DRA-4
OT: RR: CTF: ER
H292472 GCS
Nicholas D’Andrea
Mallory Alexander International Logistics, LLC
777 Sunrise Highway,
Lynbrook, NY 11563
Re: Request for a determination of the eligibility for Drawback under 19 U.S.C. § 1313(j)(1); and same condition NAFTA drawback
Dear Mr. D’Andrea:
This is in response to your ruling request dated November 29, 2017, and additional correspondence on December 12, 2017, on behalf of Scribe Opco Inc. d/b/a Bic Graphic (“Bic Graphic”) regarding the availability of drawback under section 313(j)(1) of the Tariff Act of 1930, as amended, codified at 19 U.S.C. § 1313(j)(1). Additionally you request a determination as to whether items exported to North American Free Trade Agreement (“NAFTA”) countries, are considered in the “same condition” for purposes of the NAFTA limitation on drawback.
FACTS:
Bic Graphic imports promotional items such as pens, key chains, mugs, pocket lighters, hats, bags, magnets, markers, highlighters, mouse pads, coasters, rulers, travel mugs, and flashlights into the U.S. In the U.S., Bic Graphic performs operations such as screen printing, laser engraving, inkjet printing, pad printing, deboss printing, digital printing, foil stamping, die casting, dye sublimation, heat transfer, and embroidery, to add decoration, names, trademarks, and company logos onto the promotional items for their customers. Some of these items are exported to NAFTA and non-NAFTA countries. Bic Graphic asserts that the operations performed on the imported items constitute “labeling,” and are incidental operations, permissible for purposes of claiming same condition unused merchandise drawback under § 1313(j)(1).
Bic Graphic also contends that these operations do not qualify as “use” in the U.S. and the items are in the “same condition” for purposes of NAFTA drawback under 19 C.F.R. § 181.45(b)(1). First, Bic Graphic requests a determination as to whether its imported items, subject to the above various processes, are eligible for unused merchandise drawback under 19 U.S.C. § 1313 (j)(1). Second, Bic Graphic requests a determination that, when exported to NAFTA countries, drawback is not limited by the lesser of the two rule, that is, the goods are deemed in the same condition as exported as when imported.
ISSUES:
Whether the goods which undergo various processing operations are “used” within the meaning of 19 U.S.C. § 1313(j)(1).
Whether the processed goods are in the “same condition” under 19 C.F.R. § 181.45(b).
LAW AND ANALYSIS:
Whether the goods which undergo various processing operations are “used” within the meaning of 19 U.S.C. § 1313(j)(1).
The Tariff Act of 1930, as amended, provides for drawback, which is a refund of 99 percent of certain duties, taxes, and fees imposed on imported merchandise, which are paid after timely filing a valid claim with U.S. Customs and Border Protection (“CBP”). Pursuant to 19 U.S.C. § 1313(j)(1), drawback is authorized “if imported merchandise, on which was paid any duty, tax, or fee imposed under federal law upon entry or importation” is, within five years of the date of importation, exported or destroyed under CBP supervision and was not used in the United States before such exportation or destruction. Therefore, merchandise that was used prior to exportation is ineligible for drawback under 19 U.S.C. § 1313(j)(1).
Bic Graphic contends that the operations to which it subjects the promotion items do not constitute “use” in the U.S., because, Bic Graphic asserts, the operations it performs in the U.S. are labeling, one of the listed operations in the statute. Therefore, Bic Graphic concludes the goods are unused and as such, are eligible for unused merchandise drawback under 19 U.S.C. § 1313(j)(1). Section 1313(j)(3) of Title 19 U.S.C. provides that:
[t]he performing of any operation or combination of operations (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking), not amounting to manufacture or production for drawback purposes under the preceding provisions of this section on--
the imported merchandise itself in cases to which paragraph (1) applies . . .
. . . shall not be treated as a use of that merchandise for purposes of applying paragraph (1)(B) or (2)(C).
(Emphasis added). Operations such as screen printing, laser engraving, inkjet printing, pad printing, deboss printing, digital printing, foil stamping, die casting, dye sublimation, heat transfer, and embroidery, to add decoration, names, trademarks, and company logos onto the promotional items are not enumerated in the statute nor do they qualify as testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking. See id. However, the statutory language “including, but not limited to” signifies that there may be other operations not enumerated in the statute which do not amount to manufacture or production and are not treated as a use of that merchandise. See id.
In HQ H026642, dated April 24, 2008, we considered whether Bullet Line’s (Bullet) promotional items including pens, key chains, caps and similar items would be eligible for drawback per 19 U.S.C. § 1313(j)(1), where, in the U.S., Bullet used pad printing, silk screening, engraving, embossing and embroidery to apply its customers’ logos, trademarks and names onto these promotional items. In H026642 we found that HRL 225855 (10/5/1995) and 226610 (8/5/1996) controlling on this issue and, as such that we did not need to issue a ruling letter on that matter. The only issue raised in HQ H026642 with regard to exportations of the described goods to non-NAFTA countries was whether Bullet’s operations in the U.S. constituted a “use” such that would render the exported goods ineligible for direct identification unused merchandise drawback per § 1313(j)(1). In analyzing the issue in H026642, we turned to Headquarters Ruling Letter (“HRL”) 225855 which determined that when wearing apparel is imported into the U.S. in finished form, the application of silk screening to these garments is not considered a “use.” HRL 225855 stated:
the merchandise is not used for its intended purposes, as wearing apparel, while in the United States. The wearing apparel items are finished articles when they enter the U.S., and can be worn in their condition as imported. The silk screening process merely adds a decoration or logo to further prepare the merchandise for sale to the purchaser.
Accordingly, we determined that when goods are imported into the U.S. in their finished state, ready for use for the purposes intended, but are not used for that purpose and undergo a process which “merely adds a decoration or logo to further prepare the merchandise for sale to the purchaser” such goods are not “used” within the meaning of 19 U.S.C. § 1313(j)(1). We also noted in H026642 that in order to file a drawback claim under 19 U.S.C. § 1313(j)(1), the claimant is required to directly identify the import entry under which the exported merchandise was entered into the United States. When the goods are fungible, a claimant may choose to identify the goods based on one of the accounting methods in § 191.14. (See, e.g., HRL 228294, 11/3/1999).
In the instant matter– where Bic Graphic is performing operations such as screen printing, laser engraving, inkjet printing, pad printing, deboss printing, digital printing, foil stamping, die casting, dye sublimation, heat transfer, and embroidery, to add decoration, names, trademarks, and company logos onto the promotional items for their customers– we determine that such operations are analogous to those in HQ H026642, HRL 225855, and 226610. Therefore, the goods which undergo various processing operations are not “used” within the meaning of 19 U.S.C. § 1313(j)(1).
Whether the processed goods are in the “same condition” under 19 C.F.R. § 181.45(b).
Bic Graphic asserts that the goods are in the same condition for purposes of NAFTA drawback and that they are not subject to the limitations of the NAFTA “lesser of” drawback rule. Goods imported into the U.S. and subsequently exported to Canada or Mexico are subject to special rules under NAFTA.
Section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act (Public law 103-182; 107 Stat. 2057, 2086; 19 U.S.C. § 3333), provides for the treatment of goods subject to NAFTA drawback. Section 203(a)(2) of the NAFTA Implementation Act exempts from the general duty drawback (that is, the NAFTA “lesser of” rule) and duty deferral rules of article 303 of NAFTA, merchandise which is exported to another NAFTA party in the same condition as when it was imported. See Article 303.6(b) of NAFTA, which permits full drawback of U.S. duties upon exportation to other countries, including Canada and Mexico; 19 U.S.C. § 3333(a)(2). However, antidumping and countervailing duties may not be waived, remitted nor refunded under NAFTA. See 19 U.S.C. § 3333(e); 19 C.F.R. § 181.42(a).
Under § 3333(a), a good subject to NAFTA drawback means any good other than, inter alia--
(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph—
(A) 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 . . .
19 U.S.C. § 3333(a)(2)(A). The Customs Regulations issued under the authority of the NAFTA Implementation Act (see above) specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country (for effective dates of the provisions in these regulations, see 19 C.F.R. § 181.41).
Under 19 C.F.R. § 181.45(b), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition as when imported is eligible for drawback under 19 U.S.C. § 1313(j)(1) without regard to the limitation on drawback provided for in 19 C.F.R. § 181.44 (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Thus, if Bic Graphic’s goods are determined to be in the same condition when exported to Canada or Mexico as when imported into the U.S., per 19 C.F.R. § 181.45(b) Bic Graphic can claim drawback per 19 U.S.C. § 1313(j)(1) without being subject to the NAFTA “lesser of” rule per 19 C.F.R. § 181.44.
Paragraph (b)(1) of § 181.45, same condition defined, provides that:
[f]or 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:
(i) Mere dilution with water or another substance;
(ii) Cleaning, including removal of rust, grease, paint or other coatings;
(iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint;
(iv) Trimming, filing, slitting or cutting;
(v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or
(vi) Testing, marking, labelling, sorting or grading.
19 C.F.R. § 181.45(b)(1)(i)–(vi). In the U.S., Bic Graphic performs operations such as screen printing, laser engraving, inkjet printing, pad printing, deboss printing, digital printing, foil stamping, die casting, dye sublimation, heat transfer, and embroidery, to add decoration, names, trademarks, and company logos onto the promotional items. None of these operations appear in the list of operations that potentially render a good in the same condition per § 181.45 (b)(1)(i)–(vi).
Operations such as screen printing, laser engraving, inkjet printing, pad printing, deboss printing, digital printing, foil stamping, die casting, dye sublimation, heat transfer, and embroidery, to add decoration, names, trademarks, and company logos onto the promotional items also do not qualify as any of the following: 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, filing, slitting or cutting; putting up in measured doses, or packing, repacking, packaging or repackaging; or testing, marking, labelling, sorting or grading. See id.
The U.S. Supreme Court has stated “we think, the words, ‘the same condition,’ mean not only that the identity of the article exported is preserved, but that its utility for its original purpose is unchanged.” William H. Belcher et al. v. William A. Linn, 65 U.S. 533, 534–35 (1860) (holding that it was impossible to find that “that molasses barrels, manufactured here and exported to a foreign port, and there filled with molasses, whether it be the ordinary article or that denominated concentrated, and then reimported with their contents to this country, were brought back in the same condition as when exported, within the true intent and meaning of the acts of Congress.”). In that case, the plaintiff produced barrels, exported them empty and imported them back into the U.S. filled with molasses. In order to bring the barrels back into the U.S. duty-free, the barrels had to be in the same condition as when exported. With regards to the items imported by Bic Graphic, pens, key chains, hats and similar items, the identity of the items remains unchanged by the process of putting the names or logos on them and, the use of the items remains unchanged. That is, a pen imprinted with a logo still fulfills the function of a pen, it applies ink to paper; a key chain or a cap fulfills its original purpose after being labeled with a trademark or a name, that of holding keys or fitting on the head, respectively.
Per § 181.45(b)(1) the operation performed must not “materially alter[ ] the characteristics of the good.” When a pen is imprinted or embossed with a logo or a hat is embroidered with a trademark, as in this case, such process does not change the character of the good. HRL 225855 stated that the process of silk screening “merely adds a decoration or logo to further prepare the merchandise for sale to the purchaser.” Based on this ruling, the operations performed by Bic Graphic do not materially alter the characteristics of the goods processed. Thus, the goods described, when exported to Canada or Mexico, are in the same condition and thus, not subject to the NAFTA limitation on drawback. In sum, the processed goods are in the “same condition” under 19 C.F.R. § 181.45(b).
HOLDING:
The goods which undergo various processing operations are not “used” within the meaning of 19 U.S.C. § 1313(j)(1). Also, the processed goods are in the “same condition” under 19 C.F.R. § 181.45(b).
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,
Gail G. Kan, Chief
Entry Process and Duty Refunds Branch