82 FR 13644 - Notice of Issuance of Final Determination Concerning Certain Data Storage Products

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

Federal Register Volume 82, Issue 48 (March 14, 2017)

Page Range		13644-13648
FR Document		2017-04953
This document provides notice that U.S. Customs and Border Protection (``CBP'') has issued a final determination concerning the country of origin of three data storage products. Based upon the facts presented, CBP has concluded that the country of origin of two data storage products is Mexico and the country of origin of the third data storage is Malaysia for purposes of U.S. Government procurement.
Federal Register, Volume 82 Issue 48 (Tuesday, March 14, 2017)
[Federal Register Volume 82, Number 48 (Tuesday, March 14, 2017)]
[Notices]
[Pages 13644-13648]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-04953]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Certain Data 
Storage Products

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 three data storage products. Based upon the facts 
presented, CBP has concluded that the country of origin of two data 
storage products is Mexico and the country of origin of the third data 
storage is Malaysia for purposes of U.S. Government procurement.

DATES: The final determination was issued on March 8, 2017. 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 within April 13, 2017.

FOR FURTHER INFORMATION CONTACT: Grace A. Kim, Tariff Classification 
and Marking Branch, Regulations and Rulings, Office of Trade, (202) 
325-7941.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on March 8, 
2017, pursuant to subpart B of part 177, U.S. Customs and Border 
Protection Regulations (19 CFR 177(B)), CBP issued a final 
determination concerning the country of origin of certain data storage 
products, which may be offered to the U.S. Government under an 
undesignated government procurement contract. This final determination, 
HQ H269185, was issued under procedures set forth at 19 CFR 177(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 for two of the three products, the processing in Mexico results in 
a substantial transformation. However, for the third product, the 
processing in Mexico does not result in a substantial transformation. 
Therefore, the country of origin of two data storage products is

[[Page 13645]]

Mexico and the country of origin of the third data storage 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: March 8, 2017.
Alice A. Kipel,
Executive Director, Regulations and Rulings, Office of Trade.
Attachment
HQ H269185
OT:RR:CTF:VS H269185 GaK
CATEGORY: Marking
Stuart P. Seidel
Baker & McKenzie LLP
815 Connecticut Ave. NW.
Washington, DC 20006

RE: Final Determination; Government Procurement; Country of Origin of 
data storage system; Substantial Transformation

Dear Mr. Seidel:

    This is in response to a letter we received dated September 18, 
2013, requesting a final determination on behalf of [********] (``the 
Company''), pursuant to subpart B of Part 177 of the U.S. Customs and 
Border Protection Regulations (19 CFR part 177) and to two follow-up 
submissions dated January 6, 2014, and May 30, 2014. You also requested 
a country of origin marking decision. CBP also received notification on 
July 21, 2015 that the Company was acquired by another corporation and 
counsel for the Company was replaced. Under 19 CFR part 177, which 
implements Title III of the Trade Agreements Act of 1979 (TAA), as 
amended (19 U.S.C. 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.
    This final determination concerns the country of origin of three 
data storage products for government procurement. As a U.S. importer, 
the Company is a party-at-interest within the meaning of 19 CFR 
177.22(d)(1) and is entitled to request this final determination. A 
meeting was held at our office on February 19, 2014.
    In your letter, you requested confidential treatment for certain 
information contained in the file. Pursuant to 19 CFR 177.2(b)(7), the 
identified information has been bracketed and will be redacted in the 
public version of this final determination.
FACTS:
    The Company is a data storage technology company headquartered in 
the United Kingdom with worldwide operations. The Company manufactures 
a variety of high performance enterprise data storage products that are 
used for the storage of electronic data onto physical disc drives. 
These products serve as the building blocks for medium to large 
corporations with a need to store and access large amounts of data 
securely and rapidly. Physically, the products operate in large server 
rooms or similar facilities, managed by trained professional 
information technology staff.
    Three products are the subject of this ruling and they all apply 
the Integrated Storage Test Platform (``ISTP''). ISTP is a highly 
proprietary, Linux-based global hardware and software solution 
representing approximately 100 man-years of software development time 
over the past ten years and 6,500,000 lines of code, developed in the 
United Kingdom and the United States for the Company's manufacturing 
processes. You state that ISTP is a critical element of the Company's 
products. As discussed infra, the firmware for the three data storage 
products is developed and managed in the United Kingdom and a team of 
19 United Kingdom-based software engineers manage ISTP. There are also 
software engineers at each production facility, including a Mexican 
facility at issue, that are trained by the United Kingdom-based 
engineers. ISTP-qualified engineers are located at the production site 
to provide input into the manufacturing and testing processes and all 
engineers have a high level of competence in ``C'' programming, test 
engineering, and the Company's product knowledge. The ISTP undergoes 
approximately 40 updates a month incorporating customer requirements 
and design updates that directly affect the manufacturing process in 
Mexico.
    Product One, the [********] is a storage application platform 
delivering integrated storage and enterprise server system resources 
that tailor the amount of processing, memory, storage capacity, and 
high bandwidth input/output resources to meet customers' requirements. 
While Product One can be configured based on customer requirements, it 
generally includes hard disc slots that can carry up to 24 hard disc 
drivers in drive carrier, server-grade Intel processor(s), memory 
chips, and seven Peripheral Component Interconnect Express (``PCIe'') 
input/output slots. It can accept both a base-level operating system 
and unique storage applications developed by Original Equipment 
Manufacturers (``OEM''). The chassis subassembly is imported from 
Malaysia; hard disc drives are imported from China, Singapore, or 
Thailand; and a power supply included in the chassis subassembly is 
imported from the Philippines. All of the components are imported into 
Mexico for assembly, firmware installation, inspection, and testing. 
The workers at the Mexican facility are stated to be highly trained and 
many positions require college/technical degrees, in addition to 1-7 
years of experience.
    The assembly process in Mexico starts with the chassis subassembly, 
which is a non-functioning unit that includes certain electronic 
components (e.g., printed circuit board assemblies, a controller/
central processing unit), but not the disc drives, firmware/software, 
or the ISTP configuration essential to the finished product. The 
assembly process takes approximately 135 minutes and is as follows:
    1. The chassis subassembly is removed from the packaging, prepared 
for production, and inspected.
    2. A SAP-trained employee generates labels to be applied to the 
subassembly to track the subassembly parts through the production.
    3. The individual hard drives from China, Singapore, or Thailand, 
and drive carriers from Malaysia are assembled to create 24 disc drive 
assemblies. This process is conducted under stringent electrostatic 
discharge (``ESD'') controlled conditions and operators must use SAP to 
determine the assembly process. The installation of each hard drive 
into the drive carrier takes 12 steps.
    4. The disc drive assemblies are installed into the chassis 
subassembly in a 15 step process, with SAP-generated labels.
    5. The assembled chassis build undergoes first inspection, in an 
approximately 80-85 step process, which primarily focuses on the 
physical condition and the traceability of all the parts.
    6. During the basic assurance test and functional test/firmware and 
software installation, the chassis build is connected to a custom test 
server to

[[Page 13646]]

enable the correct configuration of the unit for customer use. Then, 
the updated software is loaded, including the specified level of 
firmware, vital product data, security data, and serialization 
information. The firmware is developed and managed by engineers in the 
United Kingdom.
    7. A controlled environment reliability test is conducted to ensure 
that the chassis build can endure challenging physical environments 
(excessive heat or cold).
    8. The Hipot test is conducted to verify that the chassis build is 
electrically safe, which confirms that the electric current used to run 
the unit is adequately shielded so that neither the operators nor the 
equipment are harmed by electrical shock and that all insulation is 
installed correctly.
    9. Customer region-specific power cables, installation, and other 
customer-specific documentation are added.
    10. Final inspection is performed.
    Product Two, the [********] is a combined storage and server 
platform on which OEMs can deploy their own data storage software as a 
storage solution to their end customers. The embedded servers have less 
memory, processing, and input/output capacity than Product One, but 
they are designed to provide OEMs with a high availability storage 
solution that can withstand a server failure. While Product Two can be 
configured based on customer requirements, it generally includes hard 
disc drive slots that can carry up to 24 hard disc drives in drive 
carriers, and two embedded server modules with a low-power server-grade 
Intel processor, memory chips, and one PCIe input/output slot. It can 
also accept both a case-level operating system and unique OEM 
applications. The assembly process is similar to the Product One 
assembly, in that it starts with the chassis subassembly, but does not 
include disc drive assemblies and has a different computing capacity. 
The assembly process takes approximately 76 minutes of labor time.
    Product Three, the [********], is also substantially similar to 
Product One, but it can incorporate up to 84 disc drives. Otherwise, 
the assembly in Mexico is substantially similar to that of Product One. 
The assembly process takes approximately 355 minutes of labor time.
    During the Basic Assurance Test and Functional Test/Firmware and 
Software Installation process in all three products, the Company loads 
numerous firmware files onto the system (15 firmware files in Product 
One and Product Three, and 22 firmware files in Product Two). The 
specific firmware is said to confer customer specific operational 
functionality to the system and enable the components to work together. 
The disc drives are programmed with key codes in order to work with the 
customer application, and the Company states that the disc drives are 
not functional without this step. The drives are programmed to set up 
to 300 custom drive performance characteristics, such as timeouts, 
error thresholds, and data block size. The Company states that the 
post-assembly programming and testing enables the operation of each 
product and customizes it for its customers. The Company's programming 
process is driven and managed by the ISTP and is as follows:
    1. Initialization and hardware validation is performed to ensure 
that all necessary physical components are present (disc drives, power 
units, batteries, motherboards, other printed circuit boards, etc).
    2. Canister master/slave validation is performed to ensure that the 
``master'' canister (controller) is properly communicating with the 
other canisters (the ``slaves'').
    3. Code load and validation are conducted in three phrases to 
establish the customer-specific operating systems and application code: 
boot loader (loading code that establish initial functions required by 
the customer), enclosure configuration (ensuring that hardware is 
compatible with the software or application that will operate on the 
product), and virtual product data load and configuration (customizing 
the product instruction to be specific to the customer's product).
    4. Motherboard Ethernet branding ensures that the Ethernet ports 
operate correctly.
    5. An SES element test is performed to ensure that sensors are 
present and communicating with the system.
    6. Hard disc drive presence, code load, and validation is performed 
to ensure that all hard disc drives have been installed properly and 
are able to communicate with the system. The Company will load the 
customer's firmware and establish the operational behavior of the 
drives.
    7. A hard disc drive rotational vibration test is performed to 
ensure that the fan vibration does not affect the integrity of data 
sent to and received by the disc drives.
    8. Hard disc drive performance, link speed, and status are verified 
to assess the response time between the drives and execute the 
instruction from the main processing unit.
    9. Hard disc drive branding and validation is performed.
    10. Fan speed test is conducted.
    11. Voltage, battery, and temperature validation is performed.
    12. Log analysis is conducted.
    The Company also states that all three storage products are 
classified under subheading 8471.70 of the Harmonized Tariff Schedule 
of the United States (``HTSUS''). As reflected in the General Note 
(``GN'') 12(u)(6) of the HTSUS, the Company states that the goods are 
considered originating goods for purposes of the North American Free 
Trade Agreement (``NAFTA'') when imported into the United States from 
Mexico. The Company states that the major components imported into 
Mexico (chassis subassemblies, disc drives, drive carriers, drawer 
assemblies, etc.) are classified within the subheadings of 8471.60 and 
8472.90, HTSUS.
ISSUES:
    I. What is the country of origin of the three data storage products 
for purposes of U.S. Government procurement?
    II. What is the proper country of origin marking under the NAFTA 
Marking Rules of the three storage products?
LAW AND ANALYSIS:

I. Country of Origin for Procurement Purposes

    Pursuant to subpart B of Part 177, 19 CFR 177.21 et seq., which 
implements Title III of the Trade Agreements Act of 1979, as amended 
(19 U.S.C. 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. 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 CFR 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 U.S. (predecessor to subheading 
9802.00.80, HTSUS), the programming of a foreign

[[Page 13647]]

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 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 determining whether the combining of parts or materials 
constitutes a substantial transformation, the determinative issue is 
the extent of operations performed and whether the parts lose their 
identity and become an integral part of the new article. Belcrest 
Linens v. United States, 573 F. Supp. 1149 (Ct. Int'l Trade 1983), 
aff'd, 741 F.2d 1368 (Fed. Cir. 1984). Assembly operations that are 
minimal or simple, as opposed to complex or meaningful, will generally 
not result in a substantial transformation.
    In order to determine whether a substantial transformation occurs 
when components of various origins are assembled into complete 
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.
    You argue that the country of origin of the three products is 
Mexico because the components imported into Mexico are substantially 
transformed as a result of the Mexican assembly operations, as 
described infra, downloading of the software, programming and 
customization of the software and firmware, and extensive testing of 
the data storage products.
    In Headquarters Ruling Letter (``HQ'') H082476, dated May 11, 2010, 
and in New York Ruling Letter (``NY'') N083979 dated December 3, 2009, 
the United States was determined to be the country of origin of ICS 
clustered storage units, when foreign components were assembled into 
the units and programmed in the United States. In HQ H025023 dated 
April 1, 2008, CBP determined that the Czech Republic was the country 
of origin of a fabric switch that was assembled to completion and 
programmed in that country. See also HQ H089762, dated June 2, 2010 
(GTX Mobile and Handheld Computer); and HQ H090115, dated August 2, 
2010 (Unified Communications Solution). In HQ H125975 dated January 19, 
2011, CBP considered a similar scenario to the one here. In HQ H125975, 
all of the components were assembled into the data storage system in 
Mexico and the previously programmed controller assembly was downloaded 
with software, which was stated to impart the functional intelligence 
to the system to allow for storage management, performance monitoring 
and access control. In HQ H125975, CBP found that the major operating 
hardware components were the controller assembly and the hard drives 
set, which were of Thai origin. However, the assembly process in Mexico 
involved multiple countries of origin with development and programming 
also occurring in two different countries. CBP concluded that the 
imported components of various origins lost their individual identities 
and were substantially transformed into a new and different article, as 
a result of the assembly and programming operations that took place in 
Mexico.
    In this case, there are also significant assembly operations of the 
data storage products occurring in Mexico. Similar to HQ H125975, we 
have various countries involved: Chassis assembly from Malaysia; power 
supply from the Philippines; software from the United Kingdom; hard 
disc drives from China, Singapore, or Thailand; and assembly in Mexico. 
Given the totality of the circumstances in this case, we find that 
Products One and Three are substantially transformed in Mexico mainly 
because of the assembly of the various components. However, we find 
that the origin of Product Two is Malaysia because it lacks the disc 
drive assemblies, which make up a significant part of the assembly 
process. For purposes of government procurement, Mexico is the country 
of origin for Products One and Three, and Malaysia is the country of 
origin for Product Two.

II. NAFTA Marking

    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. By enacting 19 U.S.C. 1304, Congress intended 
to ensure ``that the ultimate purchaser would be able to know by 
inspecting the marking on the imported goods the country of which the 
goods are 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.'' United States v. Friedlaender & 
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; 
however, for a good of a NAFTA country, the NAFTA Marking Rules will 
determine the country of origin.''
    The NAFTA Marking Rules require the application of the country of 
origin rules per 19 CFR 102.11, in order to determine whether a good 
qualifies to be marked as a good of a NAFTA country. See 19 CFR 
134.1(j). Section 102.11, CBP Regulations (19 CFR 102.11), provides the 
hierarchical rules for determining the country of origin of

[[Page 13648]]

imported goods for NAFTA purposes, in part, as follows:
    (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 102.20 and 
satisfies any other applicable requirements of that section and all 
other applicable requirements of these rules are satisfied.
    The three data storage products are neither wholly obtained or 
produced in a single NAFTA country or produced exclusively from 
domestic materials. You state that the three products are classified 
under subheading 8471.70, HTSUS. CBP agrees with the Company's 
classification with regard to Product One and Product Three. However, 
after consulting with the National Commodity Specialist Division 
(``NCSD''), we have determined that Product Two is classified in 
subheading 8471.80, HTSUS. The tariff shift rule for goods of 
subheading 8471.70 and 8471.80 is set forth in 19 CFR 102.20 as 
follows:

8471.60-8472.90

A change to subheading 8471.60 through 8472.90 from any other 
subheading outside that group, except from subheading 8504.40 or 
from heading 8473; or

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.

    In all three instances, the Company concedes that the tariff shift 
rule is not met because the major components are classified in 
subheadings between 8471.60 and 8472.90, HTSUS, and do not undergo a 
tariff shift.
    However, the Company states that the products will qualify for 
preferential tariff treatment under the NAFTA. Assuming the Company 
plans to make a NAFTA claim at the time of entry, 19 CFR 102.19(a) 
provides as follows:

. . . if a good is originating within the meaning of 181.1(q) of 
this chapter is not determined under 102.11(a) or (b) or 102.21 to 
be a good of a single NAFTA country, the country of origin of such 
good is the last NAFTA country in which that good underwent 
production other than minor processing . . .

    The language of 19 CFR 102.19(a) is applicable because pursuant to 
GN 12(b)(v), the three products are considered originating because they 
are classified under subheading 8471.70 and 8471.80, HTSUS.\1\ Since 
the three products undergo production other than minor processing in 
Mexico, the country of origin for marking purposes under the NAFTA 
Marking Rules will be Mexico.
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    \1\ GN 12(b)(v) states that the goods enumerated in subdivision 
(u) of GN 12 are originating in the territory of a NAFTA party. GN 
12(u) states that automatic data processing machines and parts that 
are classified under subheading 8471.70 and 8471.80 are considered 
originating when they are imported into the customs territory of the 
United States from the territory of Canada or of Mexico.
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HOLDING:
    Based on the facts provided, we find that the country of origin of 
Products One and Three for purposes of U.S. Government procurement is 
Mexico. The country of origin of Product Two for purposes of U.S. 
Government procurement is Malaysia. The country of origin for all three 
products for marking purposes will be Mexico under the NAFTA Marking 
Rules.
    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 CBP reexamine the matter anew and issue 
a new final determination. Pursuant to 19 CFR 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,

Alice A. Kipel,
Executive Director,
Regulations and Rulings,
Office of Trade.

[FR Doc. 2017-04953 Filed 3-13-17; 8:45 am]
BILLING CODE 9111-14-P
13644 Federal Register / Vol. 82, No. 48 / Tuesday, March 14, 2017 / Notices

to monitor the activities of terminal recertification. Further, public comment Dated: February 27, 2017.
facilities and crude oil tankers under the is not solicited prior to recertification M.F. McAllister,
Prince William Sound Program during streamlined years, only during Rear Admiral, U.S. Coast Guard Commander,
established by statute. the triennial comprehensive review. Seventeenth Coast Guard District.
DATES: This recertification is effective The Alyeska Pipeline Service [FR Doc. 2017–04987 Filed 3–13–17; 8:45 am]
for the period from March 1, 2017 Company provides financial support to BILLING CODE 9110–04–P
through February 28, 2018. the PWSRCAC annually in the form of
FOR FURTHER INFORMATION CONTACT: a long term contract. In return for this
LT P. Grizzle, Seventeenth Coast Guard DEPARTMENT OF HOMELAND
funding, the PWSRCAC must annually SECURITY
District (dpi), by phone at (907) 463– show that it ‘‘fosters the goals and
2809, email at patrick.j.grizzle@ purposes’’ of OPA 90 and is ‘‘broadly U.S. Customs and Border Protection
uscg.mil.
representative of the communities and
SUPPLEMENTARY INFORMATION: interests in the vicinity of the terminal Notice of Issuance of Final
facilities and Prince William Sound.’’ Determination Concerning Certain
Background and Purpose Data Storage Products
The PWSRCAC is an independent,
As part of the Oil Pollution Act of nonprofit organization founded in 1989. AGENCY: U.S. Customs and Border
1990, Congress passed the Oil Terminal
Though it receives Federal oversight Protection, Department of Homeland
and Oil Tanker Environmental
like many independent, non-profit Security.
Oversight and Monitoring Act of 1990
organizations, it is not a Federal agency. ACTION: Notice of final determination.
(the Act), 33 U.S.C. 2732, to foster a
long-term partnership among industry, The PWSRCAC is a local organization
that predates the passage of OPA 90. SUMMARY: This document provides
government, and local communities in notice that U.S. Customs and Border
overseeing compliance with The existence of the PWSRCAC was
specifically recognized in OPA 90 Protection (‘‘CBP’’) has issued a final
environmental concerns in the determination concerning the country of
operation of crude oil terminals and oil where it is defined as an ‘‘alternate
origin of three data storage products.
tankers. voluntary advisory group.’’ Based upon the facts presented, CBP has
On October 18, 1991, the President Alyeska funds the PWSRCAC, and the concluded that the country of origin of
delegated his authority under 33 U.S.C. Coast Guard makes sure the PWSRCRC two data storage products is Mexico and
2732(o) to the Secretary of operates in a fashion that is broadly the country of origin of the third data
Transportation in Executive Order consistent with OPA 90. storage is Malaysia for purposes of U.S.
12777, section 8(g) (see 56 FR 54757; Government procurement.
October 22, 1991) for purposes of Discussion of Comments
DATES: The final determination was
certifying advisory councils, or groups, issued on March 8, 2017. A copy of the
subject to the Act. On March 3, 1992, On February 2, 2017 the USCG
published a Federal Register Notice; final determination is attached. Any
the Secretary redelegated that authority party-at-interest, as defined in 19 CFR
to the Commandant of the USCG (see 57 request for comments for recertification
of Prince William Sound Regional 177.22(d), may seek judicial review of
FR 8582; March 11, 1992). The this final determination within April 13,
Commandant redelegated that authority Citizens’ Advisory Council in the
Federal Register (82 FR 9214). We 2017.
to the Chief, Office of Marine Safety,
received 63 letters commenting on the FOR FURTHER INFORMATION CONTACT:
Security and Environmental Protection
proposed action. No public meeting was Grace A. Kim, Tariff Classification and
(G–M) on March 19, 1992 (letter #5402).
On July 7, 1993, the USCG published requested. Of the 63 letters received, 62 Marking Branch, Regulations and
a policy statement, 58 FR 36504, to Rulings, Office of Trade, (202) 325–
had positive comments. One comment
clarify the factors that shall be 7941.
was received recommending against the
considered in making the determination recertification of the PWSRCAC, as SUPPLEMENTARY INFORMATION: Notice is
as to whether advisory councils, or appropriate regulations are already in hereby given that on March 8, 2017,
groups, should be certified in place since OPA 90’s conception. Of the pursuant to subpart B of part 177, U.S.
accordance with the Act. positive comments, these letters Customs and Border Protection
The Assistant Commandant for consistently cited PWSRCAC’s broad Regulations (19 CFR 177(B)), CBP issued
Marine Safety and Environmental representation of the respective a final determination concerning the
Protection (G–M), redelegated country of origin of certain data storage
community’s interest, appropriate
recertification authority for advisory products, which may be offered to the
actions to keep the public informed,
councils, or groups, to the Commander, U.S. Government under an
improvements to both spill response
Seventeenth Coast Guard District on undesignated government procurement
preparation and spill prevention, and contract. This final determination, HQ
February 26, 1999 (letter #16450).
On September 16, 2002, the USCG oil spill industry monitoring efforts that H269185, was issued under procedures
published a policy statement, 67 FR combat complacency—as intended by set forth at 19 CFR 177(B), which
58440, which changed the the Act. implements Title III of the Trade
recertification procedures such that Recertification Agreements Act of 1979, as amended
applicants are required to provide the (19 U.S.C. 2511–18). In the final
asabaliauskas on DSK3SPTVN1PROD with NOTICES

USCG with comprehensive information By letter dated February 27, 2017, the determination, CBP concluded that for
every three years (triennially). For each Commander, Seventeenth Coast Guard two of the three products, the
of the two years between the triennial certified that the PWSRCAC qualifies as processing in Mexico results in a
application procedures, applicants an alternative voluntary advisory group substantial transformation. However, for
submit a letter requesting recertification under 33 U.S.C. 2732(o). This the third product, the processing in
that includes a description of any recertification terminates on February Mexico does not result in a substantial
substantive changes to the information 28, 2018. transformation. Therefore, the country
provided at the previous triennial of origin of two data storage products is

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Federal Register / Vol. 82, No. 48 / Tuesday, March 14, 2017 / Notices 13645

Mexico and the country of origin of the request this final determination. A requirements. While Product One can be
third data storage is Malaysia for meeting was held at our office on configured based on customer
purposes of U.S. Government February 19, 2014. requirements, it generally includes hard
procurement. In your letter, you requested disc slots that can carry up to 24 hard
Section 177.29, CBP Regulations (19 confidential treatment for certain disc drivers in drive carrier, server-
CFR 177.29), provides that a notice of information contained in the file. grade Intel processor(s), memory chips,
final determination shall be published Pursuant to 19 CFR 177.2(b)(7), the and seven Peripheral Component
in the Federal Register within 60 days identified information has been Interconnect Express (‘‘PCIe’’) input/
of the date the final determination is bracketed and will be redacted in the output slots. It can accept both a base-
issued. Section 177.30, CBP Regulations public version of this final level operating system and unique
(19 CFR 177.30), provides that any determination. storage applications developed by
party-at-interest, as defined in 19 CFR FACTS: Original Equipment Manufacturers
177.22(d), may seek judicial review of a (‘‘OEM’’). The chassis subassembly is
final determination within 30 days of The Company is a data storage imported from Malaysia; hard disc
publication of such determination in the technology company headquartered in drives are imported from China,
Federal Register. the United Kingdom with worldwide Singapore, or Thailand; and a power
operations. The Company manufactures supply included in the chassis
Dated: March 8, 2017.
a variety of high performance enterprise subassembly is imported from the
Alice A. Kipel, data storage products that are used for Philippines. All of the components are
Executive Director, Regulations and Rulings, the storage of electronic data onto
Office of Trade.
imported into Mexico for assembly,
physical disc drives. These products firmware installation, inspection, and
Attachment serve as the building blocks for medium testing. The workers at the Mexican
to large corporations with a need to facility are stated to be highly trained
HQ H269185 store and access large amounts of data and many positions require college/
OT:RR:CTF:VS H269185 GaK securely and rapidly. Physically, the technical degrees, in addition to 1–7
CATEGORY: Marking products operate in large server rooms years of experience.
or similar facilities, managed by trained The assembly process in Mexico starts
Stuart P. Seidel professional information technology
Baker & McKenzie LLP with the chassis subassembly, which is
staff. a non-functioning unit that includes
815 Connecticut Ave. NW. Three products are the subject of this
Washington, DC 20006 certain electronic components (e.g.,
ruling and they all apply the Integrated printed circuit board assemblies, a
RE: Final Determination; Government Storage Test Platform (‘‘ISTP’’). ISTP is
Procurement; Country of Origin of controller/central processing unit), but
a highly proprietary, Linux-based global not the disc drives, firmware/software,
data storage system; Substantial hardware and software solution
Transformation or the ISTP configuration essential to
representing approximately 100 man- the finished product. The assembly
Dear Mr. Seidel: years of software development time over process takes approximately 135
This is in response to a letter we the past ten years and 6,500,000 lines of minutes and is as follows:
received dated September 18, 2013, code, developed in the United Kingdom 1. The chassis subassembly is
requesting a final determination on and the United States for the Company’s removed from the packaging, prepared
behalf of [********] (‘‘the Company’’), manufacturing processes. You state that for production, and inspected.
pursuant to subpart B of Part 177 of the ISTP is a critical element of the 2. A SAP-trained employee generates
U.S. Customs and Border Protection Company’s products. As discussed labels to be applied to the subassembly
Regulations (19 CFR part 177) and to infra, the firmware for the three data to track the subassembly parts through
two follow-up submissions dated storage products is developed and the production.
January 6, 2014, and May 30, 2014. You managed in the United Kingdom and a 3. The individual hard drives from
also requested a country of origin team of 19 United Kingdom-based China, Singapore, or Thailand, and
marking decision. CBP also received software engineers manage ISTP. There drive carriers from Malaysia are
notification on July 21, 2015 that the are also software engineers at each assembled to create 24 disc drive
Company was acquired by another production facility, including a Mexican assemblies. This process is conducted
corporation and counsel for the facility at issue, that are trained by the under stringent electrostatic discharge
Company was replaced. Under 19 CFR United Kingdom-based engineers. ISTP- (‘‘ESD’’) controlled conditions and
part 177, which implements Title III of qualified engineers are located at the operators must use SAP to determine
the Trade Agreements Act of 1979 production site to provide input into the the assembly process. The installation of
(TAA), as amended (19 U.S.C. 2511 et manufacturing and testing processes each hard drive into the drive carrier
seq.), CBP issues country of origin and all engineers have a high level of takes 12 steps.
advisory rulings and final competence in ‘‘C’’ programming, test 4. The disc drive assemblies are
determinations as to whether an article engineering, and the Company’s product installed into the chassis subassembly
is or would be a product of a designated knowledge. The ISTP undergoes in a 15 step process, with SAP-
country or instrumentality for the approximately 40 updates a month generated labels.
purposes of granting waivers of certain incorporating customer requirements 5. The assembled chassis build
‘‘Buy American’’ restrictions in U.S. law and design updates that directly affect undergoes first inspection, in an
asabaliauskas on DSK3SPTVN1PROD with NOTICES

or practice for products offered for sale the manufacturing process in Mexico. approximately 80–85 step process,
to the U.S. Government. Product One, the [********] is a which primarily focuses on the physical
This final determination concerns the storage application platform delivering condition and the traceability of all the
country of origin of three data storage integrated storage and enterprise server parts.
products for government procurement. system resources that tailor the amount 6. During the basic assurance test and
As a U.S. importer, the Company is a of processing, memory, storage capacity, functional test/firmware and software
party-at-interest within the meaning of and high bandwidth input/output installation, the chassis build is
19 CFR 177.22(d)(1) and is entitled to resources to meet customers’ connected to a custom test server to

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Federal Register / Vol. 82, No. 48 / Tuesday, March 14, 2017 / Notices 13647

PROM (Programmable Read-Only such cases. Additionally, factors such as countries involved: Chassis assembly
Memory chip) in the United States the resources expended on product from Malaysia; power supply from the
substantially transformed the PROM design and development, the extent and Philippines; software from the United
into a U.S. article. In programming the nature of post-assembly inspection and Kingdom; hard disc drives from China,
imported PROMs, the U.S. engineers testing procedures, and worker skill Singapore, or Thailand; and assembly in
systematically caused various distinct required during the actual Mexico. Given the totality of the
electronic interconnections to be formed manufacturing process will be circumstances in this case, we find that
within each integrated circuit. The considered when determining whether a Products One and Three are
programming bestowed upon each substantial transformation has occurred. substantially transformed in Mexico
circuit its electronic function, that is, its No one factor is determinative. mainly because of the assembly of the
‘‘memory’’ which could be retrieved. A You argue that the country of origin various components. However, we find
distinct physical change was effected in of the three products is Mexico because that the origin of Product Two is
the PROM by the opening or closing of the components imported into Mexico Malaysia because it lacks the disc drive
the fuses, depending on the method of are substantially transformed as a result assemblies, which make up a significant
programming. This physical alteration, of the Mexican assembly operations, as part of the assembly process. For
not visible to the naked eye, could be described infra, downloading of the purposes of government procurement,
discerned by electronic testing of the software, programming and Mexico is the country of origin for
PROM. The court noted that the customization of the software and Products One and Three, and Malaysia
programs were designed by a project firmware, and extensive testing of the is the country of origin for Product Two.
engineer with many years of experience data storage products.
In Headquarters Ruling Letter (‘‘HQ’’) II. NAFTA Marking
in ‘‘designing and building hardware.’’
While replicating the program pattern H082476, dated May 11, 2010, and in Section 304 of the Tariff Act of 1930,
from a ‘‘master’’ PROM may be a quick New York Ruling Letter (‘‘NY’’) as amended (19 U.S.C. 1304), provides
one-step process, the development of N083979 dated December 3, 2009, the that, unless excepted, every article of
the pattern and the production of the United States was determined to be the foreign origin imported into the United
‘‘master’’ PROM required much time country of origin of ICS clustered States shall be marked in a conspicuous
and expertise. The court noted that it storage units, when foreign components place as legibly, indelibly, and
was undisputed that programming were assembled into the units and permanently as the nature of the article
altered the character of a PROM. The programmed in the United States. In HQ (or its container) will permit, in such a
essence of the article, its H025023 dated April 1, 2008, CBP manner as to indicate to the ultimate
interconnections or stored memory, was determined that the Czech Republic was purchaser in the United States the
established by programming. The court the country of origin of a fabric switch English name of the country of origin of
concluded that altering the non- that was assembled to completion and the article. By enacting 19 U.S.C. 1304,
functioning circuitry comprising a programmed in that country. See also Congress intended to ensure ‘‘that the
PROM through technological expertise HQ H089762, dated June 2, 2010 (GTX ultimate purchaser would be able to
in order to produce a functioning read Mobile and Handheld Computer); and know by inspecting the marking on the
only memory device, possessing a HQ H090115, dated August 2, 2010 imported goods the country of which
desired distinctive circuit pattern, was (Unified Communications Solution). In the goods are the product. The evident
no less a ‘‘substantial transformation’’ HQ H125975 dated January 19, 2011, purpose is to mark the goods so that at
than the manual interconnection of CBP considered a similar scenario to the the time of purchase the ultimate
transistors, resistors and diodes upon a one here. In HQ H125975, all of the purchaser may, by knowing where the
circuit board creating a similar pattern. components were assembled into the goods were produced, be able to buy or
In determining whether the data storage system in Mexico and the refuse to buy them, if such marking
combining of parts or materials previously programmed controller should influence his will.’’ United
constitutes a substantial transformation, assembly was downloaded with States v. Friedlaender & Co., 27 C.C.P.A.
the determinative issue is the extent of software, which was stated to impart the 297, 302 (1940).
operations performed and whether the functional intelligence to the system to Section 134.1(b), CBP Regulations (19
parts lose their identity and become an allow for storage management, CFR 134.1(b)), defines ‘‘country of
integral part of the new article. Belcrest performance monitoring and access origin’’ as ‘‘the country of manufacture,
Linens v. United States, 573 F. Supp. control. In HQ H125975, CBP found that production or growth of any article of
1149 (Ct. Int’l Trade 1983), aff’d, 741 the major operating hardware foreign origin entering the United
F.2d 1368 (Fed. Cir. 1984). Assembly components were the controller States. Further work or material added
operations that are minimal or simple, assembly and the hard drives set, which to an article in another country must
as opposed to complex or meaningful, were of Thai origin. However, the effect a substantial transformation in
will generally not result in a substantial assembly process in Mexico involved order to render such other country the
transformation. multiple countries of origin with ‘country of origin’ within the meaning
In order to determine whether a development and programming also of this part; however, for a good of a
substantial transformation occurs when occurring in two different countries. NAFTA country, the NAFTA Marking
components of various origins are CBP concluded that the imported Rules will determine the country of
assembled into complete products, CBP components of various origins lost their origin.’’
considers the totality of the individual identities and were The NAFTA Marking Rules require
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circumstances and makes such substantially transformed into a new the application of the country of origin
determinations on a case-by-case basis. and different article, as a result of the rules per 19 CFR 102.11, in order to
The country of origin of the item’s assembly and programming operations determine whether a good qualifies to
components, extent of the processing that took place in Mexico. be marked as a good of a NAFTA
that occurs within a country, and In this case, there are also significant country. See 19 CFR 134.1(j). Section
whether such processing renders a assembly operations of the data storage 102.11, CBP Regulations (19 CFR
product with a new name, character, products occurring in Mexico. Similar 102.11), provides the hierarchical rules
and use are primary considerations in to HQ H125975, we have various for determining the country of origin of

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Document Created: 2017-03-14 02:51:37
Document Modified: 2017-03-14 02:51:37
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Notice of final determination.
Dates		The final determination was issued on March 8, 2017. 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 within April 13, 2017.
Contact		Grace A. Kim, Tariff Classification and Marking Branch, Regulations and Rulings, Office of Trade, (202) 325-7941.
FR Citation		82 FR 13644
82 FR 13644 - Notice of Issuance of Final Determination Concerning Certain Data Storage Products

DEPARTMENT OF HOMELAND SECURITYU.S. Customs and Border Protection

Federal Register Volume 82, Issue 48 (March 14, 2017)

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