CLA-2 OT:RR:CTF:TCM H105255 HkP
Port Director
Port of Anchorage
U.S. Customs and Border Protection
605 W. 4th Avenue Suite 230 Anchorage, AK 99501
RE: Internal Advice 10/011; Heading 9817.85.01, HTSUS, Prototype Determination; Intermediate Chemical Compound (a Carboxylic Acid)
Dear Port Director:
This is in response to your memorandum, received by this office on May 12, 2010, forwarding a Request for Internal Advice submitted on behalf of Pfizer, Inc. (“Pfizer”). At issue is whether an intermediate chemical compound [(xxxxxxxxx)], a carboxylic acid, imported by Pfizer qualifies as a prototype within the meaning of heading 9817.85.01, Harmonized Tariff Schedule of the United States (“HTSUS”).
In addition, the port has asked us to address whether a compound previously entered as a prototype under the conditions specified for heading 9817.85.01, HTSUS, can be legitimately entered as a prototype upon subsequent importations. You have also asked for guidance on how much post importation alteration prior to evaluation an article can undergo and still be considered a prototype.
In reaching our decision we have taken into consideration information contained in correspondence between the port and Pfizer, as well as information conveyed by Pfizer to this office during a meeting on September 22, 2010, which was memorialized in a submission by Pfizer, dated October 12, 2010. A representative of the CBP Laboratory was present at the meeting and has also reviewed the submissions made by Pfizer. In addition, we have also relied on additional clarifications submitted on behalf of Pfizer to this office on February 22, 2011.
Pfizer has asked that certain information submitted in connection with this Request for Internal Advice be treated as confidential. Inasmuch as their request conforms to the requirements of 19 C.F.R. §177.2(b)(7), their request for confidentiality is approved. The information described in their submissions as business confidential will not be released to the public and will be withheld from the published version of this ruling.
FACTS:
According to the information submitted, the product at issue is a proprietary carboxylic acid that was evaluated after importation to determine whether it could be used in the development of either of two active pharmaceuticals ingredients (API) for an early clinical study on toxicology in dogs. When it was first imported, prior to being evaluated as an API, the compound was tested by Pfizer to affirm the manufacturer’s claims concerning purity, reactivity and overall chemical and physical characteristics.
During the meeting held at this office, Pfizer explained that the imported compound was developed to address a specific sector of a drug analogue, the other components of which had already been determined. The imported compound was produced according to Pfizer’s specifications and was the version of a compound that was chosen for further study after more than 200 derivatives of a particular compound had been tested. In its February 22, 2011, submission, Pfizer further explained that the imported proprietary organic compound is different from all other carboxylic acids, in that, although the compound falls into the general class of carboxylic acids, it was manufactured to have a specific chemical structure as developed by Pfizer. Consequently, the imported compound’s chemical structure is chemically distinct from all other carboxylic acids.
In its October 12, 2010, submission, Pfizer explained that at the point of importation the compound was not conclusively considered to be a candidate for development into an API or a drug product, but was one of 20 compounds to be studied further by testing to determine its suitability for treatment of the target diseases. Testing consists of synthesizing the imported compound with other compounds. The imported compound was synthesized over a nine-month period before it was eliminated as a candidate for treatment of the target diseases in favor of another compound that was being tested and evaluated on a parallel track. The unused portion of the imported compound was placed in Pfizer Compound Management, where it will be further monitored for stability, made available for new product development opportunities or destroyed.
The weight of the subject entry of the compound is 4.03 kg (net). Smaller quantities of the same compound were entered on five occasions from January 13, 2008, through June 26, 2009, inclusive. The aggregate quantity of those entries was 456,050 mg (0.456050 kg). According to Pfizer, they were required to import larger amounts of the compound to evaluate its utility in dogs rather than in rodents due to the unique metabolic properties of the compound. Pfizer required approximately 4 kg of the imported compound to produce 5 kg of the anticipated sector of the drug analogue. This quantity would have been sufficient to maintain batch consistency through Phase II of testing (early clinical testing).
ISSUES:
Whether the carboxylic acid [xxxxxxxxxxx] imported by Pfizer qualifies as a prototype within the meaning of heading 9817.85.01, HTSUS.
Whether subsequent importations of an article found to be a “prototype” when first entered can benefit from the duty-free provisions of heading 9817.85.01, HTSUS.
LAW AND ANALYSIS:
Heading 9817.85.01, HTSUS
Pursuant to section 1433 of the Product Development and Testing Act of 2000 (PDTA), enacted as part of the Tariff Suspension and Trade Act of 2000 (Pub.L. 106-476, § 1433), articles described as “prototypes” under the Act may be imported duty-free. To provide for duty-free entry of prototypes section 1433 of the PDTA inserted heading 9817.85.01 into Subchapter XVII of Chapter 98, HTSUS, which provides for:
Prototypes to be used exclusively for development, testing, product evaluation, or quality control purposes …
U.S. Note 7 to Subchapter XVII, Chapter 98, HTSUS, provides, in relevant part:
The following provisions apply to heading 9817.85.01:
For the purposes of the subchapter, including heading 9817.85.01, the term “prototypes” means originals or models of articles that –
(i) are either in the preproduction, production, or postproduction stage
and are to be used exclusively for development, testing, product
evaluation, or quality control purposes[.]
….
(i) Prototypes may be imported only in limited noncommercial quantities
in accordance with industry practice.
(ii) Except as provided for the Secretary of the Treasury, prototypes or
parts of prototypes may not be sold after importation into the United States or be incorporated into any other products that are sold.
Articles subject to quantitative restrictions, antidumping orders, or countervailing duty orders may not be classified as prototypes under this note. Articles subject to licensing requirements, or which must comply with laws, rules, or regulations administered by agencies other than the United States Customs Service before being imported, may be classified as prototypes if they comply with all applicable provisions of law and otherwise meet the definition of “prototypes” under paragraph (a).
The port is of the view that a research compound that has not yet been activated or synthesized is outside of the predevelopment phase of a drug product or API and that the evaluation of a compound at this stage of development is not within the scope of heading 9817.85.01, HTSUS. According to the port, the testing done by Pfizer upon importation is only to determine whether the compound’s characteristics meet the claimed specifications and standards of the foreign manufacturer. If this test is successfully passed, the compound is synthesized with another proprietary compound and the resulting compound is screened or evaluated. Consequently, the port believes that the product that is being evaluated and tested within the meaning of heading 9817.85.01, HTSUS, i.e., the synthesized compound, is not the same compound as the one that is being imported. The port relies on Headquarters Ruling Letter (HQ) 562734 (Aug. 13, 2003), in which CBP found that the imported chemical, chiral lactone, was not a prototype because the product undergoing clinical evaluation in the U.S. was not the imported chemical but a pharmaceutical known as DAPD, into which the chiral lactone had been integrated.
Pfizer contends that the compound at issue is not used to manufacture a prototype but is itself a prototype at a preproduction stage. Further, they argue that it is imported exclusively for development, testing, and product evaluation, will not be sold after importation, and is not subject to any of the restrictions set out in U.S. Note 7(c), Subchapter XVII, Chapter 98, HTSUS.
U.S. Note 7(a) provides, in relevant part, that prototypes are “originals or models of articles” that fulfill the conditions set out in subparagraphs (i) and (ii) of the Note. The adjective “original” in the Oxford English Dictionary is defined, in relevant part, as, “Designating the thing, as a document, text, picture, etc., from which another is copied or reproduced; that is the original.” Likewise, that same publication defines the adjective “model” as, “B.1 … serving or intended to serve as a pattern for imitation; exemplary, ideal.” Based on these definitions, we conclude that the phrase “originals or models of articles” used in the umbrella text of U.S. Note 7(a) means that a prototype must be the pattern of a manufactured article that is copied or reproduced.
In addition, to comply with the terms of the Note, original or models of articles can only be used for development, testing, product evaluation or quality control purposes at any stage of the production process. See U.S. Note 7(a)(i). The term “development” is not defined in the HTSUS. Webster’s New International Dictionary defines “development” as the “act, process, or result of developing, or state of being developed; the disclosing [of] that which is unknown; … a gradual unfolding by which anything is developed, as a plan or method …; gradual advance or growth through progressive changes; evolution, as a stage of development.” Webster’s at 713. In turn, that same publication defines the root term “develop” as “to go through a process of natural evolution or growth, by successive changes from a less perfect to a more perfect or more highly organized state; to advance from a simpler form of existence to one more complex either in structure or function[.]”
With specific regard to prototype development, based on the definitions stated above, we find that the Note allows a prototype to be imported so that it may be developed from its original or model state into a more complex, evolved or perfect state. Our understanding of U.S. Note 7(a) conforms to the common and commercial definition of the term “prototype.” See, for example, the Oxford English Dictionary:
Prototype, A. n.
1. a. The first or primary type of a person or thing; an original on which something is modeled or from which it is derived; an exemplar, an archetype.
…
3. A first full-size working version of a new vehicle, machine, etc., of which further improvements may be made; a preliminary version made in small numbers for evaluation, or from which improved or modified versions may be developed.”
Available at www.oed.com.
Given the foregoing, we agree with the port that an article imported as a prototype cannot be used to manufacture a new and different product. See Headquarters Ruling Letter (HQ) 562734 (Aug. 13, 2003), concerning the classification of chiral lactone imported to manufacture a new and different product.
During the meeting held at this office, Pfizer explained that the subject imported compound was developed to address a specific sector of a drug analogue, the other components of which had already been determined. In its February 22, 2011, letter, Pfizer further explained that the imported compound is chemically distinct from all other carboxylic acids, not commercially available, and was used solely for the purposes of development, testing and product evaluation.
After reviewing all the pertinent information, we find that the compound is the original of a product that is imported at a preproduction stage that will be used exclusively for product development and testing. Accordingly, the requirements of subparagraph (a)(i) of U.S. Note 7 are met. In previous rulings, we have found that the testing of compounds to determine whether they were of pharmacological interest fell within the preproduction stage of pharmaceuticals. See, for example, HQ 562174, June 19, 2002, in which CBP determined that imported organic compounds that were to be tested to determine whether they had properties that were of interest for further pharmaceutical research were prototypes, all other conditions of Note 7 having been met; NY K85984, June 1, 2004 (1500 unsynthesized novel heterocyclic compounds imported in 96-well containers for use in the earliest stages of drug discovery research programs, classified as prototypes); and, NY R01687, April 6, 2005 (library of plates containing 384 wells and 352 unique organic compounds imported for testing and research purposes, classified as prototypes). Subparagraph (a)(ii) is not applicable because the compound is neither in the production nor postproduction stage when imported.
In compliance with U.S. Note 7(b), we find that the compound is being imported in noncommercial quantities and is not being sold after importation or being integrated into other products that are sold. According to the information submitted, the imported quantity (4.03 kg) is only enough to produce 5kg of a consistent batch of API through Phase II of testing. We have previously found large quantities of pharmaceutical prototypes to be noncommercial quantities when used for testing. See, for e.g., HQ 563139, Feb 8, 2005 (in which 102.8 kg of a drug prototype was found to be consistent with dosage requirements for its clinical trial and not a commercial quantity), and HQ 563056, Oct. 15, 2004 (in which CBP found that 7.48 kg of a drug prototype was a noncommercial quantity because it was consistent with the dosage requirements for its clinical trial).
Finally, counsel has stated that the imported compound is not subject to any of the restrictions detailed in subparagraph (c) of U.S. Note 7.
Based on the totality of the facts, we find that the imported compound satisfies the applicable terms of U.S. Note 7, Subchapter XVII, Chapter 98, HTSUS. Accordingly, the compound may be classified in heading 9817.85.01, HTSUS, as a prototype, assuming the terms of subparagraph (c) have been met.
Subsequent Alterations and Importations
U.S. Note 7(c), Subchapter XVII, Chapter 98, HTSUS, states that prototypes may be imported at any stage of production. Therefore, it appears that prototypes for the same article may be imported at the same or at different stages of the production process, once each subsequent importation meets the definition of a prototype. See discussion supra. In addition, all other applicable requirements for importation would have to be met. See 19 C.F.R. § 10.91 for applicable requirements.
Concerning post-importation alteration of a prototype, we are unable to provide general guidance that will be useful in all situations because our advice is based on the specific facts of a particular case. In this case, synthesis is a part of the development and testing process for pharmaceuticals and therefore within the scope of U.S. Note 7(a)(i).
HOLDING:
The carboxylic acid [xxxxxxxxxxx] imported by Pfizer qualifies as a prototype within the meaning of heading 9817.85.01, HTSUS. The information submitted indicates that the compound satisfies the provisions of U.S. Note 7 to Subchapter XVII, Chapter 98, HTSUS.
You are to mail this decision to the internal advice requester no later than 60 days from the date of the decision. At that time, the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act and other methods of public distribution.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch