RR:CR:SM 560702 JML
TARIFF NO: 9801.00.10
Ms. Linda Watson
Samuel Shapiro & Company, Inc.
World Trade Center
Suite 1200
401 East Pratt St.
Baltimore, MD 21202-3044
RE: Encapsulation of Neuromins ; subheading 9801.00.10, HTSUS;
9802.00.50, HTSUS; alterations.
Dear Ms. Watson:
This is in response to an October 10, 1997, request for a
binding ruling submitted on behalf of your client, Martek
BioSciences Corporation ("Martek"). Martek seeks a ruling
concerning the tariff classification of an encapsulated product
called Neuromins ("Neuromins") upon the product's importation
into the United States. This ruling addresses the eligibility of
the product for duty free or reduced duty treatment under Chapter
98, Harmonized Tariff Schedule of the United States ("HTSUS").
The specific tariff classification of the product in the HTSUS
will be addressed in a forthcoming ruling issued directly to you
by the General Classification Branch, Office of Regulations and
Rulings.
FACTS:
The facts presented indicate that Martek intends to ship
Neuromins, an oil it produces domestically from a species of
algae, to the United Kingdom ("U.K.") for encapsulation. The
main component of the Neuromins is a polyunsaturated fatty acid
called docashexaenoic acid. Docashexaenoic acid is the primary
structural fatty acid in the gray matter of the brain and retina
of the eye. Research has shown that, among other things,
docashexaenoic acid is very important in the development of the
brain and eye of an infant.
Neuromins has been sold to baby food companies as a food
additive in its oil form, the condition in which it is exported.
The product is also currently offered for sale as a dietary
supplement in various stores in its encapsulated form as 500mg
softgels. Upon encapsulation, the chemical composition of the
Neuromins oil is not changed.
You state that the encapsulation process is basically for
the containment of the product. Softgel encapsulations are very
common throughout the pharmaceutical and vitamin business as a
means of delivery. The encapsulation process involves gelatin
derived from either bovine bone or pig skin by using extensive
lime treatments which produce gelatin in a powder form. The
powdered gelatin is then mixed in a glycerin stabilizer and
water. The materials are then mixed and heated until a
homogeneous solution is achieved. The temperature of the gelatin
is maintained at 120 degrees until the actual encapsulation
begins. The gelatin and the Neuromins oil are then fed into a
machine where the gel is cooled across chilled rotating drums
which form the gelatin into two ribbons. The ribbons are then
fed across a pre-formed die (in this case an oval shape) and the
oil is injected between the two halves before the gelatin has
taken form. The two halves are then sealed together using heat
and pressure and dried for several days.
ISSUE:
1) Whether the encapsulated Neuromins are eligible for duty
free or reduced duty treatment under Chapter 98, HTSUS, upon
importation from the U.K.
LAW AND ANALYSIS:
With regard to the product's eligibility for classification
under Chapter 98, HTSUS, there appear to be two relevant
provisions -- subheading 9801.00.10, HTSUS, and subheading
9802.00.50, HTSUS.
SUBHEADING 9801.00.10
Subheading 9801.00.10, HTSUS, 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 United States. 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)
(absent some alteration or change in the item itself, the mere
repackaging of an item 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
U.S. origin vitamins which are shipped in bulk to Mexico
precludes subheading 9801.00.10, HTSUS, treatment when the
vitamins are returned. 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 (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)); HRL 556616, dated June 16, 1992 (
incorporating U.S. origin herbicide into water-soluble film in
France advanced the value of herbicide so as to preclude
application of subheading 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 encapsulation of the Neuromins
oil in this case. The operation in this case serves more than
merely to facilitate the transportation or retail sale of the
Neuromins. As a result of this operation, the softgel capsules
become an integral part of the Neuromins and the dispersal
process. The incorporation of the Neuromins in pre-measured
capsules enhances the value of the product and improves its
condition by facilitating its use by the consumer. Accordingly,
we find that the encapsulated Neuromins will not qualify for the
duty exemption under HTSUS subheading 9801.00.10.
SUBHEADING 9802.00.50
Articles returned to the United States after having been
exported to be advanced in value or improved in condition by
repairs or alterations may qualify for the partial duty exemption
under subheading 9802.00.50, HTSUS, provided the foreign
operation does not destroy the identity of the exported articles
or create new or commercially different articles through a
process of manufacture. 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); Guardian Industries Corp. v. United States, 3 CIT 9
(1982). Accordingly, entitlement to this tariff treatment is
precluded where the exported articles are incomplete for their
intended purpose prior to the foreign processing and the foreign
processing operation is a necessary step in the preparation or
manufacture of finished articles. Dolliff & Company, Inc. v.
United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015
(Fed. Cir. 1979). Articles entitled to this partial duty
exemption are dutiable only upon the cost or value of the foreign
repairs or alterations when returned to the United States,
provided the documentary requirements of section 10.8, Customs
Regulations (19 CFR 10.8), are satisfied.
In Headquarters Ruling Letter (HRL) 556616 dated June 16,
1992, we considered a herbicide in a water dispersible granule
that was exported to France for incorporation into water-soluble
film, which is a highly specialized plastic designed for
compatibility with agricultural, chemical and applications
technology. It was held that the incorporation of the U.S.
origin herbicide in water-soluble film in France constituted an
acceptable alteration within the meaning of subheading
9802.00.50, HTSUS, because this process did not change the
chemical structure or use of the product; the identity and
properties of the herbicide remained intact, and the
U.S.-manufactured herbicide was sold and could be used in its
pre-processed form.
In a HRL 557534 dated December 17, 1993,
domestically-produced Acetochlor, a pre-emergence herbicide for
the control of annual grass and broad-leaf weeds in corn, was
sent to Belgium to be microencapsulated. The process involved
the containment of the Acetochlor within polymer capsules which
were suspended in water. We found the facts in HRL 557534 to be
similar to HRL 556616 as the microencapsulation process only
changed the form of the herbicide and the identity and herbicidal
properties remained intact. Although the entire encapsulation
process in Belgium was not free of chemical reactions, we found
that the Acetochlor compound did not undergo any chemical
changes. Thus, we held that the microencapsulation process
constituted an acceptable alteration within the meaning of
subheading 9802.00.50, HTSUS.
In the instant case, with regard to the facts you have
presented and consistent with the rulings described above, we
find that the encapsulation of the Neuromins in the U.K. to be an
acceptable alteration within the meaning of subheading
9802.00.50, HTSUS. The foreign operations do not result in any
significant change in the character or use of the product. The
Neuromins oil is complete for its intended use as a dietary
supplement prior to being exported abroad. In its condition as
exported, the oil is sold to various baby food companies as a
food additive. The operations performed in the U.K. do not have
the effect of destroying that identity or changing its chemical
composition, but merely serve to change the form of the product
and how it is administered. The purported nutritional value of
the Neuromins remains the same, irrespective of whether the
Neuromins are consumed in the oil or encapsulated form. That is,
regardless of the form in which the Neuromins are consumed, the
intended use is identical.
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 the U.K., it will not
qualify for the duty exemption available under subheading
9801.00.10, HTSUS.
Finally, we find that the process of encapsulating the U.S.
origin Neuromins into softgel capsules in the U.K. constitutes an
alteration within the meaning of subheading 9802.00.50, HTSUS.
Therefore, the encapsulated Neuromins 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
the U.K., upon compliance with the documentary requirements of 19
CFR 10.8.
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