HQ 0555632 - Applicability of duty exemption under subheading 9801.00.10, HTSUS, to U.S. origin components of first aid kits; Superscope; packaging; U.S.-Canada Free Trade Agreement; country of origin marking; 086407 - United States International Trade Commision Rulings

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HQ 555632

March 8, 1991

CLA-2 CO:R:C:S 555632 LS

CATEGORY: CLASSIFICATION

TARIFF NO.: 3006.50.00, 9801.00.10

Mr. Gary Brunell
A.N. Deringer, Inc.
30 West Service Rd.
Champlain, New York 12919-9703

RE: Applicability of duty exemption under subheading 9801.00.10, HTSUS, to U.S. origin components of first aid kits; Superscope; packaging; U.S.-Canada Free Trade Agreement; country of origin marking; 086407

Dear Mr. Brunell:

This is in response to your letters dated January 24, and March 6, 1990, to the Customs office in Champlain, New York, on behalf of Stanley Offers Safety, Inc. ("Stanley") of Quebec, Canada, requesting a ruling on the tariff classification of two first aid kits, the eligibility of these items under the United States-Canada Free Trade Agreement (FTA), and the proper country of origin marking requirements. Your letter was referred through the National Import Specialist in New York to this office for preparation of a response. We regret the delay in responding.

FACTS:

Stanley plans to export two first-aid kits, identified as TS-100 and TS-200, from Canada, and requests a ruling as to their treatment when imported into the U.S. The TS-100 kit is composed of the following articles which are packaged in Canada into a Canadian manufactured pouch with compartments and velcro closures: a bandage clipper made in Pakistan; tweezers and a pen light manufactured in the U.S.; ointment, alcohol preps, gauze pads, a rescue sheet, a triangular bandage, gauze compress bandages, a roll of elastic conform bandage, elastoplast sterilized fabric bandages, elastoplast adhesive tape, a razor blade in a safety holder, and a pocket guide to emergency first aid, all of which are manufactured in Canada. The TS-200 kit contains the same items, except for the following additions or
substitutions. The U.S. origin items include sterile eye pads and scissors, in addition to tweezers and a pen light. In place of the gauze compress bandages, the TS-200 kit contains a towel dressing made in Germany. This kit also contains a standard dressing "B.P.C. x 1," which is made in Malaysia.

A representative of Stanley has informed us that his company plans to further package the two types of kits in Canada using two alternative methods. Some of the kits will be packaged by means of a sealed shrink-wrap clear plastic bag that encloses the pouch. A label, which will be placed beneath the see-through wrap, will include a picture and list of the kit's contents. As an alternative to the plastic wrapping, the other kits will be placed in small individual boxes which are closed by means of flaps tucked into slots on each side. These boxes are unsealed and unlabeled. After being packaged in the plastic wrap or boxes, several kits are placed in a master carton before being shipped to the U.S.

ISSUES:

(1) How are the kits classified under the Harmonized Tariff Schedule of the United States (HTSUS)?

(2) Whether the kits, which include articles manufactured in Canada, the U.S., Malaysia, Pakistan and/or Germany, are eligible for preferential treatment under the FTA.

(3) Whether the articles of U.S. origin will qualify for the duty exemption under subheading 9801.00.10, HTSUS, when returned to the U.S. in the kits.

(4) What are the applicable country of origin marking requirements?

LAW AND ANALYSIS:

I. Tariff Classification Under the HTSUS

Classification of products under the HTSUS is governed by the General Rules of Interpretation (GRI's). GRI 1 provides that classification is determined according to the terms of the headings and any relevant section or chapter notes.

Heading 3006 applies to specified pharmaceutical products, including first aid boxes and kits, which are provided for in subheading 3006.50.00, HTSUS. The TS-100 and TS-200 kits are classifiable in that provision, dutiable at the rate of 5.8% ad valorem, provided that they are not eligible for special tariff treatment under the FTA.

II. Eligibility for Preferential Treatment under the FTA

Articles which meet the definition of "goods originating in the territory of Canada" are subject to reduced rates of duty under the FTA, provided that they are entered under a tariff provision which contains the symbol "CA," representing the FTA, in the "Special" subcolumn. General Note 3(c)(vii)(A), HTSUS.

General Note 3(c)(vii)(B), HTSUS, defines "goods originating in the territory of Canada" for purposes of determining FTA eligibility. This note states, in relevant part, that goods are considered to be of Canadian origin for FTA purposes if they are (1) wholly obtained or produced in Canada and/or the U.S., or (2) they have been transformed in the territory of Canada and/or the U.S., so as to be subject to a change in tariff classification under the rules of General Note 3(c)(vii)(R), HTSUS. Further, General Note 3(c)(vii)(C)(1), HTSUS, provides:

Goods shall not be considered to originate in the territory of Canada pursuant to subdivision (c)(vii) (B)(2) merely by virtue of having undergone--

(1) simple packaging or, except as expressly provided by the rules of subdivision (c)(vii)(R) of this note, combining operations.

The following excerpt from the report of the House Committee on Ways and Means lends some clarity to these provisions:

Goods containing materials from third countries will qualify for preferential treatment only if the materials undergo a sufficient degree of processing or assembly in one or both Parties to result in physically and commercially significant changes in the product that change its tariff classification under the Harmonized System.

H. Rep. No. 816, Part 1, 100th Cong., 2d Sess. 15 (1988). Thus, where a product contains components of third country origin, each of those components must undergo a processing or assembly that results in a change in tariff classification in order to confer eligibility on the product as a whole.

In Headquarters Ruling Letter (HRL) 086407 dated March 22, 1990, we found that two kits or sets known as "Arts, Crafts & Activities" and "String Art" were classifiable in subheading 9503.70.80, HTSUS, as other toys, put up in sets. We concluded that the term "put up in sets," as used in subheading 9503.70, HTSUS, does not carry the same requirements as the term used in

GRI 3(b), which governs the classification of "goods put up in sets for retail sale." Both kits contained articles of third country origin which were packaged in Canada with articles of Canadian or U.S. origin. Applying General Note 3(c)(vii)(C), we determined that the simple packaging or combining in a set (or kit) of a component of third country origin, which is not subject to processing or assembly in Canada or the U.S. that results in a required classification change, will remove the set (or kit) as a whole from the definition of "goods originating in the territory of Canada." A change in tariff classification resulting from the combining and/or packaging of a third country component is not sufficient to confer a transformation for FTA purposes. Thus, the "Arts, Crafts & Activities" and "String Art" kits were found to be ineligible for preferential treatment under the FTA.

The two first aid kits are classifiable in subheading 3006.50.00, HTSUS, which contains the symbol for the FTA ("CA") in the "Special" subcolumn. However, since the two kits contain components of third country origin which are only packaged or combined in Canada with the U.S. and Canadian components in a pouch, the kits will not be eligible for the reduced duty rate under the FTA. See HRL 086407 dated March 22, 1990.

III. Entitlement of U.S. manufactured goods to duty-free treatment under subheading 9801.00.10, HTSUS, when returned to the U.S. in kits

Subheading 9801.00.10, HTSUS, provides for the free entry of products of the U.S. that are exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1) are met.

In Superscope, Inc. v. United States, 13 CIT ___, 727 F. Supp. 629 (1989), the court held that certain glass panels of U.S. origin that were exported, repacked abroad with certain foreign components, and returned to the U.S. as part of unassembled audio cabinets, were entitled to duty-free entry under item 800.00, Tariff Schedules of the United States (TSUS) (now subheading 9801.00.10, HTSUS), since the U.S. panel portion of the imported article was "not 'advanced in value or improved in condition . . . while abroad,' but [was] merely repacked." Id. at 631. Although the Superscope case concerned the TSUS, not the HTSUS, the decision is believed to be equally applicable to similar situations arising under the HTSUS, since item 800.00, TSUS, and relevant Schedule 8, TSUS, headnotes were carried over virtually unchanged into the HTSUS.

We believe that the decision in Superscope is controlling in regard to the facts of the instant case. The mere repackaging of the U.S. manufactured items with the Canadian and foreign items in the TS-100 and TS-200 first aid kits neither advances them in value nor improves them in condition. Therefore, a classification allowance in duty may be made under subheading 9801.00.10, HTSUS, for the cost or value of the tweezers, pen lights, sterile eye pads and scissors, all U.S. products that are merely packaged abroad in the two kits and returned. This presumes that the documentation requirements of 19 CFR 10.1 are met and that the district director of Customs at the port of entry is satisfied that the items are, in fact, of U.S. origin.

IV. Applicability of country of origin marking requirements

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides, subject to specified exceptions, that all articles of foreign origin (or their containers) imported into the U.S. are required to be legibly, conspicuously, and permanently marked to indicate the country of origin to an ultimate purchaser in the U.S. For purposes of this statute, "country of origin" means the country of manufacture, production or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country generally must effect a substantial transformation in order to render such other country the "country of origin." See section 134.1(b), Customs Regulations (19 CFR 134.1(b)).

Pursuant to 19 CFR 134.32(d), you may mark the container or packaging, instead of the individual articles, if this marking will reasonably indicate to the ultimate purchaser the country of origin of each article, and provided that the individual articles do not bear any words, letters, names, or symbols described in sections 134.46 or 134.47, Customs Regulations (19 CFR 134.46- 134.47), such as U.S. addresses, which imply that they were made or produced in a country other than the actual country of origin. If the container obscures the country of origin marking on the individual items, then the container must be marked to specify the country of origin of each item.

Applying these principles, we find that none of the items in either kit TS-100 or TS-200 is substantially transformed in Canada as a result of its insertion in the pouch. Essentially, the consumer is purchasing numerous separate items. Generally, each item in the kit must be marked to indicate its own country of origin, subject to the usual exceptions. However, we have determined that "in certain circumstances the marking of every item in a collection of goods may not be consistent with the purpose of the statute, or may be impractical and/or undesirable." T.D. 91-7, 25 Cust. Bull. 6, 16 (January 8, 1991).

Although this decision specifically addresses the country of origin marking of imported sets, mixtures and composite goods classifiable by reference to GRI 3(b), HTSUS, the approach it adopts can also be applied to a collection of goods such as a kit, which is specifically provided for in a single heading, and classifiable in that heading pursuant to GRI 1. This common sense approach of excepting certain items in a collection from having to be separately marked may be based upon one or a combination of factors, such as the relatively insignificant nature and/or cost of certain items, and the large quantity of certain items, which make it impractical to specify the country of origin of each item.

As to those first aid kits packaged in a sealed, shrink- wrap plastic bag, we find that, pursuant to 19 CFR 134.32(d), each item in the kit need not be separately marked with its country of origin, provided that the label you will be enclosing beneath the transparent plastic wrap will list, along with the contents, the country of origin of each item.

As to those first aid kits packaged in unsealed boxes, each item in the kit, with certain exceptions discussed below, must be individually marked with its country of origin, pursuant to 19 U.S.C. 1304. 19 CFR 134.32(d) provides no exception to marking the individual items because marking the boxes will not reasonably indicate the origin of the items, and we assume that the boxes will normally be opened by the ultimate purchaser prior to purchase. See 19 CFR 134.24(d)(3). However, by employing the common sense approach adopted by T.D. 91-7, we will not require the following items in each kit to be separately marked with their country of origin: the elastoplast sterilized fabric bandages which range in number from 13 to 20; the 12 alcohol preps; the 15 gauze pads; and the single roll of elastoplast adhesive tape. This approach is based upon the relatively insignificant nature and/or cost of these items, and the quantity of bandages, alcohol preps, and gauze pads.

Products of the U.S. exported and returned are excepted from the general country of origin marking requirements. See section 134.32(m), Customs Regulations (19 CFR 134.32(m)). This provision applies if the U.S. products are returned without having been substantially transformed abroad. In this case, nothing is done to the U.S. items exported to Canada except inserting them in the compartments of the pouch, which is clearly not a substantial transformation. Therefore, the U.S. origin items in each kit are excepted from marking under 19 CFR 134.32(m).

The marking of the pouch with a visible exterior label which reads "Made in/Fait au Canada" is not acceptable because the consumer may be led to believe that the entire kit, including
the pouch and all its contents, are made in Canada. To avoid such confusion, we will require that this label be changed to read as follows "Pouch Made in/Fait au Canada."

With respect to articles such as clippers, tweezers, safety razors or blades for safety razors, and scissors, section 134.43(a), Customs Regulations (19 CFR 134.43(a)), sets forth specific methods for marking these and other articles. This provision states that such articles "shall be marked legibly and conspicuously by die stamping, cast-in-the-mold lettering, etching (acid or electrolytic), engraving, or by means of metal plates which bear the prescribed marking and which are securely attached to the article in a conspicous place by welding, screws, or rivets."

HOLDING:

The two first aid kits, identified as TS-100 and TS-200, are classifiable in subheading 3006.50.00, HTSUS, dutiable at the rate of 5.8% ad valorem. They are not eligible for preferential treatment under the FTA, pursuant to General Note 3(c)(vii)(C). A classification allowance in duty may be made under subheading 9801.00.10, HTSUS, for the cost or value of the tweezers, pen lights, sterile eye pads and scissors, all U.S. products, that are merely packaged abroad in the kits and returned.

With respect to the first aid kits packaged in a sealed, shrink-wrap plastic bag, each item in the kit need not be separately marked with its country of origin, provided that the label you will be enclosing beneath the transparent plastic wrap will list, along with the contents, the country of origin of each item.

As to those first aid kits packaged in unsealed boxes, each item in the kit must be individually marked with its country of origin pursuant to 19 U.S.C. 1304, except for the fabric bandages, alcohol preps, gauze pads, and adhesive tape. In addition, the U.S. origin items which are exported to Canada to be packaged in the pouch are excepted from marking under 19 CFR 134.32(m).

The exterior label affixed to the pouch should be changed to read as follows: "Pouch Made in/Fait au Canada." Items such as the clippers, tweezers, safety razors, and scissors should be marked pursuant to the methods set forth in 19 CFR 134.43(a).

Sincerely,

John Durant, Director
Commercial Rulings Division

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