[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]
BILLING CODE 9111-14-P