CLA-2 OT:RR:CTF:TCM H197582 ARM
Gregory McCue
Steptoe and Johnson LLP
1330 Connecticut Avenue, NW
Washingon, DC 20036
RE: Country of Origin Marking of Amoxicillin, Amoxicillin Related Compound A, Prednisone, Endotoxin, Hypromellose Acetate Succinate for use as a certified reference standard
Dear Mr. McCue:
This is in reply to your request submitted on May 16, 2011, on behalf of your client, United States Pharmacopeial Convention (USP), to Customs and Border Protection (CBP), seeking a binding ruling concerning the country of origin marking of five (5) chemicals for use as certified reference standards. We have also considered the arguments you presented in a conference with a member of my staff on December 19, 2011, and we have also considered your supplemental submission dated April 13, 2012.
FACTS:
The merchandise at issue is Amoxicillin, Amoxicillin Related Compound A, Prednisone, Endotoxin, and Hypromellose Acetate Succinate for use as certified reference standards. All five of the products mentioned above are imported in bulk form and are subject to analysis, testing and characterization and are subsequently placed and sealed into vials in the United States. Counsel does not provide the country of origin for these products or the country or countries from where they will be imported.
According to its website, USP is a scientific nonprofit organization that sets standards for the identity, strength, quality, and purity of medicines, food ingredients, and dietary supplements manufactured, distributed and consumed worldwide. http://www.usp.org/about-usp. After processing in the United States, all five products will be used as USP reference materials, and will not be intended for use as drugs for therapeutic or prophylactic uses. The reference materials are instead sold to pharmaceutical manufacturers to be used for a benchmark in manufacturing their pharmaceutical products. There is no chemical change or change in chemical structure in any of the instant products.
CBP Laboratory Reports of each of the five samples submitted confirm that the process in the U.S. results in a chemical powder packaged in a brown glass vial, 2.2 CM diameter, 4.0 cm tall, with a 13 mm opening into which the dark, grey septum extends slightly. The vial has a gold metal crimp seal with a black plastic top with “USP” written in gold. The adhesive label is white with a purple band at the top on which is written “USP Reference Standard” in gold. The remainder of the label is written in black and describes the chemical name and quantity of the contents. Also included on the label are the words “Do not dry. Keep container tightly closed”, a catalogue number, USP address, Lot number, storage information and the words “for use with specified USP-NF tests; not for use as a drug; read MSDS before using.”
ISSUE:
What are the country of origin marking requirements of the subject chemicals after they are tested and packaged in the U.S. for use as a reference standard?
LAW AND ANALYSIS:
The marking statute, section 304 Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) 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 United States the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co. Inc., 27 CCPA 297, 302, C.A.D. 104 (1940). Part 134, Customs Regulations (19 CFR Part 134) implements the country or origin marking requirements and 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 United States. 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 this part;….
A substantial transformation occurs when an article emerges from a process with a new name, character and use different from that possessed by the article prior to processing. A substantial transformation will not result from a minor manufacturing or combining process that leaves the identity of the article intact. See United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 (1940); and National Juice Products Association v. United States, 628 F. Supp. 978 (Ct. Int’l Trade 1986). For country of origin marking purposes, a substantial transformation of an imported article occurs when it is used in the U.S. in manufacture, which results in an article having a name, character, or use differing from that of the imported article. See 19 CFR 134.35.
In determining whether a substantial transformation occurs in the manufacture of chemical products such as pharmaceuticals, CBP has consistently examined the complexity of the processing, and whether the final article retains the essential identity and character of the raw material. To that end, CBP has generally held that the processing of pharmaceutical products from bulk form into measured doses does not result in a substantial transformation of the product. See e.g., HQ 561975, dated April 3, 2002; HQ 561544, dated May 1, 2000; and HQ 735146, dated November 15, 1993.
For instance, in HQ 561975, the anesthetic drug sevoflurane imported into the U.S. in bulk form and processed into dosage form by extensive testing operations, followed by filtering and packaging into bottles, was found not to have undergone a substantial transformation in the U.S. There was no change in name (the product was identified as sevoflurane in both its bulk and processed form). The sevoflurane retained its chemical and physical properties after the U.S. processing. Lastly, because the imported bulk sevoflurane had a predetermined medicinal use as an inhalable anesthetic drug, the processing in the United States resulted in no change in the product’s use.
Likewise, in HQ 561544, the testing, filtering and sterile packaging of Geneticin Sulfate bulk powder, to create Geneticin Selective Antibiotic, was not found to have substantially transformed the antibiotic substance because the processing only involved the removal of impurities from the bulk chemical and the placement of the chemical into smaller packaging.
However, CBP has found a substantial transformation to have occurred where processing significantly increased the effectiveness of the final product. See e.g., HQ 731731, dated February 23, 1989; HQ 563301, dated August 26, 2005; and HQ 563207, dated June 1, 2005. In HQ 731731, for example, CBP found that the processing of vancomycin hydrochloride from its raw form, which is unsuitable for human use, into a usable and injectable antibiotic, constituted a substantial transformation. CBP similarly held in HQ 563301 that raw parathormone was substantially transformed from an unstable, non-sterile, frozen material unsuitable for human use into a pharmaceutical agent ready for human use. In both cases, the further processing included thawing the raw material; testing and adjusting the active ingredient as necessary; mixing the material in a buffer solution; applying nitrogen gas to eliminate possible degradation; filtering the material through a microbial filter, and a three-step freeze drying process.
HQ 563207, in turn, held that a substantial transformation occurred where multiple active chemical ingredients were combined and processed into products with a new character, name and use. At issue in HQ 563207 was the drug Actoplus Met™, a combination of two active pharmaceutical ingredients used in the treatment of diabetes, Pioglitazone HCl and Metformin. Actoplus Met™ showed significantly increased effectiveness in the treatment of type 2 diabetes compared to either active ingredient taken alone. See also, HQ 555597, dated May 24, 1990 (CBP held that a substantial transformation took place when three active chemical ingredients in bulk form, Norethindrone USP, Ethinyl Estradiol, and Mestranol, which were stated to be unsuitable for medical use, were manufactured into prescription drugs, Norethin and Demulen, in tablet and individual dosage form, ready for immediate medical application as oral contraceptives).
In Drexel Chemical Co. v. United States, 27 C.I.T. 804 (2003), the Court of International Trade also found that the herbicide Diuron was substantially transformed due to the physical changes that air milling of DCU cake induced—namely, reducing the size of the Diuron particles—and the chemical change as valence bonds were freed. While the Diuron molecule itself remained unchanged throughout the process, the physical and chemical changes to the DCU cake resulted in a usable herbicide. Without the additional processing, the Court found that plant leaves were unable to take in the DCU particles, rendering the Diuron unusable for its intended purpose.
In contrast, CBP has consistently held that merely altering the delivery mechanism of the drug does not constitute a substantial transformation. In HQ 562889, dated January 21, 2004, CBP held that the enteric coating of lasoprazole did not cause a substantial transformation because it did not change the chemical composition of the active pharmaceutical ingredient. CBP noted in this case that the enteric coating altered the delivery rate of the drug into the human body, but did not address whether the uncoated drug would remain effective after passage through the stomach and exposure to the stomach’s digestive acids.
Similarly, in HQ 733248, dated August 22, 1990, CBP examined whether Immune Globulin (Human) Fraction II paste of U.S. origin was substantially transformed as a result of processing in Belgium that allowed it to be used intravenously, a faster and more effective delivery mechanism than intramuscular injection, which is how the unprocessed paste was used. The paste was processed by sterile filtering and buffering, and filled into vials and freeze-dried. As a result of this processing, the paste became Immune Serum Globulin Intravenous (“IGIV”), which is administered intravenously. Citing National Juice Products v. United States, 10 CIT 48, 628 F.Supp. 978 (CIT 1986), in which the Court of International Trade held that imported orange juice concentrate was the very essence of the retail product and that the addition of water, orange essences, and oils to the concentrate did not change the fundamental character of the product, CBP found in HQ 733248 that the paste did not undergo a substantial transformation in Belgium because the “paste is the major part of the end product although the minor processing performed in Belgium was necessary to make the final product usable in intravenous form.”
More recently, in HQ H073995, issued on October 29, 2009, we found that the spraying of metoprolol succinate beads with a polymeric coating and encapsulating them in order to improve their delivery into the ingester’s bloodstream, did not result in a substantial transformation of the bulk metoprolol succinate. There, we stated that “[w]e have consistently held that the processing of pharmaceutical products from bulk form into measured doses does not result in a substantial transformation of the product. We have also held that merely altering the delivery rate of the drug or otherwise improving the delivery mechanism does not constitute a substantial transformation.”
You argue that HQ 731731 and HQ 563301 should be used as the model for substantial transformation in this case, because here, “[W]hat were mere raw chemicals or materials have been transformed into measuring devices or rulers, on which to-be manufactured drug products are based. The simple bulk chemical could never fill that role.” In other words, you claim the U.S. processing has “transformed the bulk material from an article unsuitable for use in testing as a reference standard into one suitable for use in testing.” (Letter dated May 16, 2011, in support of ruling request, pp. 31-32).
We do not agree that the case here is similar to that in HQs 731731 and 563301 vis-à-vis the Gibson-Thomsen test. Here, the claimed change in name is from the name of a bulk chemical, to the name of the chemical plus the words “reference standard.” It is not as if the name changes, for example, from “amoxicillin” to “reference standard.” Instead, the addition of the words “reference standard” simply qualify the name of the bulk chemical, indicating that the physically and chemically unchanged bulk chemical has now been tested and packaged for use as a reference standard. We do not find a change in name to occur in this instance, but even if we did, we note that a change in the name of a product is the weakest evidence of a substantial transformation. Uniroyal, Inc. v. United States, 542 F. Supp. 1026 (CIT 1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983).
Second, the character of the bulk chemical is that of a powder with a particular chemical formula. We note that the CBP Laboratory reports only a minor change with regard to the physical state of one sample but none to the chemical formula of the submitted samples. Furthermore, it is “well settled that the methods of weighing, measuring, and testing merchandise used by customs officers and the results obtained are presumed to be correct.” Aluminum Company of America v. United States, 60 C.C.P.A. 148, 151, 477 F.2d 1396, 1398 (1973) (“Alcoa”). Absent a conclusive showing that the testing method used by the CBP laboratory is in error, or that the Customs’ laboratory results are erroneous, there is a presumption that the results are correct. See Exxon Corp. v. United States, 462 F. Supp. 378, 81 Cust. Ct. 87, C.D. 4772 (1978).
Third, the use of the entered chemical becomes circumscribed, but does not change altogether. As a bulk chemical, the use of the instant merchandise may be as a pharmaceutical product, a laboratory reagent, a reference standard or other uses depending upon the substance. Here, the chemical is tested, packaged and sold only for use as a reference standard of the bulk chemical. Had the chemical been destined for a pharmaceutical manufacturer instead, the chemical would have been tested against the reference standard, mixed with excipients and possibly changed in form from a powder to a capsule, tablet or solution. While testing and packaging are a portion of the processing necessary to change the use of the chemical from one of a chemical to a pharmaceutical, they are insufficient for that purpose. Rather, it is the mixing that changes the use and the article of commerce from one to the other. As a reference standard for the bulk chemical, only testing and packaging have occurred. The use of the item is fixed by this process, as it would be impractical for pharmaceutical or other producers to use the chemical as packaged by USP for their purposes, but the use of the bulk chemical has not changed per se. The chemical itself is still fit for the same uses it was as entered.
In HQ 562803, dated September 30, 2004, we stated that a roll of flexible magnet material was not substantially transformed when it was cut to shape and printed with promotional material. While we recognized that the magnet had a new use as an advertisement, its primary use as a magnet was already determined upon importation. Hence, we found that a substantial transformation had not occurred. The situation here is similar. The processing of the bulk chemical determines the use of the chemical as a reference standard. However, its primary function as the chemical itself is unaltered.
Similarly, In HQ 734558 dated July 22, 1992, Customs did not find a substantial transformation when herbicide intended for use on field corn was exported in bulk to France where it was encapsulated into a water-soluble film, since the operation did not change the chemical composition but only facilitated its use as an herbicide for field corn. The processing here only facilitates the use of the chemical as a reference standard, but the chemical is unchanged regarding other possible uses.
You also claim that the price of the chemical as a reference standard is significantly increased from the price of the bulk chemical. In other words, you claim that the testing, characterization and packaging of the instant products as reference standards adds value to the merchandise, citing Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535, 664 (CIT 1987), where the value added was a relevant factor in finding that certain steel was substantially transformed. The recognition of a value added test in Superior Wire v. United States, 669 F. Supp. 472, 478 (CIT 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989), is also noted.
However, while Superior Wire treated the cost added, amount of labor, and capital investment as a cross-check in substantial transformation cases, the Court of International Trade has also stated in numerous cases that the name, character and use test is entitled to continued adherence in view of its affirmance in recent opinions by the appellate court and, to avoid "ludicrous results," and should generally be determinative of the country of origin of imported articles. See Ferrostaal 664 F. Supp. at 538; and National Hand Tool Corp. v. United States, 16 CIT 308, 312 (1992), aff'd, 989 F.2d 1201 (Fed. Cir. 1993). Hence, we decline to stretch the Gibson-Thomsen test here in a way that would overturn its results based strictly on the value added criteria.
In your supplemental submission, you argue that recent Free Trade Agreements (FTAs) enacted into U.S. law contain rules of origin that specifically address reference standards. The excerpt you cite refers to “standards materials . . . . which are certified by the manufacturer.” The certification process referred to in the trade agreements appears to be that specified in Chapter 38, Note 2. Yet, you admit that the instant USP reference standards do not meet the requirements of the note. Furthermore, language in FTAs is not germane to our determination here as to whether bulk chemicals tested and packaged for use as reference materials are substantially transformed in the country in which they are so packaged.
Further, as you did not state the origin of the bulk chemicals, if any of them were to originate from a country subject to the NAFTA marking rules in 19 CFR Part 102, the tariff shift requirement would not be met, as their classification as bulk chemicals and as reference standards would not change.
HOLDING:
The instant merchandise, Amoxicillin, Amoxicillin Related Compound A, Prednisone, Endotoxin, Hypromellose Acetate Succinate in bulk does not undergo a substantial transformation when tested, characterized and packaged for use as a certified reference standard. Hence, the products must be marked with its country of origin being that of the bulk chemical.
Sincerely,
Monika Brenner, Chief
Valuations & Special Programs Branch