[Federal Register Volume 75, Number 95 (Tuesday, May 18, 2010)]
[Notices]
[Pages 27798-27801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11726]
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DEPARTMENT OF HOMELAND SECURITY
Customs and Border Protection
Notice of Issuance of Final Determination Concerning Certain
Commodity-Based Clustered Storage Units
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 Commodity-based Clustered Storage Units.
Based upon the facts presented, CBP has concluded in the final
determination that the United States is the country of origin of
Commodity-based Clustered Storage Units for purposes of U.S. government
procurement.
DATES: The final determination was issued on May 11, 2010. 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 30 days from date of publication in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Alison Umberger, Valuation and Special
Programs Branch: (202) 325-0267.
SUPPLEMENTARY INFORMATION: Notice is hereby given that on May 11, 2010,
pursuant to subpart B of part 177, Customs Regulations (19 CFR part
177, subpart B), CBP issued a final determination concerning the
country of origin of Commodity-based Clustered Storage Units which may
be offered to the U.S. Government under an undesignated government
procurement contract. This final determination, in HQ H082476, was
issued at the request of Scale Computing under procedures set forth at
19 CFR part 177, subpart B, which implements Title III of the Trade
Agreements Act of 1979, as amended (19 U.S.C. 2511-18). In the final
determination, CBP has concluded that, based upon the facts presented,
the Commodity-based Clustered Storage Units, assembled in the United
States from parts made in China, Taiwan, India, Thailand, and Malaysia,
and programmed in the United States using software developed in the
United States, is substantially transformed in the United States, such
that the United States is the country of origin of the finished article
for purposes of U.S. government procurement.
Section 177.29, Customs Regulations (19 CFR 177.29), provides that
notice of final determinations shall be published in the Federal
Register within 60 days of the date the final determination is issued.
Section 177.30, CBP Regulations (19 CFR 177.30), provides that any
party-at-interest, as defined in 19 CFR 177.22(d), may seek judicial
review of a final determination within 30 days of publication of such
determination in the Federal Register.
Dated: May 11, 2010.
William G. Rosoff,
Acting Executive Director, Regulations and Rulings.
Office of International Trade
Attachment
HQ H082476
May 11, 2010
OT:RR:CTF:VS H082476 ARU
CATEGORY: Marking
Mr. Joshua Holzer
Wilson, Sonsini, Goodrich & Rosati
1700 K Street, NW, Fifth Floor
Washington, DC 20006-3817
RE: U.S. Government Procurement; Title III, Trade Agreements Act of
1979 (19 U.S.C. Sec. 2511); Subpart B, Part 177, CBP Regulations; ICS
Units
Dear Mr. Holzer:
This is in response to your request dated October 15, 2009, made on
behalf of Scale Computing (``Scale''). You ask for a country of origin
marking decision and final determination relating to government
procurement pursuant to subpart B of Part 177, Customs and Border
Protection (``CBP'') Regulations (19 C.F.R. Sec. 177.21 et seq.).
Under these regulations, which implement Title III of the Trade
Agreements Act of 1979, as amended (19 U.S.C. Sec. 2511 et seq.), CBP
issues country of origin advisory rulings and final determinations on
whether an article is or would be a product of a designated country or
instrumentality for the purpose of granting waivers of certain ``Buy
American'' restrictions in U.S. law or practice for products offered
for sale to the U.S. Government.
This final determination concerns the country of origin of Scale's
SN1000, SN2000, and SN4000 Commodity-based Clustered Storage (``ICS'')
Units. We note that Scale 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:
Scale Computing produces storage appliances that offer a multi-
protocol, multi-density suite of non-controller-based, unified NAS/SAN,
enterprise-class storage solutions. Scale's SN1000, SN2000, and SN4000
ICS Units are mass data storage devices similar in function to Storage
Area Network (``SAN'') or Network Attached Storage (``NAS'') devices
(i.e., special-purpose networks that interconnect different kinds of
data storage devices--such as tape libraries and disk arrays--with
associated data servers on behalf of a larger network of
[[Page 27799]]
users).\1\ Their software architecture uses both proprietary and
licensed technologies to create a grid storage system from multiple
clustered ``nodes'' (small, commodity-based hardware devices).\2\ The
models at issue differ only in their storage capacity; the SN1000 holds
1 Terabyte worth of data, the SN2000 holds 2 Terabytes, and the SN4000
holds 4 Terabytes.
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\1\ See Newton's Telecom Dictionary (23rd Ed., 2007).
\2\ Each node contains a number of physical hard disk drives. It
is the underlying software technology, rather than the proprietary
hardware and controllers, which manages the distribution of data
across both individual drives and across nodes in the grid. See ICS
White Paper 2009, available at www.scalecomputing.com.
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The ICS Units consist of the following components:
A. Hardware
1. A Central Processing Unit (``CPU''), which is used to provide
the computing power;
2. An Application Specific Integrated Circuit (``ASIC'') that
provides the proper processing speeds;
3. A capacitor and resistors;
4. Electrically erasable programmable read-only memory (``EEPROM'')
to retain data in the event of power loss;
5. A ``motherboard'', which is a printed circuit board populated by
transistors, diodes, capacitors, and communication board;
6. Additional motherboard components that provide additional data
throughput;
7. A Western Digital brand Hard Disk Drive (``HDD'') that stores
data;
8. A memory module, which enhances overall throughput;
9. An air shroud, which helps with system cooling;
10. A heat sink that protects internal components from heat;
11. Two five foot patch cables, which connect to backplane for
communication; and
12. A chassis that encloses all of the above listed components.
The components listed above are manufactured in several countries
including China, India, Malaysia, Taiwan, and Thailand. (Significantly,
the motherboard, which is the most expensive hardware component, is
manufactured in China.) They are assembled in the U.S. upon importation
``through a build and verification process that includes approximately
112 steps [summarized below].''
B. Software
The ICS Units also contain proprietary application software and
firmware.\3\ Together, they enable the ICS Units to (1) create a
cluster of nodes which act in unison, and (2) independently control the
entire cluster.\4\
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\3\ ``Firmware'' is a category of memory chips that hold their
content without electrical power and include ROM, PROM, EPROM, and
EEPROM technologies. Firmware becomes ``hard software'' when holding
program code. See Alan Freedman's The Computer Glossary (9th Ed.,
2001).
\4\ You claim that, without the software, the ICS Units would
behave like a standard, off-the-shelf rack storage unit.
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The application software and the firmware were developed in the
U.S. by Scale. You indicated that the development process entailed: (1)
a requirements analysis; (2) product design; (3) code writing; (4)
quality assurance testing; (5) bug fixing and maintenance; and (5)
support. By your estimation, ``at least 12,480 hours were invested in
the development of the firmware and application software in question''
with ``at least 10,400 more hours invested each year in continued
development and maintenance.''
C. Assembly
The ICS Units are made from components manufactured in China,
India, Malaysia, Taiwan, and Thailand. They are ultimately assembled in
the U.S., according to the following process:
1. Initial Quality Control: personnel take component inventory and
visually inspect each component. Serial numbers from each component are
scanned into inventory and grouped with a particular ICS Unit. Serial
numbers are verified for compatibility with other components in the
group.
2. Preparation of the System Chassis: after clearing the system
board area, the motherboard is secured to the chassis.
3. The Serial Advanced Technology Attachment (``SATA'') backplane
cabling is attached: after lining up the appropriate markings, the SATA
cable is connected to the SATA Backplane by using a SATA cable tree.
4. The molex connector and intrusion detectors are attached to the
SATA backplane.
5. Preparation of the system board: The CPU, CPU Cooler, and Random
Access Memory (``RAM'') are attached to the system board.
6. Integration of the system board: the system board is integrated
into the chassis by aligning it with the mounting holes and ensuring
proper alignment with the I/O shield. The system board, main power
harness, and power connector are then secured to the chassis. The main
power harness is attached to the system board.
7. Fan kit assembly: Fan connectors are plugged into internal
ports.
8. Routing and bundling of the front panel connectors: Front panel
connectors are appropriately routed and connected.
9. Air shroud integration: air shroud is positioned and attached to
power cable.
10. Signal Cables: signal cables are connected to the system board
in the appropriate order, from SATA 0 through SATA 3.
11. Verify and ensure the cable routing and connections: the
intrusion detection cable is bundled and secured, and the ``Chassis
Intrusion'' is attached next to the SATA connectors.
12. Hard drive Integration: hard drive fillers are removed from
chassis.
13. Install hard drives (parts from Bill of Materials) and secure:
the capacity of all hard drives is verified to ensure they are either
500 GB or 1000 GB. The hard drives are the systematically distributed
on all order systems.
14. Verify hardware integration: the hardware is verified to ensure
that the system boards with CPU, Heat sink, and RAM has been properly
mounted; the heat sink has proper orientation and is properly mounted;
the cable routing and connections are correctly implemented; the air-
duct (black shroud) is properly attached to the system board; the hard
drives are properly assembled in carrier and lock in place; and that
the Intrusion Detection Switch and Connector has been properly
integrated.
15. Secure chassis: the lid of chassis is secured with screws.
16. First power on: the system is connected to a power source. The
Network Interface Card (``NIC'') is connected to the ``Staging
Services''. The keyboard and mouse are plugged in. The power system is
turned and checked for any abnormalities. The boot process is checked.
The POST of system is tested to verify that there are no acoustical
warnings.
17. BIOS Configuration: each system is booted into BIOS and all of
the BIOS variables are reset to their defaults. The BIOS is then
customized to run Scale's firmware and application software by
adjusting fifteen separate settings.
18. Diagnostic Testing: after the system is rebooted, a technician
performs a general diagnostic test and reboots again.
19. Scale Image Loading: on this reboot, a technician connects the
ICS Unit to power and checks that the system's configuration is
correct. After connecting the ICS Unit to a network, the technician
loads the Company's proprietary Operating System (``OS'') application
software image, which enables the ICS Unit to act as part of a Scale
system. The technician must observe the entire load process to ensure
[[Page 27800]]
that the ICS Unit is properly configured and accepts the OS load.
20. Verification: the technician now runs an MD5 Check-Sum program
to confirm that the OS image on the ICS Unit is identical to Scale's
proprietary OS image.
21. Complete Integration and Verify: the technician now reboots the
ICS Unit again to verify the BIOS settings are correctly implemented.
The ICS Unit is then shut down.
It takes approximately one hour to assemble each ICS Unit.
ISSUE:
What is the country of origin of the ICU Units for purposes of U.S.
Government procurement?
LAW AND ANALYSIS:
Pursuant to subpart B of Part 177, 19 C.F.R. Sec. 177.21 et seq.,
which implements Title III of the Trade Agreements Act of 1979, as
amended (``TAA''; 19 U.S.C. Sec. 2511 et seq.), CBP issues country of
origin advisory rulings and final determinations on 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 at 19 U.S.C. Sec. 2518(4)(B):
An article is a product of a country or instrumentality only if (i)
it is wholly the growth, product, or manufacture of that country or
instrumentality, or (ii) in the case of an article which consists in
whole or in part of materials from another country or instrumentality,
it has been substantially transformed into a new and different article
of commerce with a name, character, or use distinct from that of the
article or articles from which it was so transformed.
See also, 19 C.F.R. Sec. 177.22(a).
In rendering advisory rulings and final determinations for purposes
of U.S. Government procurement, CBP applies the provisions of subpart B
of Part 177 consistent with the Federal Procurement Regulations. See 19
C.F.R. Sec. 177.21. In this regard, CBP recognizes that the Federal
Procurement Regulations restrict the U.S. Government's purchase of
products to U.S.-made or designated country end products for
acquisitions subject to the TAA. See 48 C.F.R. Sec. 25.403(c)(1).
In order to determine whether a substantial transformation occurs
when components of various origins are assembled to form completed
articles, CBP considers the totality of the circumstances and makes
such decisions on a case-by-case basis. The country of origin of the
article's components, the extent of the processing that occurs within a
given country, and whether such processing renders a product with a new
name, character, and use are primary considerations in such cases.
Additionally, facts such as resources expended on product design and
development, extent and nature of post-assembly inspection procedures,
and worker skill required during the actual manufacturing process will
be considered when analyzing whether a substantial transformation has
occurred; however, no one such factor is determinative.
In Data General v. United States, 4 CIT 182 (1982), the court
determined that for purposes of determining eligibility under item
807.00, Tariff Schedules of the United States, the programming of a
foreign PROM (Programmable Read-Only Memory chip) 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 alters 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, supra, the court observed
that the substantial transformation issue is a ``mixed question of
technology and customs law.''
In C.S.D. 84-86, CBP stated:
We are of the opinion that the rationale of the court in the Data
General case may be applied in the present case to support the
principle that the essence of an integrated circuit memory storage
device is established by programming . . . . [W]e are of the opinion
that the programming (or reprogramming) of an EPROM results in a new
and different article of commerce which would be considered to be a
product of the country where the programming or reprogramming takes
place.
Accordingly, the programming of a device that changes or defines
its use generally constitutes substantial transformation. See also HQ
733085, dated July 13, 1990; and 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 on it that allows it to perform certain functions of
preventing piracy of software constituted substantial transformation);
but see HQ 732870, dated March 19, 1990 (formatting a blank diskette
did not constitute substantial transformation because it did not add
value, did not involve complex or highly technical operations and did
not create a new or different product); HQ 734518, dated June 28, 1993
(concluding that motherboards were 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 imports it).
You claim that Scale takes several individual components and
combines them in the United States to make otherwise dormant electronic
components into a usable customized data storage device. The
motherboard is imported from China with integrated circuits, an EEPROM,
transistors, diodes, a capacitor, resistors and communication buses.
From the information provided, the board is solely or principally used
with an ADP storage unit. Once imported, the motherboard will be
installed in a chassis from China, along with various other non-
originating components including a CPU from Malaysia, HDD from
Thailand, memory module, air shroud, cables, and heat sink from
[[Page 27801]]
China, to complete a rack mounted server. Each of these components is
made into a rack mounted storage device, classifiable under 8471.70.40,
Harmonized Tariff Schedule (``HTSUS'').
The device does not have pairing capability until the U.S.-made
software is downloaded to it, which enables the device to function as a
cloud computing device similar to a network storage RAID array (HDDs
strung together to allow redundancy in different locations). The
software completes a network storage function instead of just a HDD
found in a rack mounted storage device. The RAID array storage
subsystem components and HDD canisters usually include a disk array
controller frame which effects the interface between the subsystem's
storage units and a CPU. In this case, the software effects the
interconnection between the CPU and the storage units, and the
classification of the finished item becomes 8471.80.10, HTSUS. Thus,
the imported components become a new product with a new name and
classification.
In summary, Scale imports several components of foreign-origin,
including a blank storage medium in the form of a hard disk drive,
combines them into a finished product and loads propriety software
using skilled technical effort. The customization and installation of
firmware and application software make what would otherwise be a non-
functioning rack storage unit, into Scale's proprietary clustered
technology. As a result of the U.S. processing, we find that the
imported component parts are substantially transformed and therefore,
the country of origin of the ICS Units is the United States.
Please be advised, however, that whether the ICS Units may be
marked ``Made in the U.S.A.'' or with similar words, is an issue under
the authority of the Federal Trade Commission (``FTC''). We suggest
that you contact the FTC, Division of Enforcement, 6th and Pennsylvania
Avenue, NW., Washington, DC 20508, on the propriety of markings
indicating that articles are made in the United States.
HOLDING:
Based on the facts provided, the processing operations performed in
United States impart the essential character to the ICS Units. As such,
the ICS Units will be considered products of the United States for the
purpose of government procurement.
Notice of this final determination will be given in the Federal
Register as required by 19 C.F.R. Sec. 177.29. Any party-at-interest
other than the party which requested this final determination may
request, pursuant to 19 C.F.R. Sec. 177.31, that CBP reexamine the
matter anew and issue a new final determination. Any party-at-interest
may, within 30 days after publication of the Federal Register notice
referenced above, seek judicial review of this final determination
before the Court of International Trade.
Sincerely,
William G. Rosoff
for
Sandra L. Bell, Executive Director Regulations and Rulings
Office of International Trade
[FR Doc. 2010-11726 Filed 5-17-10; 8:45 am]
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