OT:RR:CTF:VS H348824 AP
Elvira Feng
Wistron Corp.
No.1, Zhihui Rd., Zhubei City, Hsinchu County
Taiwan, Republic of China
RE: Network Security Device; Country of Origin; Marking; 9802.00.50; 9802.00.80
Dear Ms. Feng:
This is in response to your April 30, 2025 ruling request, regarding the country of origin
of a network security device for purposes of marking and additional trade remedy measures, and
the eligibility for a partial duty exemption under subheadings 9802.00.50 and 9802.00.80, of the
Harmonized Tariff Schedule of the United States (“HTSUS”).
FACTS:
The subject network security device of subheading 8543.70.98, HTSUS, functions as an
add-on device that integrates various security protocols such as firewalls and Artificial
Intelligence protocols for network monitoring. The device consists of a motherboard, a light
emitting diode (“LED”) board, a top cover, a fan duct, a power supply unit (“PSU”), and a rear
fan. The motherboard and the LED board are manufactured in the United States in a U.S. free
trade zone or in a U.S. non-bonded factory from components from multiple countries. The
printed circuit board (“PCB”) is from China, the central processing unit (“CPU”) is from
Malaysia, and the power supply is from China. In the United States, all the components for the
motherboard and LED board are mounted onto separate PCBs via surface mount technology
(“SMT”) and dual in-line package (“DIP”). SMT is a method of manufacturing whereby
components are placed and soldered to the surface of the PCB rather than placed into holes on
the PCB. DIP involves inserting components into pre-drilled holes on the PCB. The fully
populated PCB will be the motherboard. The U.S. production costs represent 87 percent of the
total cost of the network security device according to the bill of materials. The motherboard is
99.9 percent of the total U.S. production and the LED board only 0.1 percent.
The completed motherboard and LED board will be exported to Taiwan where they will
be inspected and assembled together with the top cover, fan duct, power supply unit (“PSU”),
and rear fan to create the final network security device. You state that the motherboard and LED
board will not undergo any fabrication, restoration, addition, or renovation in Taiwan. After
software developed and written in the United States or Taiwan is loaded and testing is
performed, the completed security device will be imported from Taiwan into the United States.
The software downloaded in Taiwan will include basic input-output system (“BIOS”), operating
system (“OS”), and testing program (“TP”), which will enable the device to function as intended.
You explain that BIOS and OS are for system functioning, and TP is for manufacturing testing.
ISSUES:
1. What is the country of origin of the network security device for purposes of marking
and additional trade remedy measures? Does the device need to be marked when
imported into the United States?
2. Whether the device is eligible for a partial duty exemption under subheading
9802.00.50, HTSUS.
3. Whether the device is eligible for a partial duty exemption under subheading
9802.00.80, HTSUS.
LAW AND ANALYSIS:
1. Country of Origin for Purposes of Marking and Additional Trade Remedies
When determining the country of origin for purposes of marking and trade remedies, the
substantial transformation analysis is applicable. The test for determining whether a substantial
transformation will occur 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, 69 CCPA 151 (1982). This determination is based on the
totality of the evidence. See Nat’l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d,
989 F.2d 1201 (Fed. Cir. 1993).
The U.S. Court of International Trade (“CIT’) 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
(2016) (citing Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121 (1996) and Nat’l Hand
Tool Corp., 16 CIT at 311). 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, 1095-98 (CIT 2000) and Uniroyal, Inc. v. United States, 3 CIT 220, 225 (1982), aff’d, 702
F.2d 1022 (Fed. Cir. 1983)). In Uniroyal, 3 CIT at 224, the court determined that the shoe upper
was “the very essence of the completed shoe” and that the attachment of the imported shoe
uppers to an outer sole in the United States was a “minor manufacturing or combining process
which leaves the identity of the upper intact,” therefore, the shoe upper was not substantially
transformed in the United States. The court also noted that the minor assembly operation in the
United States “require[d] only a small fraction of the time and cost involved in producing the
uppers.” Id.
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In Data General v. United States, 4 CIT 182 (1982), the CIT held 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 Programmable Read-Only
Memory chip (“PROM”) in the United States substantially transformed the PROM into a U.S.
article. The court noted that the programs were designed by a U.S. project engineer with many
years of experience in “designing and building hardware.” In addition, the court noted that 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.
While software is often essential to the function of a product, U.S. Customs and Border
Protection (“CBP”) generally does not find downloading software to be a substantial
transformation. See Headquarters Ruling Letter (“HQ”) H240199, dated Mar. 10, 2015 (a
notebook computer was not substantially transformed when it was imported into Country F and
Country D-origin BIOS was downloaded onto it). CBP may find a substantial transformation
when the software is downloaded in the country where it was written and developed. See HQ
H034843, dated May 5, 2009 (USB flash drives were products of Israel because the software and
firmware were developed in Israel, and the installation and customization of the firmware and
software that took place in Israel made the USB flash drives functional). If programming and
assembly operations occur in different countries, CBP considers where the last substantial
transformation occurred. For instance, in HQ H241177, dated Dec. 3, 2013, switches were
assembled to completion in Malaysia and then shipped to Singapore, where software developed
in the United States was downloaded. CBP found that the country where the last substantial
transformation occurred was Malaysia, where the major assembly processes also were
performed.
In HQ H203555, dated Apr. 23, 2012, under scenario 1, the motherboard of the
oscilloscopes and the power controller were assembled in Malaysia. A large number of parts
were assembled in Malaysia to form the Malaysian-origin boards. The motherboards were
shipped to Singapore. Upon importation into Singapore, the boards were assembled with rear,
front deck, and bezel subassemblies made in Singapore from components imported from China,
Malaysia, and Taiwan. In addition, the completed oscilloscopes were programmed with U.S.-
origin application software and firmware in Singapore. There were three countries under
consideration where programming and/or assembly operations took place, the last of which was
Singapore. No one country’s operations dominated the manufacturing operations of the
oscilloscopes. The boards assembled in Malaysia were important to the function of the
oscilloscopes, as was the U.S. firmware and software used to program the oscilloscopes in
Singapore. The assembly in Singapore completed the oscilloscopes. CBP determined that the
last substantial transformation occurred in Singapore and the country of origin of the
oscilloscopes was Singapore.
In HQ H322417, dated Feb. 23, 2022, the production of a smartwatch occurred in three
main stages: (a) the production of individual components in seven different countries;
(b) production of the two PCBAs in Taiwan by means of SMT; and (c) final assembly, final
software upload, testing, and packout in China. The firmware containing the OS was uploaded
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in China, where the final assembly occurred. The ruling concluded that the PCBAs were the
essence of the smartwatch, and the smartwatch was a product of Taiwan, where the SMT
operations took place to manufacture the PCBAs. Since the software/firmware was uploaded in
China and was developed in third countries outside of China, including in the United States, it
did not substantially transform the smartwatch. The final assembly in China was not a complex
or time intensive process compared to the SMT operations and did not substantially transform
the PCBAs.
In the instant matter, the motherboard is manufactured in the United States and is
programmed with U.S. or Taiwanese BIOS and OS software in Taiwan where the network
security device is assembled. While software is often essential to the function of a product, CBP
generally does not find the downloading of software to be a substantial transformation, unless the
programming of the device occurs “in the same country where the software was developed.” See
HQ H322417, supra.
When the software is programmed in the United States and downloaded in Taiwan, the
last substantial transformation will occur in the United States. The motherboard will be the
essence of the network security device. The individual components will undergo a change in
name, character and use in the U.S. free trade zone or U.S. non-bonded factory when they
become a motherboard via the SMT and DIP processes. Once they are incorporated together
onto the motherboard, they become an integral part of the new article and form the “brain” of the
device and enable the device to function as intended by design. Through the SMT and DIP
processes in the United States, the components will change in character from individual
components capable of limited functions to a motherboard that represents the essence of the
network security device because it enables it to function. Before the individual components are
assembled together to create the motherboard, each component is only capable of limited
functions but upon assembly, the functionality of the network security device is dependent on the
collective capabilities of the motherboard. Therefore, we find that the SMT and DIP operations
in the United States (both in a U.S. free trade zone or in a U.S. non-bonded factory) will result in
a substantial transformation in the United States of the components from multiple countries into
a motherboard. The U.S. software uploaded in Taiwan will not substantially transform the
motherboard. The country of origin for purposes of marking and trade remedies under this
scenario will be the United States. The network security device of U.S. origin will be excepted
from country of origin marking requirements and will not be subject to additional trade remedy
measures, such as reciprocal or global tariffs.
When the BIOS and OS software is programmed and uploaded in Taiwan, no one
country’s operations dominate the manufacturing operations of the security network device. The
motherboard produced in the United States is important to the function of the device, as is the
Taiwanese software used to program the device in Taiwan. Further, the assembly operations in
Taiwan complete the network security device. Therefore, we find that the last substantial
transformation in this instance will occur in Taiwan and the country of origin of the network
security device for purposes of marking and trade remedies will be Taiwan. See HQ H170315
(July 28, 2011) (under scenario IV, the programming and assembly operations performed in
Singapore substantially transformed the boards assembled in Malaysia into products of
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Singapore and the country of origin of the phones was Singapore). The network security device
under this scenario may be marked “Made in Taiwan.”
2. Subheading 9802.00.50, HTSUS
For purposes of importations from Taiwan, subheading 9802.00.50, HTSUS, provides a
partial duty exemption for articles returned to the United States after having been exported to be
advanced in value or improved in condition by means of repairs or alterations. Duty is assessed
only on the cost or value of the repair or alteration abroad, provided that the documentary
requirements of 19 C.F.R. § 10.8 are met. Tariff treatment under subheading 9802.00.50,
HTSUS, is precluded where: (1) the exported articles are not complete for their intended use and
the foreign processing operation is a necessary step in the preparation or manufacture of finished
articles; or (2) the operations performed abroad destroy the identity of the exported articles or
create new or commercially different articles through a process of manufacture.
However, entitlement to this tariff treatment is precluded in circumstances where the
operations performed abroad destroy the identity of the articles or create new or commercially
different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956);
Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading
9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their
intended use prior to the foreign processing. Guardian; Dolliff & Company, Inc. v. United
States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff’d, 66 CCPA 77, C.A.D. 1225, 82,
599 F.2d 1015, 119 (1979). In the instant case, when the U.S. or Taiwanese software is uploaded
in Taiwan, the upload process is a continuation in the fabrication process and exceeds an
alteration. The software upload in Taiwan is a necessary step in the manufacture of the network
security device. Thus, the network security device is not eligible for tariff treatment under
subheading 9802.00.50, HTSUS.
3. Subheading 9802.00.80, HTSUS
Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:
articles assembled abroad in whole or in part of fabricated components, the product of the
United States, which (a) were exported in condition ready for assembly without further
fabrication, (b) have not lost their physical identity in such articles by change in form,
shape, or otherwise, and (c) have not been advanced in value or improved in condition
abroad except by being assembled and except by operations incidental to the assembly
process, such as cleaning, lubricating, and painting.
All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a
component may receive a duty allowance. An article entered under this tariff provision is subject
to duty upon the full cost or value of the imported assembled article, less the cost or value of the
U.S. components assembled therein, upon compliance with the documentary requirements of 19
C.F.R. § 10.24.
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Assembly operations for purposes of HTSUS subheading 9802.00.80, HTSUS, are
interpreted at 19 C.F.R. § 10.16(a), which specifically enumerates of any method used to join or
fit together solid components, such as welding, soldering, riveting, force fitting, gluing,
laminating. Further, this section provides that assembly operations may be preceded,
accompanied, or followed by operations incidental to the assembly. Operations incidental to the
assembly according to section 10.16(c)(4) include “machining, polishing, burnishing, peening,
plating (other than plating incidental to the assembly), embossing, pressing, stamping, extruding,
drawing, annealing, tempering, case hardening, and any other operation, treatment or process
which imparts significant new characteristics or qualities to the article affected.” However, any
significant process or operation other than assembly, whether or not it effects a substantial
transformation of the article, which imparts significant new characteristics or qualities to the
article, precludes the application of the exemption under 19 C.F.R. § 10.16(c).
While the motherboard and the LED board are exported to Taiwan in condition ready for
assembly, they will be subjected to programming, which is not incidental to assembly. See Data
General, supra. The assembly processes in Taiwan consist of pressing and screwing the
motherboard together with the LED board, the top cover, the fan duct, the PSU, and the rear fan.
However, the device assembled in Taiwan is incomplete and non-functional without the BIOS
and OS software, which enables it to function as a network security device. Since the network
device will be advanced in value or improved in condition in Taiwan as a result of the
programming, which is not incidental to assembly, the device will not be eligible for tariff
treatment under subheading 9802.00.80, HTSUS.
Therefore, the network security device programmed with U.S. or Taiwanese software is
not eligible for tariff treatment under subheadings 9802.00.50, HTSUS, and 9802.00.80, HTSUS.
However, we note that if the U.S. content of the network security device of Taiwanese
origin is at least 20 percent of the Customs value of the imported device, it may qualify for the
exemption under subheading 9903.01.34, HTSUS and Chapter 99, Subchapter III,
U.S. Note 2(v)(xii), HTSUS, and additional duties will only be imposed on the non-U.S. content,
provided the requirements of that provision are met.
HOLDING:
Both the imported network security device with U.S. programmed software and the
device with Taiwanese programmed software will not be eligible for tariff treatment under
subheading 9802.00.50, HTSUS and under subheading 9802.00.80, HTSUS.
The country of origin for purposes of marking and trade remedies of the network device
uploaded with software programmed in the United States will be the United States. The network
security device of U.S. origin will be excepted from country of origin marking requirements and
will not be subject to additional trade remedy measures, such as reciprocal or global tariff.
The country of origin for purposes of marking and trade remedies of the network device
uploaded with software programmed in Taiwan will be Taiwan. The network security device of
Taiwanese origin will be subject to additional trade remedy measures, such as reciprocal or
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global tariff, and may be marked “Made in Taiwan.” If the U.S. content of the network security
device of Taiwanese origin is at least 20 percent of the Customs value of the imported device, it
may qualify for the exemption under subheading 9903.01.34, HTSUS and Chapter 99,
Subchapter III, U.S. Note 2(v)(xii), HTSUS and additional duties will only be imposed on the
non-U.S. content.
This holding only applies to the specific facts presented. 19 C.F.R. § 177.9(b)(1)
provides that “[e]ach ruling letter is issued on the assumption that all of the information
furnished in connection with the ruling request and incorporated in the ruling letter, either
directly, by reference, or by implication, is accurate and complete in every material respect. The
application of a ruling letter by [CBP] field office to the transaction to which it is purported to
relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of
the transaction described therein to the actual transaction, and the satisfaction of any conditions
on which the ruling was based.”
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 transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch
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