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HQ 968000

February 14, 2006



Terrie A. Gleason, Esq.
Stuart P. Seidel, Esq.
Baker & McKenzie LLP
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078

RE: Country of origin marking requirements applicable to the Brocade Silkworm SW 4100 Fibre Channel fabric switch for Storage Area Networks; substantial transformation; China; United States; 19 U.S.C. §1304

Dear Ms. Gleason and Mr. Seidel:

This is in response to your letter, dated November 1, 2005, in which you requested a ruling on behalf of Brocade Communications Systems, Inc. (hereinafter “Brocade”), pertaining to the country of origin marking requirements applicable to the Brocade Silkworm SW 4100 Fibre Channel fabric switch for Storage Area Networks (hereinafter the “SW 4100”) which is partially manufactured in China and assembled to completion in the United States.


It is stated that Brocade storage area network (hereinafter “SAN”) equipment is designed to provide an open and secure environment for mission-critical electronic storage applications. The specific product under consideration in this case, the SW 4100, is described as 16, 24 or 32-ports, 1, 2 or 4 gigabits per second line speed per port through auto-sensing of existing SAN environments. The unit is shipped to customers with a minimum of 16 ports enabled. The additional 8 or 16 ports are activated through a software licensing upgrade. Through utilization of Brocade’s Inter-Switch Link (“ISL”) trunking, up to 32 gigabits per second is possible. The SW 4100 consists of a printed circuit board assembly (hereinafter “PCBA”), chassis, top cover, power supply, fans, A/C filter, the Brocade fabric operating system (hereinafter “FOS”) and a suite of advanced software options. The software is designed to boost transmission rates, provide additional security, increase reliability, and optimize fabric traffic management. The FOS allows full backwards and forwards compatibility with other Brocade Silkworm switches. The units work with environments running Windows, Linux, UNIX, Solaris and AIX. The SW 4100 will be partially manufactured in China and assembled to completion in the U.S.

You have described the various operations which occur in China or the United States as follows:


A bare metal chassis bottom mechanical assembly is built.

A metal top cover is manufactured.

A bare printed circuit board is populated with various electronic components to form a printed circuit assembly (“PCA”). Diagnostic software is downloaded on the PCA, endowing the board with the necessary software to enable the testing of the hardware. The diagnostic software allows limited information to travel to and from the ports on the board.

The board undergoes what is described as the standard battery of tests to ensure the functionality of its components, connections and circuitry. Examples of such tests are the In Circuit Test (“ICT”) and the Environmental Stress Screen (“ESS”).

5. The power supply (made in either China or Thailand) is assembled into the chassis.

6. Five fans (made in China) are assembled into the chassis.

A/C filter (made in either Canada or Mexico) is assembled into the chassis.

The PCA is installed into the chassis base.

The dummy cover is installed for testing.

The DBP connectors are assembled.

The power supply connector is assembled.

The fan cables are connected.

The permanent cable is assembled to the chassis bottom.

Serial numbers from the PCA, fan tray, and power supply are collected and appended to the unit serial number in a data tracking system.

United States

Upon completion of the forgoing procedures, U.S.-origin Brocade Fabric OS® software, which has been developed in the United States at a significant cost to Brocade, is downloaded onto 512 MB compact flash memory chips on the PCBA and the following testing operations occur:

A “system test” is performed using automated scripts and diagnostics software.

A “run in” test is performed, including an automated system test at elevated temperatures and an ongoing reliability test.

A “hi-pot” test is performed per safety agency standards and requirements.

The software is configured (arranging software parts plus processing) by first downloading the Fabric OS® software. A full suite of customer-selected software options is subsequently downloaded. A dust cap is put on the DB9 connector and an ethernet plug is installed on the RJ45 connector and the final tests are performed.

Final quality assurance tests are performed.

After software download and testing, the completed products are packaged and prepared for shipment.

You state that the PCBA, as exported from China, lacks the “intelligence” characteristics which are present in a completed SW 4100 and that such characteristics are imparted by the U.S.-origin software and subsequent processing that occurs in the United States. Additionally, you state that the processing that occurs in the United States provides the end product with storage connectivity management potential, SAN fabric performance monitoring capability (for example, the ability to control multiple switches from a central point), security and access control, and other features which enable the interaction of the product with other Brocade legacy equipment. With regard to the programming operations, you indicate that such programming generates a permanent change in the PCBA that cannot be undone by third parties during the normal course of business. In this respect, we are advised that the only reprogramming operations that may be performed upon the completed product during the normal course of business include either updating the installed software to a different Brocade proprietary system or entering licensing keys which enable the activation of additional software features that are already present on the switch.


What is the origin of the SW 4100 for marking purposes?


Section 304 of the Tariff Act of 1930 (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 good is a 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 (1940).

Part 134 of the Customs and Border Protection (CBP) Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. §1304. Section 134.1(b) of the CBP Regulations (19 CFR 134.1(b)), defines “country of origin” as “the 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 laws and regulations].” The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98)(1940), provides that an article used in manufacture which results in an article having a name, character, or use differing from that of the constituent article will be considered substantially transformed and, as a result, the manufacturer or processor will be considered the ultimate purchaser of the constituent materials. In such circumstances, the imported article is excepted from marking and only the outermost container is required to be marked. See, 19 CFR 134.35(a).

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 [predecessor to subheading 9802.00.80, HTSUS], the programming of a foreign PROM [Programmable Read-Only Memory 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. Programming changes the pattern of interconnections within the PROM. A distinct physical change is 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, may be discerned by electronic testing of the PROM. 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, is no less a "substantial transformation" than the manual interconnection of transistors, resistors and diodes upon a circuit board creating a similar pattern.

In Headquarters Ruling Letter (HQ) 563012, dated May 4, 2004, CBP considered whether components of various origins were substantially transformed when assembled to form a fabric switch. This product was similar to the instant case in that it involved the combination of computer hardware and software. Most of the assembly of computer hardware was performed in China. Then, in either Hong Kong or the U.S., the hardware was completed and the U.S.-origin software was downloaded onto the hardware. CBP noted in that case that the U.S.-developed software provided the finished product with its "distinctive functional characteristics" and concluded that in making the determination that the product was substantially transformed in the U.S., where the fabric switch was assembled to completion in the U.S., CBP considered both the assembly process that occurred in the U.S. and the configuration operations that required U.S.-origin software. In the scenario where the fabric switch was assembled to completion in Hong Kong, CBP determined the origin for marking purposes was Hong Kong.

In HQ 559255, dated August 21, 1995, a device referred to as a “CardDock” was under consideration for country of origin marking purposes. The CardDock was a device which was installed in IBM PC compatible computers. After installation, the units were able to accept PCMCIA cards for the purpose of interfacing such PCMCIA cards with the computer in which the CardDock unit was installed. The CardDock units were partially assembled abroad but completed in the United States. The overseas processing included manufacturing the product’s injection molded plastic frame and installing integrated circuits onto a circuit board along with various diodes, resistors and capacitors. After such operations, these items were shipped to the United States for further processing that included mating a U.S.-origin circuit board to the foreign-origin frame and board. The assembled units were thereafter subjected to various testing procedures. In consideration of the foregoing, CBP held that the foreign-origin components, i.e., the ISA boards, frame assemblies and connector cables, were substantially transformed when assembled to completion in the United States. In finding that the name, character, and use of the foreign-origin components had changed during processing in the United States, CBP noted that the components had lost their separate identity during assembly and had become an integral part of a new and distinct item which was visibly different from any of the individual foreign-origin components.

CBP has also considered a number of other cases pertaining to the substantial transformation of foreign-origin components used in the assembly of various electronic end products. See, HQ 560427, dated August 21, 1997 (imported LCD modules, claimed to be the most important component of computer monitors, were substantially transformed into products of the United States when assembled with domestic components to form the monitors); HQ 559336, dated March 13, 1996 (foreign-origin components were substantially transformed into a product of the United States when combined with various U.S.-origin components to form desktop and notebook computers); and HQ 711967, dated March 17, 1980 (assembling Korean-origin circuit boards, power transformers, yokes and tuners with U.S.-origin picture tubes, cabinets and additional wiring in Mexico to form television sets substantially transformed the Korean- and U.S.-origin items into a product of Mexico).

In HQ 735027, dated September 7, 1993, a device that software companies used to protect their software from piracy was under consideration for country of origin marking purposes. The device, referred to as the “MemoPlug”, was assembled in Israel from parts that were obtained from Taiwan (such as various connectors and an Electronically Erasable Programmable Read Only Memory, or “EEPROM”) and Israel (such as an internal circuit board). After assembly, these components were shipped to a processing facility in the United States where the EEPROM was programmed with special software. Such processing in the United States accounted for approximately 50 percent of the final selling price of the MemoPlugs. In finding that the foreign-origin components were substantially transformed in the United States, CBP noted that the U.S. processing transformed a blank media, the EEPROM, into a device that performed functions necessary to the prevention of software piracy.

As set forth in Data General, supra, and the rulings cited above, in order 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. Additionally, factors such as the resources expended on product design and development, extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred; however, no one factor is determinative.

In the instant case, the assembly processes that occur within the United States, coupled with the configuration operations that require U.S.-origin software, substantially transforms the components of foreign origin into a product with a new name, character, and use. Accordingly, the country of origin for the SW 4100 is the United States.


The SW 4100 is substantially transformed in the U.S. The country of origin of the SW 4100 is the United States. Pursuant to 19 CFR 134.35(a), the imported article would be exempt from marking. Only the outermost container in which the hardware is imported must be marked to indicate China as the country of origin.

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 Customs and Border Protection officer handling the transaction.


Myles B. Harmon, Director

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