OT:RR:CTF:VS H074889 YAG
Ms. Suzanne Richer
Customs & Trade Solutions, Inc.
66 Witherspoon Street, Ste. 321
Princeton, NJ 08542-3226
RE: Advance Ruling Request; North American Free Trade Agreement (“NAFTA”); Subheading 9802.00.50; Marking
Dear Ms. Richer:
This is in response to your NAFTA advance ruling request, dated August 24, 2009, on behalf of Banner Pharmacaps, Inc. (“Banner”), pursuant to 19 CFR §181.92(b)(6)(v).
FACTS:
Banner is a U.S. manufacturer of pharmaceuticals and related items, headquartered in North Carolina. Banner maintains production facilities in Mexico and Canada.
The product in question is an oral laxative, also known as a stool softener. You state that the primary ingredients of this oral laxative are a mixture of docusate sodium, propylene glycol USP (PPG), and polyethylene glycol 400 NF (PEG). These main ingredients comprise the fill material for the stool softener (known as “Docusate Sodium 577-11-7”), which will be manufactured and pre-blended in the United States. The fill material is the primary cost component in the capsule, accounting for fifty one percent (51%) of the overall net cost of the product.
You state that the pre-blended fill material will be exported to Canada, where it will be incorporated into a gelatin capsule at the manufacturing facility, located in Olds, Alberta. The primary component of the gelatin capsule formula is pigskin gelatin, whose country of origin is Canada. Once encapsulated, the finished medicament will be imported into the United States, ready for sale to customers over the counter, and will be known as oral laxative (Oral). You further state that the outer packaging will be labeled as “Made in the USA.”
ISSUES:
Under the facts presented, may the oral laxative be entered under subheading 9802.00.50 of the Harmonized Tariff Schedule of the United States (“HTSUS”)?
What is the country of origin marking of the medicinal capsules?
LAW AND ANALYSIS:
I. Under the facts presented, may the oral laxative be entered under subheading 9802.00.50 of the HTSUS?
Subheading 9802.00.50, HTSUS, provides a full or partial duty exemption for articles exported from and returned to the United States after having been advanced in value or improved in condition abroad by repairs or alterations, provided the documentary requirements of section 181.64 (for articles returned from Canada or Mexico) or section 10.8 (for articles returned from any other country), CBP Regulations (19 CFR §§181.64 and 10.8), are satisfied.
Section 181.64(a), CBP Regulations, (19 CFR §181.64(a)) defines "repairs or alterations" for purposes of NAFTA as follows:
“Repairs or alterations” means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment, which does not destroy the essential character of, or create a new and commercially different good from, the good exported from the United States.
Court cases considering the applicability of subheading 9802.00.50, HTSUS, and its precursor provisions (item 806.20, Tariff Schedules of the United States ("TSUS"), and, before that, paragraph 1615(g), Tariff Act of 1930), have held that this tariff provision is inapplicable where: (1) the exported articles are not complete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles; or (2) the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See Guardian Indus. Corp. v. United States, 3 Ct. Int’l Trade 9 (1982), and Dolliff & Co., Inc., v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff’d, 66 C.C.P.A. 77, C.A.D. 1225, 599 F.2d 1015 (1979).
In Headquarters Ruling Letter (“HRL”) H007355, dated March 2, 2007, CBP considered the question of whether arachidonic (“ARA”) and docosahexaenoic acid (“DHA”), manufactured in the United States and then exported to Europe to be encapsulated into powdered form, were eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States. CBP determined that the microencapsulation of ARA and DHA from oil into powdered form did not change the chemical composition of the product, which in its oil form was complete for use, and, thus, the microencapsulation was an acceptable alteration. See also HRL 560274, dated May 16, 1997; and HRL 557836, dated April 11, 1994.
In HRL 561918, dated July 30, 2001, CBP determined that the processing by which exported acrylic coatings were changed from liquid into aerosol form by the addition of solvents and propellants was an acceptable alteration for purposes of subheading 9802.00.50, HTSUS, and held that the returned product was eligible for the partial duty exemption provided by that subheading. It was found that the coatings, both before and after the foreign processing, were suitable for their intended use. Additionally, in HRL 560702, dated March 17, 1998, CBP held that the process of encapsulating a U.S.-produced oil into soft gel capsules in the United Kingdom constituted an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS. Similarly, in HRL 557534, dated December 17, 1993, CBP found that the domestically-produced Acetochlor (a pre-emergence herbicide for the control of annual grass and broad-leaf weeds in corn), sent to Belgium for microencapsulation, did not undergo any chemical changes, and, thus, was an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS. See also HRL 556616, dated June 16, 1992 (microencapsulation process only changed the form of the herbicide, and the identity and herbicidal properties remained intact, thus, constituting an acceptable alteration under subheading 9802.00.50, HTSUS).
In this case, the encapsulation of Docusate Sodium 577-11-7 does not alter its identity or essential character; the encapsulation does not change the chemical composition of the active and primary ingredients of the pre-blended mixture; and, the pre-blended mixture of Docusate Sodium 577-11-7 is final and complete product, which is simply being encapsulated in Canada.
Therefore, based upon the facts presented, we find that oral laxative is eligible for tariff treatment under subheading 9802.00.50, HTSUS, upon its subsequent importation into the United States, provided that the applicable documentary requirements are satisfied.
II. What is the country of origin marking of the medicinal capsules?
Next, the marking statute, 19 U.S.C. §1304, provides that, unless excepted, every article of foreign origin (or its container) imported into the United States 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. Part 134, CBP Regulations (19 CFR Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. §1304.
Section 134.1(b), CBP Regulations, provides as follows:
"Country of origin" means 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; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 134.1(j), CBP Regulations, provides that "[t]he NAFTA Marking Rules are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country." Section 134.1(g), CBP Regulations, defines a "good of a NAFTA country" as "an article for which the country of origin is Canada, Mexico, or the United States as determined under the NAFTA Marking Rules." Section 102.11, CBP Regulations, sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 provides, in pertinent part, that the country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in §102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
“Foreign material” is defined in section 102.1(e) of Customs Regulations (19 CFR §102.1(e)), as a “material whose country of origin as determined under these rules of origin is not the same country as the country in which the good is produced.” Based on your representations, we will assume that all the ingredients and components used to make the oral laxative is either of U.S. or Canadian origin. In the instant case, since oral laxative is processed in Canada, from the U.S. or Canadian origin materials, oral laxative is neither wholly obtained or produced, nor produced exclusively from domestic materials. As such, we find that sections 102.11(a)(1) and (a)(2), CBP Regulations (19 CFR §§102.11(a)(1) and (a)(2)) are not applicable to the country of origin determination of the instant merchandise. Therefore, we consider whether pursuant to section 102.11(a)(3), the foreign materials incorporated into this product meet the specific tariff shift rule of 102.20. Thus, we look at the materials whose country of origin is other than Canada to see whether the oral laxative undergoes the required change in tariff classification. The material whose country of origin is other than Canada is Docusate Sodium 577-11-7.
The National Commodity Specialist Division advises that the pre-blended mixture of Docusate Sodium 577-11-7, exported into Canada, is classified under subheading 3003.90.00, HTSUS, which provides for: "medicaments (excluding goods of heading 3002, 3005, or 3006) consisting of two or more constituents, which have been mixed together for therapeutic or prophylactic uses, not put up in measured doses or in forms of packing for retail sale: other." Moreover, the complete oral laxative capsules, obtained by filling the pre-blended mixture of Docusate Sodium 577-11-7 into a capsule in Canada, is a product of subheading 3004.90.91, HTSUS, which provides for “other: medicaments primarily affecting the digestive system: laxatives.” Section 102.20, CBP Regulations (19 CFR §102.20), states, in pertinent part, the following: "a change to subheading 3004.90 from any other subheading, except from subheading 3003.90 or 3006.80, and provided that the domestic content of the therapeutic or prophylactic component is no less than 40% by weight of the total therapeutic or prophylactic content.” We find that the pre-blended mixture of Docusate Sodium 577-11-7 does not undergo the applicable change in tariff classification, making section 102.11(a)(3) inapplicable to the country of origin determination.
Next, section 102.11(b)(1), CBP Regulations (19 CFR §102.11(b)(1)) must be examined. It states that the country of origin is determined by a single material that gives the good its essential character. The essential character of the good is determined under section 102.18 (b)(1)(iii), CBP Regulations (19 CFR §102.18(b)(1)(iii)), which states, in pertinent part, the following:
(b) (1) For purposes of identifying the material that imparts the essential character to a good under §102.11, the only materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the §102.20 specific rule or other requirements applicable to the good. For purposes of this paragraph (b)(1): * * * * * (iii) If there is only one material that is classified in a tariff provision from which a change in tariff classification is not allowed under the §102.20 specific rule or other requirements applicable to the good, then that material will represent the single material that imparts the essential character to the good under §102.11.
As noted above, the pre-blended mixture of Docusate Sodium 577-11-7 fails to undergo the required change in tariff classification under the applicable rule of 19 CFR §102.20. Therefore, the pre-blended mixture of Docusate Sodium 577-11-7 is the single material that imparts the essential character to the good under 19 CFR §102.11(b)(1). Hence, the country of origin is determined by the origin of Docusate Sodium 577-11-7. Thus, pursuant to 19 CFR §102.11(b)(1), the oral laxative imported into the United States from Canada will be a product of the United States. In general, articles of United States origin are not subject to the requirements of 19 U.S.C. §1304. However, CBP does not object to the marking of “Made in the U.S.A.” Nevertheless, The Federal Trade Commission (“FTC”) has jurisdiction concerning the use of the phrase “Made in the U.S.A.,” or similar words denoting U.S. origin. Consequently, any inquiries regarding the use of such phrases reflecting U.S. origin should be directed to the FTC, at the following address: Division of Enforcement of the FTC, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20508.
HOLDING:
The processing, or encapsulation, of the pre-blended mixture mostly containing docusate sodium, propylene glycol USP (PPG) and polyethylene glycol 400 NF(PEG) is an acceptable alteration for the purpose of subheading 9802.00.50, HTSUS. Therefore, the oral laxative capsules are eligible for treatment under 9802.00.50, HTSUS, upon their importation into the United States from Canada. Pursuant to 19 CFR §102.11(b)(1), the country of origin for marking purposes of the oral laxative is the United States.
This holding applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in 19 CFR §181.100(a)(2), which states that a NAFTA ruling letter is issued on the assumption that all the information furnished in connection with the ruling request and incorporated therein, directly, by reference, or by implication, is accurate and complete in every respect. Should we determine that the information provided is not complete, does not comply with section 181.100(a)(2), or both, this ruling will be subject to modification or revocation.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch