MAR-2-05 OT:RR:CTF:VS H089762 RSD
Robert T. Stack, Esq.
Tompkins & Davidson
5 Hanover Square
New York, NY 10004
RE: United States Government Procurement; Title III, Trade Agreements Act of 1979 (19 U.S.C. § 2511); Subpart B, Part 177, CBP Regulations; GTX Mobile+ Hand Held Computer; substantial transformation
Dear Mr. Stack:
This is in response to your letter dated July 18, 2008, requesting a final
determination on behalf of Psion Teklogix, Inc., (Psion) pursuant to subpart B of Part 177, Customs and Border Protection (“CBP”) Regulations (19 CFR § 177.21 et seq.). CBP issues country of origin advisory rulings and final determinations on whether an article is or would be a product of a designated country or instrumentality for the purpose of granting waivers of certain "Buy American" restrictions in U.S. law or practice for products offered for sale to the U.S. Government. We have received a supplemental submission from your office dated March 15, 2010.
This final determination concerns the country of origin of the GTX Mobile+ hand held computers (GTX Mobile). We note that Psion 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. 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:
The product at issue is the base model of the computer GTX Mobile. It is used to collect mobile data in the field, conduct emulation testing on site, and/or transmit data/test information to the user’s home facilities. The GTX Mobile is used in mobile–intensive applications such as asset tracking, meter reading and mobile ticketing across a variety of industries. The approximate exterior physical
dimensions of the GTX Mobile are 9 inches in length, with a width ranging from 3 inches at the grip area to approximately 3.9 inches at the display area, and a depth ranging from 1.2 inches at the grip to 1.7 inches at the display area. It is battery powered and the various sub-assemblies forming the computers are housed in a metal chassis and a plastic exterior.
You indicate that the federal government may want to purchase the GTX Mobile for various military initiatives and emergency operations where asset identification and inventory tracking are critical. An example of basic military use for the GTX Mobile may include tracking computers and peripherals that are sent overseas. Product literature was submitted with your request.
The GTX Mobile hand held computer consists of the following functional components:
A subassembly consisting of the main logic board and keyboard, each individually assembled in China, and joined to the metal chassis frame in China;
2. The LCD screen sub-assembly, assembled in Japan from primarily Japanese components, including a screen and a printed circuit board;
3. A data cable and speaker connector for the LCD display screen, of
Japanese origin;
4. An imager sub-assembly assembled in Canada using two PCB
boards (one is an interface board assembled in Canada, and the other is a decoder board that is assembled in the United States), a camera element (imager engine) manufactured in the United States, and various structural and connection components and plastic structural casing components;
An 802.11g radio modem assembled in Taiwan using components from
Japan, Israel, and the United States;
An RFID scanner made in Italy (currently an optional additional data gathering element).
In addition, construction of the unit requires a number of components, including;
A display bezel made in China, with a company logo added in the United States;
An end piece and battery cover from China;
A battery from Taiwan;
A stylus and stylus holder from China;
Optional accessories; and
A cover.
As noted above, the imager is assembled at a Psion subsidiary in Canada. The final assembly for the GTX Mobile takes place at Psion’s Canadian headquarters facility. Assembly of the imager per unit involves fifteen steps to assemble twelve components. The most important components are two PCB’s and engine.
The assembly process of the GTX Mobile in Canada involves internally developed product software applications to allow functionality of the main board, imager and radio. The parts are sent to the assembly cell units where the required assembly steps are completed. The physical assembly takes longer if alternative devices such as the RFID scanner with connection devices or other customer add-ons are included in the configuration.
The assembly includes attaching the keyboard bezel to the imported sub-assembly of the keyboard and main logic board, installing the data cable and speaker connector cable to both the LCD screen and the main logic board PCB in the chassis, assembling the LCD display screen to the chassis, installing the display bezel over the LCD portion of the chassis, pressing the display bezel into the housing, securing the bezel to the chassis with two screws, attaching the flex cable for the scanner imager to the 2D imager and the computer chassis, attaching the scanner console to the chassis, installing the radio card into the CF card slot, sliding the radio antenna for the radio into the housing slot, adding a stylus holder in the case housing, installing the end cap component, and installing the main battery.
Personnel begin software loading using internally developed fixtures and automated remote configuration software (variables affecting software versions loaded to particular computers include radio modem display version keyboard configuration, added devices such as RFID or other customer specifications),
which involves the installation of: (a) the Microsoft license for the Microsoft CE operation system; (b) Psion self-developed upgraded version of the Microsoft operating system; (c) Psion “Opentekterm” proprietary software package that renders the device operational; (d) security software for the device, (e) Fortress Technologies Secure Client security software; and Juniper Networks Odyssey Access Client FIPS and (f) Mobile Control Center Psion Tekogix’s proprietary device management software. The software download takes approximately four minutes. You indicate that in Canada, Psion has expended in excess of 150,000 hours in the development of its proprietary software code for its line of mobile hand held computers, at a considerable cost. It continues to expend significant sums annually in upgrading versions of the terminal emulation software of communication software to enhance performance of the product and to assure compatibility with component improvements.
After the software is loaded, final functional testing is done for functional compatibility. These tests are managed by the internally developed Automated Remote Configuration software application. After testing, the unit is subject to a variable lot control reporting process which records all the configuration and software elements for the unit with the product serial code into a company record system.
The testing and assembly line operation involves two Active
Remote Configuration (ACR) test experts, four manufacturing engineering and
sixteen assembly technicians. The four manufacturing engineering and two ARC testing experts are responsible for the assembly guides and software download configuration required for each individual product line. It generally involves somewhere between 200 and 300 hours of personnel time per product line.
ISSUE:
What is the country of origin of the GTX Mobile hand computer for purposes of U.S. Government procurement?
LAW AND ANALYSIS:
Pursuant to Subpart B of Part 177, 19 C.F.R. § 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 on 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 CFR § 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 CFR § 25.403(c)(1).
Therefore, the question presented in this final determination is whether, as a result of the operations performed in Canada, the GTX Mobile computer will be substantially transformed into a product of Canada.
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, 6 Ct. Int’l Trade 204, 573 F. Supp. 1149 (1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). If the manufacturing or combining process is a minor one which leaves the identity of the imported article intact, a substantial transformation has not occurred. Uniroyal Inc. v. United States, 3 Ct. Int’l Trade 220, 542 F. Supp. 1026 (1982). Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See C.S.D. 80-111, C.S.D. 85-25, and C.S.D. 90-97.
In order to determine whether a substantial transformation occurs when components of various origins are assembled to form completed articles, CBP considers the totality of the circumstances and makes such decisions on a case-by-case basis. The country of origin of the article’s components, the extent of the processing that occurs within a given country, and whether such processing
renders a product with a new name, character, or use are primary considerations in such cases. Additionally, facts such as resources expended on product design and development, extent and nature of post-assembly inspection procedures, and worker skill required during the actual manufacturing process will be considered when analyzing whether a substantial transformation has occurred; however, no one such factor is determinative.
In several rulings, CBP has analyzed whether the assembly of electronic equipment such as computers and related devices from various components resulted in a substantial transformation of those components. For example, in Headquarters Ruling Letter (HQ) 735541 dated September 15, 1994, one of the two types of assembly operations described in the ruling involved inserting a floppy disk drive, VGA docking station board, keyboard, DC/DC converter, as well as a CPU, RAM, and a hard disk drive into an imported unfinished computer. In addition, a LCD display assembly and a plastic battery cover were attached into the computer. We noted that the assembly process involved several components and also included the assembly of the CPU, which allowed the computers to function. Consequently, we concluded that in combining these components in the production of a notebook computer, a new article of commerce was created that was separate and distinct from the individual components of which it was composed.
HQ 735608 dated April 27, 1995, involved various scenarios pertaining to the assembly of a desktop computer in the U.S. and the Netherlands. In one of the scenarios, foreign components assembled in the U.S. were the case assembly (including the computer case, system power supply and floppy disk drive), partially completed motherboard, CPU (which controls the interpretation and execution of instructions and included the arithmetic-logic unit and control unit), hard disc drive, slot board, keyboard BIOS and system BIOS (basic input and output system). Additional components manufactured in the U.S. or the Netherlands were assembled into the finished desktop computers depending on the model included an additional floppy drive, CD ROM disk, and memory boards. In that case, CBP found that the foreign case assemblies, partially completed motherboards, hard disk drives and slot boards underwent a change in name, character and use as a result of the operations done in the U.S. and that the components lost their separate identities in becoming an integral part of a desktop computer. CBP noted that the finished article, a desktop computer, was visibly different from any of the individual foreign components, acquiring a new use, processing and displaying information. Accordingly, CBP held that the individual components underwent a substantial transformation as a result of the operations performed in the U.S. See also HQ 559336 dated March 13, 1996, in which CBP also determined that foreign components, such as clamshell base, LCD video display, hard disk drive, floppy disk drive, AC power adapter were substantially transformed by the processing and assembly operations performed in the United States; and HQ 560633, dated November 17, 1997.
In this case, in addition to the components and parts being assembled in Canada, the GTX Mobile hand computers are programmed in Canada by the installation of Canadian developed software onto the devices. In Data General v. United States, 4 Ct. Int'l Trade 182 (1982), the Court of International Trade 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 was undisputed that programming altered the character of a PROM, effecting a physical change. 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 constituted "substantial transformation. After the Data General decision, in a number of previous rulings, CBP has considered whether the programming devices and electronic equipment constitutes a substantial transformation of such devices.
In HQ 735027, dated September 7, 1993, CBP considered a "MemoPlug," used to protect software from piracy. It was assembled in Israel from Taiwanese parts (such as various connectors and an Electronically Erasable Programmable Read Only Memory, or "EEPROM") and Israeli parts (such as an internal circuit board). After assembly, the EEPROM was programmed in the U.S. 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.
HQ H034843, dated May 5, 2009, concerned encrypted USB flash devices ("UFD"), used to protect data when a UF is lost or stolen. The key hardware component of the UFD was a Japanese origin flash memory chip. Other components were shipped to China where they were assembled. In one scenario, the UFD’s were shipped to Israel where firmware application software developed in Israel was installed and customized into the device. Without application software, the UFD did not exhibit its security features. CBP held that the country origin of the encrypted UFD was Israel.
In this instance, we note that the building of the GTX Mobile requires the assembly of components in Canada, together with an imager of Canadian origin using subassemblies of various origins. Taking into account the Canadian assembly of the imager, the total assembly process requires a number of discrete steps that permit the individual components to function together as a single unit able to gather, process, display and transmit information from field operations to office locations. We, moreover, take note that a complex software
program is loaded onto the GTX Mobile which has been designed and written entirely in Canada. This software has been designed so that the customer may centrally manage and troubleshoot remote computer applications, allowing for communication between computers in distant locations. We find the creation and installation of the software to be a crucial element that permits the functioning of the hand held computers. Therefore, we find that the assembly processes that will occur in Canada, coupled with the configuration operations also performed in Canada that require the installation of Canadian-origin software, will substantially transform the components of non-Canadian origin into a product with a new name, character, and use. Accordingly, we find that the country of origin of the GTX Mobile is Canada.
HOLDING:
The non-Canadian component parts and subassemblies are substantially transformed in Canada, the location where the subassemblies and components from various countries are assembled together to make the GTX Mobile, and where the complex software is developed and installed onto the device. Therefore, we find that the country of origin of the GTX Mobile for government procurement purposes is Canada.
Notice of this final determination will be given in the Federal Register, as required by 19 CFR § 177.29. Any party-at-interest other than the party which requested this final determination may request, pursuant to 19 CFR § 177.31 that CBP reexamine the matter anew and issue a new final determination. Pursuant
to 19 CFR § 177.30, any party-at-interest may, within 30 days after 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
Office of Regulations and Rulings
Office of International Trade