OT:RR:CTF:VS H323941 JMV
Center Director
Electronics Center of Excellence and Expertise
U.S. Customs and Border Protection
301 E. Ocean Blvd.
Suite 1400
Long Beach, CA 90802
RE: Internal Advice; Country of Origin of Solid-State Drives; Section 301 Trade Remedy
Dear Center Director:
This is in response to your e-mail referral of February 11, 2022, forwarding an internal advice request regarding the country of origin of solid-state drives (“SSDs”) imported by Kioxia America, Inc. (“Kioxia”). This internal advice arises out of a question of whether, for purposes of Section 301 Trade Remedies, the SSDs at issue originate where the NAND flash memory chips originate or where the PCBA is assembled.
Kioxia requested that certain information submitted in connection with this internal advice be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the importer’s request for confidentiality is approved. The information contained within brackets in the internal advice decision and all attachments to the internal advice request forwarded to our office will not be released to the public and will be withheld from published versions of this decision.
FACTS:
An SSD is designed to operate in a host device such as a computer, laptop, tablet, or server by providing rewritable memory storage, meaning data can be stored then deleted to make room for new data. SSDs store data in interconnected flash memory chips, which can achieve faster performance and higher storage densities than older hard disk drives (“HDD”). The SSDs at issue are referred to as “enterprise SSDs,” which are intended for larger volume business applications and have larger storage capacities. The writing, erasing, and rewriting of data in an SSD, which occurs more often in an enterprise environment, causes damage to the memory cells. Therefore, enterprise SSDs provide greater endurance than a consumer SSD with improved wear leveling algorithms.
The major components of the SSD are the NAND flash memory chips, the Dynamic Random Access Memory (“DRAM”) chips, the controller chip, and printed circuit boards (“PCB”). These parts along with many other parts of various origin, such as resistors, capacitators, power inductors, etc. are assembled in Country A [XXXXXXXXX] via surface mount technology (“SMT”). For the purpose of this internal advice ruling, Kioxia provided a Bill of Materials for one of their SSD models but noted that all manufacturing steps (SMT process, final assembly, downloading of firmware, significant testing, and packaging/shipping) occur in the same physical location.
The NAND flash memory is made up of charge trap flash (“CTF”) memory cells wherein digital data, expressed as 0s and 1s, is stored by moving electrons into and out of a charge storage film. When the power is turned off, this state of stored electrons remains, which is a key characteristic of flash memory. Another distinguishing feature of the NAND flash memory is that it can be erased and re-written. The NAND flash memory chips in this case originate in either China, Country B or C [XXXXXXXXX].
The next major component of the SSD is the DRAM. Unlike flash memory, DRAM is volatile memory meaning that any data stored in the DRAM is lost when power the DRAM is removed from a power source. While the DRAM is not necessary for an SSD to function, DRAM makes the SSD quicker and enhances the performance of the SSD. The DRAM memory chips are from either China, Country D or C [XXXXXXXXXX].
The SSD controller chip, also referred to as the “System on a Chip,” performs the basic function of managing the host systems’ request for data storage and retrieval from the NAND flash memory. The controller includes both hardware and firmware. Another important function of the controller is a process called wear levelling, which increases the functional life of the SSD. Since flash memory cells can only withstand a certain number of write, erase, and rewrite cycles before they degrade, wear levelling evenly distributes the write and erase cycles among all the block of memory cells within the SSD. The controller also houses the error correction code (“ECC”) which is an algorithm to identify and correct errors in the binary data. The controller chip in this instance is from Country C [XXXXX].
The final major component is the PCB which consists of conductive lines printed or etched onto a non-conductive material. Electronic components are mounted on the board and the conductive lines connect the components to form a working circuit. In this case, the PCBs are from China.
The SSDs at issue are manufactured in Country A [XXXXXXXXXXX], where the components are mounted onto the PCB to form a printed circuit board assembly (“PCBA”) via SMT. SMT is a method of manufacturing PCBAs whereby components are placed and soldered to the surface of the PCB rather than placed into holes on the PCB. After the PCBA assembly is complete, the PCBA is inspected and then sent for final assembly. During final assembly, the SSDs are encased in a cover and base plate. For some models of SSDs, the PCBA is connected to a second “daughter” PCBA before it is encased by the cover and base plates. [XXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.] After the SSD is fully assembled, the SSD is tested for its ability to reliably send and receive data. After this initial round of tests, the customer firmware is downloaded onto the SSD and a final round of testing occurs before the product is packed and shipped.
ISSUE:
Whether the SSDs at issue originate where the NAND flash memory chips originate, which is China, Country B or C [XXXXXXXXXX], or in Country A [XXXXXXXXX], where the PCBA is assembled.
LAW AND ANALYSIS:
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). See Section XXII, Chapter 99, Subchapter III, U.S. Note 20, HTSUS. The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(f), HTSUS.
When determining the country of origin for purposes of applying Section 301 measures, the substantial transformation analysis applies. See, e.g., Headquarters Ruling (“HQ”) H301619, dated November 6, 2018. The substantial transformation test is whether an article emerges from a process with a new name, character, or use, different from that possessed by the article prior to processing. See Texas Instruments Inc. v. United States, 681 F.2d 778 (CCPA 1982). The issue of substantial transformation is a “mixed question of technology and customs law, mostly the latter.” 681 F.2d at 783. 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, or use are primary considerations in such cases. See, e.g., HQ H311606, dated June 16, 2021. 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 may be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
The Court of International Trade has indicated that “[f]or courts to find a change in character, there often needs to be a substantial alteration in the characteristics of the article or components.” See Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1318 (CIT 2016) (citing Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121 (1996) and Nat’l Hand Tool Corp. v. United States, 16 Ct. Int’l Trade 308, 311 (1992)). Courts have also considered “the ‘essence’ of a completed article to determine whether an imported article has undergone a change in character as a result of post importation processing.” Id. (citing Uniden America Corp. v. United States, 120 F. Supp. 2d 1091, 1095-1098 (CIT 2000) and Uniroyal, Inc., v. United States, 542 F. Supp. 1026, 1030 (CIT 1982)).
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 United States (predecessor to subheading 9802.00.80, HTSUS), the programming of a foreign 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 C.S.D. 85-25, 19 Cust. Bull. 844 (1985), CBP held that for purposes of the Generalized System of Preferences (“GSP”), the assembly of a large number of fabricated components onto a printed circuit board in a process involving a considerable amount of time and skill resulted in a substantial transformation. In that case, in excess of 50 discrete fabricated components (such as resistors, capacitors, diodes, integrated circuits, sockets, and connectors) were assembled onto a PCB. CBP determined that the assembly of the PCBA involved a very large number of components and a significant number of different operations, required a relatively significant period of time, skill attention to detail, and quality control.
Kioxia claims that the SSDs originate in Country A [XXXXXXXX], where the PCBA is assembled via the SMT process. While CBP has found that the country where a PCBA was assembled determined the origin of a product (HQ H304910, dated April 21, 2020 (finding that the country of origin of LED vehicle lamps was where the PCBA with LED lights was manufactured)), CBP has also found that when the item that performs the essential function of the finished good is from a country other than where the PCBA is assembled, the country of origin is where the item that performs the essential function was produced. For example, in New York Ruling Letter (“NY”) N322798, dated November 30, 2021, CBP found the origin of a thin film transistor (“TFT”)-liquid crystal display (“LCD”) module produced in Japan, sent to China where it was attached to a PCBA and final assembly, was Japan. In making this decision, CBP stated that the complex manufacturing processing in Japan created the TFT-LCD displays, which imparted the essential functional component of the finished device.
However, when determining the origin of of high-capacity data storage, CBP considered the origin of the components and the location of assembly. In HQ H082476, dated May 11, 2010, the United States was determined to be the country of origin of Commodity-based Clustered Storage (“ICS”) units, when foreign components were assembled into the units and programmed in the United States. See also New York Ruling Letter (“NY”) N083979 dated December 3, 2009 (finding the country of origin of origin of ICS clustered storage units was the United States when foreign components were assembled into the units and programmed in the United States).
CBP has also considered the origin of a data storage system that used an older form of data storage: HDDs. In HQ H125975, dated January 19, 2011, 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.
Similarly, in HQ H269185, dated March 8, 2017, CBP considered the origin of data storage products assembled in Mexico. In HQ H269185, the chassis assembly was from Malaysia; the power supply was from the Philippines; the software was from the United Kingdom; and the hard disk drives were from China, Singapore, or Thailand. CBP found that the products were substantially transformed in Mexico mainly because of the assembly of the various components. See also HQ H261623, dated November 22, 2016 (finding the country of origin of HDDs to be the country where the components were assembled).
Here, although the subject enterprise SSDs are of a smaller scale and a newer form of electronic data storage, the components assembled in the Philippines serve similar functions. As in H125975, a controller, which acted as a brain of the data storage device, was assembled to an HDD. Here, a controller from Country C [XXXXX], which is responsible for the data storage requests, wear levelling, and the ECC algorithm, is assembled to a data storage device in the form of NAND flash memory chips from China, Country B or C [XXXXXXXXXX]. These parts are also assembled to other parts of various origin, such as the DRAM, from China, Country D or C [XXXXXXXXXX], and the PCB, from China, to form the PCBA in Country A [XXXXXXXX]. The SSDs then undergo final assembly and testing in Country A [XXX XXXXXX]. Once assembled to the PCBA, the components of various origin become connected via electronic circuits to form a system of electronic storage management. Therefore, we find the country of origin of the subject SSDs is Country A [XXXXXXXX].
HOLDING:
We find that the country of origin of the subject SSDs is Country A [XXXXXXXX], where the PCBA and final assembly occurred.
Sixty days from the date of this decision, the Office of Trade, Regulations and Rulings, will make this decision available for CBP personnel, and to the public on the CBP Home Page at http://www.cbp.gov by means of the Freedom of Information Act, and other methods of publication.
Sincerely,
Monika Brenner, Chief
Valuation and Special Programs Branch