CLA-2 CO:R:C:V 554838 DBI
Mr. John D. X. Corcoran
Arthur Andersen & Co.
10 South LaSalle Street
Chicago, Illinois 60603
Re: Applicability of duty exemption of subheading 9801.00.10,
HTSUS, to latex prophylactics (condoms)
Dear Mr. Corcoran:
This is in response to your letter dated September 20,
1988, and that of your client, Merle Margelofsky, General Manager
of Ansell Incorporated, dated April 20, 1988, requesting a ruling
concerning the applicability of item 800.00, Tariff Schedules of
the United States (TSUS), to latex prophylactics (condoms) to be
tested, foil wrapped with lubricant or spermicide, or with
neither, and packaged in retail packages and cartons in Mexico.
FACTS:
You advise that the condoms will be shipped to Mexico where
they will be electronically tested. The nature of the testing is
that the condom will be rolled over a form, covered with a
metallic sheet and electronically analyzed. The condom will then
be re-rolled and placed in line for packaging with lubricant or
spermicide. A small number of condoms, previously subject to
electronic testing, will be removed from the line and inflated
with air until they burst. Any condoms that do not pass the
electronic testing process will be discarded.
The condoms, some of which will be foil wrapped with
lubricant or spermicide and some with neither, will be placed in
retail packages of three or a dozen or in bulk foil wrap. The
retail packages will then be placed in small boxes which will
later be placed in large cartons and returned to the U.S. The
condoms, lubricant, spermicide, foil wraps, retail packages and
cartons will all be of U.S. manufacture.
-2-
ISSUE:
Whether the described latex condoms, when returned to the
U.S., will be eligible for the exemption from duty in subheading
9801.00.10, Harmonized Tariff Schedule of the United States,
HTSUS (800.00, TSUS).
LAW AND ANALYSIS:
As you are probably aware, the HTSUS will replace the TSUS,
effective January 1, 1989. Item 800.00, TSUS, will be carried
over into the HTSUS without change as subheading 9801.00.10.
Subheading 9801.00.10, HTSUS, provides for the free entry of
articles of U.S. origin which are exported and returned without
having been advanced in value or improved in condition while
abroad.
You point out in your letter that we have previously held
in a ruling dated August 9, 1983 (HQ 721856), that the testing,
rolling, lubricating, foiling and packaging of latex condoms does
not constitute a substantial transformation. However, you
concede that the test for substantial transformation is much
"broader" than the language in subheading 9801.00.10, HTSUS,
which prohibits any advancement in value or improvement in
condition. You also cite United States v. Oakville Company, 402
F.2d 1016, 56 CCPA 1, C.A.D. 943, to support your position that
where two American-made articles are combined in such a way that
the combination is identifiable as having been made from the
exported items, the combination is within the contemplation of
the American goods returned provision.
With regard to the Oakville case, it should be noted that
this case was decided under paragraph 1615(a), of the Dutiable
List (19 U.S.C. 1001, 1960 Ed.), which subsequently evolved into
sections 800.00 and 807.00, TSUS. The combination of American-
made articles abroad is now subject to a duty allowance solely
under item 807.00, TSUS, which provides that the value of
American-made components assembled abroad may be exempt from
duty, upon the return of the assembled article, provided certain
requirements are met. Item 807.00, TSUS, would not apply to the
processing of the instant condoms in Mexico since no assembly
takes place (only solids can be assembled and packaging is not an
assembly).
-3-
Under subheading 9801.00.10, HTSUS, the test is whether
the articles which are exported have been returned without having
been advanced in value or improved in condition while abroad.
Articles may be advanced in value or improved in condition
without a substantial transformation having occurred.
In the present case, it is our opinion that the addition of
spermicide or lubricant in the foil wrap advances the value and
improves the condition of the condoms. A condom without a
spermicide or lubricant is a different article of commerce than a
condom which contains these enhancements. The spermicide
improves the contraceptive quality of the condom while the
lubricant gives it a smoother surface. In doing so, the addition
of a spermicide or lubricant serves a different consumer market
than the condom without these features. While these two
enhancements may serve different purposes, they both advance the
value and improve the condition of the condoms.
It is our further opinion that the testing of these
condoms, whether or not a spermicide or lubricant is added, would
also preclude them from treatment under subheading 9801.00.10,
HTSUS. Under subheading 9801.00.10, HTSUS, the words "improved
in condition" must be taken in a commercial sense and the actual
nature of the commercial entity, (here, the condoms) must be
considered. Amity Fabrics, Inc. v. United States, 43 Cust. Ct.
64, C.D. 2104 (1959). You state that all of the condoms will be
electronically tested, and, some will be subjected to destructive
testing. Since an untested condom, if not unsaleable, is at
least commercially distinguishable from one that is tested, it is
our opinion that the testing performed abroad clearly advances
the value and improves the condition of the condoms.
HOLDING:
Based on the information submitted, we are of the opinion
that latex condoms which are foil wrapped both with or without
the addition of lubricant or spermicide are advanced in value and
improved in condition and, therefore, are not entitled to free
entry as American goods returned under subheading 9801.00.10,
HTSUS.
Sincerely,
John Durant
Director, Commercial
Rulings Division