Notice of Issuance of Final Determination Concerning Certain Hard Disk Drives and Self-Encrypting Drives, 51737-51740 [2013-20425]

Agencies

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

[Federal Register Volume 78, Number 162 (Wednesday, August 21, 2013)]
[Notices]
[Pages 51737-51740]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20425]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Certain Hard 
Disk Drives and Self-Encrypting Drives

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

ACTION: Notice of final determination.

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[[Page 51738]]

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 digital storage devices known as hard disk 
drives (``HDDs'') and self-encrypting drives (``SEDs''). Based upon the 
facts presented, CBP has concluded that the programming operations 
performed in the United States, using U.S.-origin firmware, 
substantially transform non-TAA country HDDs. Therefore, the country of 
origin of the HDDs and SEDs is the United States for purposes of U.S. 
Government procurement.

DATES: The final determination was issued on August 14, 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 September 20, 2013.

FOR FURTHER INFORMATION CONTACT: Heather K. Pinnock, Valuation and 
Special Programs Branch: (202) 325-0034.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on August 14, 
2013, pursuant to subpart B of Part 177, U.S. Customs and Border 
Protection Regulations (19 CFR part 177, subpart B), CBP issued a final 
determination concerning the country of origin of certain digital 
storage devices known as HDDs and SEDs, which may be offered to the 
U.S. Government under an undesignated government procurement contract. 
This final determination, HQ H241362, was issued 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 concluded that, based upon the facts 
presented, the programming operations performed in the United States, 
using U.S.-origin firmware, substantially transform non-TAA country 
HDDs. Therefore, the country of origin of the HDDs and SEDs is the 
United States for purposes of U.S. Government procurement.
    Section 177.29, CBP Regulations (19 CFR 177.29), provides that a 
notice of final determination 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: August 14, 2013.
Sandra L. Bell,
Executive Director, Regulations and Rulings, Office of International 
Trade

Attachment

HQ H241362

MAR OT:RR:CTF:VS H241362 HkP

CATEGORY: Origin

Stuart P. Seidel, Esq.
Baker & McKenzie
815 Connecticut Avenue NW
Washington, DC 20006-4078

RE: Government Procurement; Trade Agreements Act; Country of Origin 
of Hard Disk Drives and Self-Encryption Drives; Substantial 
Transformation

Dear Mr. Seidel:
    This is in response to your letter, dated April 24, 2013, 
requesting a final determination on behalf of Seagate Technology, 
LLC (``Seagate''), pursuant to subpart B of part 177 of the U.S. 
Customs and Border Protection (``CBP'') Regulations (19 C.F.R. Part 
177). Under these regulations, which implement Title III of the 
Trade Agreements Act of 1979 (TAA), 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. In 
reaching our decision, we have taken into account additional 
information submitted on June 3, 2013.
    This final determination concerns the country of origin of three 
lines of Seagate's Hard Disk Drives (``HDDs'') designated as: (1) 
``Mission Critical''; (2) ``Business Critical''; and, (3) ``Personal 
Storage''. We note that as a U.S. importer, Seagate 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. Your request for 
confidential treatment regarding all cost and price information 
contained in your request is granted and such information will not 
be disclosed to the public.

FACTS:

    Seagate imports fully assembled HDDs from [non-TAA country] or 
[non-TAA country]. An HDD is a digital storage device. The products 
at issue are three lines of HDDs: (1) Mission Critical, sold under 
the brand names ``Cheetah'', ``Savvio'', and ``Enterprise 
Performance''; (2) Business Critical, sold under the brand names 
``Constellation'', ``Enterprise Capacity'', and ``Enterprise 
Value''; and, (3) Personal Storage, sold under the brand names 
``Barracuda'' and ``Desktop''.
    HDDs are designed in the United States and assembled either in 
[non-TAA country] or [non-TAA country] from components manufactured 
by Seagate outside the United States or obtained by Seagate from 
suppliers in Asia. The assembly process in [non-TAA country] or 
[non-TAA country] is as follows:
    The Head Disk Assembly (``HDA''), usually comprised of two 
magnetic recording media (``Media'') and three read/write recording 
heads (``Heads''), a head actuator assembly, and an airtight metal 
enclosure is assembled in minutes.
    The HDA is mated to a printed circuit board (``PCB'') containing 
disk drive electronics to create an HDD. It is assembled in seconds.
    The HDD is loaded into the factory testing system, and testing 
firmware is downloaded onto the HDD to facilitate media 
certifications. The HDD stays in a sequence of media certification 
operations for one or more days, as necessary.
    Following successful media certification, the HDD testing 
firmware is replaced with generic, basic firmware that only allows 
the HDD's computer interface functions to be tested. Testing lasts 
between [xxx] and [xxx].
    After testing, the generic firmware is removed and the drive is 
``forced blocked'', that is, it is blocked from being able to have 
software loaded onto it or to be further tested. It is stated that 
force blocking renders the HDD unable to function as a storage 
drive.
    The Heads in the HDA incorporate semiconductor, magnetic, 
mechanical, and manufacturing process design into an integrated 
recording reader and writer. It takes approximately [xxx] hours to 
design a Head, [xxx] of which are allocated to design work in the 
U.S., [xxx] hours to design work in [non-TAA country], and [xxx] 
hours to design work in [non-TAA country]. The Media in the HDA 
incorporates thin film magnetics, mechanical surface design and 
manufacturing process design. It takes approximately [xxx] hours to 
design Media, [xxx] of which are allocated to work done in the U.S., 
[xxx] hours to work done in [TAA country], and [xxx] hours to work 
done in [non-TAA country].
    Fully assembled HDDs are shipped to the United States. According 
to the information submitted, in their imported condition, HDDs 
cannot function as storage media. The disk heads cannot move, data 
cannot be stored or retrieved and, were the HDDs to be installed on 
computers or networks, they would not be recognized or listed. They 
do, however, have a rudimentary serial port that enables the HDD to 
communicate with a computer using a proprietary Seagate protocol so 
that firmware may be installed and tests performed.
    In the U.S., the imported HDD is unblocked and programmed with 
two types of firmware:
    1. Servo Firmware, which controls all motor, preamp and servo 
functions without which the motors, Media, and Heads will not 
operate and the HDD will not work; and
    2. Non-Security Controller Firmware, which manages all 
communications between the host and target drives as well as all 
data within the drive. It allows data files to be stored on the 
Media in the HDD, to be found and listed within applications, and to 
be saved, retrieved and overwritten.
    Installation and testing of the Servo and Non-Security 
Controller Firmware takes between [xxx] and [xxx], depending on the 
capacity and model of the HDD. Both types of firmware are developed 
in the U.S. and [TAA country]. Approximately 80% of the work hours 
spent on combined firmware

[[Page 51739]]

design is allocated to work performed in the United States at 
Seagate's design centers and approximately 20% to work performed in 
[TAA country]. Combined, the compiled firmware code is approximately 
2 MB in size and contains approximately one million lines of code. 
The firmware loaded onto the HDD in the U.S. makes the HDD a fully 
functional, generic storage device.
    During programming operations, approximately 25% of the generic 
HDDs are reformatted based on specific customer requirements, such 
as security features, format sizes, and format modes. Customer-
specific code is developed in the United States. Security Controller 
Firmware, which may be added on to Non-Security Controller Firmware 
as a part of a customer's code, allows the HDDs to be secured 
through encryption, which involves enabling an encryption program 
and security interface, locking the debug ports, and loading 
credentials and certificates. The Security Controller Firmware is 
written in the U.S. (85-90%) and in [TAA country] (10-15%), based on 
architecture totally designed in the U.S. involving thousands of 
hours and millions of dollars. After the HDDs are configured to 
customer security requirements, the HDDs are known as self-
encrypting drives (SEDs). SEDs encrypt data as it is being written 
and decrypts data as it is being read.
    After programming is complete, the HDDs and SEDs are validated 
or tested. A final quality assurance inspection is performed, after 
which the HDDs and SEDs receive new part numbers and labels, and are 
sold.

ISSUE:

    What is the country of origin of Seagate's Hard Disk Drives and 
Self-Encrypting Drives for purposes of U.S. Government procurement?

LAW AND ANALYSIS:

    Pursuant to Subpart B of Part 177, 19 CFR 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 Procurement 
Regulations. See 19 C.F.R. Sec.  177.21. In this regard, CBP 
recognizes that the Federal Procurement 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 Procurement Regulations 
define ``U.S.-made end product'' as:
    [A]n 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.
    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 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.
    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 C.S.D. 84-85, 18 Cust. B. & Dec. 1044 (Apr. 2, 1984), CBP 
stated:
    We are of the opinion that the rationale of the court in the 
Data General case may be applied in the present case to support the 
principle that the essence of an integrated circuit memory storage 
device is established by programming . . . . [W]e are of the opinion 
that the programming (or reprogramming) of an EPROM results in a new 
and different article of commerce which would be considered to be a 
product of the country where the programming or reprogramming takes 
place.
    Accordingly, the programming of a device that changes or defines 
its use generally constitutes substantial transformation. See also 
Headquarters Ruling Letter (`HQ'') 558868, dated February 23, 1995 
(programming of SecureID Card substantially transforms the card 
because it gives the card its character and use as part of a 
security system and the programming is a permanent change that 
cannot be undone); HQ 735027, dated September 7, 1993 (programming 
blank media (EEPROM) with instructions that allow it to perform 
certain functions that prevent piracy of software constitute 
substantial transformation); and, HQ 733085, dated July 13, 1990; 
but see HQ 732870, dated March 19, 1990 (formatting a blank diskette 
does not constitute substantial transformation because it does not 
add value, does not involve complex or highly technical operations 
and did not create a new or different product); HQ 734518, dated 
June 28, 1993, (motherboards are not substantially transformed by 
the implanting of the central processing unit on the board because, 
whereas in Data General use was being assigned to the PROM, the use 
of the motherboard had already been determined when the importer 
imported it).
    HQ H052325, dated February 14, 2006, concerned the country of 
origin of a switch and a switch/router. The Brocade 7800 Extension 
Switch was assembled to completion in China and programmed in the 
U.S. with U.S.-origin operating system (OS) software and customer 
specified firmware and software. The Brocade FX8-24 switch/router 
contained a PCBA that was assembled and programmed in China and 
shipped to the U.S., where it was assembled with other components to 
make the final product. The completed unit was then programmed with 
U.S.-origin OS software and customer firmware and software. In both 
cases, the U.S.-origin OS software provided the devices with their 
functionality. Customs found that in both cases, the processing 
performed in the United States, including the downloading of the 
U.S.-origin OS software, resulted in a substantial transformation of 
the foreign

[[Page 51740]]

origin components, and that the United States was the country of 
origin.
    In HQ H175415, dated October 4, 2011, hardware components were 
assembled into complete Ethernet switches in China. The switches 
were then shipped to the U.S., where they were programmed with EOS 
software, developed in the U.S. The U.S.-origin EOS software enabled 
the imported switches to interact with other network switches 
through network switching and routing, and allowed for the 
management of functions such as network performance monitoring and 
security and access control. Without this software, the imported 
devices could not function as Ethernet switches. As a result of the 
programming performed in the U.S., with software developed in the 
U.S., CBP found that the imported switches were substantially 
transformed in the U.S.
    In HQ H215555 (July 13, 2012), fully assembled SheevaPlug 
microcomputers were imported into the United States, where they were 
programmed with Pwnie Express proprietary software developed in the 
U.S. The custom software provided a web-based interface for 
configuring the microcomputers into Pwn Plugs. In addition, the U.S. 
software allowed Pwn Plugs to provide secure, persistent and 
reliable remote access over a variety of network protocols and 
customer environments. Without the U.S.-origin Pwnie Express 
software, an imported microcomputer could not function as a Pwn 
Plug. As a result of the programming performed in the U.S., with 
software developed in the U.S., we found that the imported 
microcomputers were substantially transformed in the U.S. and that 
the country of origin of Pwn Plugs was the United States.
    In this case, fully assembled digital storage devices are 
imported into the United States. Mechanically, the HDDs consist of 
magnetic heads and a PBC. Their purpose is to store data. 
Accordingly, in their imported condition they are completely non-
functional, in that, their disk heads cannot move, they cannot store 
or retrieve data, and they cannot be recognized or listed by a 
computer or network. The imported HDDs only have a basic ability to 
communicate through a serial port using a proprietary Seagate 
protocol that is used solely to install firmware and to test the 
devices. They are programmed in the U.S. with U.S.-origin Servo 
firmware, which causes the HDD to function mechanically by 
controlling the motors, preamp and servo mechanisms, which operate 
the recording media and disk heads in the HDA. They are also 
programmed in the U.S. with U.S.-origin Controller firmware, which 
manages all communication between the host and target drives as well 
as all data management within the drive. In particular, Controller 
firmware allows data files to be stored on the recording media in 
the HDA, found and listed within applications, and saved, retrieved 
and overwritten. Together, the U.S.-origin firmware causes the 
imported HDDs to function as digital storage devices. As a result of 
the programming performed in the U.S., with software primarily 
developed in the U.S., we find that the imported HDDs are 
substantially transformed in the U.S. See Data General, C.S.D. 84-
85, HQ 215555, HQ 052325, HQ 558868, HQ 735027, and HQ 733085. The 
country of origin of the HDDs is the United States.
    Counsel also argues that SEDs are different products than 
standard HDDs because they undergo an additional substantial 
transformation. Specifically, counsel states that the U.S.-origin 
security firmware with which HDD is programmed in the U.S. converts 
a standard HDD into a SED, a controlled encryption device for U.S. 
export control purposes. In addition, counsel states that the SED 
performs different functions than a standard HDD, has different 
labeling and part numbers, is marketed and sold in a different 
market than the HDD (a separate portion of the Seagate website is 
devoted to security devices such as SEDs), and is priced 
differently. We agree. To the extent that the HDDs are programmed 
with additional U.S.-origin security firmware, the country of origin 
of the SEDs will be the United States.
    Nonetheless, this determination concerns whether the HDDs and 
SEDs are products 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. Consequently, the question of whether 
additional programming performed in the U.S., using U.S.-origin 
firmware incorporating an encryption code, transforms the HDD into a 
SED subject to U.S. export control jurisdiction is outside the scope 
of this determination.
    Please be advised that whether the HDDs may be marked ``Made in 
the U.S.A.'' or with similar words, is an issue under the authority 
of the Federal Trade Commission (``FTC''). We suggest that you 
contact the FTC, Division of Enforcement, 6th and Pennsylvania 
Avenue, NW, Washington, DC 20508, on the propriety of markings 
indicating that articles are made in the United States.

HOLDING:

    Based on the facts provided, the programming operations 
performed in the United States impart the essential character to 
Seagate's hard disk drives. As such, the HDDs are considered 
products of the United States for purposes of U.S. Government 
procurement.
    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 of 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. 2013-20425 Filed 8-20-13; 8:45 am]
BILLING CODE 9111-14-P