CLA-2 CO:R:C:S 555632 LS
Mr. Gary Brunell
A.N. Deringer, Inc.
30 West Service Rd.
Champlain, New York 12919-9703
RE: Applicability of duty exemption under subheading 9801.00.10,
HTSUS, to U.S. origin components of first aid kits;
Superscope; packaging; U.S.-Canada Free Trade Agreement;
country of origin marking; 086407
Dear Mr. Brunell:
This is in response to your letters dated January 24, and
March 6, 1990, to the Customs office in Champlain, New York, on
behalf of Stanley Offers Safety, Inc. ("Stanley") of Quebec,
Canada, requesting a ruling on the tariff classification of two
first aid kits, the eligibility of these items under the United
States-Canada Free Trade Agreement (FTA), and the proper country
of origin marking requirements. Your letter was referred through
the National Import Specialist in New York to this office for
preparation of a response. We regret the delay in responding.
FACTS:
Stanley plans to export two first-aid kits, identified as
TS-100 and TS-200, from Canada, and requests a ruling as to their
treatment when imported into the U.S. The TS-100 kit is composed
of the following articles which are packaged in Canada into a
Canadian manufactured pouch with compartments and velcro
closures: a bandage clipper made in Pakistan; tweezers and a pen
light manufactured in the U.S.; ointment, alcohol preps, gauze
pads, a rescue sheet, a triangular bandage, gauze compress
bandages, a roll of elastic conform bandage, elastoplast
sterilized fabric bandages, elastoplast adhesive tape, a razor
blade in a safety holder, and a pocket guide to emergency first
aid, all of which are manufactured in Canada. The TS-200 kit
contains the same items, except for the following additions or
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substitutions. The U.S. origin items include sterile eye pads
and scissors, in addition to tweezers and a pen light. In place
of the gauze compress bandages, the TS-200 kit contains a towel
dressing made in Germany. This kit also contains a standard
dressing "B.P.C. x 1," which is made in Malaysia.
A representative of Stanley has informed us that his
company plans to further package the two types of kits in Canada
using two alternative methods. Some of the kits will be packaged
by means of a sealed shrink-wrap clear plastic bag that encloses
the pouch. A label, which will be placed beneath the see-through
wrap, will include a picture and list of the kit's contents. As
an alternative to the plastic wrapping, the other kits will be
placed in small individual boxes which are closed by means of
flaps tucked into slots on each side. These boxes are unsealed
and unlabeled. After being packaged in the plastic wrap or boxes,
several kits are placed in a master carton before being shipped
to the U.S.
ISSUES:
(1) How are the kits classified under the Harmonized
Tariff Schedule of the United States (HTSUS)?
(2) Whether the kits, which include articles manufactured
in Canada, the U.S., Malaysia, Pakistan and/or Germany, are
eligible for preferential treatment under the FTA.
(3) Whether the articles of U.S. origin will qualify for
the duty exemption under subheading 9801.00.10, HTSUS, when
returned to the U.S. in the kits.
(4) What are the applicable country of origin marking
requirements?
LAW AND ANALYSIS:
I. Tariff Classification Under the HTSUS
Classification of products under the HTSUS is governed by
the General Rules of Interpretation (GRI's). GRI 1 provides that
classification is determined according to the terms of the
headings and any relevant section or chapter notes.
Heading 3006 applies to specified pharmaceutical products,
including first aid boxes and kits, which are provided for in
subheading 3006.50.00, HTSUS. The TS-100 and TS-200 kits are
classifiable in that provision, dutiable at the rate of 5.8%
ad valorem, provided that they are not eligible for special
tariff treatment under the FTA.
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II. Eligibility for Preferential Treatment under the FTA
Articles which meet the definition of "goods originating in
the territory of Canada" are subject to reduced rates of duty
under the FTA, provided that they are entered under a tariff
provision which contains the symbol "CA," representing the FTA,
in the "Special" subcolumn. General Note 3(c)(vii)(A), HTSUS.
General Note 3(c)(vii)(B), HTSUS, defines "goods
originating in the territory of Canada" for purposes of
determining FTA eligibility. This note states, in relevant part,
that goods are considered to be of Canadian origin for FTA
purposes if they are (1) wholly obtained or produced in Canada
and/or the U.S., or (2) they have been transformed in the
territory of Canada and/or the U.S., so as to be subject to a
change in tariff classification under the rules of General Note
3(c)(vii)(R), HTSUS. Further, General Note 3(c)(vii)(C)(1),
HTSUS, provides:
Goods shall not be considered to originate in the
territory of Canada pursuant to subdivision (c)(vii)
(B)(2) merely by virtue of having undergone--
(1) simple packaging or, except as expressly provided
by the rules of subdivision (c)(vii)(R) of this note,
combining operations.
The following excerpt from the report of the House
Committee on Ways and Means lends some clarity to these
provisions:
Goods containing materials from third countries will
qualify for preferential treatment only if the materials
undergo a sufficient degree of processing or assembly in
one or both Parties to result in physically and
commercially significant changes in the product that
change its tariff classification under the Harmonized
System.
H. Rep. No. 816, Part 1, 100th Cong., 2d Sess. 15 (1988). Thus,
where a product contains components of third country origin, each
of those components must undergo a processing or assembly that
results in a change in tariff classification in order to confer
eligibility on the product as a whole.
In Headquarters Ruling Letter (HRL) 086407 dated March 22,
1990, we found that two kits or sets known as "Arts, Crafts &
Activities" and "String Art" were classifiable in subheading
9503.70.80, HTSUS, as other toys, put up in sets. We concluded
that the term "put up in sets," as used in subheading 9503.70,
HTSUS, does not carry the same requirements as the term used in
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GRI 3(b), which governs the classification of "goods put up in
sets for retail sale." Both kits contained articles of third
country origin which were packaged in Canada with articles of
Canadian or U.S. origin. Applying General Note 3(c)(vii)(C), we
determined that the simple packaging or combining in a set (or
kit) of a component of third country origin, which is not subject
to processing or assembly in Canada or the U.S. that results in a
required classification change, will remove the set (or kit) as a
whole from the definition of "goods originating in the territory
of Canada." A change in tariff classification resulting from the
combining and/or packaging of a third country component is not
sufficient to confer a transformation for FTA purposes. Thus,
the "Arts, Crafts & Activities" and "String Art" kits were found
to be ineligible for preferential treatment under the FTA.
The two first aid kits are classifiable in subheading
3006.50.00, HTSUS, which contains the symbol for the FTA ("CA")
in the "Special" subcolumn. However, since the two kits contain
components of third country origin which are only packaged or
combined in Canada with the U.S. and Canadian components in a
pouch, the kits will not be eligible for the reduced duty rate
under the FTA. See HRL 086407 dated March 22, 1990.
III. Entitlement of U.S. manufactured goods to duty-free
treatment under subheading 9801.00.10, HTSUS, when returned
to the U.S. in kits
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.
In Superscope, Inc. v. United States, 13 CIT ___, 727 F.
Supp. 629 (1989), the court held that certain glass panels of
U.S. origin that were exported, repacked abroad with certain
foreign components, and returned to the U.S. as part of
unassembled audio cabinets, were entitled to duty-free entry
under item 800.00, Tariff Schedules of the United States (TSUS)
(now subheading 9801.00.10, HTSUS), since the U.S. panel portion
of the imported article was "not 'advanced in value or improved
in condition . . . while abroad,' but [was] merely repacked."
Id. at 631. Although the Superscope case concerned the TSUS, not
the HTSUS, the decision is believed to be equally applicable to
similar situations arising under the HTSUS, since item 800.00,
TSUS, and relevant Schedule 8, TSUS, headnotes were carried over
virtually unchanged into the HTSUS.
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We believe that the decision in Superscope is controlling
in regard to the facts of the instant case. The mere repackaging
of the U.S. manufactured items with the Canadian and foreign
items in the TS-100 and TS-200 first aid kits neither advances
them in value nor improves them in condition. Therefore, a
classification allowance in duty may be made under subheading
9801.00.10, HTSUS, for the cost or value of the tweezers, pen
lights, sterile eye pads and scissors, all U.S. products that are
merely packaged abroad in the two kits and returned. This
presumes that the documentation requirements of 19 CFR 10.1 are
met and that the district director of Customs at the port of
entry is satisfied that the items are, in fact, of U.S. origin.
IV. Applicability of country of origin marking requirements
Section 304 of the Tariff Act of 1930, as amended (19
U.S.C. 1304), provides, subject to specified exceptions, that all
articles of foreign origin (or their containers) imported into
the U.S. are required to be legibly, conspicuously, and
permanently marked to indicate the country of origin to an
ultimate purchaser in the U.S. For purposes of this statute,
"country of origin" means 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
generally must effect a substantial transformation in order to
render such other country the "country of origin." See section
134.1(b), Customs Regulations (19 CFR 134.1(b)).
Pursuant to 19 CFR 134.32(d), you may mark the container or
packaging, instead of the individual articles, if this marking
will reasonably indicate to the ultimate purchaser the country of
origin of each article, and provided that the individual articles
do not bear any words, letters, names, or symbols described in
sections 134.46 or 134.47, Customs Regulations (19 CFR 134.46-
134.47), such as U.S. addresses, which imply that they were made
or produced in a country other than the actual country of origin.
If the container obscures the country of origin marking on the
individual items, then the container must be marked to specify
the country of origin of each item.
Applying these principles, we find that none of the items
in either kit TS-100 or TS-200 is substantially transformed in
Canada as a result of its insertion in the pouch. Essentially,
the consumer is purchasing numerous separate items. Generally,
each item in the kit must be marked to indicate its own country
of origin, subject to the usual exceptions. However, we have
determined that "in certain circumstances the marking of every
item in a collection of goods may not be consistent with the
purpose of the statute, or may be impractical and/or
undesirable." T.D. 91-7, 25 Cust. Bull. 6, 16 (January 8, 1991).
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Although this decision specifically addresses the country of
origin marking of imported sets, mixtures and composite goods
classifiable by reference to GRI 3(b), HTSUS, the approach it
adopts can also be applied to a collection of goods such as a
kit, which is specifically provided for in a single heading, and
classifiable in that heading pursuant to GRI 1. This common
sense approach of excepting certain items in a collection from
having to be separately marked may be based upon one or a
combination of factors, such as the relatively insignificant
nature and/or cost of certain items, and the large quantity of
certain items, which make it impractical to specify the country
of origin of each item.
As to those first aid kits packaged in a sealed, shrink-
wrap plastic bag, we find that, pursuant to 19 CFR 134.32(d),
each item in the kit need not be separately marked with its
country of origin, provided that the label you will be enclosing
beneath the transparent plastic wrap will list, along with the
contents, the country of origin of each item.
As to those first aid kits packaged in unsealed boxes, each
item in the kit, with certain exceptions discussed below, must be
individually marked with its country of origin, pursuant to 19
U.S.C. 1304. 19 CFR 134.32(d) provides no exception to marking
the individual items because marking the boxes will not
reasonably indicate the origin of the items, and we assume that
the boxes will normally be opened by the ultimate purchaser prior
to purchase. See 19 CFR 134.24(d)(3). However, by employing the
common sense approach adopted by T.D. 91-7, we will not require
the following items in each kit to be separately marked with
their country of origin: the elastoplast sterilized fabric
bandages which range in number from 13 to 20; the 12 alcohol
preps; the 15 gauze pads; and the single roll of elastoplast
adhesive tape. This approach is based upon the relatively
insignificant nature and/or cost of these items, and the quantity
of bandages, alcohol preps, and gauze pads.
Products of the U.S. exported and returned are excepted
from the general country of origin marking requirements. See
section 134.32(m), Customs Regulations (19 CFR 134.32(m)). This
provision applies if the U.S. products are returned without
having been substantially transformed abroad. In this case,
nothing is done to the U.S. items exported to Canada except
inserting them in the compartments of the pouch, which is clearly
not a substantial transformation. Therefore, the U.S. origin
items in each kit are excepted from marking under 19 CFR
134.32(m).
The marking of the pouch with a visible exterior label
which reads "Made in/Fait au Canada" is not acceptable because
the consumer may be led to believe that the entire kit, including
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the pouch and all its contents, are made in Canada. To avoid
such confusion, we will require that this label be changed to
read as follows "Pouch Made in/Fait au Canada."
With respect to articles such as clippers, tweezers, safety
razors or blades for safety razors, and scissors, section
134.43(a), Customs Regulations (19 CFR 134.43(a)), sets forth
specific methods for marking these and other articles. This
provision states that such articles "shall be marked legibly and
conspicuously by die stamping, cast-in-the-mold lettering,
etching (acid or electrolytic), engraving, or by means of metal
plates which bear the prescribed marking and which are securely
attached to the article in a conspicous place by welding, screws,
or rivets."
HOLDING:
The two first aid kits, identified as TS-100 and TS-200,
are classifiable in subheading 3006.50.00, HTSUS, dutiable at the
rate of 5.8% ad valorem. They are not eligible for preferential
treatment under the FTA, pursuant to General Note 3(c)(vii)(C).
A classification allowance in duty may be made under subheading
9801.00.10, HTSUS, for the cost or value of the tweezers, pen
lights, sterile eye pads and scissors, all U.S. products, that
are merely packaged abroad in the kits and returned.
With respect to the first aid kits packaged in a sealed,
shrink-wrap plastic bag, each item in the kit need not be
separately marked with its country of origin, provided that the
label you will be enclosing beneath the transparent plastic wrap
will list, along with the contents, the country of origin of each
item.
As to those first aid kits packaged in unsealed boxes, each
item in the kit must be individually marked with its country of
origin pursuant to 19 U.S.C. 1304, except for the fabric
bandages, alcohol preps, gauze pads, and adhesive tape. In
addition, the U.S. origin items which are exported to Canada to
be packaged in the pouch are excepted from marking under 19 CFR
134.32(m).
The exterior label affixed to the pouch should be changed
to read as follows: "Pouch Made in/Fait au Canada." Items such
as the clippers, tweezers, safety razors, and scissors should be
marked pursuant to the methods set forth in 19 CFR 134.43(a).
Sincerely,
John Durant, Director
Commercial Rulings Division