CLA-2 RR:TC:SM 560511 JML
TARIFF NO: 9801.00.20
Mr. Knox White, Esq.
Haynsworth, Marion, McKay & Guerard, L.L.P.
75 Beattie Place
Two Insignia Financial Plaza - Eleventh Floor
Post Office Box 2048
Greenville, SC 29602
RE: Eligibility of Chinese-origin bibs packaged in the Dominican
Republic for duty- free treatment under subheading 9801.00.20,
HTSUS; GRI 3(b); similar use agreement.
Dear Mr. White:
This is in response to your letter of May 23, 1997 on behalf
of Gerber Childrenswear, Inc. ("Gerber"), in which you requested
a binding ruling on the eligibility of Chinese-origin bibs for
duty-free treatment under subheading 9801.00.20, Harmonized
Tariff Schedule of the United States ("HTSUS"). Through
additional correspondence received by our office on November 4,
1997, you provided a sample of the bib for our review.
FACTS:
The information provided indicates that Gerber intends to
engage in certain business transactions wherein it will import
Chinese-origin bibs into the United States ("U.S.") and pay duty
on the same. Gerber will export the bibs to the Dominican
Republic for retail packaging with assembled infant underwear as
a promotional item. The underwear are assembled in the Dominican
Republic as one piece infant underwear called "onesies." Gerber
will then reimport the bibs (in the packaging with the underwear)
into the U.S.
According to your submission, Gerber's relationship with the
Dominican plant, Costura Dominicana, is one of bailor to bailee
as it pertains to the delivery and return of the bibs. You claim
that Gerber maintains ownership of the bibs throughout the entire
process, while Costura Dominicana is responsible for the goods'
safe return.
ISSUE:
Whether the Chinese-origin bibs, packaged together for
retail sale with the underwear in the Dominican Republic, are
eligible for duty-free treatment under subheading 9801.00.20,
HTSUS, upon their reimportation into the U.S.
LAW AND ANALYSIS:
CLASSIFICATION
The first issue to be addressed is whether the packaged bib
and underwear are classifiable together under one tariff
provision, or whether they are each classifiable separately under
different provisions.
Classification under the HTSUS is made in accordance with
the General Rules of Interpretation (GRIs). GRI 1 provides that
the classification of goods shall be determined according to the
terms of the headings of the tariff schedule and any relative
Section or Chapter Notes. In the event that the goods cannot be
classified solely on the basis of GRI 1, and if the headings and
legal notes do not otherwise require, the remaining GRIs may then
be applied. The Explanatory Notes ("EN") to the Harmonized
Commodity Description and Coding System, which represent the
official interpretation of the tariff at the international level,
facilitate classification under the HTSUS by offering guidance in
understanding the scope of the headings and GRIs.
In pertinent part, GRI 2(b) states that "[t]he
classification of goods consisting of more than one material or
substance shall be according to the principles of rule 3." GRI 3
states, "[w]hen, by application of rule 2(b) or for any other
reason, goods are, prima facie, classifiable under two or more
headings, classification shall be effected" according to the
terms of GRI 3. GRI 3(a) directs that the headings are regarded
as equally specific when each heading refers to part only of the
items in a set put up for retail sale. Therefore, to determine
whether the article might be classified under one provision, we
look to GRI 3(b), which states in pertinent part that:
[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 EN for GRI 3(b) define "goods put up for sets in retail
sale" as goods which consist of at least two different articles
which are classifiable in different headings; consist of products
or articles put up together to meet a particular need or carry
out a specific activity; and are put up in a manner suitable for
sale directly to users without repacking.
Applying this definition to the instant case, Customs is of
the opinion that the bib and underwear are not "goods put up in
sets for retail sale." The bib and the underwear are products
used for entirely different purposes. The products do not,
together, meet a particular need or carry out a specific
activity. As they do not qualify as a set under GRI 3(b), the
bib and underwear packaged together are to be each classified
separately in accordance with the principles of GRI 1.
9801.00.20
Subheading 9801.00.20, HTSUS, provides duty-free treatment
for:
[a]rticles, previously imported, with respect to which the
duty was paid upon such previous importation or which were
previously free of duty pursuant to the Caribbean Basin
Economic Recovery Act or Title V of the Trade Act of 1974,
if (1) reimported, without having been advanced in value or
improved in condition by any process of manufacture or other
means while abroad, after having been exported under lease
or similar use agreements, and (2) reimported by or for the
account of the person who imported it into, and exported it
from, the United States.
Section 10.108, Customs Regulations (19 CFR 10.108),
provides, in relevant part, that free entry shall be accorded
under subheading 9801.00.20, HTSUS, whenever it is established to
the satisfaction of the port director that the article for which
free entry is claimed was duty paid on a previous importation, is
being reimported by or for the account of the person who
previously imported it into, and exported it from the U.S., and
was exported from the U.S. under lease or similar use agreement.
In this case, to the extent the transaction at issue is
prospective in nature, we assume that Gerber is the original
importer of the bibs and paid duty on them. Copies of sample
entries provided supports these facts. It also appears that
Gerber will be the party reimporting the bibs since they are to
be retailed as a Gerber product in its packaging. Moreover,
Customs does not consider merely packaging a good for retail sale
as an advancement in value or improvement in condition. See
John v. Carr & Sons, Inc., 69 Cust.Ct. 78, C.D. 4377 (1972),
aff'd, 61 CCPA 52, C.A.D. 1118 (1974); Headquarters Ruling Letter
("HRL") 555624, dated May 1, 1990 (perfumes packaged into sample
pouches abroad not advanced in value or improved in condition for
purposes of subheading 9801.00.10 treatment).
Thus, the question turns on whether the bibs will be
exported abroad under a "lease or similar use agreement" as
required under subheading 9801.00.20, HTSUS. The predecessor of
subheading 9801.00.20, HTSUS, was item 801.00 of the Tariff
Schedules of the United States (TSUS). That particular provision
was amended in 1984 to provide for articles that had been
exported under "similar use agreements" and leases to entities
other than foreign manufacturers. Trade and Tariff Act of 1984,
Pub. L. No. 98-573, 118, 98 Stat. 4922 (1984) Before the
amendment, duty-free treatment applied only to merchandise that
had been exported under lease to foreign manufacturers. In
Werner & Pfleiderer Corporation. v. United States, 17 C.I.T. 916
(1993), a recent case interpreting the amended language of item
801.00, Tariff Schedules of the United States ("TSUS") (the
precursor provision to subheading 9801.00.20, HTSUS), the Court
of International Trade stated that "the provision concerning
goods exported under lease, in particular, is not the sort of
exemption from duties which must be narrowly construed." At
issue was whether or not a loan arrangement was the type of
"similar use agreement" contemplated by item 801.00, TSUS. In
holding that a loan was a "similar use agreement," the court
opined that if the drafters of that provision intended the
provision to encompass nothing broader than a lease, then the
language "similar use agreement" would not have been added to the
provision. See also Headquarter's Ruling Letter ("HRL") 559937,
dated July 25, 1997
You contend that the situation under which Gerber will
export the bibs to the Dominican Republic is one of bailment. You
claim that a bailment arrangement is a qualified "similar use
agreement" for purposes of subheading 9801.00.20, HTSUS. In this
regard we note the definition of bailment as stated in Blacks's
Law Dictionary:
A delivery of goods of personal property, by one person
(bailor) to another (bailee), in trust for the
execution of a special object upon or in relation to
such goods, beneficial to either to the bailor or
bailee or both, and upon a contract, express or
implied, to perform the trust and carry out such
object, and thereupon either to redeliver the goods to
the bailor or otherwise dispose of the same in
conformity with the purpose of the trust. (emphasis
added). Black's Law Dictionary (6th ed. 1990)
You state that Gerber delivers materials and parts for
packaging operations in the Dominican Republic but that Gerber
maintains ownership of the materials throughout the process. In
accordance with the above-stated findings of the courts and
Customs rulings, we find that such a relationship qualifies as a
"similar use agreement" for purposes of subheading 9801.00.20,
HTSUS. Thus, assuming Gerber provides evidence to the port
director's satisfaction in accordance with the documentary
requirements of section 10.108, Customs Regulations, the bibs
will be eligible for duty-free treatment under subheading
9801.00.20, HTSUS, upon their reimportation into the U.S.
HOLDING:
Based on the information submitted, we find that the bibs
packaged in the Dominican Republic will be eligible for duty-free
treatment under subheading 9801.00.20, HTSUS, when returned to
the U.S., provided Gerber previously imported the bibs and paid
duty thereon; they are reimported by or for the account of
Gerber; and the documentary requirements of section 10.108,
Customs Regulations, are satisfied.
A copy of this ruling letter should be attached to the entry
documents filed at the time the goods are entered. If the
documents have been filed without a copy, this ruling should be
brought to the attention of the Customs officer handling the
transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division