CLA-2 OT:RR:CTF:VS H313595 EGJ
James T. Griffin
Navco Logistics, LLC
2500 Courage Blvd.
Brownsville, TX 78521
RE: Country of origin of a Solid-State Storage Drive; Section 301 trade remedy; 9903.88.15, HTSUS; USMCA Eligibility; Marking
Dear Mr. Griffin:
This is in response to your request, dated August 15, 2020, filed on behalf of your client Avant Technology Inc. (“the importer”). In your letter, you request a binding ruling on the applicability of Section 301 trade remedies, the eligibility for duty-free treatment under the U.S.-Mexico-Canada Agreement, and the country of origin for marking purposes for a solid state storage drive.
FACTS:
The subject merchandise is a solid-state non-volatile storage drive (“SSD”) designed to accept, store, or deliver electronic data using flash memory semiconductors. The SSD will eventually be incorporated into other devices, such as servers, laptops, desk-tops, and tablets. It contains NAND (short for “NOT AND”) flash memory circuit assemblies that function as data storage drives. The SSD also includes a flash controller in the form of an integrated circuit, as well as a connecting socket to connect to a host device.
The importer plans to enter blank flash drives in-bond into the United States. The blank drives will be manufactured in one of three different countries. One country is a party to the U.S.-Mexico-Canada Agreement (“USMCA”), but the other two countries are not parties to the USMCA. These flash drives will either be transferred into a foreign trade zone (“FTZ”) in the U.S. or exported to Mexico, where the drives are processed into the finished SSDs.
The production process in the FTZ or Mexico primarily involves downloading software and testing the drives. The processing steps are as follows:
Programs MST Functional Test (“PMF”): The operator inserts the blank drive into a motherboard and performs a functional test.
Manufacturing Self-Test (“MST”): After passing the PMF process, the operator inserts the drive into a motherboard and performs the manufacturing self-test, which is a software-based “stress test.”
Serialization: Drives that have passed both the PMF and MST processes are inserted into a motherboard and installed with firmware which gives each drive a unique identity and serial number.
Labeling: An operator prints data labels based on the serial numbers and attaches them to the corresponding drives.
Burn-In Drive: For drives that have passed all previous processes, the operator inserts the drive into a motherboard and performs a software based “burn in” that writes and verifies data through the drive’s external interface. Drives that pass the “burn in” process become functional SSDs. The “burn in” software is written and developed by the importer in the United States.
Validation: The operator inserts SSDs into a motherboard and validates the firmware, programming, and serialization.
Packaging: Operators follow the work order guidelines for either bulk or retail packaging. SSDs for retail are packaged in clamshells, whereas bulk SSDs are not put into clamshells.
You state that the blank drives should be classified under subheading 8471.70.1000 of the Harmonized Tariff Schedule of the United States (“HTSUS”), which provides, in pertinent part, for: “Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included: storage units: magnetic disk drive units: for a disk of a diameter exceeding 21 cm: Without read-write unit assembled therein; read-write units entered separately.”
You state that the finished SSDs should be classified under subheading 8523.51.0000, HTSUS, which provides, in pertinent part, for: “Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs …. Semiconductor media: Solid-state non-volatile storage devices.”
ISSUES:
Whether the SSD processed in Mexico qualifies for duty-free treatment under the U.S.-Mexico-Canada Agreement?
What is the country of origin of the SSD for marking purposes?
What is the country of origin of the SSD for the purposes of applying Section 301 trade remedies?
LAW AND ANALYSIS:
Eligibility for USMCA Duty-free Treatment
The United States-Mexico-Canada Agreement (“USMCA”) was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11, 14 (19 U.S.C. § 4511(a)). General Note (GN) 11 of the HTSUS implements the USMCA. GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(b) states:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a "good originating in the territory of a USMCA country" only if—
the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or
…
In your request letter, you note that the blank drives may be manufactured in a country which is a party to the USMCA. Moreover, the software which will be burned onto the blank drive to make it functional will be developed in the United States. Finally, you note that the production process described above will take place in Mexico. Based on the information provided, we find that the SSD is eligible for duty-free treatment under GN 11(b)(ii) because it will be produced from originating materials in the territory of a USMCA member country.
However, you note that the blank drives may be manufactured in one of two other countries that are not parties to the USMCA. In this case, the finished SSDs will contain some non-originating materials. Thus, we must next determine whether these SSDs qualify under GN 11(b)(iii). It is undisputed that the finished SSDs are classified under subheading 8523.51.0000, HTSUS, which provides, in pertinent part, for: “Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs …. Semiconductor media: Solid-state non-volatile storage devices.”
You take the view that the blank drives should be classified under subheading 8471.71.00, HTSUS, which provides for “Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included: storage units: magnetic disk drive units: for a disk of a diameter exceeding 21 cm: Without read-write unit assembled therein; read-write units entered separately.” We disagree. In Headquarters Ruling Letter (“HQ”) H308234, dated June 3, 2020, we classified a blank flash drive in subheading 8523.51.00, HTSUS, as a solid state-storage drive. The heading provides for both recorded and unrecorded media, so blank drives are still classifiable in this heading.
The applicable rule of origin for SSDs classified under subheading 8523.51, HTSUS, is in GN 11(o)/85.58, HTSUS, which provides as follows:
Subheading rule:
A change to a good of any of subheadings 8523.21 through 8523.51 from any other good within that subheading or any other subheading, including another subheading within that group (emphasis added).
The tariff shift rule for USMCA eligibility provides for a change to a good of subheading 8523.51, HTSUS, from any other good within that subheading. In this case, we have a blank solid-state storage drive which is changed into a functional solid-state storage drive once the software is downloaded. The drives are changed from unrecorded media to recorded media in Mexico, satisfying the tariff shift rule’s requirement for “a change to a good of [subheading 8523.51, HTSUS] from any other good within that subheading.” Therefore, we find that the solid-state storage drives satisfy the tariff shift rule, and qualify for duty-free treatment under the USMCA.
With regard to processing in the FTZ, we note that you did not provide information on how the non-originating flash drives are admitted into the U.S. FTZ, and whether they will be admitted in privileged or non-privileged status. We would need to know this information in order to issue a decision pursuant to 19 U.S.C. 81c.
Marking
To allow for a more seamless transition period, at this time, CBP continues to utilize the marking rules set forth in 19 CFR Part 102, with the exception of 19 CFR § 102.19, for purposes of country of origin marking with respect to goods from Canada and Mexico. Section 102.11(a)(3) provides that the country of origin of a good is the country in which:
Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in § 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
The applicable tariff shift requirement in § 102.20 for the SSDs at issue is:
A change to records, tapes and other recorded media for sound or other similarly recorded phenomenon, excluding products of chapter 37, from prepared unrecorded media for sound recording or similar recoding or other phenomena, other than products of chapter 37.
For the processing occurring in Mexico, the foreign materials to consider will be those blank drives that originate from a country other than Mexico and the software developed in the United States. The rule states that the tariff shift rule is accepted if there is a “change to … other recorded media for sound or other similarly recorded phenomenon … from prepared unrecorded media.” As the SSDs are recorded media which are prepared from unrecorded media, we find that they meet the section 102.11(a)(3) rule and may be marked as products of Mexico.
For the processing in a U.S. FTZ using either Canadian or Mexican flash drives, the marking rules set forth in 19 CFR Part 102 will apply, and the SSDs would be considered to have undergone the tariff shift rule in the U.S. However, whether the SSDs may be marked that they are “Made in the United States,” the marking must comply with the requirements of the Federal Trade Commission (“FTC”). We suggest that you direct any questions on this issue to the FTC.
Section 301 Duties
The SSDs are classified under subheading 8523.51.00, HTSUS, which provides, in relevant part, for “solid-state non-volatile storage devices.” The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 7.5% will be imposed on certain Chinese imports pursuant to its authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(s), HTSUS. Among the subheadings listed in U.S. Note 20(b) of Subchapter III, Chapter 99, HTSUS, is 8523.51.00, HTSUS.
A substantial transformation occurs when an article emerges from a process with a new name, character, and use different from that possessed by the article prior to processing. A substantial transformation will not result from a minor manufacturing or combining process that leaves the identity of the article intact. See United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 (1940); and National Juice Products Ass’n v. United States, 628 F. Supp. 978 (Ct. Int’l Trade 1986).
We note that the courts and our rulings have both found that programming can constitute a substantial transformation. See Data General v. United States, 4 Ct. Int’l Trade 182 (1982); see also HQ 558868, dated February 23, 1995, and HQ 735027, dated September 7, 1993. However, in HQ H241177, dated December 3, 2013, we examined Ethernet switches which were assembled to completion in Malaysia and then shipped to Singapore, where U.S.-origin software was downloaded onto the switches. In that ruling, we noted that:
We find that the software downloading performed in Singapore does not amount to programming. Programming involves writing, testing and implementing code necessary to make a computer function in a certain way. See Data General supra. See also "computer program", Encyclopedia Britannica (2013), (9/19/2013) http://www.britannica.com/ EBchecked/topic/130654/computer-program, which explains, in part, that “a program is prepared by first formulating a task and then expressing it in an appropriate computer language, presumably one suited to the application.” While the programming occurs in the U.S., the downloading occurs in Singapore. Given these facts, we find that the country where the last substantial transformation occurs is Malaysia, that is, where the major assembly processes are performed. The country of origin for purposes of U.S. Government procurement is Malaysia.
Also, in HQ H240199, dated March 10, 2015, we found that a notebook computer was not substantially transformed when it was imported into Country F and Country D-origin BIOS (firmware which loads the computer’s operating system) was downloaded onto it. We find that the current fact scenario is similar to the Ethernet switches of HQ H241177 and the notebook computers of HQ H240199. The importer’s developers design and program the software in the United States, but it is downloaded onto the blank drives in Mexico. Therefore, we do not find that downloading the software in Mexico constitutes a substantial transformation. The country of origin for the purposes of Section 301 will be the country from where the blank drives are manufactured.
For the SSDs processed in a U.S. FTZ using blank drives that are not from Mexico or Canada, the substantial transformation test will apply and as indicated above, the country of origin for marking purposes will be the country where the blank drives are manufactured.
HOLDING:
The SSDs qualify for duty-free treatment under the USMCA, and they should be marked as products of Mexico.
The country of origin of the SSDs for the purposes of the application of subheading 9903.88.15, HTSUS, will be the country where the blank drives are manufactured. If the blank drives are manufactured in China, Section 301 measures will apply.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch