CLA-2 CO:R:C:S 556800 WAS
District Director
U.S. Customs Service
Otay Mesa Border Station
2500 Paseo Internacional
Entry Control, Protest Rm. 317
San Ysidro, CA 92073
RE: Application for Further Review of Protest No. 2501-92100023;
eligibility of breathing circuits from Mexico for duty-free
treatment under the GSP; set; GRI 3(b); T.D. 91-7; Superscope;
556797; 556798; 9802.00.80; assembly
Dear Sir:
This is in response to your memorandum forwarding an
Application for Further Review of Protest No. 2501-92-100023 made
by Sandler, Travis & Rosenberg, P.A., on behalf of Kendall
Healthcare Products Co., concerning the eligibility for duty-free
treatment under the Generalized System of Preferences (GSP) (19
U.S.C. 2461-2466), with respect to breathing circuits imported from
Mexico. A sample of the breathing circuits was submitted for our
review. We had an opportunity to meet with counsel on November 3,
1993, to further discuss the above-referenced protest. In
addition, counsel submitted additional information in support of
its position by letter dated November 23, 1993.
FACTS:
The imported merchandise is described as an anesthesia
breathing circuit. A breathing circuit is comprised of a breathing
bag and a hose. In use, one end of the hose is connected to an
anesthesia machine and the other end is connected either to an
endotracheal tube inserted into a patient's mouth or onto a face
mask. Oxygen, air, nitrous oxide and other anesthetic gases are
delivered from the anesthesia machine to the patient through the
hose. In addition, the patient's exhaled gases are transported
away from the patient through the hose.
The breathing bag, which is made of vulcanized rubber, is
mounted on another part of the anesthesia machine. The bag permits
manual ventilation of the patient. That is, squeezing the bag
permits the anesthesiologist to force the gas mixture into the
patient's lungs. In addition, squeezing or observing the bag
permits the anesthesiologist to estimate the function of the
patient's lungs.
Some hoses have a filter and/or a sampling port attached. The
hoses, filters and sampling ports are products of Mexico. Some of
the breathing bags are made in Malaysia and some are made in the
U.S. For purposes of this protest, we are only addressing GSP
eligibility for those breathing circuits which contain bags of U.S.
origin. (Protestant has conceded that breathing circuits which
contain Malaysian-origin bags are not eligible for duty-free
treatment under the GSP.) In Mexico, a bushing is placed around
the opening of each breathing bag and secured with a rubber band.
The bushing is of Mexican origin and the rubber band is of U.S.
origin. The hoses and breathing bags are packaged together in
Mexico and are resold in the U.S. in the same packaging as
imported.
The protest concerns the liquidation of the entries of the
merchandise, without benefit of duty-free treatment under the GSP,
under subheading 9019.20.00, HTSUS, which provides for ozone
therapy, oxygen therapy, aerosol therapy, artificial respiration or
other therapeutic respiration apparatus, and parts and accessories
thereof. The protestant contends that the breathing circuits
comprised of a bag of Malaysian origin and a hose of Mexican origin
are classifiable as follows: both the bag and hose should be
classified under subheading 9020.00.60, HTSUS, which provides for
other breathing appliances and gas masks.
Similarly, the protestant contends that the breathing circuits
comprised of a bag of U.S. origin and a hose of Mexican origin are
classifiable as follows: the hose is eligible for duty-free entry
under GSP, and the bag (and rubber band) are eligible for the duty
allowance in subheading 9802.00.80, HTSUS, which provides for
duty-free treatment of the U.S. components of articles assembled
abroad in whole or in part of fabricated U.S. components. The
protestant argues that the breathing circuits are not classifiable
as "composite goods" or "goods put up in sets for retail sale," and
as such, are separately classifiable.
As an alternative matter, protestant states that if Customs
determines that the breathing circuits are classified as a set, the
presence of U.S.-origin components in the set which are entitled to
a duty allowance under subheading 9802.00.80, HTSUS, should not
defeat GSP eligibility for Mexican-origin hoses in the sets
containing the U.S.-origin bags.
ISSUES:
1) What is the proper tariff classification of the breathing
circuits?
2) Whether the breathing circuits are eligible for duty
allowances under subheading 9802.00.80, HTSUS, and/or duty-free
treatment under the GSP.
LAW AND ANALYSIS:
I. Classification of the breathing circuit
The General Rules of Interpretation (GRI's) to the HTSUS
govern the classification of goods in the tariff schedule. GRI 1
states in pertinent part that "for legal purposes, classification
shall be determined according to the terms of the headings and any
relative section or chapter notes and, provided such headings or
notes do not otherwise require, according to the [remaining
GRI's]."
GRI 3(b) states that "[w]hen, by the application of rule 2(b)
or for any other reason, goods are, prima facie, classifiable under
two or more headings, classification shall be effected as follows:
Mixtures, composite goods consisting of different materials or
made up of different components, and goods put up in sets for
retail sale, which cannot be classified by reference to 3(a),
shall be classified as if they consisted of the material or
component which gives them their essential character, insofar
as this criterion is applicable [underlining added]."
The Harmonized Commodity Description and Coding System
Explanatory Note (EN) to GRI 3(b), pg. 4, states that "[f]or the
purposes of this Rule, the term 'goods put up in sets for retail
sale' shall be taken to mean goods which:
(a) consist of at least two different articles which are,
prima facie, classifiable in different headings . . .;
(b) consist of products or articles put up together to meet
a particular need or carry out a specific activity; and
(c) are put up in a manner suitable for sale directly to
users without repacking (e.g., in boxes or cases or on boards)
[emphasis in original]."
According to part (a) of the above test, the articles
comprising the "breathing circuit" -- the breathing bag and hose --
must be classifiable under two different headings.
With regard to the classification of the breathing bag,
heading 9018, HTSUS, provides for instruments and appliances used
in medical and surgical sciences, and includes parts and
accessories thereof. EN 90.18, pg. 1487, states that heading 9018,
HTSUS, "covers a very wide range of instruments and appliances
which, in the vast majority of cases, are used only in professional
practice (e.g., by doctors, surgeons, dentists, veterinary
surgeons, midwives), either to make a diagnosis, to prevent or
treat an illness or to operate, etc." The notes, pg. 1490, further
provide that the instruments and appliances for human medicine or
surgery include "[a]naesthetic apparatus and instruments (face
masks, face-piece harness, intratracheal tubes, etc.)," as well as,
parts thereof. Accordingly, the breathing bag, which is used
exclusively for anesthesiology purposes, is prima facie
classifiable (i.e., classifiable under this heading in the absence
of a legal or chapter note that requires otherwise) as a part under
heading 9018, HTSUS.
However, note 1(a) to chapter 90 states that chapter 90 does
not cover "[a]rticles of a kind used in machines, appliances or for
other technical uses, of vulcanized rubber other than hard rubber
(heading 4016) .... " Thus, if the breathing bag is classifiable
under heading 4016, HTSUS, it cannot be classified under heading
9018, HTSUS.
Heading 4016, HTSUS, provides for "[o]ther articles of
vulcanized rubber other than hard rubber." EN 40.16, pg. 599,
states that heading 4016, HTSUS, "covers all articles of vulcanized
rubber (other than hard rubber) not covered by the preceding
headings of this Chapter or by other Chapters [underlining added]."
The breathing bag, which is mounted onto an anesthesia machine, is
made of non-hardened, vulcanized rubber. It is our opinion that
the bag, which is not covered by any other heading in the tariff
schedule, is classifiable under heading 4016, HTSUS, and therefore,
excluded from chapter 90 and heading 9018, HTSUS.
With regard to the classification of the hose, counsel for the
protestant states that the hose can be used for two equal
functions. In the operating room, the hose is used to administer
anesthesia from an anesthesia machine. In the intensive care unit,
the hose is used to administer oxygen from a respirator.
Therefore, the hose is prima facie classifiable under both heading
9018, HTSUS, as a part of an anesthetic instrument, and heading
9019, HTSUS, as a part of artificial respiration apparatus. Note
2 to chapter 90 states that parts and accessories for articles of
this chapter are to be classified as follows:
(a) Parts and accessories which are goods included in any of
the headings of this chapter or of chapter 84, 85 or 91. . .
are in all cases to be classified in their respective
headings;
(b) Other parts and accessories, if suitable for use solely
or principally with a particular kind of machine, instrument
or apparatus, or with a number of machines, instruments or
apparatus of the same heading . . . are to be classified
with the machines, instruments or apparatus of that kind;
(c) All other parts and accessories are to be classified In
heading 9033 [emphasis added].
The hose is not a "good included" in any chapter 84, 85, 90 or
91 heading, nor is it suitable for use solely or principally with
a particular kind of machine, or with a number of machines of a
single heading. Therefore, according to note 2(c) to chapter 90,
the hose is classifiable in the "basket" provision for parts of
chapter 90 under subheading 9033.00.00, HTSUS.
The articles in question meet part (a) of the above stated GRI
3(b) test, as the breathing bag and the hose are classifiable in
separate headings -- heading 4016 and 9033, HTSUS, respectively.
The articles also meet part (b) of the test, as the breathing bag
and hose, which represent the disposable portion of an anesthesia
machine (both are discarded after each use), are put up together to
meet a particular need or carry out a specific activity. They also
meet part (c), as they are packaged together in plastic for direct
sale without repacking.
Because the articles are "goods put up in sets for retail
sale," it is necessary to determine the component that gives the
set its essential character. It is our opinion that the essential
character of the breathing circuit is imparted by the hose, which
performs the primary function of the breathing circuit. The hose
connects to an endotracheal tube inserted in the patient's mouth or
to a face mask, and delivers the anesthetic gases from the
anesthesia machine to the patient. Therefore, the breathing
circuits are classifiable under heading 9033, HTSUS, specifically
under subheading 9033.00.00, HTSUS.
II. Eligibility of breathing circuits for duty-free treatment
under the GSP
Under the GSP, eligible articles the growth, product or
manufacture of a designated developing beneficiary country (BDC)
which are imported directly into the customs territory of the U.S.
from the BDC may receive duty-free treatment if the sum of (1) the
cost or value of materials produced in the BDC, plus (2) the direct
costs of the processing operations performed in the BDC, is
equivalent to at least 35% of the appraised value of the article at
the time of entry into the U.S. See 19 U.S.C. 2463(b).
General Note 3(a)(iii), HTSUS, states that special rates of
duty under one or more of the special tariff treatment programs
(including GSP) apply to those products which are classified under
a provision for which a special rate is indicated in the "Special"
subcolumn and for which all of the legal requirements for such
program(s) have been met. In cases where a set is classified by
reference to General Rule of Interpretation (GRI) 3(b), the item of
the set which imparts its essential character determines the
classification of the entire set. Therefore, if the "Special"
subcolumn opposite the subheading under which the set is classified
contains a special duty rate for a particular tariff preference
program, then the entire set would be entitled to that special
rate, assuming compliance with the program's requirements.
As stated in General Note 3(c)(ii)(A), HTSUS, Mexico is a
designated BDC. Based upon our prior discussion, we believe that
the proper tariff classification of the breathing circuit in this
case is under subheading 9033.00.00, HTSUS. This subheading is a
GSP-eligible provision, and, therefore, the breathing circuits are
entitled to duty-free treatment provided that the entire set is
considered to be a "product of" Mexico and the 35% value-content
and "imported directly" requirements are met.
Prior to August 20, 1990, the GSP program differed from the
Caribbean Basin Economic Recovery Act (CBERA) and U.S.-Israeli FTA
programs in that the latter programs included a "product of"
requirement, while the GSP did not. This requirement means that in
order to receive duty-free treatment, an article either must be
made entirely of materials originating in the beneficiary country
or, if made of materials from a non-beneficiary country, those
materials must be substantially transformed in the beneficiary
country into a new or different article of commerce. In Madison
Galleries, Ltd. v. United States, 688 F. Supp. 1544 (CIT 1988),
aff'd, 870 F.2d 627 (Fed. Cir. 1989), the court concluded that,
under the GSP statute, it is unnecessary for an article to be a
"product of" a GSP country to be eligible for duty-free treatment
under that program. However, section 226 of the Customs and Trade
Act of 1990 (Public Law 101-382) included an amendment to the GSP
statute requiring an article to be a "product of" a GSP country in
order to receive duty-free treatment. This amendment was effective
for articles entered, or withdrawn from warehouse for consumption,
on or after August 20, 1990. See T.D. 91-7 dated January 16, 1991
(25 Cust. Bull. 6).
Protestant claims that those breathing circuits which are
imported into the U.S. without Malaysian-origin breathing bags, are
comprised entirely of items either the "product of" Mexico or the
"product of" the U.S. Protestant further claims that the
U.S.-origin components should not be considered for purposes of
determining whether a set satisfies the "product of" requirement of
the GSP. Counsel argues that since the U.S.-origin components
separately receive a duty allowance under subheading 9802.00.80,
HTSUS, they cannot be considered for purposes of determining
whether merchandise imported into the U.S. is the growth, product
or manufacture of the BDC. It is protestant's position that the
9802 items are constructively segregated from the rest of the set
for both classification and valuation purposes.
In Superscope, Inc. v. United States, 13 CIT 997, 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) (the predecessor to
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.
T.D. 91-7 states as follows:
In our opinion, a set or mixed or composite goods can
exist, within the meaning of GRI 3(b), even though a portion
of the collection consists of American goods returned. This
view is consistent with the Superscope decision, in which the
court clearly treated the U.S.-origin glass panels as part of
the single tariff entity (unassembled furniture) for tariff
classification purposes even though the glass panels
separately qualified for entry under item 800.00, TSUS.
Similarly, the presence of American goods returned in a set
(also containing foreign-origin items) should not destroy the
identity of the set and frustrate the purpose of GRI 3(b),
which is to facilitate the classification of sets, mixtures
and composite goods by permitting the components or items to
be classified under a single HTSUS heading.
T.D. 91-7 also stated that "the above analysis regarding
subheading 9801.00.10, HTSUS, also is applicable, in large part, to
situations in which a portion of a set or mixed or composite goods
consists of components or items assembled abroad in whole or in
part of U.S.-origin fabricated components."
Thus, in determining the classification of a set which
includes U.S. components or items assembled abroad in whole or in
part of U.S.-origin fabricated components according to T.D. 91-7,
the first step is to determine whether the combination of articles
qualifies as a set within the meaning of the tariff schedule and
the Explanatory Notes in the HTSUS. The next step is to classify
the set under a single HTSUS heading by ascertaining which, if any,
of the items impart the set's essential character. Then, it is
necessary to determine whether any of the items in the set are
entitled to a duty allowance under subheading 9802.00.80, HTSUS.
An allowance in duty is then made for the value of those components
which satisfy the "conditions and requirements" of subheading
9802.00.80, HTSUS. The remainder of the items in the set are
assessed duty at the Chapter 1-97, HTSUS, rate applicable to the
article which imparts the essential character (whether or not such
article is entitled to duty-free treatment under subheading
9802.00.80, HTSUS).
The first issue we must address is whether the presence of
U.S.-origin components in the set, which may be eligible for a duty
exemption under subheading 9802.00.80, HTSUS, will defeat the
"product of" requirement under the GSP.
In T.D. 91-7, Customs also held that, as a general rule, a
collection classifiable in one subheading pursuant to the GRI's
will receive CBERA treatment only if all of the items or components
in the collection are considered "products of" the beneficiary
country. To illustrate the application of the "product of"
requirement to sets under the CBERA, T.D. 91-7 set forth the
example of a hairdressing set consisting of a comb, brush, and
scissors manufactured in Jamaica from materials originating in
Jamaica, and an electric hair clipper manufactured in Taiwan (a
non-BC country) which is imported into Jamaica for packaging with
the other items of the set. We stated that in cases where the
entire imported set is not the "product of" a BDC, as required by
the CBERA statute, neither the set nor any part thereof would be
entitled to duty-free treatment under this program. The above
requirements also exist under the GSP statute with respect to
articles entered on or after August 20, 1990.
Consistent with T.D. 91-7, we find that the breathing circuits
in the instant case are considered sets within the meaning of the
Explanatory Notes relating to GRI 3(b) and they are classified
under subheading 9033.00.00, HTSUS, (hose), even though some of the
components in the set may be entitled to a duty allowance under
subheading 9802.00.80, HTSUS. However, the assembly of the U.S.
and Mexican-origin components into a breathing bag in Mexico is not
a "complex and meaningful operation" as defined in C.S.D. 85-25
dated September 25, 1984 (HRL 071827). See also HRL 555727 dated
January 31, 1991 (attaching cover assemblies and mounting brackets
to completed PCBA's in the production of sound amplifiers,
intermittend windshield wiper governors, and speed control
amplifiers does not result in a second substantial transformation).
Therefore, we do not find that the U.S. components of the breathing
bag were substantially transformed into a new and different article
of commerce in Mexico.
In a case involving a set which consisted entirely of Mexican
items and U.S.-origin items which were eligible for duty-free
treatment under subheading 9801.00.10, HTSUS, Customs held that the
entire set was not precluded from duty-free treatment under the
GSP. See HRL 556798, 556797 dated September 23, 1993. In HRL
556798, 556797, we stated that:
the catheter kits are considered sets within the meaning of
the Explanatory Notes relating to GRI 3(b), and the set is
properly classified pursuant to GRI 3(b) under subheading
9018.39.00, HTSUS, which is a GSP-eligible provision. Second,
pursuant to T.D. 91-7, we find that the U.S. components which
qualify for duty-free treatment under subheading 9801.00.10,
HTSUS, are to be excluded from the set for purposes of
determining whether the kits qualify as "products of" Mexico
under the GSP.
In HRL 556798, 556797, we found that after removing and
separately classifying the U.S. items under subheading 9801.00.10,
HTSUS, the remaining items in the set were entirely of Mexican
origin. Thus, we concluded that inasmuch as all of the remaining
items in the set qualified as "products of" Mexico, those articles
were entitled to duty-free treatment under the GSP.
The present case, however, is distinguishable from the facts
at issue in HRL 556798, 556797. HRL 556798, 556797 involved a set
which was created by simply packaging together U.S. and Mexican-origin articles. Pursuant to Superscope, Customs was permitted
under the facts in HRL 556798, 556797 to separate out for
classification and value purposes those U.S items which were simply
packaged together and had not been advanced in value or improved in
condition abroad, under subheading 9801.00.10, HTSUS. However, in
the instant case, the U.S. breathing bag and rubber band and
Mexican-origin bushing are assembled together to create a single
article - the breathing bag with bushing. Unlike the catheter kit
in HRL 556798, 556797, the entire set here is subject to
classification under subheading 9033.00.00, HTSUS, when it is
entered into the U.S., and the value of the U.S.-origin components
may be subtracted from the full value of the imported set at the
time of entry, if the requirements under subheading 9802.00.80,
HTSUS, are met. It is the entire assembled article - not just the
U.S.-origin components - which is subject to the provisions of
subheading 9802.00.80, HTSUS, provided that all of the requirements
of this provision are satisfied. This differs from HRL 556798,
556797, where only the U.S. items were separately classified and
entered under subheading 9801.00.10, HTSUS. Therefore, we are of
the opinion that the presence of the U.S. components in the set
which have not undergone a substantial transformation in Mexico,
defeats the "product of" requirement for purposes of GSP duty-free
treatment.
III. Eligibility of partial duty exemption under subheading
9802.00.80, HTSUS
As we have determined that the set is not eligible for duty-free treatment under the GSP, the next issue to be addressed is
whether an allowance in duty may be made for the cost or value of
the breathing bags and rubber bands under subheading 9802.00.80,
HTSUS.
HTSUS subheading 9802.00.80 provides a partial duty exemption
for:
[a]rticles assembled abroad in whole or in part of fabricated
components, the product of the United States, which (a) were
exported in condition ready for assembly without further
fabrication, (b) have not lost their physical identity in such
articles by change in form, shape or otherwise, and (c) have
not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental
to the assembly process such as cleaning, lubrication, and
painting. . .
All three requirements of HTSUS subheading 9802.00.80 must be
satisfied before a component may receive a duty allowance. An
article entered under this tariff provision is subject to duty upon
the full value of the imported assembled article, less the cost or
value of such U.S. components, upon compliance with the documentary
requirements of section 10.24, Customs Regulations (19 CFR 10.24).
Section 10.14(a), Customs Regulations (19 CFR 10.14(a)),
states in part that:
[t]he components must be in condition ready for assembly
without further fabrication at the time of their exportation
from the United States to qualify for the exemption.
Components will not lose their entitlement to the exemption by
being subjected to operations incidental to the assembly
either before, during, or after their assembly with other
components.
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)),
provides that the assembly operation performed abroad may consist
of any method used to join or fit together solid components, such
as welding, soldering, riveting, force fitting, gluing, laminating,
sewing, or the use of fasteners.
In the subject protest, the operation which consists of
manually fitting the bushing into the neck of the bag and placing
the rubber band around the neck of the bag in order to securely
join the components together is considered an acceptable assembly
operation. See 19 CFR 10.16(a). Therefore, as the U.S. components
used in the assembly process were exported in condition ready for
assembly without further fabrication, did not lose their physical
identity in the assembled article, and were not advanced in value
or improved in condition except by assembly operations, the
returned breathing circuit are eligible for an allowance in duty
under subheading 9802.00.80, HTSUS, for the cost or value of the
U.S.-origin breathing bags and rubber band.
HOLDING:
The breathing circuits are classifiable, according to GRI
3(b), under subheading 9033.00.00, HTSUS, which provides for parts
and accessories for machines, appliances, instruments or apparatus
of chapter 90, not specified or included elsewhere. As the set
does not satisfy the "product of" requirement, it may not be
entered duty-free under the GSP. However, the U.S.-origin
breathing bag and rubber band which are assembled with the bushing
in Mexico and returned to the U.S. as part of the set are entitled
to a duty allowance under subheading 9802.00.80, HTSUS, provided
that the documentary requirements of 19 CFR 10.24 are met. This
protest should denied in part and granted in part in accordance
with this decision.
In accordance with Section 3A(11)(b) of Customs Directive 099
3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision together with the Customs Form 19, should
be mailed by your office to the protestant no later than 60 days
from the date of this letter. Any reliquidation of the entry in
accordance with the decision must be accomplished prior to mailing
of the decision. Sixty days from the date of the decision the
Office of Regulations and Rulings will take steps to make the
decision available to Customs personnel via the Customs Rulings
Module in ACS and the public via the Diskette Subscription Service,
Lexis, Freedom of Information Act and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division