MAR-2-05 CO:R:C:V 734399 AT
Peter W. Klestadt, Esq.
Harold I. Loring, Esq.
Grunfeld, Desiderio, Lebowitz & Silverman
12 East 49th Street
New York, New York 10017
RE: Applicability of subheadings 9801.00.10 and 9802.00.50,
HTSUS, to packaged tube lipstick; "lipstick mass" exported
to China and subjected to heating, pouring into molds to form
stick shapes, cooling, inserting into applicator tubes, and
packaging; alteration; incomplete article; Country of origin
marking requirements for lipstick and applicator with a seal
which has a U.S. patent number inscribed; substantial
transformation; Carr; Guardian; Dolliff; 19 CFR 134.35;
19 CFR 134.46; T.D. 86-129; C.S.D. 85-47; C.S.D. 89-35;
HQ 555174; HQ 554736; HQ 732816; HQ 731305
Dear Mr. Klestadt and Mr. Loring:
This is in response to your letter dated November 6, 1991,
supplemented by your letter dated May 8, 1992, requesting a
ruling, on behalf of Arthur Matney Co., Inc. (hereinafter "Arthur
Matney"), regarding the applicability of subheadings 9802.00.10
and 9802.00.80, Harmonized Tariff Schedule of the United States
(HTSUS), to packaged tube lipstick. You have also requested a
ruling as to whether the product is exempt from country of origin
marking requirements. The following samples were submitted: a
small portion of the "lipstick mass", which is the bulk form
exported to China; the lipstick packaged in a tube applicator
with a clear seal affixed; and the lipstick packaged in a tube
applicator and encased in a blister pack. A conference was held
at Customs Headquarters on April 14, 1992.
FACTS:
In the U.S., Arthur Matney manufactures a bulk product,
referred to as "lipstick mass", which is in the shape of very
large rectangular bricks. Arthur Matney plans to export the
lipstick mass to China where the following operations will occur.
First, the mass is warmed in vats until it reaches a consistency
which can be poured. The mass is then poured into tubular molds
and cooled to its original consistency to form the "stick" or
"bullet" shape of the individual lipstick products. You state
that both before and after these operations the lipstick
substance has the same consistency, i.e., it is a semi-solid
gelatinous mass. You claim that the heating process, which makes
the mass less viscose, does not change its chemical composition
but merely permits the pouring of the mass into molds for
purposes of packaging.
The next operation performed in China consists of manually
inserting each lipstick into the base of a non-reusable, retail
plastic tube applicator which is manufactured in China. Each
lipstick is then quickly passed near a flame to create a gloss
effect on the outside, thus making it look more attractive in the
applicator. After the plastic cap of the applicator is placed
over the lipstick, two alternative types of packaging are used to
prepare the lipstick for sale. In one type, a clear plastic seal
is attached to the applicator to prevent the cap from being
removed prior to sale. This seal is imprinted with a list of
ingredients, a U.S. patent number applicable to the seal, and a
warning which states: "Do Not Open. Purity Sealed for Your
Protection." At the bottom of the applicator is a round seal
which contains the registered and Customs-recorded trademark name
of Arthur Matney, i.e., "Artmatic U.S.A.", as well as the
company's U.S. address, "Brooklyn, N.Y. 11232". In the
alternative packaging, the lipstick is encased in a blister pack
of foreign origin, which lists the ingredients on the reverse
side and contains the same information which appears on the
bottom of the applicator. The words "Made in U.S.A." are also
printed on the reverse side of the blister pack directly below
the company's address.
At the conference held at Headquarters, and in your
supplemental letter of May 8, 1992, you stated that the bulk
product exported to China has a formulation which can only be
used in the tube applicators as "lipstick", and in no other
format such as the "liquid lipstick", which is also manufactured
by Arthur Matney. You stated that the word "lipstick" is a
generic term used in the trade to describe lipstick products both
in stick and non-stick form. For example, the bulk product
exported to China is referred to as "lipstick mass", and a
lipstick product which is sold in a container with a brush-type
applicator is referred to as "liquid lipstick".
You contend that the packaged lipsticks are entitled to free
entry under subheading 9801.00.10, HTSUS, or alternatively, are
entitled to a partial duty exemption under subheading 9802.00.50,
HTSUS. With respect to subheading 9801.00.10, HTSUS, you claim
that the processes performed in China are merely retail
repackaging operations which do not advance the lipstick in value
or improve it in condition. With respect to subheading
9802.00.50, HTSUS, you assert that if the lipstick is considered
to be advanced in value or improved in condition as a result of
the foreign operations, those operations are, at the most, deemed
to be "alterations." This argument is based on your opinion
that the lipstick mass, at the time of exportation to China, is
in a condition suitable for its intended use, except for retail
packaging, and is therefore considered a "completed" article.
You claim that the change in the shape of the article as a result
of repackaging for retail sale should not preclude its
entitlement to a partial duty exemption under subheading
9802.00.50, HTSUS.
You state that the U.S. origin lipstick is not substantially
transformed by virtue of the repackaging operation performed in
China, and therefore the lipstick remains a product of the U.S.
You also state that because the U.S. lipstick is not
substantially transformed in China it is excepted from country of
origin marking under 19 CFR 134.32(m), as a U.S. product exported
and returned. You contend that the foreign origin lipstick
applicators are also excepted from country of origin marking
under 19 CFR 134.24(d) since they are considered to be non-
reusable disposable containers. Furthermore, you state that the
U.S. references which are printed on the seal (U.S. patent
number), bottom of the applicator (Artmatic U.S.A. and Brooklyn,
N.Y. 11232), and the blister pack (Artmatic U.S.A., Brooklyn, New
York 11232 and "Made in U.S.A.") are not misleading because the
lipstick is of U.S. origin and no reasonable purchaser would
interpret the U.S. address and U.S. patent number as referring to
the origin of the plastic applicator.
ISSUES:
1. Whether the packaged lipstick imported into the U.S.
from China is entitled to duty-free entry under subheading
9801.00.00, HTSUS.
2. Whether the packaged lipstick imported into the U.S.
from China is entitled to a partial duty exemption under
subheading 9802.00.50, HTSUS.
3. Whether the lipstick and plastic applicator are excepted
from country of origin marking requirements.
LAW AND ANALYSIS:
I. Applicability of subheading 9801.00.10, HTSUS
Subheading 9801.00.10, HTSUS, provides for the free entry of
products of the U.S. 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. 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 Co. v. United States, 65 Cust. Ct.
50, C.D. 4052, 314 F.Supp. 788 (1970), appeal dismissed, 58 CCPA
165 (1970).
In United States v. John V. Carr & Sons, Inc., 69 Cust. Ct.
78, C.D. 4377, 347 F.Supp. 1390 (1972), 61 CCPA 52, C.A.D. 1118,
496 F.2d 1225 (1974), 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).
Based upon the foregoing facts, we find that the processes
performed in China constitute more than mere repackaging of the
bulk lipstick. As will be discussed below regarding the
applicability of subheading 9802.00.50, HTSUS, we believe that
the lipstick mass exported to China is not suitable for its
intended use prior to the operations performed in that country.
You state that this lipstick mass has a formulation which can
only be used as lipstick in the tube applicators. Since the
exported mass is not marketable until it is heated, formed into
stick or bullet shapes by being poured into molds and cooled, and
inserted into individual applicator tubes, it is clearly advanced
in value and/or improved in condition as a result of these
processes. Therefore, the retail packaged tube lipstick
imported into the U.S. from China is ineligible for duty-free
entry under subheading 9801.00.10, HTSUS.
II. Applicability of subheading 9802.00.50, HTSUS
Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles returned to the U.S. after having been
exported to be advanced in value 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 9802.00.50, HTSUS, is also precluded where the
exported articles are incomplete for their intended use prior to
the foreign processing. Guardian. As stated in Dolliff &
Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755,
455 F.Supp. 618 (1978), aff'd, 66 CCPA 77, 82, C.A.D. 1225,
599 F.2d 1015, 1019 (1979), "repairs and alterations are made to
completed articles and do not include intermediate processing
operations which are performed as a matter of course in the
preparation or the manufacture of finished articles."
Since the "lipstick mass" formulation exported from the U.S.
can only be used to make lipsticks in tube applicators for retail
sale, there is no viable commercial use of the exported article
until it undergoes the further processing operations in China.
In order for this lipstick mass to be put into a form suitable
for its intended use as lipstick by consumers, it must first be
shaped into "bullet" or stick configurations, and then inserted
into applicators. Not until these processes occur can a consumer
effectively apply this lipstick product onto the lips. We do not
consider the following two factors dispositive here in
determining whether an "alteration," as that term is used in
subheading 9802.00.50, HTSUS, will occur in China: (1) the lack
of change in the ingredients and chemical composition of the
lipstick mass as a result of the foreign processing; and (2) the
fact that the generic term "lipstick" is used in the names of
both the bulk product and the retail product.
Thus, following the reasoning set forth in Guardian and
Dolliff, we find that the lipstick mass exported to China is not
a completed article because it is not in a condition suitable for
its intended use prior to the foreign processing operations. The
foreign operations consisting of heating the mass until it can be
poured, forming it into stick or bullet shapes in molds, cooling
the stick shapes, and inserting the sticks into individual
applicator tubes are more than mere packaging operations.
Instead, these operations constitute necessary finishing steps in
the total manufacturing process of the finished article (i.e.,
tube lipstick), which is begun in the U.S. Since these
operations are not alterations, within the meaning of subheading
9802.00.50, HTSUS, the packaged lipstick product imported into
the U.S. is not eligible for a partial duty exemption under that
tariff provision. See HRL 555174 dated April 25, 1989 (where
continuous rolls of decorative banner material, measuring
approximately 140 feet in length, were exported to Mexico and cut
there to shorter lengths of approximately 32 inches for retail
sale, the cutting operation was found to exceed an alteration
within the meaning of subheading 9802.00.50, HTSUS, because it
constituted a finishing step in the manufacture of the completed
decorative banners); HRL 554736 dated February 16, 1988 (where
facial tissue paper was to be exported to Mexico in rolls for
cutting to length, folding, and packaging for retail sale, the
cutting operation constituted a finishing step in the manufacture
of a usable facial tissue product and was, therefore, not an
alteration within the meaning of item 806.20, Tariff Schedules of
the United States (TSUS), the precursor of subheading 9802.00.50,
HTSUS); see also 071475 dated September 20, 1983.
III. Country of origin marking requirements for U.S. origin
lipstick processed and repackaged in China
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that unless excepted, every article of foreign
origin imported into the U.S. shall be marked in a conspicuous
place as legibly, indelibly, and permanently as the nature of the
article (or its container) will permit, in such a manner as to
indicate to the ultimate purchaser in the U.S. the English name
of the country of origin of the article.
Part 134, Customs Regulations (19 CFR Part 134), implements
the country of origin marking requirements and the exceptions of
19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR
134.1(b)), defines "country of origin" as the country of
manufacture, production or growth of any article of foreign
origin entering the U.S. Further work or material added to an
article in another country must effect a substantial
transformation in order to render such other country the "country
of origin" within the meaning of Part 134. A substantial
transformation occurs when an article loses its identity and
becomes a new article having a new name, character, or use. Koru
North America v. United States, 12 CIT 1120, 701 F.Supp. 229
(1988).
In C.S.D. 84-112 (July 2, 1984), Customs ruled that the
processing of refined honey from imported crude honey using a
complex process involving liquefication, flash heating,
purification, blending and retail packaging, did not constitute
substantial transformation. In that case Customs found that
notwithstanding the complex domestic processing, some of which
required highly skilled labor, the final result of the domestic
processing and blending was merely honey -- in a more refined
state than when imported, but not fundamentally changed. None of
the processing operations were found to constitute a substantial
transformation. Customs rejected the notion that the blending of
honeys creates a new and different article of commerce. In
C.S.D. 85-47 (September 4, 1985), Customs ruled that imported
orange juice concentrate which was used in the production of
frozen concentrated orange juice or reconstituted orange juice
was not substantially transformed after undergoing further
processing in the United States which included testing, blending,
the addition of orange essences and oils, pasteurization,
freezing and repacking. In that case Customs found that although
the domestic operations attempted to achieve a uniform retail
product (frozen orange juice concentrate) and may have in fact
improved the taste of the final product, the processing did not
change the fundamental character of the imported product in that
the imported concentrate imparted the essential character to the
juice which made it orange juice.
Similarly, in this case, we find that the U.S. origin
lipstick mass is not substantially transformed when further
processed into lipstick bullets and repackaged into the lipstick
applicators in China. As in the honey and orange juice cases,
the processing of the lipstick mass does not change the
fundamental character of the original article. The imported
lipstick mass imparts the essential character to the lipstick
albeit it is now named lipstick and not lipstick mass. Although
the U.S. origin lipstick mass must be heated to achieve a change
in shape (lipstick bullet), the essential physical and chemical
characteristic of the lipstick mass has not changed when compared
to the finished lipstick. Furthermore, the processing of the
lipstick mass into lipstick bullets does not change the name and
use of the lipstick in that it still has the same name and use as
lipstick. Therefore, the U.S. origin lipstick mass is not
substantially transformed by being further processed and
repackaged in China and the country of origin of the finished
lipstick is the U.S.
Section 134.32(m), Customs Regulations (19 CFR 134.32(m)),
provides that products of the U.S. exported and returned are
excepted from country of origin marking requirements.
Accordingly, since the country of origin of the finished lipstick
imported from China is U.S., the lipstick is excepted from
country of origin marking requirements under section 134.32(m).
IV. Country of origin marking requirements for lipstick
applicator in which lipstick bullet is repackaged prior
to export to the U.S.
You state that the lipstick applicators which are filled
and repackaged with the lipstick bullets in China are excepted
from being marked with their country of origin "Taiwan" under 19
CFR 134.24(d), since the lipstick applicators are considered to
be non-reusable disposable containers.
Section 134.24(d) provides that usual disposable containers
imported full and used as such at the time of importation shall
not be required to be marked to show the country of their origin,
but shall be marked to indicate the origin of their contents
regardless of the fact that the contents are excepted from
marking requirements. In HQ 731863 (February 14, 1990), Customs
ruled under a related provision of the Customs Regulations, 19
CFR 134.24(c), that plastic cosmetic compacts which were filled
with blush in the U.S. were considered to be disposable non-
reusable containers and were excepted from country of origin
marking. In that case, Customs found that after the blush was
used up, the consumer would dispose of the compact and would then
buy a new compact containing blush. Customs also found that as
offered in the market, the compact was a disposable container in
that it was not sold with intent to be refilled after its
contents was used up.
Similarly, in this case, we find that the lipstick
applicator which is filled with lipstick and repacked in China
for export to the U.S. is a non-reusable disposable container,
and therefore is excepted from marking under 19 CFR 134.24(d).
As in the cosmetic compact ruling, the lipstick applicator is
disposed of by the consumer after the lipstick is used up. Also,
the lipstick applicator is not marketed as a container which can
be refilled by the consumer once the lipstick has been used up.
V. Are the U.S. references printed on the seal of the applicator,
or alternatively on the back of the blister pack
misleading to an ultimate purchaser.
You state that the U.S. references which are printed on the
seal (U.S. patent number), bottom of the applicator (Artmatic
U.S.A. and Brooklyn, N.Y. 11232), and the blister pack (Artmatic
U.S.A., Brooklyn, New York 11232 and "Made in U.S.A.") are not
misleading because a reasonable purchaser would interpret the
U.S. address and U.S. patent number as referring to the origin of
the lipstick itself and not the origin of the plastic applicator.
Section 134.46, Customs Regulations (19 CFR 134.46),
requires that when the name of any city or locality in the U.S.,
or the name of any foreign country or locality other than then
name of the country or locality in which the article was
manufactured or produced, appear on an imported article or its
container, there shall appear, legibly and permanently, in close
proximity to such words, letters or name, and in at least a
comparable size, the name of the country of origin preceded by
"Made in," "Product of," or other words of similar meaning. The
purpose of 19 CFR 134.46 is to prevent the possibility of
misleading or deceiving the ultimate purchaser as to the origin
of the imported article.
In T.D. 86-129 (June 26, 1986), Customs determined that a
U.S. patent number on footwear would trigger the requirements of
19 CFR 134.46, because whether or not a potential purchaser would
be misled by such reference would depend in large part on the
sophistication of the potential purchaser and the degree of
scrutiny the purchaser performs to determine the country of
origin of the article. The decision further indicated that a
definitive rule is necessary to ensure that all ultimate
purchasers are properly informed of the country of origin and to
provide for uniformity of application of the country of origin
marking requirements of 19 U.S.C. 1304 and 19 CFR 134.46.
In HQ 731305 (November 30, 1988), C.S.D. 89-35, Customs
indicated that the principles stated in T.D. 86-129 would also
apply to other products. However, in HQ 732816, November 24,
1989, Customs determined that U.S. patent registration
information and a U.S. address which appeared on the back of a
display ticket on a pair of gloves would not invoke 19 CFR
134.46, because the U.S. references would not raise the
possibility of confusion or deception since they were not in a
location directly apparent to the ultimate purchaser at the point
of sale.
In this case, we find that the U.S. references printed on
either the seal of the lipstick applicator or alternatively on
the front and back of the blister pack would not be misleading
to an ultimate purchaser, and therefore do not invoke the marking
requirements of 19 CFR 134.46. In both situations, an ultimate
purchaser would presume that the U.S. references only refer to
the lipstick and not to the plastic applicator since it is the
lipstick itself that the consumer is deciding whether to purchase
and not the applicator. Also, although the U.S. references
printed on the seal of the applicator can easily be seen by an
ultimate purchaser, unlike the display ticket in HQ 732816, it is
clear that a consumer would not be misled by these references.
The purchasing decision is determined by the color and
composition of the lipstick and not the plastic applicator.
We also find that the U.S. references are not misleading
within the meaning of 19 CFR 134.36(b) since the markings do not
imply that the lipstick was made or produced in a country other
than the actual country of origin, the U.S.
With respect to the marking "Made in U.S.A." printed on the
sample blister pack, we advise you to contact the Federal Trade
Commission, Division of Enforcement, 6th & Pennsylvania Avenue,
NW, Washington, D.C. 20508 before your client Arthur Matney
undertakes to mark the blister packs in this fashion, since use
of the phrase "Made in U.S.A." is under that agency's
jurisdiction.
HOLDING:
The retail packaged lipstick imported into the U.S. from
China will be ineligible for duty-free entry under subheading
9801.00.10, HTSUS, because the U.S. manufactured lipstick mass
exported to China is advanced in value and/or improved in
condition as a result of the processes performed there. In
addition, the retail packaged lipstick will not be eligible for a
partial duty exemption under subheading 9802.00.50, HTSUS,
because the exported lipstick mass is considered to be incomplete
for its intended use prior to the foreign operations of heating,
forming into stick or "bullet" shapes by pouring into molds, and
inserting into individual applicator tubes.
The U.S. origin lipstick mass which is exported to China
where it is further processed into lipstick bullets to be filled
into plastic lipstick applicators for export to the U.S. is not
substantially transformed in China, and therefore the country of
origin of the retail packaged lipstick is U.S. Accordingly, the
retail lipstick imported into the U.S. from China is excepted
from country of origin marking under 19 CFR 134.32(m), as a U.S.
product exported and returned.
The plastic lipstick applicators into which the lipstick
bullets are repacked in China for export into the U.S. are
considered to be non-reusable disposable containers.
Accordingly, the lipstick applicators are excepted from being
marked with their country of origin "Taiwan" under 19 CFR
134.24(d).
The U.S. references printed on the seal of the plastic
lipstick applicators or alternatively on the front and back of
the blister pack are not misleading to an ultimate purchaser, and
therefore the marking requirements of 19 CFR 134.46 are not
invoked. Also, the U.S. references printed on the seal or
alternatively on the blister pack are not misleading within the
meaning of 19 CFR 134.36(b) since the markings do not imply that
the lipstick was made or produced in a country other than the
actual country of origin, the U.S.
Accordingly, except for the marking "Made in U.S.A." printed
on the blister packs, about which we express no opinion and urge
you to contact the Federal Trade Commission, the marking on the
sample lipstick with applicator and/or blister pack, is
acceptable under the provisions of 19 U.S.C. 1304 and 19 CFR Part
134.
Sincerely,
John Durant, Director