United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1990 HQ Rulings > HQ 0544283 - HQ 0554945 > HQ 0544301

Previous Ruling Next Ruling

---

HQ 544301

March 8, 1990

VAL CO:R:C:V 544301 VLB

CATEGORY: VALUATION

District Director of Customs
511 N.W. Broadway
Room 198
Portland, Oregon 97209

RE: Decision on Application for Further Review of Protest No. 2904-7-000195

Dear Sir:

This protest was filed against your decision in the liquidation of various entries involving merchandise that was as the "importer"). The merchandise is packaging material for powdered drink mix known as "Kool-Aid". A sample of the packaging material was submitted for examination.

FACTS:

The importer exported the material from the U.S. to Canada for use in packaging the Kool-Aid. The exported material consisted of rolls of plastic film, overprinted with label information, ingredients and instructions. The material was manufactured and printed in the U.S.

At the Canadian factory, the rolls were cut into individual packages, folded, heat sealed on two sides to form a pouch and filled with Kool-Aid of Canadian origin. After the Kool-Aid had been inserted, the top of the pouch was heat sealed closed.

At the time of entry, the importer claimed that the packaging material was entitled to duty free treatment under item 800.00, Tariff Schedules of the United States (TSUS). You determined that the packaging was not entitled to duty free treatment because it had been advanced in value in Canada.

The importer filed the above-referenced protest against your denial of duty free treatment under item 800.00, TSUS. In its "Memorandum in Support of Protest and Application for Further Review", the importer stated that although "it had taken a deduction based on a claim of duty free treatment of the packaging material under item 800.00, TSUS, a duty free claim under General Headnote 6(b)(i), TSUS, is more appropriate."

ISSUE:

Whether the Kool-Aid packaging material is entitled to duty free treatment under item 800.00, TSUS, or whether the value of the material is deductible from the dutiable value of the merchandise under General Headnote 6(b)(i) of the TSUS.

LAW AND ANALYSIS:

Customs rulings under the TSUS have not been entirely consistent in their rationale for according duty free treatment to American packing containers. While most rulings have relied upon General Headnote 6(b)(i), TSUS, others have cited item 800.00, TSUS, as the source of duty free treatment.

Item 800.00, TSUS, provides that products of the U.S. returned after having been exported, without having been advanced in value or improved in condition by any process of manufacturer or other means while abroad, may be entered free of duty.

Customs has held in several rulings that cutting to length is regarded as an advance in value or improvement in condition for purposes of item 800.00, TSUS. See, Headquarters Letter Ruling (HRL) 544736, dated February 16, 1988; HRL 554899, dated March 4, 1988. In this case the packaging material is exported to Canada in rolls where it is subsequently cut, folded, and heat sealed. As a result, the material is advanced in value or improved in condition. Therefore, the material is not eligible for duty free treatment under item 800.00, TSUS.

General Headnote 6(b)(i), TSUS, contains similar language. General Headnote 6(b)(i), TSUS provides as follows:

The usual or ordinary types of shipping or transportation containers or holder, if not designed for, or capable of, reuse, and containers of usual types ordinarily sold at retail with their contents, are not subject to treatment as imported articles. Their cost, however, is, under section 402 of the tariff act, a part of the value of their contents and if their contents are subject to an ad valorem rate of duty such containers or holders are, in effect, dutiable at the same rate as their contents, except that their cost is deductible from dutiable value upon submission of satisfactory proof that they are product of the United States which are being returned without having been advanced in value or improved in condition by any means while abroad. (emphasis added)

The importer cites Van Camp Seafood Company v. U.S., 73 Cust. Ct. 36, C.D. 4551 (1974) to support its argument that the U.S. origin packaging material was not advanced in value in Canada for purposes of General Headnote 6(b)(i). In Van Camp, the plaintiff was alleging that the cost or value of cans containing imported tuna should be deducted from the full value of the imported article. The cans were assembled in Ecuador from can segments made in the U.S. The can segments consisted of ends and cylinders exported in collapsed form for the purpose of reducing shipping volume and cost.

The following assembly took place in Ecuador:

. . . cylinder segment was opened by spinning on rubber rollers. Lips called flanges were formed on the cylinder by the discs of a flanging machine which forced the open edges of the cylinder in an outward direction. On another machine the ends were joined to the cylinder by compressing the flanges and the ends together. Between the joining of the first and second end, of course, a piece of prepared tuna fish was packed into the can. Labels were then glued to the cans, and they were packed six in a case for shipment to the United States.

Van Camp, supra, at 38.

The Customs Court held that the value of the cans could not be deducted from the dutiable value of the imported article. The court's rationale was that the imported containers had been advanced in value or improved in condition by means of assembly. Specifically, Judge Watson stated, "I see the imported container as being improved in a significant degree from its original unassembled condition by an assembly process which is more than simple or casual."

Moreover, the judge concluded that for purposes of 6(b)(i) the imported containers had been advanced in value or improved in conditions by means of assembly because 6(b)(i) contains the words "by any means" when discussing the advanced value or improved conditions.

The importer contends that the assembly procedure in Van Camp was complex and went beyond any processes contemplated by the language in 6(b)(i). However, the importer alleges that the operation performed on the Kool-Aid packaging material is "simple and casual." The importer argues that the packaging material "as
it is imported into Canada is ready to receive the Kool-Aid and essentially the only procedure involved is one which closed the pouch."

There is no indication that the court, by use of the language "simple and casual" in Van Camp, intended to create a new test for determining whether U.S. packaging materials were advanced in value or improved in condition. Nevertheless, we disagree with the importer's contention that the Kool-Aid procedures were "simple and casual". The material was sent to Canada in rolls. When the material arrived in Canada, it was not in a condition to receive the Kool-Aid. Rather, in Canada the material was cut to size and shape, folded, and heat sealed on two sides prior to the Kool-Aid being inserted. The operation of cutting and heat sealing the material improved the condition and advanced the value of the material from its original condition when exported from the U.S. The process did not merely fill the pouches. To the contrary, it completely formed the pouches from flat rolls of plastic film.

The importer also cites HRL 058345, dated April 19, 1979, to support its contention that the packaging material was entitled to duty free treatment under General Headnote 6(b)(i), TSUS. HRL 058345 involved materials that were exported to Mexico for processing into containers for antiseptic applicators, and returned to the U.S. The exported materials consisted of a coated plastic transparent film and coated paper, both of which, the film and the paper, were exported in roll lengths.

In Mexico, the film passed through a packing machine that, together with heat, formed "blisters" that were evenly spaced in the film as it is unwound form the roll. The blisters were shaped and contoured in the film to accommodate the ampoule-like applicators. After the blisters were formed, the applicators were machine-fed into the blister cavities and paper backing was sealed to the film, enclosing the applicators within the cavities. Perforations were then added by the machine.

In HRL 058345, Customs held that the applicators were eligible for return to the U.S. under item 807.00, TSUS. That is, the applicators would be subject to duty on their total value, including the cost of assembly, less the cost or value of the qualifying components of U.S. origin, including the blister packaging materials. Thus, the packaging materials were treated as 807.00 eligible components.

The only statement in the ruling addressing General Headnote 6(b)(i), TSUS, was the following "in view of General Headnote 6(b)(i), TSUS, pertaining to certain containers and holders not imported empty, we agree that there shall be no assessment of duty on the cost of non-reusable containers holding duty-free
merchandise, or on the cost of getting such merchandise or containers into the condition in which it is imported." (emphasis supplied).

In the present case, no item 807.00, TSUS, assembly operation exists. Moreover, the Kool-Aid packages do not hold duty free merchandise. Therefore, the holding in HRL 058345 is not applicable to this case.

HOLDING:

The packaging materials that were exported from the U.S. to Canada were improved in condition and advanced in value by the processing operations performed in Canada. Therefore, the materials are not entitled to duty free treatment under item 800.00, TSUS. Similarly, the value of the packaging materials cannot be deducted from the dutiable value of the imported merchandise pursuant to General Headnote 6(b)(i) of the TSUS.

You are directed to deny the protest. A copy of this decision should be attached to Form 19, Notice of Action, to be sent to the protestant.

Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling