OT:RR:CTF:VS H283095 CMR
U.S. Customs and Border Protection
Pharmaceutical, Health & Chemicals Center
237 West Service Road
Champlain, NY 12919
RE: Protest and Application for Further Review 1001-16-100017; prototype
Dear Director:
This is in response to Protest and Application for Further Review (AFR) 1001-16-100017, received on December 15, 2015, and filed against Customs and Border Protection’s (CBP’s) decision to liquidate the merchandise at issue under subheading 2934.99.3000, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Nucleic acids and their salts, whether or not chemically defined;
other heterocyclic compounds: Other: Other: Aromatic or modified aromatic: Other: Drugs.” The protestant, Retrophin, Inc., seeks classification of the merchandise under subheading 9817.85.01, HTSUS, which provides for “Prototypes to be used exclusively for development, testing, product evaluation, or quality control purposes.”
FACTS:
The merchandise at issue is Sparsentan, an active pharmaceutical ingredient being tested in an FDA approved Phase II clinical trial. The protestant entered the merchandise 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 or packings for retail sale: Other.” A CBP Form 29, Notice of Action, was issued to the protestant on June 25, 2015, proposing to reclassify the merchandise under subheading 2934.99.3000, HTSUS, and rate advance it. The protestant responded to the CBP Form 29 by letter, dated July 14, 2015, claiming that the imported merchandise was properly classified at the time of entry as a medicament. In the letter, the protestant stated that the merchandise was for research purposes only, and not for commercial use. In addition, the protestant informed CBP that the merchandise would be used in the “Phase 2 Clinical Protocol RET-D-001 “Efficacy and Safety of Sparsentan (RE-021), a dual endothelin receptor and anglotensin receptor blocker, in patients with focal segmental glomerulosclerosis (FSGS): a randomized, double-blind, active-control, dose-escalation study.”
The shipping invoice for the merchandise provided an IND (Investigational New Drug) number and an FDA (Food and Drug Administration) code number, and stated: “FINAL USE: CLINICAL TRIAL. THE PRODUCT WILL BE ENCAPSULATED BEFORE USE IN THE CLINIAL TRIAL.” It further stated: “Goods are for research purposes only and are of no commercial value.”
CBP liquidated the entry classifying the merchandise under subheading 2934.99.3000, HTSUS, on May 29, 2015. The protestant timely filed the protest claiming the merchandise is properly classifiable as a prototype under subheading 9817.85.01, HTSUS. Protestant submits that the merchandise meets all of the requirements for classification under subheading 9817.85.01, HTSUS, including “limited noncommercial quantity” as protestant submits that the quantity imported was only that needed to support two clinical trials. Protestant submits that the merchandise will be consumed in the clinical trials, and any portion that is not consumed will be disposed of properly in accordance with applicable regulations. We note the AFR was properly approved as it meets the requirements of 19 C.F.R. § 174.24(a) and § 174.25(b)(3).
ISSUE:
Whether the entered merchandise is classifiable as a prototype of subheading 9817.85.01, HTSUS.
LAW AND ANALYSIS:
Classification of goods under the Harmonized Tariff Schedule of the United States Annotated (HTSUSA) is governed by the General Rules of Interpretation (GRIs). GRI 1 provides that "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 GRIs taken in order]."
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:
(a) For purposes of this 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; and
(ii) in the case of originals or models of articles that are either in the
production or postproduction stage, are associated with a design
change from current production (including a refinement, advancement,
improvement, development, or quality control in either the product itself
or the means for producing the product).
* * *
(b) (i) Prototypes may be imported only in limited noncommercial quantities
in accordance with industry practice.
(ii) Except as provided for by 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.
(c) 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) H254047, dated November 4, 2014, in which CBP determined that various unique organic compounds imported in limited quantities for pharmaceutical research and drug discovery were prototypes; See also, 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.
In this case, CBP has been presented with sufficient information to conclude that the entered merchandise qualifies for classification under subheading 9817.85.01, HTSUS, based on the requirements of U.S. Note 7. However, in addition, to qualify for classification under subheading 9817.85.01, HTSUS, the requirements of the applicable regulation, i.e. 19 Code of Federal Regulations (CFR) § 10.91, must also be met. Specifically, 19 CFR § 10.91 states, in relevant part:
Duty-free entry; declaration of use; extension of liquidation – (1) Entry or withdrawal for consumption. Articles defined as “prototypes” and meeting the other requirements prescribed in paragraph (b) of this section may be entered or withdrawn from warehouse for consumption, duty-free, under subheading 9817.85.01, Harmonized Tariff Schedule of the United States (HTSUS), on CBP Form 7501 or an electronic equivalent. . . .
(2) Importer declaration. (i) Entry accepted as declaration. Entry or withdrawal from warehouse for consumption under HTSUS subheading 9817.85.01 may be accepted by the port director as an effective declaration that the articles will be used solely for the purposes stated in the subheading.
Section 10.91(a)(2)(ii) addresses requests for proof of actual use by the port director for liquidation of merchandise under subheading 9817.85.01, HTSUS, if the port director believes circumstances warrant such a request.
In this case, the merchandise was entered classified as a medicament of heading 3003, HTSUS. Only after liquidation of the merchandise under heading 2934, HTSUS, did the protestant protest the liquidation and claim the merchandise is classifiable as a prototype of subheading 9817.85.01, HTSUS. The port references HQ W563169, dated August 31, 2007. As in this case, the protestant raised the claim of classification under subheading 9817.85.01, HTSUS, for the first time at protest. As the protestant failed to file a declaration of actual use or to enter the goods under subheading 9817.85.01, HTSUS, the ruling found that no actual notice of prototype use was provided to CBP and therefore, the polypeptides at issue therein were not classifiable under subheading 9817.85.01, HTSUS. As the entry at issue in HQ W563169 liquidated prior to the effective date of the applicable regulation, the ruling did not apply the language of 19 CFR § 10.91, but relied upon 19 CFR §§ 10.133 and 10.134, which are applicable when the tariff classification of an article is controlled by its actual use in the United States. As HQ W563169 did not apply 19 CFR § 10.91, it is distinguishable from the matter before us.
Unlike § 10.134, which requires the importer to show the intent for actual use “by filing with the entry a declaration as to the intended use of the merchandise, or by entering the proper subheading of an actual use provision of the [HTSUS] . . . on the entry form,” § 10.91 indicates that entry of the merchandise under subheading 9817.85.01, HTSUS, may be accepted as an effective declaration of the intended use of the merchandise for the purposes stated in the subheading. The regulation does not preclude other methods of indicating the intended use of the merchandise at the time of importation. Nor does it indicate that classification of merchandise under subheading 9817.85.01, HTSUS, may only be asserted at the time of importation, and that failure to assert such classification at that time, whether by inadvertence or ignorance, cannot be remedied prior to final liquidation.
The intended use of the imported merchandise was clearly stated on the shipping invoice filed with the Entry Summary. Further, the intended use of the imported merchandise was provided to CBP through email and written correspondence from the protestant prior to liquidation. Although protestant did not raise classification as a prototype under subheading 9817.85.01, HTSUS, until filing the protest, under 19 U.S.C. §1514(a), the protestant may protest the classification and rate and amount of duties chargeable for their merchandise. Further, CBP has issued rulings in which classification under 9817.85.01, HTSUS, was raised for the first time at protest. See HQ 562734, dated August 13, 2003. While classification under 9817.85.01 was rejected in HQ 562734, it was not for failure to make the claim at entry, but for failure to meet the requirements for classification under the subheading. In addition, in HQ H254047, dated November 4, 2014, CBP decided a protest on the classification of various chemical compounds claimed to be classifiable under subheading 9817.85.01, HTSUS. In finding the chemical compounds qualified for classification as prototypes under subheading 9817.85.01, HTSUS, CBP noted in footnote 1 that it was not clear from the record what classification was claimed by the importer at the time of entry. Therefore, consistent with this analysis, we find that failure to claim classification under subheading 9817.85.01, HTSUS, at entry has not been and should not be a bar to raising the claim at protest.
HOLDING:
As the imported merchandise, Sparsentan, meets the requirements for classification as a prototype under subheading 9817.85.01, HTSUS, the protest should be allowed. However, if the port director wishes to exercise the discretion afforded in 19 CFR § 10.91(a)(2)(ii) and require submission of proof of actual use prior to reliquidation of the entry, the port director may do so.
In accordance with the Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), 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 this decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, Regulations and Rulings of the Office of Trade 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,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division