U.S. Government Procurement; Final Determination; Title III, Trade Agreements Act of 1979 (19 U.S.C. 2511); Subpart 8, Part 177, Customs Regulations (19 CFR 177.21 et seq.); Country of origin of computer products; substantial transformation

HQ W561334 July 1, 1999 MAR-051R:CR:SM 561334 BLS CATEGORY: Marking Richard F. Busch, II Hall & Evans, L.L.C. 1200 Seventeenth Street Denver, Colorado 80202-5817 RE: U.S. Government Procurement; Final Determination; Title III, Trade Agreements Act of 1979 (19 U.S.C. 2511); Subpart 8, Part 177, Customs Regulations (19 CFR 177.21 et seq.); Country of origin of computer products; substantial transformation Dear Mr. Busch: This in reference to your letter dated April 5, 1999, on behalf of Dell Computer Corporation (Dell), requesting a final determination of origin under Subpart B of Part 177, Customs Regulations (19 CFR 177.21 et seq.), in connection with the prospective offering of certain computer products for sale to the U.S. Government. Under Subpart B of Part 177, which implements Title Ill of the Trade Agreements Act of 1979, s amended (19 U.S.C. 2511 et seq.), the Customs Service issues country of origin advisory rulings and final determinations on whether an article is or would be a product of a designated country or instrumentality for the purpose of granting waivers of certain "Buy America" restrictions in U.S. law or practice for products offered for sale to the U.S. government. Hall & Evans, L.L.C., as counsel to Dell, a party-at-interest within the meaning of 19 CFR 177.22(d)(1), is entitled to request this final determination. FACTS: You state the following with respect to the general procedures in the United States involved in manufacturing Dell computer systems: Dell computer systems are end products of a manufacturing procedure that is designed and engineered to meet a broad range of custom configurations. These computer systems can be generally described as notebook, desktop, and servers. Depending on the requirements of the Government customers, Dell offers computer systems that are designed to accomplish the computing needs of Government agencies or individual Government personnel customized needs to accomplish specific functions. Dell's wide array of computer systems is manufactured by Dell in he U.S. from parts and components sourced through multiple vendors in a variety of countries. Dell's Texas manufacturing operation consists of three phases. The first phase is the government customer's design\order, which is the actual beginning of a customized computer system solution. The second phase of the manufacturing operation involves the physical assembly of parts, subassemblies and components during a multi-station production process. Finally, Dell has developed a proprietary systems integration process, FISH\FIDA, which is a programming technique that transforms the various non-operational components into customized computer systems that will operate to the precise requirements of different Government customers. Dell believes that the operations in its Texas facility will substantially transform all imported foreign origin components which are used in the production of Dell's computer systems. In his regard, Dell states that the major parts and subassemblies (hardware) which may (all) be of foreign origin are as follows: Non-volatile RAM Hard Drive Processor, ports, buses, RAM Graphics adapter/display Floppy Drive PCMCIA Adapter(s) Cache Memory BIOS CPU (We note that the “BIOS” is defined as the part of an operating system that contains the machine instructions necessary to activate the peripheral devices; the “CPU” (Central Processing Unit) is the component of the computer system with the circuitry to control the interpretation and execution of instructions and includes the arithmetic-logic unit and control unit.) You have telephonically advised that the software components to be integrated into the system will be of U.S. -origin. The FISH/FIDA process operates as follows: Government Customer Order This is the first step in the manufacture of the computer product. A customer will discuss with a Dell representative the requirements of the system to be ordered, which includes specific hardware and software options. You state that typically the choices are as follows: Which platform does the customer wish? How much RAM does the customer wish to install? What size hard drive does the customer wish to utilize? Which operating system does the customer wish to implement? Which CPU does the customer wish to purchase? Which software does the customer wish to have installed? Does the customer want specific hardware attributes, such as custom labels, or other industrial design attributes? Does the customer want unique, customer-specific software to be configured and optimized on the system? The result of the customer’s review and choice of the various hardware and software characteristics is the completion of a “System Design Requirement” or something analogous to a “Functional System Design” (“FSD”). This FSD contains numerous customer-specific requirements which must apply, at each conceptual level, to the design and integration of the entire system. You state that this design and integration is necessary so that the resultant system will function in harmony by properly interfacing all of the numerous separate elements that go into an optimized system. The customer specified FSD is then transformed into a “bar file” consisting of an unstructured parts list setting forth the physical and software attributes for the system. In addition, at this point, a service tag is assigned to each individual machine which serves as its unique identifying “fingerprint” for the remainder of the manufacturing cycle and service life. FILEGEN The next step in the FISH\FIDA process is the submission of the customer unique bar file to a "rule-based" expert system called "FILEGEN." You describe FILEGEN as an artificial intelligence system, which reflects many of the properties of intelligent behavior, including the ability to apply sophisticated heuristics. ("Pertaining to or using a problem-solving technique in which the best solution of several found by alternative methods is selected at successive stages of a program for use in the next step of a program." Webster's II New Riverside University Dictionary, 1988). You describe one example of a heuristic of an ordered system as follows: "If a particular modem is used, set the hardware configuration so that the modem is on the COM3 port rather than the COM2 port." You state that other FISH\FIDA processes that are the result of Dell's proprietary development include the following: During manual installation of Windows NT 4.0, the notebook computers' operating system does not recognize soundcards. The user must determine the soundcards 1/0 resource setting and locate its driver diskettes. In contrast, the Dell process automatically configures and installs the notebooks' card and the software drivers, then enables wave, musical instrument digital interface and audiovisual interleaved playback. Finally, the volume control for the chassis is placed on the Microsoft Windows taskbar. Windows NT 4.0 does not automatically detect tape backup units on portable computers, so a manual installation of the operating system entails installing and configuring the drives manually. The FISH\FIDA process automates the installation and ensures that if the system has the tape backup unit it functions properly. A manual installation of Microsoft Office requires nearly 20 minutes. The FISH\FIDA process automates the installation and resolves the dynamic link library with version problems and any kn0Vv11 incompatibilities with other software problems. PNPESCD FILEGEN generates a System Description Record ("SOR") vA1ich is a description of the relevant pieces of the system (from the hardware, software, and peripherals perspective), as well as the software configuration testing requirements and the software configuration testing requirements. This SOR is then conveyed to a second Dell proprietary tool called "PNPESCD." You describe PNPESCD as a system vA1ich uses the SOR information to preconfigure bit images. A bit image is a set of configuration requirements. This bit image is loaded into nonvolatile RAM on the motherboard so that the system knows ahead of time where the added peripherals and the motherboard devices will be configured. The PNPESCD product further establishes two files called the .DJS and .SJS files. These file$ are used to configure the disk drives, as well as add-in cards, so that their state will correspond to the state encoded in the nonvolatile RAM; therefore, the system will expe9 these specific peripherals at system boot. The .SJS files are conveyed to the manufacturing line to a text figure called an "options station" which helps the operator configure and plug in the various disk drives. You state that as the system integration of the customer-specific unit occurs, the unit itself is actually being "built-up" as it progresses down the manufacturing line. The SOR is conveyed to a third Dell proprietary product called the "Configurator'' which generates a customer-specific manufacturing diskette to accompany the hardware. This manufacturing diskette contains DOS, as well as other Dell proprietary test and diagnostic tools for use on the manufacturing line as it transfers from station to station. CONFIGURATOR After the box has been assembled and configured by these products, the Configurator disk is used to troubleshoot and test each machine. Each machine goes into a burn rack for this purpose. Each unit is attached to a network card vA1ich is plugged into a testing network and the system is booted under a series of tests called Extended Test One (ET1). ET1 runs a series of proprietary diagnostics from a pair of Dell servers consisting of a Novell file server, which stores the diagnostics, and an NT server, vA1ich contains a database of diagnostic sequences. Each diagnostic sequence is calculated for the specific machine configuration being tested. In addition to ET1, after power cycling, the units are tested to Extended Test Two (ET2). Upon completion of these hardware-oriented testing and configuration activities, dynamically configured software is downloaded onto the system. Various scripts drive the unzipping of appropriate files off of Dell's proprietary network onto each individual unit to meet the Customer's functional system specifications. The software is configured in accordance with a specific machine configuration, and the factory configuration process is now largely completed. Subsequent to this activity, a final test is conducted on the units to ensure that the integration process has been successful and has been properly completed. AUTO-TOOL Auto tool is an automated system to generate factory installed scripts and zip files. It also generates executable files, which run after the first boot to allow the use of native op rating system tools and to make registry edits. This is essential to the proper configura ion of applications, the setting MIME types and the configuration of drivers. Auto Tool is also used to generate some drivers and all applications installs for both Windows 95 and Windows NT. You state that the various software scripts set forth in the Auto Tool activity and manual scripting require 90 programmers and testers to support the process. Individual scripts take anywhere from a full labor -week to several man months of effort to create using highly skilled U.S. programmers. More than 30 scripts are exercised for each customer system. The shell scripts will determine which operating system is involved, which applications are involved, and which language to install. It then serves to unzip the relevant software after these determinations are made. The scripts further act to configure the software so that the hardware and software configurations properly function. Assembly of Hardware While the assembly and configuration of each computer system will vary to some degree depending upon the type of product involved and the customer's specifications, you submit for our review a description of the operations performed in assembling the Mojave laptop computer and the Optiplex desktop computer, products which are typical of Dell's computer systems. As noted, all of the components used in the assembly process involving both computers are deemed to be of foreign origin for purposes of this ruling. (The Mojave was the subject of Headquarters Ruling Letter (HRL) 560677 dated February 3, 1998.) The assembly of the laptop is as follows: Station 1. Dell receives chassis; it is checked for defects and placed on the assembly line. The chassis is matched with a specific order. Station 2. System service tag numbers are input; customer-specific testing regime is configured and loaded; customer-specific disk configured. Station 3. CPU processor module and hybrid cooler installed. Station 4. Keyboard installed. Station 5. Memory modules installed. Station 6. Hard Disk Drive prepared for installation. Station 7. Hard Disk Drive installed into notebook chassis. Station 8. PCMCIA modem card installed. Station 9. Notebook booted and Flash BIOS burned into non-volatile RAM. FISH\FIDA configures a customer-specific machine and begin running diagnostic tests. Station 10. .Electro-Mechanical Repair. Any notebooks with technical problems are sent to this station for repair. Station 11. Quality control Station 12. Dell customized and proprietary "Pie to Light" assembly process. (A manufacturing system that identifies specific peripherals, components, and subassemblies for inclusion into the manufacturing process along the assembly line.) Station 13. "Out of Box" Audit. Notebooks are taken randomly from the assembly line and tested. Station 14. Automatic processing and shipping. The assembly of the Optiplex is as follows: Step 1. Traveler (complete system description) is pulled and accompanies components/system through all steps. Step 2. CPU and RAM are knitted. Step 3. CPU is assembled into cartridge with the use of an electro mechanical assembler. Assembly replaces CPU in CPU/RAM kit. Step 4. CPU/RAM kit is used to populate motherboard. Step 5. Power supply and motherboard are placed into chassis. Partially completed chassis is placed on tray. Step 6. Chassis/tray accompanies tote down kitting line. System components are selected and placed into tote. Step 7. Chassis/tray and note are stacked via robotic matcher. Combination moves to build cell. Step 8. In build cell, manufacturing diskette is produced from a dedicated system based upon service tag. System BIOS is released if necessary, and precomputed NVRAM information is loaded into motherboard NVRAM. This involves plugging the motherboard into a hard drive which contains the relevant information. Peripherals are configured as necessary, based upon information displayed upon computers in the burn cell; these systems are driven by the service tag of the system. Peripherals are connected and chassis is closed. Step 9. System undergoes quick test. Step 10. System moves to burn rack. In burn rack, system is tested and software is downloaded, installed, and configured, based on the service tag of the system. This involves using the manufacturing diskette, various network servers, and various databases on the network properly test the system as well as download, install, and configure the software. Final test is executed in the burn rack before the system is disconnected. Step 11. System moves to boxing. Collateral materials are selected and boxed, and the boxes places into the shipping container. ISSUE: Whether the processing in the U.S. of the foreign-origin components, which includes physical assembly and the programming of the FISH/FIDA process, resulting in the completed computer systems, constitutes a substantial transformation, such that the computers may be considered products of the U.S. LAW AND ANALYSIS: As prescribed under Title Ill of the Trade Agreements Act, the origin of an article not wholly the growth, product, or manufacture of a single country or instrumentality is to be determined by the rule of substantial transformation. 19 U.S.C. 2518(4). Such an article is not a product of a country unless it has been substantially transformed there into a new and different article of commerce with a name, character or use different from that of the article or articles from which it was transformed. 19 CFR 177.23(a). Thus, the critical issue that must be addressed in determining the country of origin of the various computer systems produced by Dell is whether the imported foreign components are substantially transformed as a result of the operations performed in the U.S. That is, does the name, character or use of the foreign components change as a result of the processing and assembly operations performed to manufacture the notebook computers. In Belcrest Linens v. United States, 573 F. Supp. 1149 (CIT 1983), affd, 741 F.2d 1368 (Fed. Cir. 1984), the issue framed by the court was whether as a result of the assembly process the parts lose their identity and become an integral part of the new article. Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. Se§. C.S.D. 85-25. However, the issue of whether a substantial transformation occurs is determined on a case-by-case basis. Dell contends that the components of the various computer systems which it produces undergo manufacturing processes resulting in customized computers distinct from the components from which they were assembled. In this regard, Dell emphasizes that as distinguished from other companies' manual load, fixed image processes, Dell computer-systems are customer specific at the time of the order and involve the loading of operational characteristics and the specific software capability requested by the customer. Dell points to the degree of expertise required to implement its proprietary FISH/FIDA manufacturing process, represented by its skilled programmers and engineers. Dell states that the interactions between various software packages and between hardware devices are resolved by Dell's FISH\FIDA process, which is not the case during a manual installation process (involving operational software from diskettes or CD ROMs). Accordingly, Dell argues that the unique customer-specific manufacturing process transforms the foreign components into computer products with a character and use distinct from the parts from which they were made. In HRL 735608 (April 21, 1995), Customs held that foreign components consisting of case assemblies, partially completed motherboards, hard disk drives and slot boards which 1Nere processed and assembled with other components to make desktop computers in the U.S. and the Netherlands 1Nere substantially transformed in either of the two countries. Customs stated that the foreign case assemblies, partially completed motherboards, hard disk drives and slot boards when combined together with other components to make the desktop computers lose their separate identity, acquire new attributes, and become part of a new article of commerce-the desktop computer. Customs noted that the character and use of the components imported into the U.S. or the Netherlands were changed as a result of the processing and assembly operations performed, in that the finished article, a desktop computer, was visibly different from any of the individual imported components, acquiring a new use, i.e., processing and displaying information. In HRL 559336 (March 13, 1996), Customs also determined that foreign components, such as a clamshell base, LCD video display, hard disk drive, floppy disk drive, AC power adapter were substantially transformed by the processing and assembly operations performed in the United States to create a notebook computer. In HRL 560677, supra, Customs held for purposes of a final determination under 19 U.S.C. 2511, that foreign components such as a hard disk drive, chassis, docking station, AC adapter, keyboard, floppy disk drive, CD ROM, and memory board were substantially transformed as a result of the processing by Dell in the U.S. to create a computer system, which included assembly of the various components and input of the FISH\FIDA process. See also HRL 560633 dated November 13, 1997, where Customs held that foreign origin components including the central processing unit (CPU), memory module, hard disk drive, keyboard and complementary metal-oxide semiconductor-(CMOS) battery were substantially transformed as a result of assembly into laptop computers. Based on the processing in the U.S., which includes both the physical assembly of the various components and application of the FISH\FIDA process, and consistent with prior Customs rulings, we find that the foreign components that are used in the assembly of the Dell Mojave and OptiPlex computer systems in the manner described above are substantially transformed as a result of these operations. The character and use of the components are changed as a result of the operations performed, in that a new article, a computer system, is produced, with physical and processing capabilities distinct from any of the individual components from which it was made. The components also acquire a new use, i.e., processing and displaying information (in the Dell system, to the customer's specifications). HOLDING: On the basis of the information submitted, foreign chassis', hard disk drives, BIOS, CPU, memory modules and other foreign components, which are further processed in the U.S. by assembly operations and application of the FISH/FIDA procedure, in the manner described above, are substantially transformed as a result of the operations performed in the U.S. Accordingly, the country of origin of the computer systems is the U.S. Notice of this final determination will be given in the Federal Register as required by 19 CFR 177.29. Any party-at-interest other than the party which requested this final determination may request, pursuant to 19 CFR 177.31, that Customs reexamine the matter anew and issue a new final determination. Any party-at-interest may, within 30 days after publication of the Federal Register notice referenced above, seek judicial review of this final determination before the Court of International Trade. Sincerely, Stuart P. Seidel, Assistant Commissioner Office of Regulations and Rulings