RR:TC:SM W559815 BLS
Randall H. Holliday, Esq.
Xircom
2300 Corporate Center Drive
Thousand Oaks, CA 91320-1420
RE: U.S. Government Procurement; Final Determination; Title III, Trade Agreements Act of 1979 19 U.S.C. 2511); Subpart B, Part 177, Customs Regulations (19 CFR 177.21 et seq.); country of origin of "Credit Card" PC cards imported from Mexico; substantial transformation; Data General; HRL 733085; HRL 732087
Dear Mr. Holliday:
This is in reference to your letter dated April 24, 1996, including a letter from Kilcullen, Wilson & Kilcullen, requesting a final determination of origin under Subpart B of Part 177, Customs Regulations (19 CFR 177.21 et seq.) in connection with the offering of certain "CreditCard" PC cards for sale to the U.S. Govemment.
Under these regulations, which implement Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. 2511 et seq.), the Customs Service issues country of origin advisory rulings and final determinations on whether an article is or would be a product of a designated foreign country or instrumentality for the purpose of granting waivers of certain "Buy America" restrictions in U.S. law or practice for products offered for sale to the U.S. Government. As a party-at-interest within the meaning of 19 CFR 177.22(d)(l), Xircom is entitled to request this final determination.
FACTS:
According to the submission from Kilcullen, Wilson & Kilcullen, the facts are as follows:
Xircom manufactures and sells various products in a PCMCIA compliant format. These products include Xircom's CreditCard Modem 28.8 card, its CreditCard Ethernet Adapter lips card, its CreditCard Ethernet+Modem 28.8 card, and its CreditCard Token Ring Adapter lips card (collectively "Xircom's PC cards. These products are manufactured in a "Creditcard” format; that is, although slightly thicker, these cards are approximately the size and shape of a credit card. Xircom's PC cards are plugged into the PC slot of a portable computer (space inside the motherboard) so as to provide either a modem connection (in the case of the CreditCard Modem 28.8 card), a local area network ("LAN") connection (as with the CreditCard Ethernet or Token Ring Adapter lips cards), or both a LAN and modem connection (in the case of the CreditCard Ethernet Modem 28.8 or Modem II cards). The manufacturing process is essentially the same for all of Xircom's PC cards, regardless of their function.
The programming and assembly of the PC cards that Xircom will sell to the Government will occur in Juarez, Mexico. The principal hardware component of these PC cards, the printed circuit boards, will be assembled in Penang, Malaysia from bare board, microprocessor and electronic subcomponents that likely will be produced outside of the U.S. The other hardware components, the frame, covers and labels also likely will be produced outside the U.S. The software components, including software contained within the PC cards frame ware, and the operational software contained on diskettes, are proprietary to Xircom and will originate domestically in the U.S.
Operations in Malaysia
The manufacturing process will begin in Penang, at the facilities of Xircom's wholly owned subsidiary. There, circuits will be printed on, and microprocessor chips and other electronic components (resistors, capacitors, diodes, etc.) will be added to, bare boards to produce raw programmable printed circuit boards. At this initial production stage, the printed circuit boards will contain an electrically erasable programmable read only memory ("EEPROM") that will be programmed with a generic software program (specific either to modem or LAN adapter functions) for testing purposes, and the printed circuit boards will be tested and inspected. The generic testing software is very similar to the final software program that will be installed in the final stage of production in Mexico, but, among other things, it lacks the Ethernet node address (in the case of the LAN cards) or the specific final string settings (in the case of the modem cards). At the completion of testing, the generic software programs will be electrically erased from the EEPROMS. Printed circuit boards that pass testing and inspection will then be shipped to Juarez, Mexico, where manufacturing and assembly operations will be completed.
It is stated that the printed circuit boards shipped from Malaysia will not be completed or functional products, but rather non-functional electronic subassemblies whose future functions have been verified. At that stage, the final firmware, which consists of the proprietary set of instructions that will make the cards operate as modems or LAN adapters, will not have been installed. Also, each LAN adapter or modem card must have a unique Ethernet node address or string setting, respectively, programmed into it. The Ethernet node address or string setting provides the electronic address of the card, which permits the card to send and receive data. Without the Ethernet address or string setting, the PC card cannot function as a LAN adapter or modem, or serve any other function.
In addition, at this point, the printed circuit boards have not been assembled into frames or cases, without which the printed circuit boards cannot be plugged into portable personal computers or perform their intended uses. These assembly operations must be performed before the EEPROMS are finally programmed, since the mechanic.al processes inherent in ·them may affect the electronic integrity and functioning of the cards. Finally, it is stated that the cards are not functional without operating software that must be installed onto the hard drive of a portable personal computer and that software will not be provided or installed in Malaysia.
Operations in Mexico
Manufacturing and assembly operations will be completed in Juarez, Mexico by a subcontractor of Xircom that performs operations according to procedures dictated by Xircom. The printed circuit boards will be mounted into frames and covers and will be installed through mechanical processes. The cards will be inserted into their frames by use of a mechanical fixture, and covers will be attached with a heat released adhesive. Another mechanical fixture will be used to apply labels on both sides of the cards.
After completion of the mechanical assembly processes, the final firmware will be programmed into the 'flash memory" of the printed circuit board's EEPROM. This final firmware contains the sets of instructions that make the PC cards function as modems or LAN adapters, and it is proprietary to Xircom. (Xircom's subcontractor is required by its agreements with Xircom to maintain the confidentiality of the firmware.) Also, the unique Ethernet node addresses or final string numbers will be programmed, respectively, into the LAN or modem cards.
The PC cards will then be tested and packaged with software diskettes and other accessories. (The diskettes contain operational software, which must be loaded into the hard drive of the user's personal computer to allow the PC card to function with that computer. This operational software will be installed on the diskettes in the U.S.) At this stage, the PC cards will be functional and ready to be shipped as Xircom's CreditCard products.
It is further stated that beyond this stage, as a practical matter the EEPROM will not be altered without the application of a great deal of technical sophistication and expertise available only at Xircom. The PC cards also have built-in protections to prevent unauthorized alteration.
ISSUE:
Whether the operations performed in Mexico resulting in the completed PC cards constitute a substantial transformation, so that the PC cards may be considered a product of Mexico.
LAW AND ANALYSIS:
As prescribed under Title III of the Trade Agreements Act, the origin of an article not wholly the growth, product, or manufacture of a single country is to be determined by the rule of substantial transformation. 19 U.S.C. 2518(4). Such an article is not a product of a country unless it has been substantially transformed there into a new and different article of commerce with a name, character or use different from that of the article or articles from which it was transformed.
It is the opinion of counsel that the cards imported into Mexico from Malaysia undergo a substantial transformation and that accordingly, the country of origin of the completed PC cards is Mexico.
In Data General v, United States, 4 CIT 182, (1982), the Court of International Trade held that a PROM fabricated in a foreign country but programmed in the United States for use in a computer circuit board assembled abroad was substantially transformed causing the article to become a product of the United States within the contemplation of section 10.14(b), Customs Regulations (19 CFR 10.14(b)) and qualifying the article for duty allowance under 807.00, TSUS (precursor to subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS)). The court noted that a PROM which is programmed is no longer programmable because it can be only programmed once. It further stated that the electronic pattern introduced into the circuit by programming gives it the function as a read only memory, and that the essence of the article, its pattern of interconnection or stored memory, is established by programming.
In Headquarters Ruling Letter (HRL) 733085 dated June 13, 1990, a PC card consisting of a LCD, battery, chip, and printed circuit board imported from Hong Kong was programmed in the U.S. in order to generate a random code that was compatible with a code on a computer security system. This allowed the user to enter the code so that he could gain access to the computer system. The "SecurID Card"' could not function with the computer security system unless it was properly programmed. In that case, we found that without the programming the card was virtually useless and that the programming resulted in a product with a new name, character and use different from the article from which it was made. The programming also made a permanent change in the card that could not be undone. Accordingly, we held that the programming created a new and different article of commerce and resulted in a substantial transformation. See also HRL 732087 dated February 7, 1990 (blank computer diskette is substantially transformed when a software program is copied onto it).
Similarly, in the instant case, after assembly of the circuit boards into frames in Mexico, the processing in Mexico will also include programming the final firmware into the "flash memory" of the printed circuit board’s EEPROM. This final firmware contains the proprietary sets of instructions that make the PC cards function as modems or LAN adapters. Further, the Ethernet node addresses or final string numbers, which permits the card to send and receive data, will also be programmed, respectively, into the LAN or modem cards. Without the Ethernet address or string setting, the PC card cannot function and is essentially useless. As is further provided, the programming of the EEPROM is essentially of a permanent nature. Accordingly, we find that the components imported into Mexico undergo a change in name, character and use, and that, as a result, the operations performed in Mexico result in a substantial transformation.
HOLDING:
On the basis of the information submitted, we find that the assembly of the circuit boards into frames and programming of the EEPROM in Mexico result in a substantial transformation of the components imported into Mexico. Therefore, the country of origin of the completed PC cards is Mexico.
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 Customs reexamine the matter anew and issue a new final determination.
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,
Stuart P. Seidel, Assistant Commissioner
Office of Regulations and Rulings.