OT:RR:CTF:ER
H026642
Category: Drawback
David R. Ostheimer, Esq.
Lamb & Lerch
233 Broadway
Suite 2702
New York, NY 10279
Re: Bullet Line L.L.C.
Dear Mr. Ostheimer:
This is in response to your request dated 3/4/2008, on behalf of your client, Bullet Line, L.L.C. (Bullet) for a ruling letter regarding whether, under the circumstances described, the exported goods are eligible for drawback per 19 U.S.C. § 1313(j)(1). You state that Bullet imports promotional items such as pens, key chains, caps and similar items into the U.S. In the U.S. Bullet uses pad printing, silk screening, engraving, embossing and embroidery to apply its customers’ logos, trademarks and names onto these promotional items. The first question asked is when exported to non-NAFTA countries, will these goods be eligible for drawback per 19 U.S.C. § 1313(j)(1)? The second question is when exported to Canada or Mexico will these goods be in the same condition as when imported for purposes of the NAFTA limitation on drawback?
In that we find HRL 225855 (10/5/1995) and 226610 (8/5/1996) controlling on the first issue raised we need not issue a ruling letter on that matter. Section 1313(j)(1) of Title 19, U.S.C., provides:
If imported merchandise, on which was paid any duty, tax, or fee imposed under Federal law upon entry or importation—
(A) is, before the close of the 3-year period beginning on the date of importation—
exported, or
destroyed under customs supervision; and
(B) is not used within the United States before such exportation or destruction;
then upon such exportation or destruction 99 percent of the amount of each duty, tax, or fee so paid shall be refunded as drawback. The exporter (or destroyer) has the right to claim drawback under this paragraph, but may endorse such right to the import or any intermediate party.
In your letter the only issue raised with regard to exportations of the described goods to non-NAFTA countries is whether Bullet’s operations in the U.S. constitute a “use” such that would render the exported goods ineligible for direct identification unused merchandise drawback per § 1313(j)(1).
Headquarters Ruling Letter 225855 determined that when wearing apparel is imported into the U.S. in finished form, the application of silk screening to these garments is not considered a “use.” HRL 225855 stated, “the merchandise is not used for its intended purposes, as wearing apparel, while in the United States. The wearing apparel items are finished articles when they enter the U.S., and can be worn in their condition as imported. The silk screening process merely adds a decoration or logo to further prepare the merchandise for sale to the purchaser.” Accordingly, when goods are imported into the U.S. in their finished state, ready for use for the purposes intended, but are not used for that purpose but undergo a process which “merely adds a decoration or logo to further prepare the merchandise for sale to the purchaser” such goods are not “used” within the meaning of 19 U.S.C. § 1313(j)(1).
We note that, in order to file a drawback claim under 19 U.S.C. § 1313(j)(1), the claimant is required to directly identify the import entry under which the exported merchandise was entered into the United States. When the goods are fungible, a claimant may choose to identify the goods based on one of the accounting methods in § 191.14. (See, e.g., HRL 228294, 11/3/1999). We proceed to the ruling on the second issue raised.
FACTS:
Bullet imports promotional items, such as pens, key chains, caps and similar items into the U.S. In the U.S. Bullet uses pad printing, silk screening, engraving, embossing and embroidery to apply its customers’ logos, trademarks and names onto these promotional items. Some of these goods are then exported to Canada or Mexico.
ISSUE:
Whether pad printing, silk screening, engraving, embossing and embroidery used to apply logos, trademarks and names onto finished items changes the condition of the items such that, upon exportation to a NAFTA country, drawback on these goods per 19 U.S.C. § 1313(j)(1) is subject to the NAFTA limitation on drawback?
LAW AND ANALYSIS:
In your letter, the only issue raised with regard to exportations to NAFTA countries is whether the exported goods are in the “same condition” when exported so as to avoid the NAFTA-imposed limitation on drawback (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Under § 3333 a good subject to the limitations on NAFTA drawback means any good other than, inter alia, “[a] good exported to a NAFTA country in the same condition as when imported into the United States.” (19 U.S.C. § 3333(a)). For purposes of § 3333(a) the CBP Regulations define “same condition” as a good that has been subject to, inter alia, testing, marking, labeling, sorting or grading, so long as such operation does not “materially alter the characteristics of the good. . .” (19 C.F.R. § 181.45(b)(1)).
In HRL 224461 (6/1/1993) and in 222951 (8/12/1991) we held that embroidering a finished shirt is more than an incidental operation and thus, such embroidered shirts do not qualify for same condition drawback per 19 U.S.C. § 1313(j). Those rulings considered the issue under the 1991 version of § 1313(j), which was quite different from the current version of § 1313(j)(1) applied to Bullet’s case. The 1991 version of § 1313(j)(1) excepted “incidental operations (including, but not limited to, testing, cleaning, repacking, and inspecting)” from the meaning of “use” for purposes of § 1313(j). In addition, this statute did not address “labeling” or material alterations to the goods, among other differences. Accordingly, HRL 114461 provides no precedent for the current issue.
The U.S. Supreme Court has stated “we think, the words, ‘the same condition,’ mean not only that the identity of the article exported is preserved, but that its utility for its original purpose is unchanged.” William H. Belcher et al. v. William A. Linn, 65 U.S. 533 (1860). In that case, the plaintiff produced barrels, exported them empty and imported them back into the U.S. filled with molasses. In order to bring the barrels back into the U.S. duty-free, the barrels had to be in the same condition as when exported. With regards to the items imported by Bullet, pens, key chains, caps and similar items, the identity of the items remains unchanged by the process of putting the names or logos on them and, the use of the items remains unchanged. That is, a pen imprinted with a logo still fulfills the function of a pen, it applies ink to paper; a key chain or a cap fulfills its original purpose after being labeled with a trademark or a name, that of holding keys or fitting on the head, respectively.
You assert that the process of imprinting, embroidering, embossing, silk screening and pad printing logos, trademarks and names onto finished goods falls within “labeling” one of the stated exceptions to change in condition, so long as the labeling does not materially alter the characteristics of the good. You cite the definition of labeling, “to affix a label to; to mark with a name, etc.; as to label a bottle or package” found in the Webster New International Dictionary, Second edition, Unabridged and “to mark with a label; indicate ownership, contents character, etc., by a ticket or inscription; hence figuratively, to classify or designate” appearing in the Funk & Wagnall’s New Standard Diction of the English Language (1957). Among the definitions, provided by Random House Unabridged Dictionary (2006) for labeling are: a slip of paper, cloth or other material, marked or inscribed, for attachment to something to indicate its manufacturer, nature, ownership, destination, etc.; a brand or trademark; to designate or describe by or on a label. We agree that the processes described by Bullet fall within the meaning of “labeling.” Therefore, pad printing, silk screening, engraving, embossing and embroidery used to apply logos, trademarks and names onto finished items is “labeling” for purposes of 19 U.S.C. § 3333(a).
Per § 181.45(b)(1) such labeling must not “materially alter the characteristics of the good.” When a pen is imprinted or embossed with a logo or a cap is embroidered with a trademark, as in this case, such process does not change the character of the good. HRL 225855 stated that the process of silk screening “merely adds a decoration or logo to further prepare the merchandise for sale to the purchaser.” Based on this ruling, the operations performed by Bullet do not materially alter the characteristics of the goods processed. Thus, since the labeling of goods is an exception to the meaning of a good subject to NAFTA drawback, and such labeling does not materially alter the goods characteristics, the goods described, when exported to Canada or Mexico, are in the same condition and thus, not subject to the NAFTA limitation on drawback.
HOLDING:
Pad printing, silk screening, engraving, embossing and embroidery used to apply logos, trademarks and names onto finished items does not change the condition of finished items such that upon exportation to a NAFTA country, drawback on these goods per 19 U.S.C. § 1313(j)(1) is subject to the NAFTA limitation on drawback.
Sincerely,
William G. Rosoff, Chief
Entry Process and Duty Determination Branch