CBP:OT:RR:ER H331751 LNF
Category: Entry
Mr. Ronald Jacobsen
Northstar Drawback Consultants, Ltd. On Behalf of Aluflexpack Novi, d.o.o. 505 Hawkins Drive Winnebago, IL 61088
Re: Eligibility for unused merchandise drawback under 19 U.S.C. § 1313(j)(1) and for same condition drawback under the United States-Mexico-Canada Agreement (19 C.F.R. § 182.45(b)).
Dear Mr. Jacobsen:
This is in response to your ruling request dated April 23, 2023, on behalf of Aluflexpack Novi, d.o.o. (“Aluflexpack”), regarding eligibility for unused merchandise drawback under 19 U.S.C. § 1313(j)(1). Additionally, you request a determination as to whether such unused merchandise, which is imported into the United States and subsequently exported to Canada, is considered to be in the same condition pursuant to 19 C.F.R. § 182.45(b) for the purpose of claiming drawback under the United States-Mexico-Canada Agreement (“USMCA”).
FACTS:
Aluflexpack plans to import into the United States rolls of aluminum foil, each measuring 25,000 meters in length, 622 millimeters in width, and 11 micrometers in thickness. Ultimately, the imported rolls of aluminum foil will be exported to candy manufacturer Ferrero Rocher North America (Canada) (“Ferrero Rocher”) for use in wrapping confectionary products sold at retail.
The imported aluminum foil is comprised of aluminum substrate, with a thin coating of lacquer on the bottom side of the substrate to protect the confectionary product being wrapped for sanitary purposes, and ink on the top side of the substrate to identify the product as Ferrero Rocher confectionary to the ultimate consumer. In the United States, the rolls of aluminum foil will be unwound, trimmed to a specified width, and embossed with a distinctive pattern to identify the candy manufacturer as Ferrero Rocher in Canada. Aluflexpack describes such trimming as slitting to reduce width, and describes embossing as foil stamping. Once trimmed and embossed, the aluminum foil will be respooled to a length of approximately 3,000 meters. Aluflexpack describes respooling as a process of using a machine to spool the embossed foil for purposes of packaging prior to exportation. Each finished spool will have lot/spool identification number that matches the imported foil to the exported foil.
Aluflexpack asserts that the processes performed in the United States, specifically, unwinding, trimming, embossing, and respooling, do not constitute a use impeding drawback eligibility under 19 U.S.C. § 1313(j). Aluflexpack also contends that post processing, the merchandise is exported to Canada in the same condition as imported for purposes of USMCA drawback eligibility in accordance with 19 C.F.R. § 182.45(b). Aluflexpack requests a determination as to whether the imported aluminum foil, subject to the above-described operations, is eligible for unused merchandise drawback under 19 U.S.C. § 1313(j)(1) and same condition drawback under the USMCA.
ISSUES:
Whether the aluminum foil is eligible for unused merchandise drawback under 19 U.S.C. § 1313(j)(1).
Whether the aluminum foil is exported in the same condition as imported in accordance with 19 C.F.R. § 182.45(b) for drawback under the USMCA.
LAW AND ANALYSIS:
Whether the aluminum foil is eligible for unused merchandise drawback under 19 U.S.C. § 1313(j)(1).
Drawback is the refund of up to 99 percent of certain duties, taxes, and fees paid on imported merchandise. See 19 U.S.C. § 1313(l)(2)(B); 19 C.F.R. § 190.2. 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. See also 19 C.F.R. § 190.31(a). Accordingly, merchandise that was used prior to its exportation or destruction is ineligible for drawback under 19 U.S.C. § 1313(j)(1).
Pursuant to 19 U.S.C. § 1313(j)(3), imported merchandise may be subjected to various operations or processes which do not amount to use. Such processes include, but are not limited to:
testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking[], [which does] not amount[] to manufacture or production for drawback purposes.
Id. For purposes of drawback, 19 C.F.R. § 190.2 defines “manufacture or production” as:
a process, including, but not limited to, an assembly, by which merchandise is either made into a new and different article having a distinctive name, character or use; or is made fit for a particular use even though it is not made into a new and different article.
Thus, if imported merchandise has been subjected to a process that rendered it fit for a particular use, or yielded a new and different article having a distinctive name, character, or use, then a manufacture or production has occurred and the imported article is thereby used and ineligible for drawback under 19 U.S.C. § 1313(j)(1). See also Headquarters Ruling (“HQ”) H303174 (Sept. 26, 2022).
Even if an article is not subjected to a process amounting to a manufacture or production, the article may still be deemed used if it is employed for its intended purpose. See e.g., HQ H290897 (July 28, 2021) (citing C.S.D. 81-222 (May 27, 1981) (defining “use” by its ordinary meaning: “(to) employ [articles in the manner] for which they were manufactured and intended”) (quoting Swalley v. Addressograph Multigraph Corp., 158 F.2d 51, 54 (7th Cir. 1946)); C.S.D. 84-65 (Jan. 6, 1984) (“[i]f a piece of equipment or a tool, etc., is put to its intended use and is found not to perform satisfactorily for any reason, that equipment or tool has nonetheless been used”)); HQ H290868 (Sept. 11, 2019) (“a finished article remains unused if subjected to an operation that does not result in the article being employed for the purpose for which it was intended and manufactured”).
Here, Aluflexpack will subject the rolls of aluminum foil to trimming, unwinding, respooling, and embossing. The first three of these four processes are encompassed by a process listed in 19 U.S.C. § 1313(j)(3) which does not amount to use, namely: slitting, unpacking, and repacking. First, Aluflexpack describes trimming as “slitting to reduce width.” We thus find that trimming is encompassed by the process of slitting listed in 19 U.S.C. § 1313(j)(3). Second, the term “unwind” is defined as “to free from . . . a binding or wrapping.” Merriam-Webster Dictionary, Revised Edition (Oct. 25, 2022). “Unpack” is similarly defined as a process of “remov[ing] or undo[ing] from packing or a container.” Id. We thus find that unwinding is encompassed by the process of unpacking listed in 19 U.S.C. § 1313(j)(3). Third, the term “respool” is defined as “wind[ing] (something) on a spool again.” Id. Aluflexpack describes respooling as a process that is used to place the trimmed and embossed foil back onto the spool for purposes of packaging prior to exportation. In other words, via the respooling process, the aluminum foil will be repacked onto the spools for exportation to Ferrero Rocher in Canada. We thus find that respooling is encompassed the process of repacking listed in 19 U.S.C. § 1313(j)(3). In sum, these three processes are encompassed within the processes statutorily listed as not amounting to manufacture or production for drawback purposes, and thus, do not render the foil used. Nor do any of these three processes use the foil for its intended purpose of wrapping confectionary products, because these processes all occur prior to the exportation of the foil to Canada where it will be used by Ferrero Rocher to wrap its confectionary. See HQ H292054 (Sept. 26, 2022) (finding that merchandise is unused for drawback purposes “if utilized in a manner other than the purpose for which it was intended”).
The fourth process to which the rolls of aluminum foil will be subjected, embossing, is not specifically listed in 19 U.S.C. § 1313(j)(3). However, the statutory language “including, but not limited to” which precedes the list of processes not amounting to manufacture or production makes clear that this list is not exhaustive. CBP has previously described this list as illustrative in nature, such that it can facilitate evaluation of non-listed processes which do not amount to a manufacture or production. See HQ 225985 (Nov. 3, 1995). Consequently, we must determine whether embossing, described as foil stamping by Aluflexpack, is a process which renders the imported aluminum foil used.
CBP has previously considered whether foil stamping constitutes use in HQ H292472, dated August 12, 2019. In that case, CBP assessed the processes by which Bic Graphic added “decoration, names, trademarks, and company logos” to various articles, to include foil stamping. CBP determined that foil stamping was akin to printing, silk screening, engraving, embossing, and embroidery operations, which “merely add[] a decoration or logo to further prepare the merchandise for sale to the purchaser,” and does not constitute a manufacture or production given that the article constituted a finished article at importation and could “be worn in their condition as imported” post foil stamping. In reaching this determination, CBP cited to HQ H026642, dated April 24, 2008, where it assessed whether imprinting or embossing a good with a logo was capable of materially altering the characteristics of the good. CBP concluded that both imprinting and embossing are “process[es] [that] do[] not change the character of the good” because the processes closely resemble labeling. We note that relabeling is a process specifically listed in 19 U.S.C. § 1313(j)(3) as not amounting to a manufacture or production.
Like in HQ H29272 and HQ H026642, the embossing or foil stamping process in the instant matter serves to imprint a pattern on the aluminum foil in order to affiliate the foil intended for use as a confectionary wrapper with Ferrero Rocher. This process does not amount to a manufacture or production because it does not render the aluminum foil fit for a particular use or yield a new and different article having a distinctive name, character, or use. Additionally, this process does not use the foil for the purpose for which it was manufactured and intended, namely, wrapping confectionary products for retail sale. Embossing solely serves to add a decoration or logo to the foil that further prepares it for retail sale. In sum, Aluflexpack’s embossing of the aluminum foil to affiliate it with Ferrero Rocher does not render it used for purposes of claiming unused merchandise drawback under 19 U.S.C. § 1313(j)(1).
Given that none of the processing operations to which the aluminum foil will be subjected by Aluflexpack render it used, we find that the foil is eligible for drawback under 19 U.S.C. § 1313(j)(1).
Whether the aluminum foil is exported in the same condition as imported in accordance with 19 C.F.R. § 182.45(b) for drawback under the USMCA.
Section 208 of the USMCA Implementation Act provides for the treatment of goods subject to USMCA drawback and duty deferral programs. See Pub. L. No. 116-113, 134 Stat. 11 (2020); 19 U.S.C. § 4534. Under the USMCA, drawback is generally limited to 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. See 19 C.F.R. § 182.44(a). This limitation is referred to as the “lesser of” rule. Merchandise for which drawback is claimed under 19 U.S.C. § 1313(j)(1), that is exported to Canada or Mexico in the same condition as imported into the United States, is exempt from the “lesser of” rule under the USMCA. See 19 U.S.C. § 4534(a)(2); 19 C.F.R. § 182.44(a); 19 C.F.R. § 182.45(b). Thus, given that the rolls of aluminum foil at issue are eligible for drawback under 19 U.S.C. § 1313(j)(1) as determined above, we must now determine whether they are in the same condition when exported to Canada as when imported into the United States.
Paragraph (b)(1) of 19 C.F.R. § 182.45 defines “same condition” as follows:
[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:
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, grading, or inspecting a good.
In the United States, Aluflexpack will subject the foil to the following processes: unwinding, trimming, embossing, and respooling. Trimming is a process that is expressly included in the above list, and as addressed above, unwinding and respooling are akin to packaging and repackaging. Therefore, we determine that three of these processes are explicitly or implicitly listed in 19 C.F.R. § 182.45(b)(1). However, embossing is not included in the list of operations provided by 19 C.F.R. § 182.45(b)(1). Therefore, it is necessary to assess whether the embossing process, described as foil stamping by Aluflexpack, “materially alters the characteristics of the good.” 19 C.F.R. § 182.45(b)(1).
The U.S. Supreme Court has stated that “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.” Belcher v. Linn, 65 U.S. 533, 534–35 (1860) (“Belcher”) (finding “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 not in the same condition). In HQ H292472, CBP examined this language from Belcher to assess whether the embossing, imprinting, and foil stamping operations that Bic Graphic performed in the United States to add a logo onto its promotional items materially altered the characteristic of the goods processed. CBP found that such operations did not alter the character of the promotional items; they merely added a decoration or logo. CBP concluded that such operations left the exported items in the same condition as when imported for purposes of drawback under the USMCA.
Likewise, in HQ H026642, CBP assessed whether adding a logo to a pen by imprinting or embossing altered the character of the pen. CBP found that “[w]hen a pen is imprinted or embossed with a logo or a cap is embroidered with a trademark, as in this case, such process does not change the character of the good” because such an operation amounted to labeling. Id. “Labelling” is one of the operations specifically permitted by 19 C.F.R. § 182.45(b).
As detailed above, CBP has determined previously that embossing or foil stamping operations, such as those that Aluflexpack plans to perform on the rolls of aluminum foil, do not materially alter the characteristics of the merchandise. Moreover, the original purpose of the aluminum foil to wrap confectionary products remains unchanged. Further, these processes are analogous to “labelling” operations, where the foil will be imprinted with a distinctive pattern that is affiliated with Ferrero Rocher, akin to a logo, trademark, or name. “Labelling” is included in the list of permissible operations in 19 C.F.R. § 182.45(b), which do not affect the character of the merchandise.
Accordingly, we find that the aluminum foil is exported to Canada in the same condition as when imported into the United States, and eligible for drawback under the USMCA in accordance with 19 C.F.R. § 182.45(b).
HOLDING:
Based on the above, we find that the foil is not used and is eligible for drawback under 19 U.S.C. § 1313(j)(1). Further, the foil is not materially altered in character and is eligible for same condition drawback under the USMCA.
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 ruing letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of the ruling letter by [CBP] to the transaction to which it is purposed 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,
Alexandra B. Hess, Chief
Entry Process and Duty Refunds Branch