CLA OT:RR:CTF:VS H254047 HkP
Director
Pharmaceutical Center of Excellence and Expertise
U. S. Customs and Border Protection
One Penn Plaza
New York, NY 10119
ATTN: SIS Diane Amstutz
RE: Application for Further Review of Protest 2809-14-100074; Classification of Chemical Compounds; Heading 9817.85.01, HTSUS - Prototypes
Dear CEE Director:
This is in response to the Application for Further Review (“AFR”) of Protest 2809-14-100074, filed on January 29, 2014, on behalf of Genentech, Inc. (“Genentech”), and forwarded by the Pharmaceutical Center of Excellence and Expertise (“CEE”) to this office. The CEE has explained that the importer has previously submitted protests on the same issue and merchandise, and that some of the protests were granted and others denied. In this case, the importer based the current protest on Protest 2809-13-100200, decided in the importer’s favor, but the CEE denied the current protest and forwarded it to this office for further review.
In reaching our decision, we have taken into consideration information submitted by Genentech in support of a ruling request that was later withdrawn, and information submitted in support of other protests included by the CEE as part of this file.
Genentech has asked that certain information submitted in connection with this AFR be treated as confidential. Inasmuch as Genentech’s request conforms to the requirements of 19 C.F.R. §177.2(b)(7), its request for confidentiality is approved. The information described in its submissions as business confidential will not be released to the public.
FACTS:
Genentech imports various unique organic compounds from Switzerland and other countries stored in vials and pharmaceutical libraries consisting of microliter (1/1,000,000th of a liter) well plates. The compounds are generally imported in small quantities, in well plates of various sizes (e.g., 96, 384 or 1275 well plates) or in sets of vials (e.g., 16 or 78 vials). Each well plate or vial can hold up to 100 microliters but generally contains less than 20 microliters. For the entries under protest, compounds were imported either as a purified powder or as a liquid in well plates or vials in batches of 96 to 384 individual well plates or vials. The compounds do not have CAS (“Chemical Abstracts Service”) Numbers because the compounds are not registered.
Between September 24, 2012, and December 17, 2012, Genentech made several entries of the described chemical compounds. The entries were liquidated between August 9, and November 8, 2013, classified under various subheadings of Chapter 29, Harmonized Tariff Schedule of the United States (“HTSUS”).
On January 29, 2014, the importer timely protested the classification of the compounds, claiming that they were properly classified as prototypes under subheading 9817.85.01, HTSUS. Counsel stated in the protest memorandum that the imported compounds are used exclusively in the early stage of drug discovery for enzyme and whole cell testing, which consists of screening the compounds for specific activity in the presence of a given reagent or cell. Counsel also stated that any material remaining after testing is entered into Genentech’s compound inventory library and may be used for similar biological testing, returned to the original supplier, or destroyed, and that Genentech maintains detailed records on the ultimate disposition of each compound. Finally, counsel stated that the compounds are in the preproduction stage, are only imported in limited, noncommercial quantities, and will never be sold or incorporated into products sold in the United States. Counsel cited three of the covered entries as representative of the merchandise at issue. In the first example, compounds in powder form (“solid compounds”) entered on October 12, 2012, were imported in screw-top glass vials containing less than 42 milligrams of compound. In the second example, solid compounds entered on September 26, 2012, were imported in screw-top glass vials containing less than 2.6 grams (2600 milligrams) of compound. In the third example, solid compounds entered on September 29, 2012, were imported in vials containing less than 28 milligrams. While all of counsel’s examples refer only to compounds in vials, it is the understanding of this office that the protest also covers entries of compounds on well-plates.
ISSUE:
Whether the compounds imported by Genentech qualify as prototypes within the meaning of subheading 9817.85.01, HTSUS.
LAW AND ANALYSIS:
Subheading 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 subheading 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).
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). 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, Headquarters Ruling Letter (“HQ”) 562174, dated 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; New York Ruling Letter (“NY”) K85984, dated 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, dated 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 compounds are neither in the production nor postproduction stage when imported.
Both the CEE and the importer agree that the compounds meet the requirements of U.S. Note 7(a)(i) and (b)(ii) because the compounds are imported for pharmaceutical research and drug discovery, and will be consumed in testing, destroyed, stored, or returned to the supplier, but not sold. We agree. Consequently, the only issue to be resolved is whether the compounds were imported in “limited noncommercial quantities in accordance with industry practice.” See U.S. Note 7(b)(i).
The importer is of the view that the imported compounds are prototypes because they are described by subheading 9817.85.01, HTSUS, and meet all the requirements of U.S. Note 7. In support of its position, the importer cites HQ H191901, dated January 10, 2013; HQ 562557, dated November 21, 2002; HQ 562174, supra; and, NY K85984, supra. CBP found in these rulings that the imported compounds were prototypes within the meaning of suheading 9817.85.01, HTSUS. The facts of these decisions are substantially similar to each other, except that the quantities of compounds imported differ.
In HQ H191901, the imported merchandise was microwell plates, plastic plates containing anywhere from 96 to 384 individual wells. Each well could hold 12.5 microliters, but generally only contained 500 nanoliters of a given chemical. The chemicals themselves were either in solid form, dispersed in water, or dispersed in the chemical dimethyl sulfoxide (DMSO), and were intended for enzyme and whole cell testing, which consisted of screening the imported chemicals for specific activity in the presence of a given reagent or cell. CBP found that the imported chemicals were in the pre-production stage, would be used exclusively for development and testing of new pharmaceuticals, and therefore, met the definition of “prototype” under U.S. Note 7(a)(i) to Subchapter XVII to Chapter 98, HTSUS. CBP also found that the chemicals were imported in “noncommercial quantities,” but did not discuss the meaning of the term. In H562174 the imported merchandise consisted lots of 100 to 200 4" X 6" polypropylene trays, described as similar to egg crates, each containing 96 wells containing separate, unique organic compounds. Some trays were imported in inert dry state and others in a dimethyl sulfoxide (DMSO) solution frozen on dry ice. In H562557, the importer imported quantities of typically less than 100 milligrams (0.004 ounces) of experimentally developed chemicals for evaluation to determine whether they could be developed into commercial products for the company’s agricultural chemicals business. In NY K85984, the imported compounds were a library of approximately 1500 compounds, imported in 96-well containers in quantities of between 0.1 and 5 milligrams.
The CEE is of the view that the compounds at issue in this case do not qualify as prototypes under heading 9817.85.01, HTSUS, because of the quantities and containers in which they are imported. Specifically, the CEE is of the view that 2.6 grams (the largest example cited by Genentech) is a much larger quantity than imported in the rulings on which the importer relies, which cover quantities of 12.5 microliters to 5 milligrams. The CEE also does not believe that the rulings, which addressed compounds imported in well plates, are applicable to compounds imported in vials. The CEE bases its position on several rulings. For example, HQ 963778, dated May 4, 2000, and published May 24, 2000), was a General Notice of “Guidance Concerning the Tariff Classification of Pharmaceutical Products Imported for Clinical Research.” The Notice was issued to clarify Customs’ policy concerning the classification of certain classes of pharmaceutical products: 1) unmixed (pure) compounds, imported in bulk for use in clinical trials; 2) mixed compounds, containing active ingredients imported in bulk for use in clinical trials; and, 3) pharmaceutical products imported in dosage form for use in clinical trials. However, the notice did not address the applicability of subheading 9817.85.01, HTSUS, and the requirements of U.S. Note 7 to Subchapter XVII, Chapter 98, HTSUS, which were not included in the HTSUS at that time (2000) and is, therefore, inapplicable to the current issue. The other rulings cited by the CEE, HQ 562734 (Aug. 13, 2003), NY N016876 (June 19, 2009), and NY N065239 (June 30, 2009), all concerned the importation of compounds used as intermediates, which were found to not meet the requirements of prototypes. These rulings are inapplicable in the current circumstances because the compounds under consideration are not being used as intermediates.
The phrase “non-commercial quantities in accordance with industry practice” is not defined by the applicable regulations (19 CFR § 10.91). CBP has previously stated in response to a comment on the Notice on the Product Development and Testing Act of 2000, published by CBP:
It is not possible to establish rigid limitations on the numbers of prototypes that may be entered under HTSUS subheading 9817.85.01, in view of the multifarious industries potentially affected and the myriad purposes among those industries for which prototypes might be used in testing, evaluation, product development or quality control. In certain cases, an entry may be rejected if CBP should conclude that an importer seeks to enter a commodity under HTSUS subheading 9817.85.01 in numbers that are considered to be excessive in light of the purposes intended and based on the practice of the specific industry involved.
Notice on the Product Development and Testing Act of 2000, (Fed. Reg. Vol. 69. No 211 (Nov. 2, 2004).
The term “noncommercial quantities” is generally understood to mean personal use amounts that are not for resale. In a commercial context such as this, where the importer is a large pharmaceutical company, we understand non-commercial quantities to mean quantities imported for the company’s own use and not for resale. We have previously found large quantities of pharmaceutical compounds imported for clinical testing to be in “noncommercial quantities in accordance with industry practice.” See, for e.g., HQ 563139, Feb 8, 2005 (102.8 kilograms 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 (CBP found that 7.48 kilograms of a drug prototype was a noncommercial quantity because it was consistent with the dosage requirements for its clinical trial). We have also found that compounds imported in libraries or well plates in quantities as small as 0.1 milligrams have met the noncommercial quantities requirement. See, for e.g., HQ H191901, HQ 562557, HQ 562174, and NY K85984, supra.
In this case, varying quantities of compounds were imported for testing. While some of the quantities in this case are larger than have previously been imported for testing at this stage (enzyme and whole cell testing), there is nothing to suggest that testing a large quantity of a compound is outside of industry norms. Moreover, the importer is testing the compounds for the importer’s own purposes and will not resell them. Accordingly, we find that the importations are in limited, noncommercial quantities in accordance with industry norms. The type of containers in which the compound are imported, whether well-plate or vial, does not affect this determination.
HOLDING:
The imported compounds qualify as prototypes of subheading 9817.85.01, HTSUS. The information submitted indicates that the compounds satisfy all the provisions of U.S. Note 7 to Subchapter XVII, Chapter 98, HTSUS.
This Protest should be approved. In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), you are to mail this decision together with the CBP Form 19 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 the mailing of the decision. Sixty days from the date of the decision, the Office of International Trade, Regulations and Rulings, will make the
decision available to CBP personnel and to the public at www.cbp.gov by means of the Freedom of Information Act and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division