OT:RR:CTF:VS H335829 AMW
Mr. Randy Rucker, Esq.
Faegre Drinker Biddle & Reath LLP
320 South Canal Street
Suite 3300
Chicago, IL 60606
RE: Country of Origin; Optical Transceivers
Dear Mr. Rucker:
This is in response to your request dated November 7, 2023, on behalf of your client, Eoptolink Technology, Inc. ("Eoptolink"), regarding the country of origin of several models of optical transceiver modules for purposes of importation into the United States. Your request, originally submitted as an electronic ruling request to the National Commodity Specialist Division, was forwarded to this office for review.
FACTS:
The following facts are based on the information provided in your November 7, 2023, submission and follow-up information provided on February 11, 2025. In addition, a meeting was held on December 18, 2024. Eoptolink is a provider of optical transceiver modules and optical components used for a variety of applications, including data centers, telecom networks, security monitoring, and smart grids. The subject transceiver devices provide interface connection within a local area network, ethernet, or wide area network, through the transmission and receipt of data. An optical transceiver functions by converting electrical signals to optical (light) signals (the transmitter function), and from optical signals to electrical signals (the receiver function).
The request relates to four different foreign-manufactured optical transceiver modules, which are distinguished by their data speeds and operating wavelengths: (1) 800G Transceiver and Active Optical Cable ("AOC"); (2) 400G Transceiver and AOC; (3) 200G Transceiver and AOC; and (4) 100G Transceiver and AOC. The subject transceiver models all have substantially the same design and manufacturing process flow. Each model consists of a metal and/or plastic housing and interfaces, as well as the following subassemblies:
1. Printed circuit board assembly ("PCBA") containing the control circuitry necessary to operate the device;
2. Transmit Optical Sub-Assembly ("TOSA") consisting of a laser diode, optical lenses, an optical multiplexer, a monitor photodiode, a thermoelectric cooler, a metal and/or plastic housing, and an electrical interface; and
3. Receiver Optical Sub-Assembly ("ROSA") consisting of an optical connector, optical demultiplexer, optical lenses, a pin diode, amplifier, metal or plastic housing, and an electrical interface.
Each unit is completely manufactured in China, with raw materials sourced from a variety of countries. The Chinese manufacturing process involves the following steps:
1. PCBA Assembly: The device's PCBA is assembled via surface mount technology ("SMT") from multiple components, including a microcontroller unit, digital signal processor, crystal oscillator, thermoelectric cooler controller, DC-DC converter, integrated circuit, resistors, capacitors, and a ferrite bead.
2. Optical Sub-Assembly ("OSA") Packaging: The OSA consists of the TOSA and ROSA subassemblies described above. During the "packaging" process, the components are assembled onto the PCBA with epoxy or eutectic technology followed by a wire bonding process to enable an electrical connection between the laser, PIN diode, and the PCBA;
3. Module Assembly: The PCBA and OSA are combined with the device's housing, screws and a latch for the optical transceiver to form a "blank" transceiver; and
4. Temp Cycling: the "blank" transceiver is thermally cycled from -40 C to 85 C for ten cycles to confirm whether the components and solder connections will withstand exposure to extreme temperatures.
After the devices are manufactured in China, they are exported to Thailand for programming, firmware downloading, additional testing, and packaging. Specifically, the Thailand process involves the following:
1. MCU Firmware Programing: Thail-developed firmware is uploaded to the PCBA's MCU. The firmware contains program instructions that enable the subject transceivers to process data;
2. Tuning: A transceiver unit "tuned" to meet specific settings (also referred to as operating points). In doing so, a piece of test equipment is used to measure the optical transmitter characteristics, adjust the laser drive and DSP settings, and measure optical transmitter characteristics;
3. Electrically Erasable Programmable Read-Only Memory ("EEPROM") Parameter Programming: EEPROM programming previously developed in Thailand is loaded onto the transceiver;
4. Aging: Each device undergoes an aging test in which the device is run at a specified temperature (e.g., 12-24 hours at a temperature of 70 C or 85 C) to detect problems;
5. Final Testing: Each device is tested to confirm it meets all specifications; and
6. Final Processing/Packing: Technicians clean the fiber and end shell, dust cap, and outer shell; the device is labeled, packed, and shipped to a warehouse.
ISSUE:
What is the country of origin of the subject optical transceivers?
LAW AND ANALYSIS:
The United States Trade Representative ("USTR") has determined that an additional ad valorem duty will be imposed on certain Chinese imports pursuant to USTR's 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, Harmonized Tariff Schedule of the United States ("HTSUS").
When determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. See, e.g., Headquarters Ruling ("HQ") H301619, dated November 6, 2018. The test for determining whether a substantial transformation will occur is whether an article emerges from a process with a new name, character, or use, different from that possessed by the article prior to processing. See Texas Instruments, Inc. v. United States, 681 F.2d 778 (C.C.P.A. 1982). The issue of substantial transformation is a "mixed question of technology and customs law, mostly the latter." 681 F.2d at 783.
To determine whether a substantial transformation occurs when components of various origins are assembled into completed products, U.S. Customs and Border Protection ("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. See, e.g., HQ H311606, dated June 16, 2021. 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 may be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
The U.S. Court of International Trade ("CIT") interpreted the meaning of "substantial transformation" in Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016). Energizer Battery involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight. All components of the flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States and assembled into the finished Generation II flashlight. The Energizer Battery court reviewed the "name, character and use" test in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc., 3 C.I.T. at 226, that when "the post-importation processing consists of assembly, courts have been reluctant to find a change in character, particularly when the imported articles do not undergo a physical change." Energizer Battery at 1318. In addition, the court noted that "when the end-use was pre-determined at the time of importation, courts have generally not found a change in use." Energizer Battery at 1319, citing as an example, National Hand Tool Corp. v. United States, 16 C.I.T. 308, 312 (1992), aff'd, 989 F.2d 1201 (Fed. Cir. 1993). Furthermore, courts have considered the nature of the assembly, i.e., whether it is a simple assembly or more complex, such that individual parts lose their separate identities and become integral parts of a new article.
In Data General v. United States, 4 C.I.T. 182 (1982), the CIT determined that programming a foreign Programmable Read-Only Memory ("PROM") chip in the United States substantially transformed the chip into a U.S.-origin article. In the United States, the programming bestowed upon each integrated circuit its electronic function, that is, its "memory" which could be retrieved. A distinct physical change was affected in the PROM by the opening or closing of the fuses, depending on the method of programming. The essence of the article, its interconnections or stored memory, was established by programming. Texas Instruments v. United States, 681 F.2d 778, 782 (CCPA 1982) (stating the substantial transformation issue is a "mixed question of technology and customs law").
In C.S.D. 85-25, 19 Cust. Bull. 844 (1985), CBP held that for purposes of the Generalized System of Preferences ("GSP"), the assembly of multiple fabricated components onto a PCB in a process involving a considerable amount of time and skill resulted in a substantial transformation. In that case, more than 50 discrete fabricated components (such as resistors, capacitors, diodes, integrated circuits, sockets, and connectors) were assembled onto a PCB. CBP determined that the assembly of the PCBA involved a very large number of components and a significant number of different operations, required a relatively significant period of time, skill, attention to detail, and quality control.
CBP has elaborated that mere downloading of software onto a device is typically not enough to merit a substantial transformation, as "[p]rogramming involves writing, testing and implementing code necessary to make a computer function in a certain way." See HQ H241177, dated December 3, 2013 (holding that downloading U.S.-origin software in Singapore did not constitute a substantial transformation in Singapore or the United States, and therefore the country of origin was Malaysia where the final assembly of the hardware took place); see also HQ H240199, dated March 10, 2015 (holding that a notebook computer was not substantially transformed when the computer was assembled in Country A, imported into Country F, and Country D-origin BIOS was downloaded). However, in cases where software is downloaded onto a PCBA and combined with more complex operations to its firmware and hardware, which are essential to the device's operation, CBP has determined that a substantial transformation may occur. See HQ 563012, dated May 4, 2004 (holding that a PCBA and casing that were manufactured for a switch in China, were substantially transformed in the United States or Hong Kong, where U.S.-origin software was loaded, and the PCBA was further assembled with a power supply, fans, and an A/C filter of various origins to form the final fabric switch, as the switch was transformed into a functional device).
In this case, the entirety of the physical manufacturing and assembly of the optical transceiver devices occurs in China. Once the physical devices are exported from China to Thailand, Eoptolink installs Thail-origin firmware onto them and conducts certain tuning, calibration, and testing operations. Nevertheless, Eoptolink argues that programming the device in Thailand imparts the country of origin. In doing so, Eoptolink cites Data General v. United States, 4 C.I.T. 182 (1982), as well as several CBP rulings that reference Data General, including HQ H034843, dated May 5, 2009 (pertaining to USB flash drives); HQ H175415, dated October 4, 2011 (pertaining to local area network switches); HQ H258960, dated May 19, 2016 (pertaining to network transceivers and high speed cabling devices); HQ H250154, dated February 23, 2018 (pertaining to ethernet gateway products); and HQ H290670, dated January 29, 2019 (pertaining to ethernet switches, routers, and network cards).
For a substantial transformation to occur in Thailand, the subject optical transceivers must undergo a change in name, character, or use, different from that possessed by the article prior to processing. See Texas Instruments, 681 F.2d 778 (CCPA 1982). Based on the analysis below, we determine that the Thailand operations are not sufficient to effect a substantial transformation of the Chinese-origin hardware.
First, we find that the Thai assembly process does not result in a change in name. As in Energizer Battery, the individual components such as the PCB and PCBA components (e.g., transistors, capacitors) undergo a change in name when they are incorporated into the PCBA via SMT. As a result, when incorporated into the printed circuit board, the individual components and the blank printed circuit board develop a new name, a PCBA. The present scenario goes even further than Energizer Battery. Specially, your request makes clear that the entirety of the physical assembly occurs in China: various active and passive components are assembled into the device's PCBA, including the TOSA (consisting of a laser diode, optical lenses, optical multiplexor, monitor photodiode, thermoelectric cooler, electrical interface, and housing), and the ROSA (consisting of optical connector, optical demultiplexer, optical lenses, PIN diode, amplifier, electrical interface, and housing). These subcomponents are also assembled into the complete physical unit, which you describe as a "'blank' transceiver." As such, even by your own description, the device remains a "transceiver" both before and after the Thail processing.
Second, we find that the Thailand process does not result in a change of character. As outlined above, for courts to find a change in character, there often needs to be a substantial alteration in the characteristics of the articles or components. See e.g., Energizer Battery at 1318 (citing National Hand Tool, 16 C.I.T. at 311). Courts have not found a change in character when changes are cosmetic or when the "form of the components remained the same." Energizer Battery at 1318. In other cases, courts have looked to the "essence" of a completed article to determine whether an imported article has undergone a change in character as a result of post importation processing. Energizer Battery at 1318 (2016) (citing Uniden America Corp. v. United States, 120 F. Supp. 2d 1091, 1095-1098 (2000) and Uniroyal, Inc. v. United States, 3 C.I.T. 220, aff'd, 702 F.2d 1022 (Fed. Cir. 1983) (imported shoe uppers were the 'essence of the finished shoe' and were not substantially transformed by the addition of an outer sole in the United States")). With respect to the incorporation of an imported PCBA in a third country, CBP has frequently determined that the PCBA imparts the character of a device when it possesses the components necessary to impart a device's functionality. In HQ H322417, dated February 23, 2022, CBP considered the country of origin of an imported smartwatch. CBP determined that the smartwatch's PCBA represented the essence of the device because it incorporated the electronic components that together gave the device its functionality and allowed the device to operate as intended. In rendering its determination, CBP observed that once the various components are incorporated into the smartwatch, they "'bec[a]me an integral part of the new article' and develop[ed] the functionality of the smartwatch capable of capturing and exchanging data and tracking the user's fitness and activity, among other functions." See HQ H322417, citing HQ H287548, dated March 23, 2018; NY N303008, dated March 8, 2019; and HQ H301910, dated August 5, 2019.
Here, in line with HQ H322417 and the other cited rulings, we determine that the applicable change of character occurs via assembly in China. Specifically, we find that the PCBA, TOSA, and ROSA, which are manufactured and assembled into the final, physical unit in China impart the components necessary to impart the device's functionality. And although the installation of firmware in Thailand may impart further functionality to the subject devices, Eoptolink has made no showing that the processing imparts much, if any, physical changes to the character of the devices. In Data General, for instance, the court noted that the character of the PROM device was changed, in part, because a "distinct physical change was affected in the PROM by the opening or closing of the fuses, depending on the method of programming." See Data General at 186. Here, neither Eoptolink's November 2023 ruling request nor February 2025 follow-up submission make a showing of how, if at all, the Thail processing and firmware installation creates a physical change. In addition, we note that while the PROM described in Data General consisted of "an integrated circuit bearing discrete components," the optical transceiver is a larger, more complex product of which the device's EEPROM is only one component.
Third, we find that the Thai process does not result in a change of use. Courts have found that a change in use occurs when the end use of the imported product was no longer interchangeable with the end use of the product after post importation processing; in contrast, when the end use was predetermined at the time of importation, courts have generally not found a change in use. See Energizer Battery, 190 F. Supp. 3d at 1319 (citing Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535, 540-41 (1987); National Hand Tool, 16 C.I.T. at 311-12; Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121-22 (1996); Uniroyal, 3 C.I.T. at 226). "When articles are imported in prefabricated form with a pre-determined use, the assembly of those articles into the final product, without more, may not rise to the level of substantial transformation." Id. (citing Uniroyal, 3 C.I.T. at 226).
Here, the use of the Chinese-origin transceiver devices remains the same after the Thai processes. The optical transceivers are imported into Thailand as physically complete "blank" transceivers. As noted in the request, the Thai-origin firmware controls the hardware and "ensures that the optical transceiver operates correctly and efficiently, performing its intended function in a communication system." (Emphasis added.) Indeed, this description further indicates that the Thai processes merely enact the "intended function" of the physical devices rather than imparting a new use distinct from that of the Chinese-origin transceivers. As such, the subject devices do not undergo a change in use via programming and tuning in Thailand.
Importantly, we note that the subject optical transceivers are distinguishable from the PROM in Data General Corp., supra. The PROM had no function or use until programmed, which established the pattern of interconnections within the PROM, which was its "essence." After the PROM was programmed, it was no longer a PROM. In contrast, the optical transceivers, remain completed transceivers after the firmware and software are installed. The subject transceivers contain not only a PCBA and chipset, but the optical lenses, sensors, and diodes that enable the device to receive, convert, and transmit electrical and light signals. Thus, consistent with our previous rulings and decisions above, we find that the last substantial transformation occurs in China where the relevant PCBA, ROSA, and TOSA are manufactured and assembled into the complete transceiver unit.
In addition, this matter is also distinguishable from HQ H258960, dated May 19, 2016, which Eoptolink also cites. In that ruling, CBP considered the country of origin of "network transceivers" that were produced in China or another Asian country and imported into the United States where the requestor downloaded its proprietary, U.S.-developed software onto the devices. In determining the U.S. operations effected a substantial transformation, CBP determined that the U.S.-origin software transformed the non-functioning hardware into functioning transceivers and that the proprietary software "was developed in the U.S. at significant cost...over many years...." Moreover, CBP observed that the "dollar value increases significantly after programming...." In contrast, although the present matter also involves programming a transceiver device in a third country with firmware developed in that country, Eoptolink's request involves a less extensive firmware development process. Significantly, whereas the firmware installed onto the devices in HQ H258960 was the product of "significant cost...over many years," Eoptolink's follow-up submission clarifies that the Thai firmware is developed by two engineers over the course of "about 4-6 months." In addition, Eoptolink provides no indication of what, if any, value is imparted by the Thai installation process, only noting "[t]he cost and time required for completing firmware development will depend on the level of experience and expertise of the development team."
In addition to the name, character, and use criteria, courts have also considered subsidiary or additional factors, such as the country of origin of the item's components, the extent and nature of operations performed, value added during processing, a change from producer to consumer goods, or a shift in tariff provisions. See, e.g., Energizer Battery at 1319. Some courts have attempted to distinguish between minor manufacturing and combining operations or simple assembly, and processing that is more complex and meaningful. Id. (citing, e.g., Uniroyal, 3 CIT at 226, 542 F. Supp. At 1301). Consideration of subsidiary or additional factors is not consistent, and there is no uniform or exhaustive list of acceptable factors. Id. Indeed, CBP has never outlined a bright line rule in which the number of manufacturing steps or time taken in a country would render an article substantially transformed. See, e.g., HQ H317645, dated October 5, 2021 ("a review of each ruling reveals that the outcomes do not rely simply on the number of components, the number of assembly steps, the time it takes to complete assembly, or the number of workers.") Furthermore, with respect to whether programming and installation of software and/or firmware onto physical media creates a substantial transformation, CBP has looked to various subsidiary factors, including corresponding physical assembly, the nature and complexity of the software/firmware development, and the value added by programming and installation. Some rulings have considered the extensiveness or relative cost imparted by third-country programming or software installation. See, e.g., HQ H325833, dated September 2, 2022 (noting the portion of value imparted by a device's chipset and time spent developing the underlying software).
Here, CBP is not aware of any subsidiary factors indicating the subject transceiver devices undergo a substantial transformation in Thailand. As discussed above, Eoptolink's original and follow-up submissions do not provide any indication of what portion of the final devices' value is imparted by the Thai process. In addition, although the follow-up submission notes that the firmware development in Thailand involves "two highly skilled engineers at a minimum and it takes about 4-6 months of continuous work," the request does not provide similar context regarding the time or value needed to develop and produce the devices' hardware. Furthermore, the Chinese manufacturing operations, which include SMT printing and component assembly, involve operations that CBP has typically considered to be complex and meaningful. See, e.g., HQ H304910, dated April 21, 2020 (determining that the SMT and wave soldering processes incorporated a large number of discrete components parts onto a printed circuit board, which was a sufficiently "complex and meaningful" operation so as to result in a substantial transformation of the parts making up a printed circuit board assembly).
Based on the foregoing, we find that the subject optical transceiver units undergo substantial transformation in China, where the entirety of the physical manufacture and assembly occurs. As such, the applicable country of origin is China.
HOLDING:
Based on the information provided, we find that the country of origin of the subject optical transceiver units is China.
Please note that 19 C.F.R. 177.9(b)(1) provides that "[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by [CBP] field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based."
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 CBP officer handling the transaction.
Sincerely,
Monika Brenner, Chief
Valuation and Special Programs Branch