CLA-2-84:OT:RR:NC:N2:220
Olga Torres
Torres Trade Law, PLLC
1201 Main St
Dallas, TX 75202
RE: The tariff classification, country of origin marking, status under the United States-Mexico-Canada Trade Agreement (USMCA), and applicability of Section 301 Trade Remedies of a Server Rack
Dear Ms. Torres:
In your letter dated September 23, 2024. you requested a ruling on behalf of your client, BDT de Mxico, S. De R.L. de C.V.
The merchandise under consideration is identified as the Osmium 35U Stack, Configuration 5, PN 950 072 101-01, which you refer to as a Server Rack, and consists of a single metal cabinet having six processing servers, a network switch, a power supply shelf, and seven magnetic tape storage units. The storage units consist of one Base Module, four Drive Expansion Modules, one I/E Expansion Module, and one Cartridge Expansion Module, where the Modules are mounted within the cabinet and stacked vertically. Each of the Modules are interconnected physically and electrically, and all house an array of magazines that are populated with magnetic tape storage cartridges. Internal to the stack of Modules is a robotic mechanism that navigates within the vertical chamber of all seven interconnected Modules to select and relocate cartridges from a magazine storage location to a tape drive and/or return cartridges to a magazine for storage.
In use, the Server Rack functions as a mass digital tape storage system. Each of the processing servers are dedicated to the functional control of the reading/writing of digital data stored on the individual cartridges, while also functioning to communicate/transfer data to and from external systems/networks.
In your request, you suggest the Server Rack is considered an automatic data processing (ADP) machine of subheading 8471.50.0150, Harmonized Tariff Schedule of the United States (HTSUS). We disagree.
Based on the information provided, the Server Rack is populated with a number of machines that work together to perform a single dedicated function. While there are machines incorporated into the Server Rack that you suggest may satisfy the requirements set forth in Note 6 (A) to Chapter 84, it is our view that those machines do not satisfy Note 6 (A). Furthermore, the principal function of the Server Rack is data storage, and subheading 8471.50.0150, HTSUS, is not appropriate.
The applicable subheading for the Osmium 35U Stack, Configuration 5, PN 950 072 101-01, will be 8471.70.9000, HTSUS, which provides for "Automatic data processing machines and units thereofStorage units: Other storage units: Other." The rate of duty will be free.
Regarding the country of origin and marking of the Server Rack, the marking statute, Section 304 of the Tariff Act of 1930, as amended (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. See United States v. Friedlander & Co., 27 C.C.P.A. 297, 302 (1940).
Section 134.1(b), CBP 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 this part.
Pursuant to section 102.0, interim regulations, related to the marking rules, tariff-rate quotas, and other USMCA provisions, published in the Federal Register on July 6, 2021 (86 FR 35566), the rules set forth in sections 102.1 through 102.18 and 102.20 determine the country of origin for marking purposes with respect to goods imported from Canada and Mexico. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes, with the exception of textile and apparel goods which are subject to the provisions of 19 CFR 102.21. See 19 CFR 102.11.
Applied in sequential order, 19 CFR 102.11(a) provides that the country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in Part 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
Since the Server Rack is neither wholly obtained or produced nor produced exclusively from domestic materials, paragraphs (a)(1) and (a)(2) cannot be used to determine the country of origin of the subject merchandise and paragraph (a)(3) must be applied to determine the origin of the finished article. As the Server Rack is classified under subheading 8471.70.9000, HTSUS, the applicable tariff shift requirement in Part 102.20 for the assemblies under consideration here states:
A change to subheading 8471.60 through 8472.90 from any other subheading within that group or from subheading 8504.90 or from heading 8473, provided that the change is not the result of simple assembly;
Based on the information provided, the individual drive units that are incorporated into the Base Module and the Drive Expansion Module, which are designated as foreign material, are each classifiable under subheading 8471.70, HTSUS. Additionally, the unpopulated Module frames are classified under subheading 8473.30, HTSUS. As a result, the tariff shift requirement under Part 102.20 is not met and paragraph 102.11(a) is not applicable.
Because paragraph 102.11(a) cannot be used to determine the origin of the Server Rack, we turn next to paragraph 102.11(b), which states, in pertinent part:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good.
Based on the submitted information with a detailed explanation of the design and construction of the Server Rack, it is the opinion of this office that no single material imparts its essential character of the finished Server Rack. Here, we have multiple machines and subassemblies that are joined together to produce a data storage system that is unique and different from the individual components that make the finished machine. Consequently, paragraph 102.11(b) cannot be used to determine the origin of the Server Rack.
Likewise, the Server Rack is neither a set, mixture, nor a composite good, and paragraph (c) is not applicable.
Continuing on, paragraph 102.11(d) states as follows:
(d) Where the country of origin of a good cannot be determined under paragraph (a), (b) or (c) of this section, the country of origin of the good shall be determined as follows:
(1) If the good was produced only as a result of minor processing, the country of origin of the good is the country or countries of origin of each material that merits equal consideration for determining the essential character of the good;
(2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin of the good is the country of origin of those parts; or
(3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
The Server Rack is manufactured in Mexico through a complex process of assembly involving numerous foreign and domestic components to produce a data storage system. As such, paragraphs (d)(1) and (d)(2) are not applicable because the Server Rack was produced through a production process that is not described as minor processing and/or simple assembly. As a result, and based on the facts presented, the Osmium 35U Stack, Configuration 5, PN 950 072 101-01, referred to as the Server Rack, will be marked a product of Mexico pursuant to 19 CFR 102.11(d)(3).
Regarding the your request to determine if the Server Rack may receive preferential treatment under the USMCA, goods that originate in the territory of Mexico, Canada or the United States, and goods enumerated in subdivision (p) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the Special subcolumn, followed by the symbol S in parentheses, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act.
Accordingly, if all other requirements are satisfied, merchandise imported into the United States will qualify for preferential tariff treatment under the USMCA if it meets one of the origin criteria enumerated in GN 11(b) or if it is classified in a provision listed in GN 11(p). The appropriate tariff shift rule under GN 11(b) states:
204. A change to subheading 8471.70 from any other subheading, except from subheading 8471.49.
Here, you state that the individual drives, which are classifiable under subheading 8471.70, HTSUS, are of foreign origin and that they do not undergo a tariff shift. Thus, the goods cannot qualify as originating pursuant to any of the criteria enumerated in GN 11(b). However, GN 11(p) provides for the following:
(p) Goods that shall be deemed to be originating goods.Notwithstanding any other provisions of this note, the following goods named in the first column below and classified in the provisions enumerated in the second column shall be deemed to be originating goods when imported into the customs territory of the United States from another USMCA country:
Storage units..............................................................................8471.70
As determined above, the assembled Server Rack is classifiable under subheading 8471.70, HTSUS, and will be afforded preferential treatment upon importation into the United States pursuant to GN 11(p).
Regarding the applicability of additional duties under Section 301, 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 Letter (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). This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff'd, 989 F.2d 1201 (Fed. Cir. 1993).
You state in your submission that the Server Rack is assembled in Mexico at your client's facility by mounting six U.S. origin servers, a Chinese origin communications switch, various foreign origin components, cables, brackets, etc. into the Chinese origin metal cabinet. Also in Mexico, each of the empty Module frames are manufactured by populating with foreign components, such as magazines, cartridges, drives, and more. While the drives are also of Chinese origin, the process of assembling the individual drives into their carriers, and then further assembling the drive subassemblies into the Modules, followed by the combining of each of the Modules into a single interdependent storage system, is complex and meaningful work that in our opinion, substantially transforms the individual components into a mass digital tape storage system that you refer to as the Server Rack. As a result, it is the opinion of this office that the Osmium 35U Stack, Configuration 5, PN 950 072 101-01, is not subject to additional duties pursuant to Section 301 upon importation into the United States.
The holding set forth above applies only to the specific factual situation and merchandise description as identified in the ruling request. This position is clearly set forth in Title 19, Code of Federal Regulations (CFR), Section 177.9(b)(1). This section states that a ruling letter is issued on the assumption that all of the information furnished in the ruling letter, whether directly, by reference, or by implication, is accurate and complete in every material respect. In the event that the facts are modified in any way, or if the goods do not conform to these facts at time of importation, you should bring this to the attention of U.S. Customs and Border Protection (CBP) and submit a request for a new ruling in accordance with 19 CFR 177.2. Additionally, we note that the material facts described in the foregoing ruling may be subject to periodic verification by CBP.
This ruling is being issued under the provisions of Part 177 of the Customs and Border Protection Regulations (19 C.F.R. 177).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, please contact National Import Specialist Karl Moosbrugger at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division