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CBP Identifies Country of Origin of Electronic Products with U.S. Software

Tuesday, March 06, 2018
Sandler, Travis & Rosenberg Trade Report

CBP has issued separate final determinations concerning the country of origin of certain ethernet gateway products as well as certain tablet computers and smartphones that may be offered to the U.S. government under an undesignated government procurement contract. Any party-at-interest may seek judicial review of these determinations by April 2. 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.

Ethernet Gateway Products. These products provide secure internet connectivity for mobile stations, allowing a variety of enterprises to monitor their infrastructure and instruments by transmitting and receiving data from a central location. The product’s hardware components – a case/kit that holds the module, a printed circuit assembly that includes a radio module, a decorative cover placed over the case/kit, and various nuts and screws to close the case/kit and hold the cover in place – were designed in the U.S. and produced and assembled in China.

The petitioner argued that the last substantial transformation of the gateways occurs in the U.S. because fully-assembled gateways are not functional when they are imported into the U.S. and gain the ability to function as intended only after U.S.-origin software is installed in the U.S. CBP agreed with this argument, noting among other things that the gateway products under consideration do not contain pre-installed software when they are imported from China and derive their core functionality as communication devices from the installation of the U.S.-developed software.

Tablet Computers and Smartphones. In this case, CBP was asked to consider whether disabling the general applications of a tablet computer or smartphone made in China or Korea and loading specialized software onto the device in the U.S., thereby enabling a patient to provide medical information to the Veterans Health Administration, constituted a substantial transformation by transforming a generic tablet or smartphone into a medical device. CBP was further asked if the integration of the altered tablets and smartphones into a larger telehealth system constituted a substantial transformation.

CBP determined that these products are not substantially transformed in the U.S. because, among other things, the functions of the original tablet and smartphone produced in China or Korea that are necessary to receive and transmit data are, in essence, still present on the modified devices, as aided by the software. While the tablet and smartphone are no longer freely programmable machines, CBP found that the imposition of this limitation is insufficient to constitute a substantial transformation.

Moreover, the converted tablets and smartphones do not actually measure any health related functions but rather function to receive medical data that is obtained from other peripheral devices, such as a blood pressure cuff or an oxygen sensor, as well as to transmit that medical data to a clinician for review. Accordingly, it appears to CBP that after the proprietary software is downloaded onto the tablets and smartphones they still function basically as a type of communications device.   

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