82 FR 31615 - Notice of Issuance of Final Determination Concerning a Digital Radiography System

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

Federal Register Volume 82, Issue 129 (July 7, 2017)

This document provides notice that U.S. Customs and Border Protection (``CBP'') has issued a final determination concerning the country of origin of a digital radiography system, (also commonly referred to as an x-ray system), known as the Carestream DRX-Ascend Digital Radiography system. Based upon the facts presented for purposes of U.S. Government procurement, CBP has concluded that the United States is the country of origin of the fully assembled and installed DRX-Ascend Digital Radiography system.

[Federal Register Volume 82, Number 129 (Friday, July 7, 2017)]
[Notices]
[Pages 31615-31618]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-14310]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning a Digital 
Radiography System

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 a digital radiography system, (also commonly 
referred to as an x-ray system), known as the Carestream DRX-Ascend 
Digital Radiography system. Based upon the facts presented for purposes 
of U.S. Government procurement, CBP has concluded that the United 
States is the country of origin of the fully assembled and installed 
DRX-Ascend Digital Radiography system.

DATES: The final determination was issued on June 30, 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 August 7, 2017.

FOR FURTHER INFORMATION CONTACT: Robert Dinerstein, Valuation and 
Special Programs Branch, Regulations and Rulings, Office of Trade, at 
(202) 325-0132.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on June 30, 2017 
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 a digital radiography 
system known as the Carestream DRX-Ascend Digital Radiography system, 
which may be offered to the U.S. Government under an undesignated 
government procurement contract. This final determination, HQ H283088, 
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). The major components of the DRX-Ascend 
Digital Radiography system include a Chinese-origin high-voltage 
generator, a U.S.-origin wireless DRX detector, a Chinese-origin 
elevating float-top table, a Chinese-origin tubestand, a Chinese-origin 
wall stand, and either a U.S. or a Japanese-origin x-ray tube. These 
components are combined with software that is largely developed in the 
United States. In the final determination, CBP concluded that the 
components are substantially transformed in the United States when the 
fully functioning digital radiography system is completely assembled 
and installed at an on-site location. Thus, the fully assembled digital 
radiography system becomes a product of the United States. Therefore, 
for purposes of U.S. Government procurement, the United States is the 
country of origin of the installed and assembled Carestream DRX-Ascend 
Digital Radiography system.
    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: June 30, 2017.
Alice A. Kipel,
Executive Director, Regulations and Rulings, Office of Trade.

HQ H283088

OT:RR:CTF:VS H283088 RSD

CATEGORY: Origin

Gunjan R. Talati, Esq. Kilpatrick Townsend & Stockton 607 14th 
Street NW. Suite 900 Washington, DC 20005-2018

RE: U.S. Government Procurement; Title III, Trade Agreements Act of 
1979 (19 U.S.C. 2511); Subpart B, Part 177, CBP Regulations; Digital 
Radiography System

Dear Mr. Talati:

    This is in response to your letter of January 11, 2017, 
forwarded to the National Commodity Specialist Division on behalf of 
Carestream Health, Inc. (Carestream), requesting a final 
determination concerning the country of origin of a Digital 
Radiography System, pursuant to subpart B of Part 177, U.S. Customs 
and Border Protection (CBP) Regulations (19 CFR 177.21, et seq.). 
The National Commodity Specialist Division transmitted your request 
to the Office of

[[Page 31616]]

Trade, Regulations and Rulings Headquarters for a response. Under 
the pertinent regulations, which implement 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.
    This final determination concerns the country of origin of a 
digital radiography system, which will be assembled on-site. As a 
U.S. importer, Carestream is a party-at-interest within the meaning 
of 19 CFR 177.22(d)(1) and is entitled to request this final 
determination.

FACTS

    The product at issue is a digital radiography system known as 
the DRX-Ascend Digital system that is assembled in the United States 
from U.S. and foreign origin components. According to the 
information that you have provided, the DRX-Ascend Digital system is 
a digital radiography system (also commonly known as an x-ray 
system) engineered, designed, and assembled (final assembly) in the 
United States from seven major U.S. and foreign-origin components. 
The seven components are (1) a diagnostic x-ray high voltage 
generator; (2) wireless DRX Detector; (3) an x-ray tube; (4) a 
tubestand; (5) an elevating float-top table; (6) a wall stand; and, 
(7) Carestream Health software.
    The diagnostic x-ray high-voltage generator supplies and 
controls the electrical energy applied to a diagnostic x-ray tube 
for medical/veterinary radiographic examinations. The initial 
manufacturing of the generator occurs in China, where Chinese 
components of the generator are provided by Chinese suppliers. The 
generator goes through two hours of processing in China to produce 
an unfinished generator. Carestream imports the unfinished 
generators into the United States. When it is imported, the 
generator does not contain the necessary printed circuit boards, and 
it also needs to be programmed. The printed circuit boards are 
stated to be manufactured in the United States and will be 
programmed using software written by a company called Quantum 
Manufacturing located in New York. Adding the boards to the 
generator and programming in the United States take roughly one hour 
of manufacturing time. The generator then undergoes extensive 
testing (approximately 6.5 hours) in the United States. You maintain 
that this testing is critical to the generator manufacturing process 
of the DRX-Ascend Digital system and must be completed before 
Carestream delivers the system to the customer.
    The wireless DRX Detector, produced in the United States, 
utilizes Directview software and facilitates diagnostic exams by 
capturing the x-ray images and wirelessly transmitting them to a 
capture console that allows for immediate viewing at the capture 
console and manipulation. The chief benefit of instant image access 
is that it can reduce exam time and recall, and improves patient 
satisfaction. The detector is integrated into the DRX-Ascend Digital 
system by both hardware and software and you indicate that the 
detectors are made in the United States by Carestream Health or an 
external supplier.
    The x-ray tube converts power into x-rays that ultimately 
produce the image required for making a diagnosis. Carestream uses 
two suppliers to obtain the x-ray tubes, either from Japan or the 
United States.
    Another component of the DRX-Ascend Digital system is an 
elevating float-top table made in China. The tubestand component of 
the table is assembled in the United States and holds three 
different parts. One of these parts is the x-ray tube, and the other 
two parts are an operator panel and the collimator, all of Chinese 
origin. Some of the tubestands have an overhead tube crane from 
Germany. These parts are installed on-site at the customer's 
location in the United States by a U.S. service provider. The time 
for manufacturing the basic stand is approximately six hours in 
China. The tubestand is then brought into the United States for 
final assembly. The final assembly takes about two hours. The DRX-
Ascend Digital system can include a wall stand. The wall stand is 
fully assembled in China.
    The final element of the DRX-Ascend Digital system is the 
Carestream Directview software, which is initially programmed and 
developed in the United States. While the software build is 
currently performed in China, substantial portions of the software 
are still developed in the United States. According to your 
submission, two percent of the Directview software involves research 
and 100 percent of that research was performed in the United States. 
The development/writing of the software specifications and 
architecture involve 15 percent of the project, with 90 percent of 
this work being done in the United States and 10 percent completed 
in China. Programming of the source code involved 40 percent of the 
creation of the software project, with 80 percent occurring in the 
United States and the remaining 20 percent done in China. Two 
percent of the product concerns the software build, with 100 percent 
of the software build done in China. Testing and validation involved 
40 percent of the project of the software with 50 percent of this 
portion of the software done in United States and 50 percent done in 
China. The final one percent was preparing the software/burning 
media for distribution, with 50 percent done in United States and 50 
percent done in China. The Directview software is installed onto an 
HP 5810 computer in China, and that computer with the loaded 
software is brought to the United States. This software has two 
primary functions: (1) allowing the operator to select the type of 
medical exam and selecting the generator and x-ray tube exposure 
settings (the computer then coordinates the timing between the 
detector and firing of the x-rays), and (2) the computer and 
software receive the image from the detector, process the image, and 
deliver the finished image.
    The final assembly, configuration and testing of the DRX-Ascend 
Digital system take place in the United States at Carestream's 
facilities or at its customers' sites. You describe the assembly 
process as consisting of nine steps before the DRX-Ascend Digital 
system can become a functioning x-ray system. You have provided a 
copy of an installation guide, which sets forth the step-by-step 
process of installing the DRX-Ascend Digital System at a customer's 
site. The installation guide consists of over 80 pages of detailed 
instructions for the installation technicians, describing how the 
DRX-Ascend Digital System is assembled and installed at an on-site 
location. The ancillary parts for the system from China, including 
the table, the wall stand, a tubestand and the computer with the 
Directview software loaded onto it are assembled together in the 
United States. The x-ray tube and generator are calibrated together 
in the United States so that they can work together to produce an 
image. The generator tube-calibration process works by having the 
generator send a signal to the tube, and the tube responds and fires 
x-rays. The tube is then removed and reinserted into the x-ray 
system. The generator and the detector use the same calibration 
process. Carestream integrates the digital detector. The x-ray tube, 
generator, and detector are added to the Chinese ancillary parts. 
The DRX-Ascend Digital system is then shipped to and installed at a 
customer's site. When the system is installed at the customer's 
site, all the components are connected and powered, at which time 
the DRX-Ascend Digital system becomes a functioning radiography x-
ray system.
    You indicate that individuals responsible for the on-site 
installation are either Carestream employees or Carestream dealer 
employees. All individuals responsible for installation receive 
formal classroom training through multiple courses at Carestream. 
The first course is a four-day-long class on x-ray fundamentals. The 
second course is a five-day class on Carestream's DRX systems. The 
third course is a certification course that is also four days and 
teaches the students to become proficient in installing, 
calibrating, and repairing the DRX-Ascend Digital system.
    Some of the specialized tools and equipment that the x-ray 
installers use in performing the installation include a digital volt 
meter, x-ray measurement meter, mAS meter, dose meter, high voltage 
insulating kit, and ratchet hoists. You further state that it 
typically takes four to five days to install the system at a 
customer site depending on site readiness, but the system is 
designed for installation in four days.

ISSUE:

    What is the country of origin of the DRX-Ascend Digital x-ray 
system for purposes of U.S. government procurement?

LAW AND ANALYSIS:

    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''

[[Page 31617]]

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 rendering advisory rulings and final determinations for 
purposes of U.S. government procurement, CBP applies the provisions 
of subpart B of part 177 consistent with the Federal Acquisition 
Regulations. See 19 CFR 177.21. In this regard, CBP recognizes that 
the Federal Acquisition Regulations restrict the U.S. Government's 
purchase of products to U.S.-made or designated country end products 
for acquisitions subject to the TAA. See 48 CFR 25.403(c)(1). The 
Federal Acquisition Regulations define ``U.S.-made end product'' as:
. . . an article that is mined, produced, or manufactured in the 
United States or that is substantially transformed in the United 
States into a new and different article of commerce with a name, 
character, or use distinct from that of the article or articles from 
which it was transformed.

    48 CFR 25.003.

    In order to determine whether a substantial transformation 
occurs when components of various origins are assembled into 
completed products, CBP considers the totality of the circumstances 
and makes such determinations on a case-by-case basis. The country 
of origin of the item's components, extent of the processing that 
occurs within a country, and whether such processing renders a 
product with a new name, character, and use are primary 
considerations in such cases. Additionally, factors such as the 
resources expended on product design and development, the extent and 
nature of post-assembly inspection and testing procedures, and 
worker skill required during the actual manufacturing process will 
be considered when determining whether a substantial transformation 
has occurred. No one factor is determinative. In Texas Instruments 
v. United States, 681 F.2d 778, 782 (CCPA 1982), the court observed 
that the substantial transformation issue is a ``mixed question of 
technology and customs law.''
    Headquarters Ruling (HQ) H203555, dated April 23, 2012, 
concerned the country of origin of certain oscilloscopes. CBP 
considered five manufacturing scenarios. In the various scenarios, 
the motherboard and the power controller of either Malaysian or 
Singaporean origin were assembled in Singapore with subassemblies of 
Singaporean origin into oscilloscopes. CBP found that under the 
various scenarios, there were three countries under consideration 
where programming and/or assembly operations took place, the last of 
which was Singapore. CBP noted that no one country's operations 
dominated the manufacturing operations of the oscilloscopes. As a 
result, while the boards assembled in Malaysia were important to the 
function of the oscilloscopes, and the U.S. firmware and software 
were used to program the oscilloscopes in Singapore, the final 
programming and assembly of the oscilloscopes was in Singapore; 
hence, Singapore imparted the last substantial transformation, and 
the country of origin of the oscilloscopes was Singapore.
    HQ H170315, dated July 28, 2011, concerned the country of origin 
of satellite telephones. CBP was asked to consider six scenarios 
involving the manufacture of PCBs in one country and the programming 
of the PCBs with second country software either in the first country 
or in a third country, where the phones were assembled. In the third 
scenario, the application and transceiver boards for satellite 
phones were assembled in Malaysia and programmed with U.K.-origin 
software in Singapore, where the phones were also assembled. CBP 
found that no one country's operations dominated the manufacturing 
operations of the phones and that the last substantial 
transformation occurred in Singapore. See also HQ H014068, dated 
October 9, 2007 (CBP determined that a cellular phone designed in 
Sweden, assembled in either China or Malaysia and shipped to Sweden, 
where it was loaded with software that enabled it to test equipment 
on wireless networks, was a product of Sweden. Once the software was 
installed on the phones in Sweden, they became devices with a new 
name, character and use: network testing equipment. As a result of 
the programming operations performed in Sweden, CBP found that the 
country of origin of the network testing equipment was Sweden).
    In HQ H219597, dated April 3, 2013, ultrasound systems were 
engineered, designed and subject to final assembly in the United 
States from U.S. and foreign components. CBP noted that substantial 
manufacturing operations were performed in China, the United States, 
Korea, and Italy. The electronics module, which was partially 
assembled in China, was imported into the United States, where it 
was assembled with other core components, including Korean-origin 
transducers that sent and received acoustic signals, an Italian-
origin monitor that displayed images, and a U.S.-origin control 
panel that served as the user interface. The completely assembled 
ultrasound systems were then uploaded with U.S. designed, developed, 
and written operating system software and application software. The 
information provided indicated that the software was necessary for 
the ultrasound systems to perform their intended function of 
providing diagnostic information (an observable image with related 
data). It took approximately 23-24 hours to produce the finished 
S2000 ultrasound system of which 13-14 hours took place in the 
United States. Approximately 24-25 hours of time were expended to 
produce the finished Antares ultrasound system of which 14-15 hours 
took place in the United States. In addition, the assembly, 
integration, and testing in the United States was conducted by 
specialized technicians. All of the research and development, 
product engineering and design investment occurred in the United 
States. Based on the totality of the circumstances, CBP found that 
the last substantial transformation occurred in the United States, 
the location where the final assembly and installation of the 
operating system software and application software occurred. Prior 
to the assembly and programming in the United States, the products 
were unable to carry out the functions of the ultrasound systems. 
However, the assembly and programming in the United States created a 
new product that was capable of providing diagnostic information. 
Consequently, CBP found that the country of origin of the ultrasound 
systems was the United States.
    Similarly, in this case, it is noted that there is a significant 
amount of U.S. assembly involved in producing the complete x-ray 
system on-site. We note that Carestream has a detailed step-by-step 
instruction booklet for the installation technicians on how to 
properly install and assemble the x-ray system. We note that there 
are a series of complicated steps and operations that must be 
carefully followed in assembling the components of the x-ray system 
in order to make sure that the finished installed x-ray system works 
properly. In addition, we recognize that major safety issues could 
arise for future patients and operators, if the assembly and 
installation of an x-ray system is not done correctly. As such, the 
assembly requires the precise fitting, assembly, and calibration of 
the various components together in making the finished x-ray system. 
As previously noted, Carestream's technicians must undergo a series 
of intensive classroom training through multiple courses in order to 
obtain the necessary skills to be able to install and assemble the 
x-ray system. These technicians also use some highly specialized and 
sophisticated tools in completing the assembly and installation of 
an x-ray system.
    While the x-ray system is comprised of various components mostly 
from China and the United States (in some cases a Japanese x-tube 
will be used), there is no one single component, which dominates and 
retains its own identity after the system is put together. We also 
note that while one of the more significant components, the system's 
high voltage generator, is of Chinese origin, it is unfinished when 
imported into the United States. The boards, which make the 
generator operational, are installed and programmed in the United 
States, and the finished generator undergoes significant testing in 
the United States before Carestream delivers the system to the 
customer in the United States.
    Furthermore, while simply installing the U.S. developed software 
onto the x-ray system alone would not be sufficient to result in a 
substantial transformation of the foreign made components, we note 
that according to the information submitted, the U.S. origin 
software does play an integral role in the final product's proper 
functioning. More significantly, because a substantial assembly 
operation occurs in installing the x-ray system at the on-site 
location, more than just

[[Page 31618]]

loading of software is involved in making the finished x-ray systems 
in the United States. Until all of the components are put together 
into the completed system, it will not have the character of an x-
ray system, and the individual components cannot carry out the 
functions of an x-ray system of producing radiographic images 
suitable for making a diagnosis. We also find it highly significant 
that the information provided indicates the assembly and 
installation of the x-ray system require a significant amount of 
time, in that it usually takes about 4 to 5 days on-site to 
complete. As in HQ H219597, after the assembly and programming of 
the U.S. and foreign made components are completed in the United 
States, the foreign made components all lose their individual 
identities and connected together will create a distinct new 
product, an x-ray system, which is capable of providing radiographic 
images for diagnostic purposes. Consequently, we find that a product 
with a new name, character, and use is produced by the operations 
performed in the United States to make the x-ray system, and thus 
the country of origin of the DRX-Ascend Digital x-ray system is the 
United States.

HOLDING:

    Based on the information presented, the imported components that 
are used in the manufacture of the DRX-Ascend Digital x-ray system 
are substantially transformed as a result of the assembly operations 
and the software installation performed at an on-site location in 
the United States. Therefore, the country of origin of the DRX-
Ascend Digital Radiography x-ray system for government procurement 
purposes is the United States.
    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. 2017-14310 Filed 7-6-17; 8:45 am]
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