Notice of Issuance of Final Determination Concerning Certain Ultrasound Systems, 21389-21392 [2013-08349]

Agencies

• DEPARTMENT OF HOMELAND SECURITY
• U.S. Customs and Border Protection

[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21389-21392]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08349]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Certain 
Ultrasound Systems

AGENCY: U.S. Customs and Border Protection, Department of Homeland 
Security.

ACTION: Notice of final determination.

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SUMMARY: This document provides notice that U.S. Customs and Border 
Protection (``CBP'') has issued a final determination concerning the 
country of origin of certain ultrasound systems. Based upon the facts 
presented, CBP has concluded in the final determination that the U.S. 
is the country of origin of the ultrasound systems for purposes of U.S. 
government procurement.

DATES: The final determination was issued on April 3, 2013. A copy of 
the final determination is attached. Any party-at-interest, as defined 
in 19 CFR 177.22(d), may seek judicial review of this final 
determination on or before May 10, 2013.

FOR FURTHER INFORMATION CONTACT: Elif Eroglu, Valuation and Special 
Programs Branch: (202) 325-0277.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on April 3, 
2013, pursuant to subpart B of part 177, Customs Regulations (19 CFR 
part 177, subpart B), CBP issued a final determination concerning the 
country of origin of the Siemens Medical S2000 and Antares ultrasound 
systems which may be offered to the U.S. Government under an 
undesignated government procurement contract. This final determination, 
Headquarters Ruling Letter (``HQ'') H219597, was issued at the request 
of Siemens Medical Solutions USA under procedures set forth at 19 CFR 
part 177, subpart B, which implements Title III of the Trade Agreements 
Act of 1979, as amended (19 U.S.C. 2511-18). In the final 
determination, CBP has concluded that, based upon the facts presented, 
the assembly of the S2000 and Antares ultrasound systems in the U.S., 
from parts made in Japan, Korea, Italy, China, and the U.S., 
constitutes a substantial

[[Page 21390]]

transformation, such that the U.S. is the country of origin of the 
finished articles for purposes of U.S. government procurement.
    Section 177.29, Customs Regulations (19 CFR 177.29), provides that 
notice of final determinations shall be published in the Federal 
Register within 60 days of the date the final determination is issued. 
Section 177.30, CBP Regulations (19 CFR 177.30), provides that any 
party-at-interest, as defined in 19 CFR 177.22(d), may seek judicial 
review of a final determination within 30 days of publication of such 
determination in the Federal Register.

    Dated: April 3, 2013.
Sandra L. Bell,
Executive Director, Regulations and Rulings, Office of International 
Trade.

Attachment

HQ H219597

April 3, 2013

OT:RR:CTF:VS H219597 EE

CATEGORY: Marking

Alan W. H. Gourley
Crowell & Moring LLP
1001 Pennsylvania Ave., NW
Washington, DC 20004
RE: U.S. Government Procurement; Title III, Trade Agreements Act of 
1979 (19 U.S.C. Sec.  2511); Subpart B, Part 177, CBP Regulations; 
Ultrasound Systems

    Dear Mr. Gourley:

    This is in response to your correspondence of January 30, 2012 
and additional information you submitted on May 22, 2012, July 23, 
2012, August 29, 2012, and September 4, 2012, requesting a final 
determination on behalf of Siemens Medical Solutions USA, Inc. 
(``Siemens Medical''), pursuant to subpart B of part 177, U.S. 
Customs and Border Protection (``CBP'') Regulations (19 C.F.R. Sec.  
177.21 et seq.). A meeting between counsel and this office occurred 
on November 13, 2012 to allow counsel the opportunity to discuss the 
case and present further arguments. Counsel submitted an additional 
supplemental submission on November 16, 2012. Under the pertinent 
regulations, which implement Title III of the Trade Agreements Act 
of 1979, as amended (19 U.S.C. Sec.  2511 et seq.), CBP issues 
country of origin advisory rulings and final determinations as to 
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.
    This final determination concerns the country of origin of the 
Siemens Medical S2000 and Antares ultrasound systems. We note that 
Siemens Medical is a party-at-interest within the meaning of 19 
C.F.R. Sec.  177.22(d)(1) and is entitled to request this final 
determination.

FACTS:

    The merchandise at issue are two Siemens Medical ultrasound 
units, known as the S2000 and Antares ultrasound systems, 
engineered, designed, and subject to final assembly in the U.S. from 
U.S. and foreign components. The S2000 and Antares ultrasound 
systems are diagnostic imaging systems that transmit sound waves and 
then receive and process the echoes of those waves to create a 
visual representation of a patient's tissues and organs. You state 
these systems comprise three core elements: (1) the transducers that 
send and receive the acoustic signals from the patient; (2) the 
electronics module that processes signals and ``beamform'' the data 
to convert it into a form that can be used by Siemens' proprietary 
application software; and (3) the application software that 
manipulates and displays the patient image data to allow for 
diagnostic and prescriptive use by healthcare professionals.
    One of the most critical elements required for the manufacture 
of a functional ultrasound system is the transducer which is the 
handset that is passed over the surface of the patient's body, where 
it produces high-frequency sound waves that penetrate the area of 
the body being scanned. The transducer focuses the sound-wave beam 
of pulses into specific dimensions as well as scans the beam over 
the region of interest in the patient's anatomy. The transducer then 
receives the ``echo'' of these sound waves as they rebound from the 
patient's internal organs and tissue, and transmits this returned 
data (as electrical impulses) to the electronics module. The quality 
of the beam and return echo define the quality of the signal and 
resulting image which is of key significance to the diagnostician 
employing the ultrasound. The typical customer-ordered S2000 or 
Antares ultrasound systems will have three or more transducers that 
allow for application-specific usage. The transducers are 
manufactured in Korea.
    The electrical signals from the transducer are processed by the 
electronics module and, once converted to usable digital data, 
manipulated by the application software and then displayed on the 
machine's monitor for the clinical user. The proprietary software is 
run on what are essentially commoditized computer hardware 
components.
    The application software is stated to be the key element that 
enables the electronics module to ``translate'' the data received 
from the transducer into an image to be displayed on the monitor. 
The software performs a variety of functions including standard work 
flow items such as archiving and displaying patient data as well as 
image data manipulation/transformation, custom display, and 
analytics/calculations. Depending on the specific customer's 
intended end-use (e.g., cardio or prenatal) and requirements, 
different aspects of the software may be activated/enabled through 
the use of licensing keys.

Manufacturing Process

Electronics Module Assembly:

    You state that the manufacturing of the electronics module in 
China involves: (1) the incorporation and testing of the Chinese-
origin circuit boards (printed wiring assemblies) to specification; 
and (2) the incorporation of Chinese-origin real-time manager 
assembly, which includes a commercial computer motherboard, CPU, 
hard drive, and video card. These assembly operations also require 
the installation of Chinese-origin subcomponents and sub-assemblies 
including:
     A ``backplane'' which is a circuit board that connects 
the various system boards;
     A ``cardcage'' which is a mechanical structure to which 
the backplane is bolted;
     A ``continuous beamformer'' used for Doppler imaging to 
depict both visual images and audio interpretation of blood flow;
     A power supply system (including a U.S.-origin 
transformer, Japanese-origin power supplies for both the analog and 
digital portions of the system, and the alternating current tray and 
cable that will connect to the external power receptacle); and
     A trolley frame assembly, which is the structure that 
houses the CPU and that ultimately will house the other components 
added after importation into the U.S. (i.e., the monitor, the 
control panel, connecting cables, transducers, etc.).
    Following assembly of the electronics module, the test version 
of the Siemens Medical's operating system software, which is 
designed, engineered, and written in the U.S., is uploaded onto the 
real-time manager assembly hard drive to test the hardware to 
correct any manufacturing defects. The testing involves the use of a 
temporary licensing schema (via the use of a USB license key tool) 
to temporarily enable various application features. Once the testing 
is completed and the USB thumb drive is removed, the software is no 
longer enabled. You state that the condition of the system when it 
leaves Shanghai is a tested, but incomplete electronics module. You 
state that even with the application of power, the addition of a 
control panel, monitor, and transducers, the electronics module, in 
its form as exported from China, could not be used as a diagnostics 
ultrasound machine.

Ultrasound System Integration and Testing:

    After importation, the partially completed electronics module 
initially arrives to the facility of a Siemens Medical contract 
manufacturer in San Jose, CA for completion of the electronics 
module. This includes the installation of the Italian-origin 
monitor, the U.S.-origin control panel, and the U.S.-origin outer 
covers that cover the electronics, the alternating current tray, and 
the transformer.
    In addition, depending on the specific customer order at issue, 
the assembly may also include installation of the ``Physio Module'' 
(a component that provides the system with an interface to patient 
respiration and electrocardiogram (ECG) data, whereby that data can 
be overlaid on the ultrasound image such that a video clip of the 
imaging data will include ECG and respiration data in real time) and 
a digital video recorder assembly.
    Once the assembly is completed, the following series of tests 
and system adjustments are performed:
     Electrical safety testing of the components.
     Calibration of the Italian-origin display monitor using 
a specific ultrasound imaging procedure.

[[Page 21391]]

     Diagnostic and imaging tests using Korean-origin 
``slave'' transducers to ensure proper functioning of the control 
panel and monitor.
     24 hours of reliability testing for any latent 
failures. This involves a series of power-on and power-off 
operations, customer use simulations, stress testing of the real-
time manager assembly, automated software tests, and tests of 
numerous standby operations.
    At the conclusion of the reliability testing, the system is 
checked for cosmetic acceptance, which involves a physical review of 
the product against certain customer criteria. The system is then 
packaged and shipped to Siemens Medical's Buffalo Grove, Illinois 
location for final assembly, configuration and testing.

Final Assembly, Configuration, and Testing:

    Upon arrival at Siemen's Medical's Buffalo Grove facility, the 
system is ``whitewashed'', where the test version of the software is 
wiped from the system in its entirety. Next, the most current 
version of the operating system software, which is designed, 
developed, and written in the U.S., is uploaded to each unit using 
DVDs. The application software is enabled by loading the permanent 
licensing keys into the system using a web-based tool that 
interfaces with Siemen's enterprise resource planning system (SAP). 
You state that every feature and system type has a unique license 
key. The web-based tool identifies the features and system type as 
shown in the customer's order in the SAP and creates the 
corresponding license key file on a DVD or USB drive. That file, in 
turn, is uploaded to the unit and enables only the purchased 
features in the systems software. Next, the equipment is adjusted 
and configured to meet customer requirements for line voltage 
(including addition of the appropriate power cord), language 
(control panel overlay and system software settings), and 
documentation devices (printer etc.). An electrical safety test is 
then performed on the system's final configuration. The final test 
process is the execution of the Customer Relevant Simulation 
Testing, which is a high-level imaging process that uses the 
customer ordered Korean-origin transducers and capitalized 
transducers to fully test the functionality of the complete 
ultrasound system (including customized applications, transducers, 
system, and peripherals). You state that this test requires a highly 
trained skilled diagnostician as it is intended to replicate the 
customer's intended user environment.
    The S2000 ultrasound system is comprised of approximately 19 
subassemblies and additional components. It takes approximately 23-
24 hours to produce the finished S2000 ultrasound system of which 
13-14 hours takes place in the U.S. The Antares ultrasound system is 
comprised of 17 subassemblies and additional components. It takes 
approximately 24-25 hours to produce the finished Antares ultrasound 
system of which 14-15 hours takes place in the U.S.
    You submitted the costed bill of materials for the S2000 and 
Antares ultrasound systems. You also submitted a copy of the product 
brochures for the S2000 and Antares systems. Additionally, you 
provided pictures of various transducers, the electronics 
components, the partially completed electronics module, the list of 
printed wire assemblies and functions, and the manufacturing process 
flow chart.

ISSUE:

    What is the country of origin of the S2000 and Antares 
ultrasound systems for the purpose of U.S. government procurement?

LAW AND ANALYSIS:

    Pursuant to subpart B of part 177, 19 C.F.R. Sec.  177.21 et 
seq., which implements Title III of the Trade Agreements Act of 
1979, as amended (19 U.S.C. Sec.  2511 et seq.), CBP issues country 
of origin advisory rulings and final determinations as to 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. Sec.  
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. Sec.  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 Acquisition 
Regulations. See 19 C.F.R. Sec.  177.21. In this regard, CBP 
recognizes that the Federal Acquisition 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 
C.F.R. Sec.  25.403(c)(1). The Federal Acquisition Regulations 
define ``U.S.-made end product'' as:

* * * an article that is mined, produced, or manufactured in the 
United States or that is substantially transformed in the United 
States 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 transformed.

48 C.F.R. Sec.  25.003.

    In order to determine whether a substantial transformation 
occurs when components of various origins are assembled into 
completed products, 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, and use are primary 
considerations in such cases. 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 will 
be considered when determining whether a substantial transformation 
has occurred. No one factor is determinative.
    In Texas Instruments v. United States, 681 F.2d 778, 782 (CCPA 
1982), the court observed that the substantial transformation issue 
is a ``mixed question of technology and customs law.''
    In Data General v. United States, 4 Ct. Int'l Trade 182 (1982), 
the court determined that for purposes of determining eligibility 
under item 807.00, Tariff Schedules of the United States 
(predecessor to subheading 9802.00.80, Harmonized Tariff Schedule of 
the United States), the programming of a foreign PROM (Programmable 
Read-Only Memory chip) in the United States substantially 
transformed the PROM into a U.S. article. In programming the 
imported PROMs, the U.S. engineers systematically caused various 
distinct electronic interconnections to be formed within each 
integrated circuit. The programming bestowed upon each circuit its 
electronic function, that is, its ``memory'' which could be 
retrieved. A distinct physical change was effected in the PROM by 
the opening or closing of the fuses, depending on the method of 
programming. This physical alteration, not visible to the naked eye, 
could be discerned by electronic testing of the PROM. The court 
noted that the programs were designed by a U.S. project engineer 
with many years of experience in ``designing and building 
hardware.'' While replicating the program pattern from a ``master'' 
PROM may be a quick one-step process, the development of the pattern 
and the production of the ``master'' PROM required much time and 
expertise. The court noted that it was undisputed that programming 
altered the character of a PROM. 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, was no less a ``substantial 
transformation'' than the manual interconnection of transistors, 
resistors and diodes upon a circuit board creating a similar 
pattern.
    HQ H203555, dated April 23, 2012, concerned the country of 
origin of certain oscilloscopes. CBP considered five manufacturing 
scenarios. In the various scenarios, the motherboard and the power 
controller of either Malaysian or Singaporean origin were assembled 
in Singapore with subassemblies of Singaporean origin into 
oscilloscopes. CBP found that under the various scenarios, there 
were three countries under consideration where programming and/or 
assembly operations took place, the last of which was Singapore. CBP 
noted that no one country's operations dominated the manufacturing 
operations of the oscilloscopes. As a result, while the boards 
assembled in Malaysia were important to the function of the 
oscilloscopes and the U.S. firmware and software were used to 
program

[[Page 21392]]

the oscilloscopes in Singapore, the final programming and assembly 
of the oscilloscopes was in Singapore and hence represented the last 
substantial transformation. Therefore, CBP found that the country of 
origin of the oscilloscopes was Singapore.
    HQ H170315, dated July 28, 2011, concerned the country of origin 
of satellite telephones. CBP was asked to consider six scenarios 
involving the manufacture of PCBs in one country and the programming 
of the PCBs with second country software either in the first country 
or in a third country where the phones were assembled. In the third 
scenario, the application and transceiver boards for satellite 
phones were assembled in Malaysia and programmed with U.K.-origin 
software in Singapore, where the phones were also assembled. CBP 
found that no one country's operations dominated the manufacturing 
operations of the phones and that the last substantial 
transformation occurred in Singapore. See also HQ H014068, dated 
October 9, 2007 (CBP determined that a cellular phone designed in 
Sweden, assembled in either China or Malaysia and shipped to Sweden, 
where it was loaded with software that enabled it to test equipment 
on wireless networks, was a product of Sweden. Once the software was 
installed on the phones in Sweden, they became devices with a new 
name, character and use, that is, network testing equipment. As a 
result of the programming operations performed in Sweden, CBP found 
that the country of origin of the network testing equipment was 
Sweden).
    In this case, substantial manufacturing operations are performed 
in China, the U.S., Korea, and Italy. The electronics module, which 
is partially assembled in China, is imported into the U.S., where it 
is assembled with other core components, including the Korean-origin 
transducers that send and receive the acoustic signals, the Italian-
origin monitor that permits display of images, and the U.S.-origin 
control panel that serves as the user interface. The completely 
assembled ultrasound systems are then uploaded with U.S. designed, 
developed, and written operating system software and application 
software. You state that the software is necessary for the 
ultrasound systems to perform their intended function of providing 
diagnostic information (an observable image with related data). As 
previously noted, it takes approximately 23-24 hours to produce the 
finished S2000 ultrasound system of which 13-14 hours takes place in 
the U.S. It takes approximately 24-25 hours to produce the finished 
Antares ultrasound system of which 14-15 hours takes place in the 
U.S. You claim that the assembly, integration, and testing in the 
U.S. is conducted by specialized technicians. You also state that 
all of the research & development, product engineering and design 
investment occur in the U.S. Based on the totality of the 
circumstances, we find that the last substantial transformation 
occurs in the U.S., the location where the final assembly and 
installation of the operating system software and application 
software occurs. Prior to the assembly and programming in the U.S., 
the products are unable to carry out the functions of ultrasound 
systems. However, the assembly and programming in the U.S. creates a 
new product that is capable of providing diagnostic information. 
Consequently, we find that the country of origin of the ultrasound 
systems is the U.S.

HOLDING:

    The imported components that are used to manufacture the S2000 
and Antares ultrasound systems are substantially transformed as a 
result of the assembly and software installation operations 
performed in the U.S. Therefore, we find that the country of origin 
of the S2000 and Antares ultrasound systems for government 
procurement purposes is the U.S.
    Notice of this final determination will be given in the Federal 
Register, as required by 19 C.F.R. Sec.  177.29. Any party-at-
interest other than the party which requested this final 
determination may request, pursuant to 19 C.F.R. Sec.  177.31, that 
CBP reexamine the matter anew and issue a new final determination. 
Pursuant to 19 C.F.R. Sec.  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, Regulations and Rulings, Office of International 
Trade.
[FR Doc. 2013-08349 Filed 4-9-13; 8:45 am]
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