CLA-2 CO:R:C:S 556616 WAW
Ms. Margaret Solinger
E.I. Dupont de Nemours & Co., Inc.
Wilmington, DE 19898
RE: Applicability of duty exemptions for herbicides under HTSUS
subheadings 9801.00.10 and 9802.00.50; 19 CFR 10.8; HRL
555740; 556320; C.S.D. 83-101; 079133
Dear Ms. Solinger:
This is in reference to your letter of March 24, 1992,
concerning the applicability of the duty exemptions under
subheadings 9801.00.10 and 9802.00.50, Harmonized Tariff Schedule
of the United States (HTSUS), to a herbicide (referred to as
"Accent") imported from France. A separate response will be
forthcoming regarding the country of origin marking issue.
FACTS:
You state that you are a domestic manufacturer of various
agricultural chemical products, including "Accent." Accent is a
post-emergence herbicide intended for use on field corn. It is a
water dispersible granule containing 75% active ingredient by
weight. As indicated on the enclosed Material Safety Data Sheet,
Accent causes moderate eye irritation and is harmful when
absorbed through the skin. Users are cautioned to avoid contact
with skin, eyes and clothing.
Because of the potential hazards of accidental contact with
a user's eyes or skin, you intend to export domestically
manufactured Accent to France for incorporation into water-
soluble film. This film is a highly specialized plastic designed
for compatibility with agricultural chemical and applications
technology. The incorporation process will enable a grower to
drop a pre-measured, sealed, water-soluble packet of Accent into
a designated amount of water, where the film will dissolve, and
the Accent disperse.
The Accent which you intend to export for the above-
described purpose will be manufactured at your El Paso, Illinois
facility. The herbicide will be transported in bulk in drums to
your subsidiary in France ("Ducotech"). Ducotech has contracted
with Nedi, an unrelated French concern in Les Mannes, France to
perform the processing. Nedi was chosen because it possesses the
technology and equipment necessary to assure product safety,
quality and exact dosage application. Nedi will invoice Ducotech
for the cost of the processing, and Ducotech will, in turn,
invoice you for that amount plus five percent. You state that at
all times you will retain title and ownership of the goods.
You state that for the initial shipment, you will export to
France 9600 pounds of U.S. manufactured Accent in 110-pound
drums. You will also provide to Nedi 500 pounds of special
water-soluble film, 12,000 folders printed with directions for
use, 12,000 barrier pouches, 1,000 inner cartons, and 350 outer
cartons.
In France, Nedi will place the Accent in what is commonly
referred to as a "form and fill" machine, which will incorporate
the Accent into 3.3 oz. water soluble pouches. Four of the 3.3
oz. water soluble film pouches will be inserted into one barrier
pouch. The barrier pouches are composed of aluminum between two
layers of polyethylene plastic, which protects the film and its
contents from adverse conditions such as humidity. The barrier
pouch is then heat-sealed and placed in an inner carton along
with eleven other inner cartons which are packed in a shipping
carton. You state that all of the Accent will be returned to the
U.S.
You state that the process whereby the Accent is
incorporated into the pre-measured water soluble film does not
change the chemical structure or use of the product. The
identity and properties of the herbicide remain intact. You
argue that although the processing will alter the form of
application of the product, it is not a necessary step in the
preparation or manufacture of the product. See Dolliff &
Company, Inc. v. United States, 599 F.2d 1015 (1979). The Accent
which is manufactured in the U.S. is currently sold and can be
used in its domestic form prior to performing the overseas
operations. The overseas operations performed on the
domestically manufactured Accent render the herbicide safer and
easier to use.
You argue that the imported Accent is eligible for the
partial duty exemption under HTSUS subheading 9802.00.50 for
articles returned to the U.S. after having been exported for
repairs or alterations. Accordingly, you believe that duties are
payable only upon the cost to you of the processing in France,
plus the 5% fee paid to your French subsidiary.
ISSUE:
(1) Whether the herbicide which is incorporated into water-
soluble film and the packaging materials will be eligible for the
duty exemption available under subheading 9801.00.10, HTSUS, when
imported into the U.S.
(2) Whether the herbicide will be eligible for the partial
duty exemption under subheading 9802.00.50, HTSUS, when imported
into the U.S.
LAW AND ANALYSIS:
I. Applicability of subheading 9801.00.10, HTSUS
Subheading 9801.00.10, HTSUSA, provides for the free entry
of U.S. products that are exported and returned without having
been advanced in value or improved in condition by any means
while abroad, provided the documentary requirements of section
10.1, Customs Regulations (19 CFR 10.1), are met. While some
change in the condition of the product while it is abroad is
permissible, operations which either advance the value or improve
the condition of the exported product render it ineligible for
duty-free entry upon return to the U.S. See Border Brokerage
Company Inc. v. United States, 65 Cust. Ct. 50, C.D. 4052, 314 F.
Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).
The packaging abroad of U.S.-made products will not preclude
classification under this tariff provision when there is no
improvement in condition or advancement in value of the products
themselves, apart from their containers. See United States v.
John V. Carr & Sons, Inc., 69 Cust. Ct. 78, C.D. 4377 (1972), in
which the court stated that absent some alteration or change in
the item itself, the mere repackaging of the item, even for the
purpose of resale to the ultimate consumer, is not sufficient to
preclude the merchandise from being classified under item 800.00,
Tariff Schedules of the United States (TSUS) (the precursor to
subheading 9801.00.10, HTSUS).
However, we have previously held that the encapsulation of
vitamins of U.S.-origin which are shipped in bulk to Mexico is
not permissible under subheading 9801.00.10, HTSUS. See C.S.D.
83-101, 17 Cust. Bull. 944 (1983). We held in C.S.D. 83-101 that
the effect of this procedure was to render the bulk product
suitable for direct administration by the ultimate consumer in an
individual dose; the capsules therefore became part of the
imported product to be swallowed and thus were distinguished from
those containers or packings which were merely intended to
facilitate transportation or retail sale and which have a
function separate and distinct from the products which they
contain. See also HRL 079133 dated June 23, 1987, which held
that a barium sulphate product of U.S.-origin shipped in bulk to
Canada and distributed into enema bags in measured doses is not
considered a packaging operation under item 800.00, Tariff
Schedules of the United States (TSUS) (the precursor to
9801.00.10, HTSUS).
It is our opinion that the incorporation of vitamins into
capsules and barium sulphate into bags in the above-described
cases is closely analogous to the processing of the herbicide in
the instant case. The operation in this case serves more than
merely to facilitate the transportation or retail sale of the
herbicide. As a result of this operation, the plastic pouch
becomes an integral part of the herbicide and the dispersal
process. The incorporation of the herbicide in pre-measured,
sealed, water-soluble packets enhances the value of the herbicide
and improves its condition by facilitating its use by the
consumer and reducing the risk of injury from accidental contact
with a user's eyes or skin. Accordingly, we find that the
herbicide will not qualify for the duty exemption under HTSUS
subheading 9801.00.10.
With respect to the dutiability of the packaging 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 HRL 731806
dated November 18, 1988, which held that containers of U.S.-
origin are entitled to duty-free treatment under subheading
9801.00.10, HTSUS, when returned with their contents. Thus,
since the U.S.-origin packing materials are not suitable for
repetitive use and have not been advanced in value or improved in
condition while abroad, they are entitled to duty-free treatment
under subheading 9801.00.10, HTSUS, when returned to the U.S.
II. Applicability of subheading 9802.00.50, HTSUS
Subheading 9802.00.50, HTSUS, provides for the assessment of
duty on the value of repairs or alterations performed on articles
returned to the U.S. after having been exported for that purpose.
However, the application of this tariff provision 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), aff'd, C.D. 1752, 36 Cust. Ct. 46 (1956); and
Guardian Industries Corporation v. United States, 3 CIT 9 (1982),
Slip Op. 82-4 (Jan. 5, 1982). Subheading 9802.00.50, HTSUS,
treatment is also precluded where the exported articles are
incomplete for their intended use and the foreign processing
operation is a necessary step in the preparation or manufacture
of finished articles. See 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, 599 F.2d 1015 (1979). Articles
entitled to this partial duty exemption are dutiable only upon
the cost or value of the foreign repairs or alterations, provided
the documentary requirements of section 10.8, Customs Regulations
(19 CFR 10.8), are satisfied.
In Headquarters Ruling Letter (HRL) 555740 dated May 28,
1991, Customs held that formulation and granulation operations
performed on a herbicide constituted an acceptable alteration
within the meaning of subheading 9802.00.50, HTSUS. In HRL
555740, the herbicide in its condition upon exportation from the
U.S. was considered complete for its intended use as an
herbicide, and, in fact, could have been marketed within the
agricultural industry in that condition. Customs also found
that, since the chemical composition was not changed by the
addition of the dilutents, dispersants, wetting agents, buffers,
etc., the identity of the exported herbicides was not destroyed.
In addition, the foreign operations did not appear to result in
any significant change in the quality or character of the
herbicide, inasmuch as the herbicide retained its weed killing
properties. Therefore, the formulation and granulation
operations were held to be an alteration under this subheading.
See also HRL 556320 dated February 3, 1992 (holding that
formulation and granulation operations performed on U.S.-origin
herbicide in France constitute an acceptable alteration within
the meaning of subheading 9802.00.50, HTSUS).
With regard to the facts that you have presented and
consistent with the above cases, we are of the opinion that the
incorporation of U.S.-origin herbicide in water soluble film
overseas constitutes an acceptable alteration within the meaning
of subheading 9802.00.50, HTSUS. As in HRL 555740, the herbicide
in the instant case, was complete in its condition when exported
to France for incorporation in water soluble film. The
operations performed in France do not have the effect of
destroying the identity of the herbicide or changing its chemical
composition. Moreover, the foreign operations do not result in
any significant change in the character or use of the herbicide.
The overseas process merely facilitates the use of the herbicide
and makes it safer for the consumer.
HOLDING:
On the basis of the information submitted, as the herbicide
will be advanced in value and improved in condition abroad as a
result of the operations performed in France, it will not qualify
for the duty exemption available under subheading 9801.00.10,
HTSUS. However, as the packing materials of U.S.-origin will not
be advanced in value or improved in condition abroad as a result
of the packaging operation in France, they are entitled to duty-
free treatment under subheading 9801.00.10, HTSUS, upon
compliance with the documentary requirements of 19 CFR 10.1.
Finally, we find that the process of incorporating the U.S.-
origin herbicide into water-soluble film in France constitutes an
alteration within the meaning of subheading 9802.00.50, HTSUS.
Therefore, the herbicides will be entitled to classification
under this tariff provision with duty to be assessed only on the
cost or value of the operations performed in France, upon
compliance with the documentary requirements of 19 CFR 10.8.
Sincerely,
John Durant, Director
Commercial Rulings Division