CLA-2 CO:R:C:V 555268 LS
TARIFF No.: 9801.00.10; 9802.00.80
Mr. S. Richard Shostak
Shostak Shostak & O'Hara
3580 Wilshire Boulevard
Suite 1240
Los Angeles, California 90010-2597
RE: Applicability of duty exemption under subheadings 9801.00.10
and 9802.00.80, HTSUS, and eligibility for duty-free
treatment under the GSP, with respect to "Code 6000
Infection Control Systems" imported from Mexico
Dear Mr. Shostak:
This is in response to your letters, dated December 28, 1987
and December 26, 1989, requesting a ruling, on behalf of Kendall
Healthcare Products, regarding the applicability of subheadings
9801.00.10 and 9802.00.80, Harmonized Tariff Schedule of the
United States (HTSUS), and the Generalized System of Preferences
(GSP) to the "Code 6000 Infection Control Systems." A sample of
the Code 6000 Infection Control System was not submitted.
However, samples of two other combination packages of urological
equipment were submitted. We regret the delay in responding.
FACTS:
The "Code 6000 Infection Control Systems" refers to Foley
catherization tray systems which are designed to reduce the
incidence of infection in catherized patients. The Code 6000
catherization tray contains the following items packaged
together: latex catheter, "Mono-Flo" drainage bag, lubricating
jelly, latex gloves, fenestrated drape, underpad prefold, urine
specimen vial, forceps, applicator rayon balls, prefilled 10
cubic centimeter syringe, a tamper band, and a package of
povidone iodine solution. The tray, which constitutes the
packaging material, is made of plastic and contains sections and
indentations for individual items. The paper cover of the tray,
which is designed to be peeled off, lists the contents and the
directions for use. The other catherization trays in the Code
6000 series are variations of the same combination package with
certain substituted items. You state that the Code 6000
catherization tray is representative of the trays in the series,
and that it is classified as a set in accordance with General
Rule of Interpretation (GRI) 3(b), HTSUS.
One of the items in the Code 6000 combination package is
assembled abroad partially of U.S. components. Four items are of
foreign origin. Two of these items are claimed to be entitled to
duty-free treatment under the GSP. The remaining items are of
U.S. origin and are merely sent to Mexico to be packaged with the
other items.
You contend that the returned U.S. items which are merely
packaged with the other items in Mexico are individually entitled
to duty-free treatment under subheading 9801.00.10, HTSUS, and
are not affected by GRI 3(b). The latter rule provides for the
classification of mixtures, composite goods consisting of
different materials or made up of different components, and goods
put up in sets for retail sale. You rely upon U.S. Note 1 to
Chapter 98, HTSUS, which states that the provisions of the
chapter are not subject to the rule of relative specificity in
GRI 3(a). You also cite to the recent decision in Superscope,
Inc. v. United States, 13 CIT ___, 727 F. Supp. 629 (1989).
With respect to the U.S. components of the foreign assembled
item, you state that they are entitled to treatment under
subheading 9802.00.80, HTSUS, so that their cost or value should
be deducted from the full appraised value of the imported
combination package.
As to the items in the combination package which, if
imported separately, would qualify for duty-free treatment under
the GSP, you contend that they should receive such treatment even
though they are imported as part of a set.
ISSUE:
(1) What is the applicable tariff classication provision
under the HTSUS for the Code 6000 catherization tray?
(2) Whether the U.S. items, which are merely packaged
abroad with foreign items and a foreign assembled item in a
combination package, are eligible for duty-free treatment under
subheading 9801.00.10, HTSUS, when returned to the U.S.
(3) Whether the item which is assembled abroad partially
of U.S. fabricated components, and then made part of the
combination package, is eligible for a partial duty exemption for
the U.S. components, pursuant to subheading 9802.00.80, HTSUS.
(4) Whether the combination package, or any portion
thereof, is entitled to duty-free treatment under the GSP.
LAW AND ANALYSIS:
I. Classification of Code 6000 Infection Control System
Classification of products under the HTSUS is governed by
the GRI's. GRI 1 provides that classification is determined
according to the terms of the headings and any relevant section
or chapter notes. Since there is no single heading describing
the subject product, we refer to GRI 3 which applies to goods
consisting of articles which are classifiable under two or more
headings.
GRI 3(b) provides for the classification of goods put up in
sets for retail sale. The rule states in pertinent part:
[G]oods put up in sets for retail sale, which cannot be
classified by reference to 3(a), shall be classified as if
they consisted of the material or component which gives them
their essential character, insofar as this criterion is
applicable.
The Explanatory Notes, which constitute the official
interpretation of the HTSUS at the international level, state in
Note X to Rule 3(b) that the term "goods put up in sets for
retail sale" means goods which:
(a) consist of at least two different articles which are,
prima facie, classifiable in different headings;
(b) consist of products or articles put up together to meet
a particular need or carry out a specific activity; and,
(c) are put up in a manner suitable for sale directly to
users without repacking.
We find that the Code 6000 Infection Control catherization tray
is classifiable as a set since all three criteria set forth above
are met.
In order to classify the set in the appropriate eight digit
subheading, we must determine which component gives the set its
essential character. Explanatory Note VIII to GRI 3(b) provides
that the essential character may be determined by considering a
variety of factors, including "the nature of the material or
component, its bulk, quantity, weight or value, or . . . the role
of a constituent material in relation to the use of the goods."
The cost breakdown for the items in the Code 6000 System
indicates that the value of the latex catheter is greater than
the value of any other article in the set. The catheter is the
component which performs the primary role in the set's function
of providing a preconnected, closed catherization system. This
role is evidenced in the following description of the item on the
cover of the tray: "16 Fr-5cc Silicone Coated Latex Foley
Catheter with MONO-FLO Drainage Bag." Therefore, we find that
the essential character of the set is imparted by the catheter,
which we note is made in Malaysia. Accordingly, the set is
classifiable in subheading 9018.39.00, HTSUS, which provides for:
"Instruments and appliances used in medical, surgical, dental or
veterinary sciences. . . : Syringes, needles, catheters, cannulae
and the like; parts and accessories thereof: Other: Bougies,
catheters, drains and sondes, and parts and accessories thereof."
II. Entitlement of U.S. goods returned to duty-free treatment
under subheading 9801.00.10, HTSUS
Subheading 9801.00.10, HTSUS, provides for the duty-free
entry of products of the U.S. that are returned after having been
exported, without having been advanced in value or improved in
condition by any process of manufacture or other means while
abroad, provided there has been compliance with the documentary
requirements of section 10.1, Customs Regulations (19 CFR 10.1).
In the recent decision of Superscope, Inc. v. United States,
13 CIT ____, 727 F. Supp. 629 (1989), the court held that certain
glass panels of U.S. origin that were exported, repacked abroad
with certain foreign components, and returned to the U.S. as part
of unassembled audio cabinets, were entitled to duty-free entry
under item 800.00, Tariff Schedules of the United States (TSUS),
since the U.S. panel portion of the imported article was "not
'advanced in value or improved in condition . . . while abroad,'
but [was] merely repacked." Id. at 631. Although the Superscope
case concerned the TSUS, not the HTSUS, the decision is believed
to be equally applicable to similar situations arising under the
HTSUS, since item 800.00, TSUS, and relevant Schedule 8, TSUS,
headnotes were carried over virtually unchanged into the HTSUS.
We believe that the decision in Superscope is controlling in
regard to the facts of the instant case. Various items of U.S.
origin are exported, merely repackaged with foreign items and a
foreign assembled item, and returned to the U.S. as part of the
Code 6000 combination package. Therefore, the U.S. items that
are merely packaged abroad and returned are entitled to duty-free
treatment under subheading 9801.00.10, HTSUS. This presumes that
the items claimed to be American goods returned are, in fact,
U.S. products, and that the documentary requirements of 19 CFR
10.1 are met.
III Entitlement of articles assembled in Mexico in whole or in
part of U.S. fabricated components for partial duty
exemption under subheading 9802.00.80, HTSUS
Subheading 9802.00.80, HTSUS, provides a partial duty
exemption for:
[a]rticles assembled abroad in whole or in part of
fabricated components, the product of the United States,
which (a) were exported in condition ready for assembly
without further fabrication, (b) have not lost their
physical identity in such articles by change in form, shape
or otherwise, and (c) have not been advanced in value or
improved in condition abroad except by being assembled and
except by operations incidental to the assembly process such
as cleaning, lubricating and painting.
All three requirements of subheading 9802.00.80, HTSUS, must be
satisfied before a component may receive a duty allowance. An
article entered under subheading 9802.00.80, HTSUS, is subject to
duty upon the full value of the imported assembled article less
the cost or value of the U.S. components, upon compliance with
the documentary requirements of section 10.24 of the Customs
Regulations (19 CFR 10.24).
Provided that you meet the above statutory and regulatory
requirements, the assembled article which is packaged along with
the U.S. and foreign items may be entered under subheading
9802.00.80, HTSUS, with allowances in duty for the cost or value
of its U.S. components.
IV. Eligibility for Duty-free Treatment under the GSP
Under the GSP, eligible articles the growth, product or
manufacture of a designated beneficiary developing country (BDC)
which are imported directly into the U.S. qualify for duty-free
treatment if the sum of (1) the cost or value of the materials
produced in the BDC, plus (2) the direct costs involved in
processing the article in the BDC is at least 35% of the
article's appraised value at the time of its entry into the U.S.
See 19 U.S.C. 2463(b).
General Note 3(a)(iii), HTSUS, states that special rates of
duty under one or more of the special tariff treatment programs
(including GSP) apply to those products which are classified
under a provision for which a special rate is indicated in the
"Special" subcolumn and for which all of the legal requirements
for such program(s) have been met. As previously stated, where a
set is classified by reference to GRI 3(b), the item of the set
which imparts its essential character determines the
classification of the entire set. Therefore, if the "Special"
subcolumn opposite the subheading under which the set is
classified contains a special duty rate for a particular tariff
preference program, then the entire set would be entitled to that
special rate, assuming compliance with the program's
requirements.
In regard to this case, we have determined that the
catheter of Malaysian origin imparts the essential character to
the set and, therefore, the Code 6000 combination package is
classified in subheading 9018.39.00, HTSUS. As this provision
sets forth a GSP free rate of duty, the entire combination
package is eligible for duty-free treatment, assuming the GSP
legal requirements are met.
As you may know, section 226 of the recently enacted
Customs and Trade Act of 1990 (Public Law 101-382) amended
19 U.S.C. 2463(b) to require that GSP eligible articles be the
"growth, product or manufacture" of a BDC. This "product of"
requirement means that, to receive GSP treatment, an eligible
article must be made entirely of materials originating in the BDC
or, if made of materials imported into the BDC, those materials
must be substantially transformed in the BDC into a new or
different article of commerce. This amendment was effective for
articles entered on or after August 20, 1990. Articles entered
before August 20, 1990, are not subject to the GSP "product of"
requirement. See Madison Galleries, Ltd. v. United States,
7 CAFC , No. 88-1539 (Fed. Cir. March 8, 1988).
With respect to the Code 6000 combination package, certain
items in the set are imported into Mexico from the U.S. or other
sources and merely packaged together with items of Mexican
origin. Merely packaging the items originating outside of Mexico
with items of Mexican origin clearly will not result in the
substantial transformation of the non-Mexican items into
"products of" that country. Therefore, because the entire
imported entity (the set) is not the "product of" Mexico, as
required by the statute (effective August 20, 1990), neither the
set nor any part thereof would be entitled to duty-free treatment
under the GSP.
With respect to the Code 6000 combination packages entered
prior to August 20, 1990, the fact that certain of the items in
the set are not "products of" Mexico will not, in and of itself,
preclude GSP treatment for the set. However, it is necessary for
these sets to satisfy the GSP 35% value-content requirement. In
determining whether this requirement is met in regard to a set
which is classified under one HTSUS subheading pursuant to the
GRI's, the sum of the cost or value of materials produced in the
BDC, plus the direct processing costs incurred there, must be
compared to the appraised value of the entire set. There is no
authority to compare (as you suggest) the includable material and
direct costs only to the value of those items in the set which
would qualify for GSP treatment if imported separately.
However, the question arises as to whether the appraised
value of a set consisting of foreign items, as well as U.S. items
entitled to classification under subheading 9801.00.10, HTSUS,
includes the value of the U.S. items. In a letter dated July 7,
1989 (544294), we addressed the issue of whether the value of a
nonreusable container of U.S. origin is included in the
appraised value of its contents (a foreign-made flashlight) for
purposes of calculating the GSP 35% requirement. We stated that
if the packing material of U.S. origin is classified in
subheading 9801.00.10, HTSUS, no authority exists for treating
this packing as part of the appraised value of the imported
flashlight. We believe that the holding in our July 7, 1989,
letter is equally applicable to imported sets containing U.S.
items classifiable under subheading 9801.00.10, HTSUS.
Therefore, the Code 6000 combination package will satisfy
the 35% percent requirement if the sum of the cost of materials
produced in Mexico, plus the direct processing costs incurred
there, represents 35% or more of the appraised value of the
entire set (excluding the value of the items qualifying as
American goods returned). We note that the cost or value of
those items in the set originating outside of Mexico may not be
counted toward the 35% requirement.
Because we have insufficient cost information from which to
determine whether the 35% requirement will be met, we are unable
to provide a definitive ruling that the combination packages
entered before August 20, 1990, are entitled to duty-free
treatment under the GSP.
HOLDING:
The "Code 6000 Infection Control System" qualifies as "goods
put up in a set for retail sale," the essential character of
which is imparted by the catheter. Therefore, pursuant to GRI
3(b), HTSUS, the set is classified in subheading 9018.39.00,
HTSUS, which provides for a duty rate of 4.2% ad valorem.
The set is subject to duty on its full appraised value,
with an allowance under subheading 9802.00.80, HTSUS, for the
cost or value of the U.S. fabricated components comprising the
item in the set which is assembled in Mexico. Moreover, the
U.S. items that are merely repackaged in Mexico with the other
items and returned to the U.S. as part of the set are entitled to
duty-free treatment under subheading 9801.00.10, HTSUS. These
tariff benefits are conditioned upon compliance with the
applicable documentation requirements of 19 CFR 10.1 and 10.24.
With respect to Code 6000 combination packages entered on or
after August 20, 1990, as the entire set is not the "product of"
Mexico, as required by 19 U.S.C. 2463(b), neither the set nor any
part thereof is entitled to duty-free treatment under the GSP.
In regard to combination packages entered before August 20, 1990,
if the sum of the cost of materials produced in Mexico, plus the
direct processing costs incurred there, represents at least 35%
of the appraised value of the entire set, the set will be
entitled to GSP treatment. The cost or value of the U.S. items
in the set entitled to subheading 9801.00.10, HTSUS, treatment
are not includable in either the appraised value of the set or
the GSP 35% value-content calculation.
Sincerely,
John Durant, Director,
Commercial Rulings Division