In Customs Ruling HQ H290670, the agency discussed a number of issues regarding the country of origin of Ethernet switches, routers, and network cards for purposes of U.S. Government procurement. Notably, the hardware was designed in Taiwan and manufactured in China, later to be provided with software in the United States.
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.
The company seeking the ruling explained that the assembly process was the same for all the products identified in the ruling. First, metal fabrication was used to create a protective case. This took place in Taiwan. Next, the remaining hardware assembly was done in China, where the country of origin for the individual components of the hardware included various Asian countries, including Singapore, Taiwan, and China. The company explained that the programming done in China was accomplished in order to verify that the product was manufactured correctly. It further explained that the hardware was incapable of performing its intended end function. “[T]herefore, the product enters the United States in a non-functional state.” The final programming on the device and the majority of the programming for the operating system were compiled, downloaded, and completed in the United States. Moreover, the software had to downloaded in order for the products to function as a switch/router.
CBP referenced several rulings that were similar to the company’s routers and switches in reaching its decision. These included HQ H258960 (May 19, 2016), HQ H175415 (Oct. 4, 2011), and HQ H052325 (Mar. 31, 2009). Essentially, the main factor in determining the country of origin for the relevant products is where in the production timeframe was the product ‘finished,’ or became functional as intended. In HQ H258960, CBP considered scenarios wherein in the importer purchased transceivers from Asia, which were then loaded with U.S. developed software in the U.S. Since the transceivers could not function as network devices without the U.S. developed software, the transceivers were substantially transformed as a result of the downloading of the U.S. developed software performed in the U.S. Similarly in HQ H175415, the importer’s Ethernet switches were manufactured wholly in China. Later, they were sent to the United States, where U.S. origin software would be downloaded, giving the hardware the capability of functioning as a local area network device. CBP ruled that the country of origin is the U.S., because without the software, the product could not function as intended.
CBP determined that the company’s non-functioning devices from China were substantially transformed as a result of downloading performed in the U.S., with U.S. developed software. Therefore, CBP the country of origin of the Ethernet switches, routers and network cards for purposes of U.S. Government procurement was the United States.