CLA-2 OT:RR:CTF:TCM H106780 JRB
Gregory S. McCue, Esq.
Steptoe & Johnson
1330 Connecticut Avenue, NW
Washington, DC 20036-1795
RE: Country of Origin Marking for Network Security Platforms; Application of 19 C.F.R. §134.43
Dear Mr. McCue:
This is in response to your letter on behalf of your client McAfee, Inc. (“McAfee”), dated May 14, 2010, to U.S. Customs and Border Protection (“CBP”) Office of International Trade, Regulations and Rulings, Commercial and Trade Facilitation Division for a binding ruling on the appropriate country of origin marking for the McAfee M Series Network Security Platform products. In addition to the information contained within that request we also took into account further information that you submitted on July 2, 2010. Our response to your ruling request is below.
FACTS:
The McAfee M Series Network Platforms are available in seven different models identified as the M-8000, M-6050, M-4050, M-3050, M-2750, M-1450, and the M-1250 respectively. All of the devices protect network connected devices with a combination of an Intrusion Prevention System (“IPS”) and an internal firewall. The products correlate signatures, anomalies, denial of service and distributed denial of service information to accurately block attacks before they reach their intended targets.
In your request you state that the manufacturing operations for these products occur in two stages. The first stage occurs in China where the bare metal chassis and the bare printed circuit boards (“PCBs”) are manufactured. The bare metal chassis along with the power supplies, fan trays and other components are packed together and shipped to either the United States or Hungary for further processing. The PCBs are then populated with other electrical components to form the Printed Circuit Board Assembly (“PCBA”). Heatsinks and Dual Inline Memory Modules (DIMMs) are then installed on the PCBAs. Finally, the PCBAs receive U.S. developed firmware and undergo functionality testing in China. The firmware contains basic programming such as basic power and reset functions. The PCBAs are then shipped separately to either the United States or to Hungary for the second stage of the process.
The second stage of production is to occur either in the United States or Hungary. At this stage of production the various parts are joined together to make the completed product and predominantly United States designed software is installed onto the platforms. More specifically, three PCBAs (one main PCBA, one AUX I/O PCBA for console system connection, and one mid-plane PCBA is present in all but the lower end M-series models) are installed onto the chassis base. The PCBAs are connected using wiring and the power cables are connected to the mid-plane PCBA. The fan FRU is installed onto the chassis base and the face plate is installed to make the completed machine. Predominantly U.S. software is installed into flash memory on the PCBAs. Tests are then performed on the system and the system is then configured to meet the customer’s demands. The accessory kits are also assembled at this time. A final round of testing is completed along with inspection, quality assurance, and auditing before the product is imported into the United States.
ISSUE:
I. What is the country of origin for purposes of the marking statute, 19 U.S.C. §1304?
II. Whether the merchandise can be marked “Assembled in Hungary” pursuant to 19 C.F.R. §134.43(e)?
LAW AND ANALYSIS:
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. Congressional intent in enacting 19 U.S.C. §1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is 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. Friedlander & Co., 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940). Part 134, U.S. Customs and Border Protection (CBP) Regulations (19 C.F.R. §134) implement the country of origin marking requirements and exceptions of 19 U.S.C. §1304. Section 134.1(b), CBP Regulations (19 C.F.R. §134.1(b)), defines “country of origin” as:
[T]he 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 [the marking regulations]…
A substantial transformation is said to have occurred when an article emerges from a manufacturing process with a name, character, or use that differs from the original material subjected to the process. M.B.I. Merchandise Industries, Inc. v. United States, 16 C.I.T. 495, 502 (1992) (citing United States v. Gibson-Thomsen Co., C.C.P.A. 267, 270 (C.A.D. 98) (1940)) The question of whether a substantial transformation occurs for marking purposes is a question of fact; to be determined on a case-by-case basis. National Hand Tool Corp. v. United States, 16 C.I.T. 308, 311 (1992) (quoting Uniroyal Inc. United States, 3 C.I.T. 220, 542 F.Supp. 1026 (1982), aff’d, 1 Fed.Cir. 21, 702 F.2d 1022 (1983)).
In determining whether a substantial transformation has occurred, the courts and CBP consider the programming operations performed to analyze the extent of processing performed. In Data General v. United States, 4 Ct. Int'l Trade 182 (1982), the court found that for purposes of determining eligibility under item 807.00, Tariff Schedules of the United States (the predecessor provision to subheading 9802.00.80, Harmonized Tariff Schedule of the United States), the programming of a foreign Programmable Read-Only Memory ("PROM") chip, substantially transformed the PROM into a U.S. article. The court noted that it is undisputed that programming alters the character of a PROM, effecting a
physical change. The essence of the article, its interconnections or stored memory, is 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 constituted "substantial transformation."
In this case, PCBAs are attached to the metal chassis and wired together, power supplies are connected, and the completed hardware is then programmed to carryout the functions of the finished security platforms. Prior to this step the unassembled goods are unprogrammed PCBAs that do not have the ability to detect and respond to threats and attacks on the network by searching through network traffic for certain known threat signatures. In other words, the products are unable carry out any of the intended capabilities without the second stage of processing. However, once stage two of the production process is complete McAfee has created a new device that is capable of protecting computer networks from various threats. Therefore, we find that for purposes of 19 U.S.C. §1304, the country of origin is the country in which the second stage of production occurs because of the extensive programming as well as the other operations to connect the various components to each other to make the final, functional product.
In addition to your country of origin request you also asked whether the product can be marked “Assembled in Hungary” as provided in 19 C.F.R. §134.43(e). 19 C.F.R. §134.43(e) provides:
Where an article is produced as a result of an assembly operation and the country of origin of such article is determined under this chapter to be the country in which the article was finally assembled, such article may be marked, as appropriate, in a manner such as the following:
(1) Assembled in (country of final assembly);
(2) Assembled in (country of final assembly) from components of (name of country or countries of origin of all components); or
(3) Made in, or product of, (country of final assembly).
This particular provision of 19 C.F.R. Part 134 was added in 1996 in response to public comments favoring an approach for allowing products to be marked “assembled in”. See Rules for Determining the Country of Origin of a Good for Purposes of Annex 311 of the North American Free Trade Agreement, 61 F.R. 28932, 28955. In particular U.S. Customs, the predecessor to CBP, stated that the exception provided in 19 C.F.R. §134.43(e) is “limited to assembled goods when the origin of such goods is the country of final assembly.” Id. U.S. Customs further clarified the meaning of this provision in a later notice where it stated that “the terms ‘Made in’ and ‘Assembled in’ are always words of similar meaning, and it will no longer be acceptable to use ‘Made in,’ ‘Product of,’ or words of similar meaning, along with the words ‘Assembled in’ in a single country of origin marking statement on articles of foreign origin imported into the United States.” See Use of “Made in” and “Assembled in” in One Country of Origin Marking Statement, 61 F.R. 37678.
Thus, in this case the question is whether the second stage of production that occurs in Hungary is considered an assembly process such that the product can be marked as “Assembled in Hungary.” The U.S. Customs Court has previously stated that the word “assembly” in the context of a provision within the old Tariff Schedule of the United States is defined as a process
which requires finished manufactured or fabricated components which are “joined” together to form an article. Clearly, “assembly” does not include the manufacture, production or fabrication of the essential parts to be used in the assembly process.
See Zwicker Knitting Mills v. United States, 469 F. Supp. 727, 734 (1979). CBP regulations also provide guidance on the meaning of the term in the context of articles assembled abroad with U.S. components. In 19 C.F.R. §10.12(b) the term “assembly” is defined as “the fitting or joining together of fabricated components.”
Using these definitions as guides we find that the stage two processing that occurs in Hungary is an assembly operation because based on the information that you have provided there is no production or manufacturing that occurs in that country. The only processes that occur in Hungary are the wiring and attaching of the PCBAs to the metal
chassis, the connection of the power supply and various other components that were manufactured in China, and the software programming of the device. Therefore, pursuant to 19 C.F.R. §134.43(e) your client will be allowed to mark its M-Series Network Security Platforms as “Assembled in Hungary”.
HOLDING:
Pursuant to 19 U.S.C. §1304, the McAfee M-Series Network Security Platforms undergo a substantial transformation in Hungary such that Hungary is the product’s country of origin. Further, pursuant to 19 C.F.R. §134.43(e) the products can be marked “Assembled in Hungary.”
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transactions.
Sincerely,
Ieva K. O’Rourke, Chief
Tariff Classification and Marking Branch