U.S. Government Procurement; Country of Origin of Storage Infrastructure Solution Systems; Substantial Transformation

HQ H259758 July 16, 2015 OT:RR:CTF:VS H259758 AJR CATEGORY: Origin George W. Thompson, Esq. Thompson & Associates, PLLC 1250 Connecticut Avenue, NW, Suite 200 Washington, DC 20036 RE: U.S. Government Procurement; Country of Origin of Storage Infrastructure Solution Systems; Substantial Transformation Dear Mr. Thompson: This is in response to your letter, dated November 21, 2014, requesting a final determination on behalf of Merlin International, Inc. (“Merlin”), pursuant to subpart B of part 177 of the U.S. Customs and Border Protection (“CBP”) Regulations (19 C.F.R. Part 177). Under these regulations, which implement Title III of the Trade Agreements Act of 1979 (“TAA”), as amended (19 U.S.C. § 2511 et seq.), CBP issues country of origin advisory rulings and final determinations as to 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. This final determination concerns the country of origin of Merlin’s VistA Imaging Tier II Storage Infrastructure Solution (“VistA Storage Solution”). We note that Merlin is a party-at-interest within the meaning of 19 C.F.R. § 177.22(d)(1) and is entitled to request this final determination. FACTS: You describe the pertinent facts as follows. The VistA Storage Solution is a record imaging, storage, and data retrieval system produced by Merlin in accordance with its contract with the Veterans Administration (“VA”). The VistA Storage Solution at issue contains a 24 TeraByte (“TB”) storage system. Under its contract with the VA (“VA Contract”), Merlin will install the VistA Storage Solution at 144 VA locations where Veterans Integrated Service Network (“VISN”) facilities are hosted. The VA Contract requires that each installed VistA Storage Solution (1) be networked into a single “grid” to allow access to, and automatic replication of, stored data throughout the networked system; while also (2) performing as “virtual machines” to ensure that data stored remains available in the event of any system failures. To meet these contract requirements, Merlin designed the VistA Storage Solution, assembling together three main hardware components and configuring them with three main software components, in order to provide the particular product required by the VA. The Hardware Components Each VistA Storage Solution will consist of at least the following hardware components: two to four Cisco UCS C240 rack-mount servers (“Cisco Servers”); one or more NetApp E2600 series Fibre Channel storage arrays (“NetApp Storage Arrays”); and, two Cisco Catalyst 2960 Gigabit Ethernet network switches (“Cisco Network Switches”). You state that the Cisco Servers are produced in the United States and will provide the computing platform for the system. You state that the NetApp Storage Arrays are produced in the United States and will provide the data storage capability for the system. You state that the Cisco Network Switches are produced in the United States or China and will provide network connectivity for the system, enabling management access to the system’s components, and user and application access to the system’s data storage. The Cisco Servers, NetApp Storage Arrays, and Cisco Network Switches will be interconnected by cables, mounted on a rack, and supplied electricity through power strips. You state that the cables, racks, and power strips (collectively, “Miscellaneous Components”) originate in various countries. The Software Components The Cisco Servers will be loaded with the following software: VMware vSphere 5 ESXi hypervisor software (“VMware”); Novell SuSE Linux Enterprise Server 11 (“Novell”); and, NetApp’s StorageGRID software solution (“StorageGRID”). You state that VMware was developed in the United States and it will enable the Cisco Servers to host three to six “virtual machines.” You state that Novell was developed in the United States and it will be the operating system software for the Cisco Servers. You state that StorageGRID was developed in Canada and it will protect images against data loss or corruption by maintaining multiple geographically separated replicas, by proactively and continuously checking integrity, and by self-healing to maintain resiliency in the event of corruption or failure. Additionally, you state that StorageGRID will provide the “virtual machines” with: an administration node for administrative access and control; a control node for metadata management and replication management of data objects; a storage node for stored objects; a standard gateway node for access to stored data; and, a primary gateway HA pair providing a high availability cluster of standard gateways. You state the hardware components, with their standard features, lack the “grid” and “virtual machine” functions required by the VA Contract. You state that without VMWare and StorageGRID, it would be impossible for the VistA Storage Solution components to act together as part of a multi-site system (i.e. a single “grid”). You also state that without Novell, the Cisco Servers would be unable to operate at all, much less support the “virtual machine” requirements. Assembly and Configuration Process The VistA Storage Solutions will be assembled in Virginia, United States by two of Merlin’s subcontractors, Mission Mobility (“MM”) and NetApp Inc. (“NAI”). Once MM obtains the hardware from Merlin it will perform the first assembly process in about two days as follows: Assembling the hardware onto racks, and connecting the individual pieces by cables; Setting the server specifications for compatibility with VA’s current document storage and retrieval system (VistA Imaging Tier II); Configuring CIMC and hard drives; Setting proper boot device and the connection to the server CIMC; Connecting drives and media to the servers; Entering the boot menu and configuring the server management IP address; Loading the VMware on the servers; Configuring the storage devices to accept StorageGRID; and, Conducting tests to ensure the equipment operates properly. After this first assembly, NAI will install the VistA Storage Solutions at individual VA sites in a final assembly process that takes about one to two weeks as follows: Configuring the servers to permit them to communicate on the VISN, use StorageGRID, adjust the Network Time Protocol, deploy VMware templates, set up the vCenter Server Linux Virtual Appliance, and deploy the Open Virtualization Formats; Mapping storage to hosts and creating raw device mapping to provide direct “virtual machine” access to storage devices; Installing Novell on each “virtual machine” and building the nodes; Installing StorageGRID; and, Conducting tests and connecting the equipment to the VA computer network. You also state that prior to the final assembly process by NAI, VA employees will remove preloaded firmware (incompatible with the VA Contract requirements) from the Cisco Network Switches and replace it with Cisco Systems firmware package that permits the Cisco Network Switches to operate in virtual mode. After the NAI installation activity, you state that VA technicians will update the Cisco Network Switches with the latest version of Cisco Systems’ Internal Operating Software firmware, a United Stated developed firmware. In an e-mail, dated May 29, 2015, Merlin submitted information concerning the cost of each component, photographs of each hardware component and the installed components together, a workflow diagram of the system, and the VA Contract. ISSUE: What is the country of origin of the VistA Storage Solution for purposes of U.S. Government procurement? LAW AND ANALYSIS: Pursuant to Subpart B of Part 177, 19 C.F.R. § 177.21 et seq., which implements Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. § 2511 et seq.), CBP issues country of origin advisory rulings and final determinations as to 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 under 19 U.S.C. § 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. § 177.22(a). In rendering 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 CFR § 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 CFR § 25.403(c)(1). The Federal Acquisition Regulations define “U.S.-made end product” as: an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States 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 transformed. 48 CFR § 25.003. With respect to the product under consideration in the instant case, we note that CBP has not previously considered whether the components at issue are substantially transformed when brought together in the manner set forth above. However, CBP has previously considered the substantial transformation of components into servers (see Headquarter Ruling (“HQ”) H215555, dated July 13, 2012), into storage arrays (see HQ H125975, dated January 19, 2011), and into network switches (see HQ H241177, dated December 3, 2013), as “end products,” individually. CBP has also considered whether components of various origins have been substantially transformed during the assembly of related products. Particularly, HQ H090115, dated August 2, 2010, considered whether media servers, media gateways, circuit packs, telephone sets, and proprietary software were substantially transformed into a “Unified Communications Solution,” the “end product.” Though such rulings may not be directly on point, to the extent the VistA Storage Solution is an “end product,” we find such guidance applicable to the issue presently before us. 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 this case, the determination will be “a mixed question of technology and customs law, mostly the latter.” Texas Instruments v. United States, 681 F.2d 778, 783 (CCPA 1982). The Country of Origin of the Article’s Components In HQ 735315, dated April 10, 1995, CBP considered whether three essential components (a U.S.-origin controlling computer, an Australian-origin optics module with a U.S.-origin printed wiring board assembly (“PWB”), and a U.S.-origin output device such as a printer) were substantially transformed into an optical spectroscopy instrument for purposes of U.S. Government procurement. In determining that the instrument was a product of the United States, it was noted that the majority of the components (the computer, PWB, and printer) and the added software were products of the United States, and their incorporation with the foreign optic module, rendered the instrument a product of the U.S. Similarly, in HQ 561734, dated March 22, 2001, CBP determined that certain multifunctional (printer, copier, and facsimile) machines assembled in Japan from 227 parts (108 from Japan, 92 from Thailand, and 24 from other countries) and eight Japanese subassemblies, were products of Japan for purposes of U.S. Government procurement. It was particularly noted that the Japanese-origin scanner subassembly was characterized as “the heart of the machine” in HQ 561734, which is similarly reflected with the U.S.-origin PWB in HQ 735315. In this case, you state that there are six essential components, four from the United States, one from China, and one from Canada. From the VA Contract, the VistA Storage Solution appears to serve two purposes: (1) giving access to and automatically replicating stored data in the network; and (2) backing up data virtually in the case of any system failure. The VA Contract also notes that the VistA Storage Solution must be compatible with VA’s VistA Imaging Tier II, a sophisticated and comprehensive electronic health record (“EHR(s)”) database system used by the VA’s medical staff to store, retrieve, and manage documents at various VA locations. At their basic levels, all six components provide essential qualities to support the purposes of the VA Contract; that is, the server will provide a computer operating structural function, the storage array will provide a storage structural function, the network switch will provide a connectivity structural function, VMware will provide the system with “virtual machine” capability, Novell will provide the system with an operating system, and StorageGRID will provide the system with capabilities that enhance its virtual functions and ensure data protection. However, the underlying basis of this product is the ability to store EHRs for their later use by the VA. If the product could not store EHRs, it would not have any EHRs to retrieve. Even when considering its network connectivity and virtual data protection purposes, these functions would not matter if the product was not able to store EHRs in the first place. Similar to the scanner subassembly being the “heart of the machine” in HQ 561734, which allowed the multifunctional machine to take in data it would eventually output, the NetApp Storage Array allows the VistA Storage Solution to store EHRs that are later utilized by the functions of its other components. Therefore, only considering the country of origin of the VistA Storage Solution’s components, and noting that four of the six components are from the United States, and the particular importance of the U.S.-origin NetApp Storage Array, we find that this factor weighs towards a United States country of origin determination for the VistA Storage Solution. The Extent of the Processing that Occurs within a Given Country In determining whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 573 F. Supp. 1149 (Ct. Int’l Trade 1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See C.S.D. 80-111, C.S.D. 85-25, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51, and C.S.D. 90-97. If the manufacturing or combining process is a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d 702 F. 2d 1022 (Fed. Cir. 1983). In HQ H125975, CBP held that an electronic data storage system that ensures data integrity and availability was a product of Mexico as a result of the assembly and programming operations that took place in Mexico. All of the systems hardware components were assembled into the final product in Mexico and its foreign-origin controller assembly, already assembled into the final product, was reprogrammed with software in Mexico. It was stated that the system could not function in its intended manner without the software. This case considers a very similar product that will be assembled from subassemblies into its final form, loaded with software, and then configured to customer specifications, all in the same country. This process from assembly to configuration will start and end in the United States and may take more than two weeks to complete. According to the information submitted, the VistA Storage Solution cannot function in its intended manner without the downloaded software components. We also note there are various configuration tasks which take place throughout this process that are essential to the VA Contract purposes, such as configuring the servers to permit them to communicate on the VISN and deploy VMware, and mapping storage to hosts and creating raw device mapping to provide direct “virtual machines” access to storage devices. The NetApp and VMware vSphere Storage Best Practices is a technical report published by NetApp, detailing the flexible storage infrastructure designs offered by combining NetApp Storage Array, VMware, with servers and network switches, and intended for those architecting, designing, managing, and supporting such a storage infrastructure. In explaining the best practices for device mapping, various storage architecture concepts and constructs, and methods of configuration, it is clear that such tasks are not minimal or simple, but require a certain level of expertise to design and reach the desired storage infrastructure for particular systems like the VistA Storage Solution. Therefore, only considering the extent of processing that occurs within a given country, and noting the entire process will take place in the United States, we find that this factor weighs towards a United States country of origin determination for the VistA Storage Solution. Whether such Processing Renders a Product with a New Name, Character, and Use 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, Harmonized Tariff Schedule of the United States (“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. 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. 84-8