CLA-2-CO:R:C:S 556406 RAH
Tariff No.: 9801.00.10; 9802.00.50
Mr. Mario S. Jauregui
Branch Manager
Bill Polkinhorn, Inc.
Post Office Box 159
San Luis, Arizona 85349
RE: Applicability of duty exemption under HTSUS subheadings
9801.00.10 and 9802.00.50 to foreign kites exported to
Mexico for packaging
Dear Mr. Jauregui:
This is in response to your letter of August 30, 1991,
requesting a ruling on the tariff classification of kites
exported to Mexico for packaging and reimported into the United
States.
FACTS:
You state that your client imports kites which are assembled
in Mexico of U.S. components. The kites are imported into the
United States and warehoused in Yuma, Arizona. Duty is paid on
the "labor part of the assembly" pursuant to subchapter
9802.00.80, Harmonized Tariff Schedule of the United States
(HTSUS).
Your client contemplates exporting the kites back to Mexico
for custom packaging. The kites will not go through any
transformation in Mexico. The proposed operation will be
strictly limited to sorting, sizing and packaging, according to
the U.S.-buyer's purchase orders.
You specifically ask whether the packaged kites can be re-
imported duty free under chapter 98, HTSUS. You also inquire
about the reimportation of packaged kites which were previously
assembled in Mexico of foreign components.
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ISSUES:
(1) Whether kites assembled in Mexico of U.S. components and
imported into the United States and then exported to Mexico for
packaging are entitled to free entry under subheading 9801.00.10,
HTSUS, when reimported into the United States.
(2) Whether kites assembled in Mexico of foreign components and
imported into the United States and then exported to Mexico for
packaging are entitled to a partial duty exemption under
subheading 9802.00.50, HTSUS, when reimported into the United
States.
LAW AND ANALYSIS:
Chapter 98, subchapter II, Note 2(a), HTSUS, provides in
part that any product of the United States which is returned
after having been advanced in value or improved in condition
abroad, or assembled abroad, shall be a foreign article for
purposes of the Tariff Act of 1930, as amended. Thus, the kites
which are assembled in Mexico of U.S. components and imported
into the United States are treated as foreign articles for
purposes of Chapter 98, subchapter II, HTSUS.
Subheading 9801.00.10, HTSUS, provides for the free entry of
U.S.-made products that are exported and returned without having
been advanced in value or improved in condition by any process of
manufacture or other means while abroad, provided the documentary
requirements of section 10.1, Customs Regulations (19 CFR 10.1),
are met. Accordingly, because the kites in question are foreign
articles, they are not entitled to duty free treatment under that
subheading.
The next question presented is whether kites (assembled of
U.S. or foreign components) exported to Mexico for packaging are
eligible for a partial duty exemption under subheading
9802.00.50, HTSUS, when returned to the United States.
Subheading 9802.00.50, HTSUS, provides a partial duty exemption
for articles returned to the United States after having been
exported to be advanced or improved in condition by means of
repairs or alterations. Such articles are dutiable only upon the
value of the foreign repairs or alterations, provided the
documentary requirements of section 10.8, Customs Regulations (19
CFR 10.8), are satisfied.
However, entitlement to this tariff treatment is precluded
in circumstances where the operations performed abroad destroy
the identity of the articles or create new or commercially
different articles. See A.F. Burstrom v. United States, 44 CCPA
27, C.A.D. 631 (1956); Guardian Industries Corp. v. United
States, 3 CIT 9 (1982). Tariff treatment under subheading
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9802.00.50, HTSUS, is also precluded where the exported articles
are incomplete for their intended use prior to the foreign
processing. Guardian; Dolliff & Company, Inc. v. United States,
81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66
CCPA 77, C.A.D. 1225, 82, 599 F.2d 1015, 119 (1979).
We have held that foreign repacking of merchandise for
retail sale will not, in and of itself, preclude tariff treatment
under subheading 9802.00.50, HTSUS. Headquarters Ruling Letter
(HRL) 555180 dated December 26, 1989. However, to qualify for a
partial duty exemption under that subheading, the article itself
must be advanced in value or improved in condition. In that
regard, we have held that the mere repacking of an article does
not advance its value or improve its condition. See, HRL 555806
dated January 14, 1991 (thin gauge plastic bags used as an
alternative to paper stuffing often used in imported sport and
handbags, are not advanced in value or improved in condition
abroad as a result of the packing operation).
Under the facts presented, the kites are exported to Mexico
solely for packaging. The individual kites will not be advanced
in value or improved in condition. Accordingly, we conclude that
the kites, whether previously assembled abroad of U.S. or foreign
components, are dutiable under subheading 9503.90.2000, HTSUS,
when returned to the United States. The applicable duty rate
will be 6.8 percent ad valorem.
With respect to the dutiability of the packing materials,
General Rule of Interpretation 5(b), HTSUS, provides that:
[p]acking materials and packing containers entered with
the goods therein shall be classified with the goods if
they are of a kind normally used for packing such
goods. However, this provision does not apply when
such packing materials or packing containers are
clearly suitable for repetitive use.
Therefore, the value of non-reusable packing materials or
containers normally used for packing such goods is considered a
part of the value of its contents and is dutiable at the rate of
its contents. However, we have held that U.S.-origin packaging
materials which are not advanced in value or improved in
condition while abroad are separately entitled to duty-free
treatment under subheading 9801.00.10, HTSUS. The act of being
filled with their contents is not considered to be an advancement
in the condition of the container or materials. See,
Headquarters Ruling Letter 731806 dated November 18, 1988. Thus,
the packaging materials in the instant case, if of foreign
origin, will be dutiable at the same rate as the kites. If of
U.S. origin, the packaging materials will be entitled to duty-
free treatment under subheading 9801.00.10, HTSUS, upon
compliance with the documentation requirements of 19 CFR 10.1.
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HOLDING:
Kites assembled in Mexico of U.S. components and imported
into the United States and then exported to Mexico for packaging
are not entitled to free entry under subheading 9801.00.10
(HTSUS), when reimported into the United States as they are
considered foreign articles pursuant to Note 2(a), subchapter II,
chapter 98, HTSUS. In addition, kites assembled in Mexico of
U.S. or foreign components and imported into the United States
and then exported to Mexico solely for repackaging are not
advanced in value or improved in condition, as the kites
themselves are not advanced in value or improved in condition.
Accordingly, the packaged kites are dutiable on their full value
under subheading 9503.90.20000, HTSUS, at the rate of 6.8 percent
ad valorem.
Sincerely,
John Durant, Director
Commercial Rulings Division