CON 9-04
OT:RR:CTF:ER
H255100 RGR
Tanya Watson
Scapa Tapes North America Ltd.
609 Barnet Boulevard 1
Renfrew, ON K&V OA9
Canada
BN104475249RM0001
Re: Request for a Ruling on the Importation of 10SH-PF Powder under a Temporary Importation Under Bond
Dear Ms. Watson:
This is in reference to your letter dated June 11, 2014, on behalf of Scapa Tapes North America Ltd. (“Scapa Tapes”), regarding whether certain polymer granule powder known as AQUA KEEP 10SH-PF may be imported under a Temporary Importation Under Bond (“TIB”) and if so, whether it is subject to the limitations of the NAFTA drawback lesser of duty rule. Our response follows.
FACTS:
Scapa Tapes seeks to import AQUA KEEP 10SH-PF, a superabsorbent polymer granule powder (“10SH-PF powder”). The 10SH-PF powder is used in the production of different widths and lengths of tape in Canada, including water swellable tape, which is designed to prevent water ingress into fiber optic, copper data/telecommunication, and power cables. Scapa Tapes has a U.S. customer for whom it manufactures water swellable tape with a very specific requirement that prevents Scapa Tapes from using the 10SH-PF powder as it is imported from its foreign supplier. This is because the 10SH-PF powder contains larger granules of powder than acceptable. Therefore, after importation into the United States by Scapa Tapes, the 10SH-PF powder will undergo a sifting process that filters it by granule size into larger and smaller granules. The 10SH-PF powder that has been sifted will be repackaged into sacks, labeled, and exported back to Canada. After it is returned to Canada, Scapa Tapes will use the smaller granule 10SH-PF powder to manufacture the water swellable tape to meet the U.S. customer’s specific requirements. The remaining larger granule 10SH-PF powder will be used to manufacture other types of water swellable tape. Thus, the sifting process is performed in order to filter the granules into different sizes for the purpose of manufacturing water sellable tape that must meet specific customer requirements. Scapa Tapes explains that the 10SH-PF powder will not undergo any processing in the United States that changes the consistency or any chemical compound of the merchandise. You inquire whether the 10SH-PF powder can be entered under subheading 9813.00.05 of the Harmonized Tariff Schedule of the United States (“HTSUS”), under a TIB, and whether the merchandise would be subject to the limitations of the NAFTA drawback lesser of duty rule.
ISSUES:
Whether sifting 10SH-PF powder to filter the granules into different sizes, followed by repackaging and labeling, qualifies the merchandise for duty-free treatment under a TIB under subheading 9315.00.05, HTSUS.
Whether the 10SH-PF powder that is exported to Canada after undergoing sifting and repackaging is subject to the limitations of the NAFTA drawback lesser of duty rule.
LAW AND ANALYSIS:
Pursuant to General Note 1, HTSUS, all merchandise imported into the United States is subject to duty unless specifically exempted. Subheading 9813.00.05, HTSUS, provides that articles to be repaired, altered or processed (including processes that result in articles manufactured or produced in the United States), may be entered temporarily free of duty, under a TIB for exportation within one year from the date of importation. This period may be extended for additional periods, which when added to the initial period, does not exceed three years. See U.S. Note 1(a) of Subchapter XIII, Chapter 98, HTSUS. In order to qualify under this provision, the merchandise imported may not be imported for the purpose of sale or sale on approval. Additionally, in order to satisfy the requirements for the TIB, the imported article must be timely exported.
Articles may be entered under subheading 9813.00.05, HTSUS, only if they are to be “repaired, altered or processed.” We do not consider whether this is a “repair” or “alteration” as the facts do not indicate as such. Instead, we consider whether the sifting and repacking is a “processing.” In Headquarters Ruling Letter (“HQ”) 224661, dated January 11, 1994, which pertained to subheading 9813.00.05, we stated that “[t]he processing can be a relatively minor procedure or extensive enough to be considered a manufacture or production.” Thus, the term is broad and would encompass a minor procedure. CBP previously relied upon the following definition of the word “process”:
process. . .to subject to a particular method, system, or technique of preparation, handling, or other treatment designed to effect a particular result: put through a special process: (1) to prepare for market, manufacture, or other commercial use by subject to some process. . . (2) to make usable by special treatment . . .
See HQ 229970 (Aug. 11, 2003) (citing Webster’s Third New International Dictionary (unabridged, 1966)). Therefore, if sifting and repackaging the 10SH-PF powder by granule size effects a particular results, such as the manufacture of water swellable tape meeting specific requirements, then the sifting and repackaging would qualify as “processing.”
Although our prior rulings do not specifically address sifting and repackaging as processes, we have addressed minor processes that qualify for TIB treatment. For example, in HQ H088136, dated March 1, 2011, we held that cleaning and sorting soiled laundry would be considered a processing for purposes of a TIB entry under 9813.0.005, HTSUS because the clothing functioned the same before and after the cleaning. Thus, even a minor processing not altering the basic properties of the imported article can satisfy the TIB provisions of 9813.00.05. In this case, the 10SH-PF powder is repackaged once the powder has been sifted in order to filter out the larger granules from the smaller granules because they are necessary to satisfy specific requirements for manufacture of certain water swellable tape. In particular, the sifting of the granules into larger and smaller sizes effects a particular result as the use of smaller sized granules results in a thinner tape with a smoother surface. Thus, the sifting of the granules into larger and smaller sizes is a necessary step in the manufacture of this type of water swellable tape. Accordingly, the sifting described in your ruling request would constitute a “process” for TIB purposes. Therefore, TIB entry for the 10SH-PF powder under 9813.00.05, HTSUS, is permissible for the process described in your request.
Because the 10SH-PF powder will be exported to Canada, we must also consider the North American Free Trade Agreement (“NAFTA”). Section 203 of the NAFTA Implementation Act, Pub. L. 103-182; 107 Stat. 2057, 2086; 19 U.S.C. § 3333, provides that all goods imported into the United States that are exported to Canada or Mexico are subject to the NAFTA lesser of duty rule, unless a specific exception applies. The lesser of duty rule, in the specific context of subheading 9815.00.05, is contained in U.S. Note 1(c), Chapter 98, Subchapter XIII, HTSUS (as amended by Presidential Proclamation 6780, 60 FR 15,845, 15,843 (Mar. 27, 1995). CBP’s regulation, 19 C.F.R. § 181.53(a)(2)(i)(A), provides the following:
Where a good is imported into the United States pursuant to a duty-deferral program and is subsequently withdrawn from the duty-deferral program for exportation to Canada or Mexico, and is used as a material in the production of another good that is subsequently withdrawn from the duty-deferral program for exportation to Canada or Mexico, and provided that the good is a “good subject to NAFTA drawback” within the meaning of 19 U.S.C. § 3333 and is not described in § 181.45 of this part, the documentation required to be filed under this section in connection with the exportation of the good shall, for purposes of this chapter, constitute an entry or withdrawal for consumption and the exported good shall be subject to duty which shall be assessed in accordance with paragraph (b) of this section.
Therefore, unless the 10SH-PF powder falls within one of the exceptions of 19 U.S.C. § 3333, a consumption entry would need to be filed and duties would be owed upon exportation back to Canada. Section 3333 of Title 19 of the U.S. Code provides several exceptions to the lesser of duty rule.
Under 19 U.S.C. § 3333(a)(2), an exception to the lesser of duty rule applies to:
(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph—
Processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good, . . .
Subsection (b)(1) of § 181.45 of CBP’s regulations, provides that for purposes of this subpart:
. . . , a reference to a good in the “same condition” includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good:
Mere dilution with water or another substance;
Cleaning, including removal of rust, grease, paint or other coatings;
Application of preservative, including lubricants, protective encapsulation or preservation paint;
Trimming, riling, slitting or cutting;
Putting up in measured doses, or packing, repacking, packaging or repacking; or
Testing, marking, labeling, sorting, or grading.
(emphasis added). Therefore, if after undergoing the sifting, repackaging, and labeling processes, the 10SH-PF powder is exported to Canada in the same condition as when imported, then it would not be subject to the NAFTA lesser of duty rule as it would fall within the exception under 19 U.S.C. § 3333(a)(2).
CBP has previously considered the question of whether certain operations materially alter the characteristics of a good for purposes of 19 C.F.R. § 181.45(b)(1). In HQ 231066, dated January 29, 2004, CBP determined that repacking dried fruits and dried vegetables from industrial-sized bulk packages to smaller packages did not constitute a material alteration. In addition, when assessing whether an operation materially alters the characteristics of the good, CBP has looked to whether the function of the good remains the same before and after processing. See e.g., HQ H013653 (Sept. 19, 2008) (where the functions of an imported granular chemical compound and the exported tabletized chemical compound remain the same before and after processing, no material alteration has occurred and the chemical compound is not subject to the NAFTA lesser of duty rule because it is exported in the same condition as imported).
Scapa Tapes explained in its ruling request that it is importing the 10SH-PF powder into the United States to undergo sifting to filter the granules into different sizes, followed by repackaging and labeling before exportation back to Canada. As in HQ H013653, the function of the 10SH-PF powder remains the same after sifting the granules into different sizes for use in the manufacture of water swellable tape, as both the larger and smaller granules will be used for manufacturing water swellable tape. These processes do not change the chemical compound or consistency of the product. In addition, repackaging, sorting, and labeling are specifically set forth in 19 C.F.R. § 181.45(b)(1) as operations that would maintain the same condition provided that they did not materially alter the characteristic of the good. Therefore, the 10SH-PF powder would be excepted from the lesser of duty rule as it is exported to Canada in the same condition as it entered the United States.
HOLDING:
The above-described sifting, repackaging, and labeling qualifies the imported 10SH-PF powder for duty-free treatment under a TIB under subheading 9813.00.05, HTSUS. In addition, imported 10SH-PF powder and exported 10SH-PF powder that has undergone only sifting, repackaging, and labeling as described in this ruling request is in the same condition for purposes of 19 U.S.C. § 3333(a)(2) and 19 C.F.R. § 181.45(b). Therefore, the 10SH-PF powder is not a “good subject to NAFTA drawback.”
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
Sincerely,
Carrie L. Owens, Chief
Entry Process and Duty Refunds Branch