed when assembled to form fabric switches in the manner set forth above. However, CBP has considered whether components of various origins have been substantially transformed during the assembly of related products. Though such rulings may not be directly on point with the facts under consideration in the instant case, the guidance supplied by such cases may nonetheless be applied to resolve the issues presently before us. The determination will be in this instance “a mixed question of technology and customs law, mostly the latter.” Texas Instruments, Inc. v. United States, 681 F.2d 778, 783 (C.C.P.A. 1982).
In Headquarters Ruling Letter (“HRL”) 559255 dated August 21, 1995, a device referred to as the “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 within 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, capacitors and integrated circuits. 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, we held that the foreign-origin components were substantially transformed when assembled to completion within the United States. In finding that the name, character, and use of the foreign-origin components had changed during processing within the United States, we 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.
CBP has also considered a number of other cases pertaining to the substantial transformation of foreign-origin components used in the assembly of various electronic end products. See, for example, HRL 560427 dated August 21, 1997 (imported LCDs, described as the most important components of computer monitors, were substantially transformed into products of the United States when assembled with domestic components to form the monitors); HRL 559336 dated March 13, 1996 (foreign-origin components were substantially transformed into a product of the United States when combined with various U.S.-origin components to form desktop and notebook computers); and HRL 711967 dated March 17, 1980 (assembling Korean-origin circuit boards, power transformers, yokes and tuners with U.S.-origin wire within Mexico to form television sets substantially transformed the Korean- and U.S.-origin items into a product of Mexico).
In the instant case, we have been advised that the U.S.-origin software has been developed at a substantial cost to Brocade and that such software provides the SW 3200 with its distinctive functional characteristics. With respect to whether such considerations are relevant for purposes of our substantial transformation analysis, we direct your attention to HRL 735027 dated September 7, 1993. In HRL 735027, 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 Korea (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 within the United States where the EEPROM was programmed with special software. Such processing within the United States accounted for approximately 50 percent of the final value of the MemoPlugs. In finding that the foreign-origin components were substantially transformed within the United States, we 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.
As the cases set forth above demonstrate, 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, or use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, 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; however, no one factor is determinative.
In the instant case, we are presented with two production scenarios. In the first scenario, the fabric switches are assembled to completion within Hong Kong. Based upon the information before us, it is our opinion that, in such cases, the origin of the SW 3200 for marking purposes is Hong Kong. In making this determination, we note that in addition to actual assembly, the configuration and software download operations performed in Hong Kong transform the switch from a non-functional device into a fabric switch that is capable of performing various SAN related functions. Furthermore, it appears as if such configuration defines the character and use of the SW 3200. We further note that the software configuration and product testing processes require the use of expensive software and a relatively large labor commitment from Brocade. Therefore, under the specific circumstances of this case, we find that the origin of the SW 3200 under the first production scenario is Hong Kong.
Consistent with the foregoing, it is also our opinion that, when assembled to completion within the United States, the country of origin of the SW 3200 for marking purposes is the United States. In making this determination we note that the assembly processes that occur within the United States, coupled with the configuration operations that require U.S.-origin software, substantially transforms the components of foreign origin into a product with a new name, character, and use. Therefore, under the specific circumstances of this case, we find that the country of origin of the SW 3200 under the second production scenario is the United States.
Please be advised that whether the SW 3200 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 U.S., for sales both in the U.S. and abroad.
HOLDING:
Based upon the facts of this case, we find that, when assembled to completion within Hong Kong, the origin of the SW 3200 for marking purposes is Hong Kong. However, when assembled to completion within the United States, the country of origin of the SW 3200 for marking purposes is the United States.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs and Border Protection officer handling the transaction.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division