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Installation of Proprietary Software Not Substantial Transformation, CBP Says

Thursday, August 31, 2017
Sandler, Travis & Rosenberg Trade Report

U.S. Customs and Border Protection has issued a final determination concerning the country of origin of tablet computers for health mobile and hub platforms that may be offered to the U.S. government under an undesignated government procurement contract. Any party-at-interest may seek judicial review of this determination by Sept. 27. 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.

The products at issue begin as tablet computers produced in Vietnam. These tablets are purchased in the U.S. from an authorized reseller and partially disassembled to add components made in Hong Kong, China, and Israel. Specialized software developed in the U.S. that allows health data to be collected from users is then installed.

CBP states that the programming of a device that confers its identity and defines its use generally constitutes a substantial transformation. With respect to the products at issue, the petitioner argued that the software downloading operations transform generic tablet computers into medical devices and noted that the cost of writing the software programming far outweighs the cost of the tablets.

However, in ruling HQ H284523, CBP finds that the imported tablets already have the ability to receive, collect, and transmit medical data and that the software disables these functions and consolidates them into one function for ease of use and other reasons. While the tablets are no longer freely programmable machines, CBP finds that the imposition of this limitation is insufficient to constitute a substantial transformation. CBP also states that the converted tablets are not medical devices under HTSUS heading 9018 because they do not actually measure any health-related functions or provide any medical treatment but instead merely communicate health information gathered via other devices.

As a result, CBP has determined that the country of origin of the tablets is Vietnam, the country where they were originally manufactured.

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