Notice of Issuance of Final Determination Concerning Certain Ethernet Switches, 75360-75362 [2013-29470]

Agencies

• Customs and Border Protection Bureau
• DEPARTMENT OF HOMELAND SECURITY

[Federal Register Volume 78, Number 238 (Wednesday, December 11, 2013)]
[Notices]
[Pages 75360-75362]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29470]


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DEPARTMENT OF HOMELAND SECURITY

Customs and Border Protection Bureau


Notice of Issuance of Final Determination Concerning Certain 
Ethernet Switches

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 Ethernet switches. Based upon the facts 
presented, CBP has concluded that Malaysia, where the switches were 
assembled, is the country where the last substantial transformation 
occurred. Therefore, the country of origin of the switches is Malaysia 
for purposes of U.S. Government procurement.

DATES: The final determination was issued on December 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 January 10, 2014.

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

SUPPLEMENTARY INFORMATION: Notice is hereby given that on December 3, 
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 Ethernet switches 
which may be offered to the U.S. Government under an undesignated 
government procurement contract. This final determination, HQ H241177, 
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 last substantial 
transformation took place in Malaysia, where the switches were 
assembled. Therefore, the country of origin of the switches is Malaysia 
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: December 3, 2013.
Sandra L. Bell,
Executive Director, Regulations and Rulings, Office of International 
Trade.

Attachment

HQ H241177
December 3, 2013
MAR OT:RR:CTF:VS H241177 HkP
CATEGORY: Origin
Josephine Aiello LeBeau, Esq.
Anne Seymour, Esq.
Wilson Sonsini Goodrich & Rosati, PC
1700 K Street NW., Fifth Floor
Washington, DC 20006-3817
RE: U.S. Government Procurement; Country of Origin of Local Area 
Network Switches; Substantial Transformation
Dear Ms. LeBeau and Ms. Seymour:
    This is in response to your letter, dated March 13, 2013, 
requesting a final determination on behalf of Arista Networks, Inc. 
(``Arista''), 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. Your 
letter was forwarded to this office by the National Commodity 
Specialist Division on April 8, 2013.
    This final determination concerns the country of origin of 
Arista's 7000, 7100, 7200, series (``7 Series'') local area network 
(``LAN'') switches. We note that as a U.S. importer, Arista 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:

    Arista plans to import fully functional 7 Series Ethernet 
switches from Singapore.\1\ The switches are designed to 
interconnect servers and storage appliances in data centers. Each 
switch consists of one or more printed circuit board assembly 
(``PCBA''), chassis, top cover, power supply, and fans. The switches 
operate using Arista's Extensible Operating System 
(``EOSTM'') software.
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    \1\ CBP previously issued Headquarters Ruling Letter H175415, 
dated October 7, 2011, to Arista concerning the country of origin of 
non-functioning 7048, 7050, 7100, 7124, and 7500 series Ethernet 
switches imported from China and programmed in the United States 
with U.S.-origin software.
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    Arista's EOS software is designed to provide switching 
functionality, secure administration, increase reliability, and to 
optimize network management. Specifically, EOS software provides the 
following capabilities and benefits to Ethernet switches: in-service 
software upgrade, software fault containment, fault repair, security 
exploit containment, and scalable management interface. According to 
your submission, the units imported from Singapore could not 
function as network switches without this software, which was 
developed in the United States at considerable cost to Arista. Since 
2005, more than 140 software engineers have continued to develop the 
software and more than 80 percent of Arista's Research and 
Development spending has been on EOS software development.
    Manufacturing operations are performed in China, Malaysia and 
Singapore. Software downloading operations, using U.S.-origin 
software, take place only in Singapore.
    The following operations occur in China:
    The chassis and top cover are manufactured from sheet metal.
    The following operations occur in Malaysia:
1. A printed circuit board is populated with various electronic 
components to make a PCBA.
2. The PCBA is tested to ensure functionality.
3. The power supply and fans are installed in the chassis.
4. The PCBA is installed in the chassis.

[[Page 75361]]

5. The chassis and top cover are assembled together.
6. The serial numbers of the components are entered into the data 
tracking system, and the switch is packaged and shipped to 
Singapore.
    The following operations occur in Singapore:
1. Custom configuration changes, such as substitution of DC for AC 
power supplies and/or installation of optional hardware modules, are 
made.
2. U.S.-origin EOSTM software is downloaded onto the 
flash memory on the PCBA.
3. The switch is tested, packaged, and prepared for shipping.
    The EOS software program dedicates the hardware to its specific 
applications and the only reprogramming operations that may be done 
are updating the software to a different version.

ISSUE:

    What is the country of origin of the Arista's 7 Series Ethernet 
switches 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 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.'' In addition, the court noted that 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, 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 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); and, 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).
    You believe that under the manufacturing scenario described in 
the FACTS section above, Arista's 7 Series Ethernet switches are 
products of Singapore. You argue that without the EOS software, the 
units exported from Singapore lack the intelligence to perform as 
network switches. In fact, you claim that the EOS software gives the 
Malaysian switches their essential character by providing network 
switching and routing functionality, management functions, network 
performance monitoring, security and access control, and by allowing 
interaction with other switches. Further, programming the switches 
with the EOS software creates a permanent change in the PCBAs that 
cannot be undone by third parties during the normal course of 
business. The only reprogramming operation that may be performed 
during the normal course of business is either updating the 
installed software or entering licensing keys that enable the 
activation of additional EOS software features.
    In support of your position, you make a two-pronged argument. 
The first is that the switches are substantially transformed by 
programming. As indicated above, CBP has previously found that 
programming may effect a substantial transformation.
    The second prong of your argument is that, when there are 
multiple manufacturing locations, the country of origin is the 
country where the last substantial transformation occurs. In this 
case, you claim that programming is the last substantial 
transformation that the switches undergo, hence, the country of 
origin is Singapore. You cite HQ H170315 (July 28, 2011) and HQ 
H203555 (April 23, 2012) as support.
    HQ H203555 concerned the country of origin of oscilloscopes made 
according to five possible manufacturing scenarios. Regardless of 
the scenario, components were assembled into subassemblies, which 
were then made into complete oscilloscopes, in Singapore. Boards 
important to the function of the oscilloscopes, incorporated into 
the subassemblies in Singapore, were assembled in Malaysia only or 
in Malaysia and Singapore. In all cases, U.S.-origin firmware was 
downloaded onto the fully assembled oscilloscopes in Singapore. For 
all scenarios, CBP found that there were three countries where 
programming and/or assembly operations took place, the last of which 
was Singapore. However, no one country's operations dominated the 
manufacturing operations of the oscilloscopes. The boards assembled 
in Malaysia were important to the function of the oscilloscopes, as 
was the U.S. firmware and software used to program the oscilloscopes 
in Singapore. Further, the assembly in Singapore completed the 
oscilloscopes. Therefore, the last substantial transformation 
occurred in Singapore, which was the country of origin for 
procurement purposes.
    HQ H170315 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 scenarios I, II, 
and VI, CBP found that the country of origin of the phones was 
Malaysia because, as the country where the assembly and programming 
of the boards

[[Page 75362]]

which conveyed the essential character of the phones took place, 
that was the place where the last substantial transformation 
occurred. Moreover, subsequent assembly operations in Singapore did 
not substantially transform the programmed boards into a new and 
different article. In scenarios III through V, the boards were 
assembled in Malaysia or Malaysia and Singapore. Handset programming 
took place wholly, or in part, in Singapore, where the phones were 
also assembled to completion. For those scenarios, CBP found that 
the country of origin of the phones was Singapore.
    We note that none of the rulings cited in Arista's submission 
(some discussed above) are instructive because they do not address 
situations in which assembly is performed in one country and 
software is developed in a second country and downloaded in a third 
country. The rulings refer to situations in which assembly and 
software downloading are performed in one country using programs 
developed in the same or another country, or to situations in which 
assembly is performed in one country and downloading is performed in 
another country using programs developed in the same country in 
which the software is downloaded onto the article.
    In this case, the switches are assembled to completion in 
Malaysia and then shipped to Singapore, where EOS software developed 
in the United States at significant cost to Arista and over many 
years is downloaded onto them. It is claimed that the U.S.-origin 
EOS software enables the imported switches to interact with other 
network switches through network switching and routing, and allows 
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.
    We find that the software downloading performed in Singapore 
does not amount to programming. Programming involves writing, 
testing and implementing code necessary to make a computer function 
in a certain way. See Data General supra. See also ``computer 
program'', Encyclop[aelig]dia Britannica (2013), (9/19/2013) https://www.britannica.com/EBchecked/topic/130654/computer-program, which 
explains, in part, that ``a program is prepared by first formulating 
a task and then expressing it in an appropriate computer language, 
presumably one suited to the application.''
    While the programming occurs in the U.S., the downloading occurs 
in Singapore. Given these facts, we find that the country where the 
last substantial transformation occurs is Malaysia, that is, where 
the major assembly processes are performed. The country of origin 
for purposes of U.S. Government procurement is Malaysia.

HOLDING:

    Based on the facts provided, the last substantial transformation 
occurs in Malaysia. As such, the switches will be considered 
products of Malaysia for purposes of U.S. Government procurement.
    Notice of this final determination will be given in the Federal 
Register, as required by 19 CFR Sec.  177.29. Any party-at-interest 
other than the party which requested this final determination may 
request, pursuant to 19 CFR Sec.  177.31, that CBP reexamine the 
matter anew and issue a new final determination. Pursuant to 19 CFR 
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. 2013-29470 Filed 12-10-13; 8:45 am]
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