HQ 0556616 - Applicability of duty exemptions for herbicides under HTSUS subheadings 9801.00.10 and 9802.00.50; 19 CFR 10.8; HRL 555740; 556320; C.S.D. 83-101; 079133 - United States International Trade Commision Rulings

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HQ 556616

June 16, 1992

CLA-2 CO:R:C:S 556616 WAW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.10; 9802.00.50

Ms. Margaret Solinger
E.I. Dupont de Nemours & Co., Inc.
Wilmington, DE 19898

RE: Applicability of duty exemptions for herbicides under HTSUS subheadings 9801.00.10 and 9802.00.50; 19 CFR 10.8; HRL 555740; 556320; C.S.D. 83-101; 079133

Dear Ms. Solinger:

This is in reference to your letter of March 24, 1992, concerning the applicability of the duty exemptions under subheadings 9801.00.10 and 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to a herbicide (referred to as "Accent") imported from France. A separate response will be forthcoming regarding the country of origin marking issue.

FACTS:

You state that you are a domestic manufacturer of various agricultural chemical products, including "Accent." Accent is a post-emergence herbicide intended for use on field corn. It is a water dispersible granule containing 75% active ingredient by weight. As indicated on the enclosed Material Safety Data Sheet, Accent causes moderate eye irritation and is harmful when absorbed through the skin. Users are cautioned to avoid contact with skin, eyes and clothing.

Because of the potential hazards of accidental contact with a user's eyes or skin, you intend to export domestically manufactured Accent to France for incorporation into water- soluble film. This film is a highly specialized plastic designed for compatibility with agricultural chemical and applications technology. The incorporation process will enable a grower to drop a pre-measured, sealed, water-soluble packet of Accent into a designated amount of water, where the film will dissolve, and the Accent disperse.

The Accent which you intend to export for the above- described purpose will be manufactured at your El Paso, Illinois facility. The herbicide will be transported in bulk in drums to your subsidiary in France ("Ducotech"). Ducotech has contracted with Nedi, an unrelated French concern in Les Mannes, France to perform the processing. Nedi was chosen because it possesses the technology and equipment necessary to assure product safety, quality and exact dosage application. Nedi will invoice Ducotech for the cost of the processing, and Ducotech will, in turn, invoice you for that amount plus five percent. You state that at all times you will retain title and ownership of the goods.

You state that for the initial shipment, you will export to France 9600 pounds of U.S. manufactured Accent in 110-pound drums. You will also provide to Nedi 500 pounds of special water-soluble film, 12,000 folders printed with directions for use, 12,000 barrier pouches, 1,000 inner cartons, and 350 outer cartons.

In France, Nedi will place the Accent in what is commonly referred to as a "form and fill" machine, which will incorporate the Accent into 3.3 oz. water soluble pouches. Four of the 3.3 oz. water soluble film pouches will be inserted into one barrier pouch. The barrier pouches are composed of aluminum between two layers of polyethylene plastic, which protects the film and its contents from adverse conditions such as humidity. The barrier pouch is then heat-sealed and placed in an inner carton along with eleven other inner cartons which are packed in a shipping carton. You state that all of the Accent will be returned to the U.S.

You state that the process whereby the Accent is incorporated into the pre-measured water soluble film does not change the chemical structure or use of the product. The identity and properties of the herbicide remain intact. You argue that although the processing will alter the form of application of the product, it is not a necessary step in the preparation or manufacture of the product. See Dolliff & Company, Inc. v. United States, 599 F.2d 1015 (1979). The Accent which is manufactured in the U.S. is currently sold and can be used in its domestic form prior to performing the overseas operations. The overseas operations performed on the domestically manufactured Accent render the herbicide safer and easier to use.

You argue that the imported Accent is eligible for the partial duty exemption under HTSUS subheading 9802.00.50 for articles returned to the U.S. after having been exported for repairs or alterations. Accordingly, you believe that duties are payable only upon the cost to you of the processing in France, plus the 5% fee paid to your French subsidiary.

ISSUE:

(1) Whether the herbicide which is incorporated into water- soluble film and the packaging materials will be eligible for the duty exemption available under subheading 9801.00.10, HTSUS, when imported into the U.S.

(2) Whether the herbicide will be eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when imported into the U.S.

LAW AND ANALYSIS:

I. Applicability of subheading 9801.00.10, HTSUS

Subheading 9801.00.10, HTSUSA, provides for the free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. See Border Brokerage Company Inc. v. United States, 65 Cust. Ct. 50, C.D. 4052, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).

The packaging abroad of U.S.-made products will not preclude classification under this tariff provision when there is no improvement in condition or advancement in value of the products themselves, apart from their containers. See United States v. John V. Carr & Sons, Inc., 69 Cust. Ct. 78, C.D. 4377 (1972), in which the court stated that absent some alteration or change in the item itself, the mere repackaging of the item, even for the purpose of resale to the ultimate consumer, is not sufficient to preclude the merchandise from being classified under item 800.00, Tariff Schedules of the United States (TSUS) (the precursor to subheading 9801.00.10, HTSUS).

However, we have previously held that the encapsulation of vitamins of U.S.-origin which are shipped in bulk to Mexico is not permissible under subheading 9801.00.10, HTSUS. See C.S.D. 83-101, 17 Cust. Bull. 944 (1983). We held in C.S.D. 83-101 that the effect of this procedure was to render the bulk product suitable for direct administration by the ultimate consumer in an individual dose; the capsules therefore became part of the imported product to be swallowed and thus were distinguished from those containers or packings which were merely intended to facilitate transportation or retail sale and which have a function separate and distinct from the products which they contain. See also HRL 079133 dated June 23, 1987, which held that a barium sulphate product of U.S.-origin shipped in bulk to Canada and distributed into enema bags in measured doses is not considered a packaging operation under item 800.00, Tariff Schedules of the United States (TSUS) (the precursor to 9801.00.10, HTSUS).

It is our opinion that the incorporation of vitamins into capsules and barium sulphate into bags in the above-described cases is closely analogous to the processing of the herbicide in the instant case. The operation in this case serves more than merely to facilitate the transportation or retail sale of the herbicide. As a result of this operation, the plastic pouch becomes an integral part of the herbicide and the dispersal process. The incorporation of the herbicide in pre-measured, sealed, water-soluble packets enhances the value of the herbicide and improves its condition by facilitating its use by the consumer and reducing the risk of injury from accidental contact with a user's eyes or skin. Accordingly, we find that the herbicide will not qualify for the duty exemption under HTSUS subheading 9801.00.10.

With respect to the dutiability of the packaging materials, General Rule of Interpretation 5(b), HTSUS, provides that:

[p]acking materials and packing containers entered with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision does not apply when such packing materials or packing containers are clearly suitable for repetitive use.

Therefore, the value of non-reusable packing materials or containers normally used for packing such goods is considered a part of the value of its contents and is dutiable at the rate of its contents. However, we have held that U.S.-origin packaging materials which are not advanced in value or improved in condition while abroad are separately entitled to duty-free treatment under subheading 9801.00.10, HTSUS. The act of being filled with their contents is not considered to be an advancement in the condition of the container or materials. See HRL 731806 dated November 18, 1988, which held that containers of U.S.- origin are entitled to duty-free treatment under subheading 9801.00.10, HTSUS, when returned with their contents. Thus, since the U.S.-origin packing materials are not suitable for repetitive use and have not been advanced in value or improved in condition while abroad, they are entitled to duty-free treatment under subheading 9801.00.10, HTSUS, when returned to the U.S.

II. Applicability of subheading 9802.00.50, HTSUS

Subheading 9802.00.50, HTSUS, provides for the assessment of duty on the value of repairs or alterations performed on articles returned to the U.S. after having been exported for that purpose. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'd, C.D. 1752, 36 Cust. Ct. 46 (1956); and Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (Jan. 5, 1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. See Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.d. 1225, 599 F.2d 1015 (1979). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied.

In Headquarters Ruling Letter (HRL) 555740 dated May 28, 1991, Customs held that formulation and granulation operations performed on a herbicide constituted an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS. In HRL 555740, the herbicide in its condition upon exportation from the U.S. was considered complete for its intended use as an herbicide, and, in fact, could have been marketed within the agricultural industry in that condition. Customs also found that, since the chemical composition was not changed by the addition of the dilutents, dispersants, wetting agents, buffers, etc., the identity of the exported herbicides was not destroyed. In addition, the foreign operations did not appear to result in any significant change in the quality or character of the herbicide, inasmuch as the herbicide retained its weed killing properties. Therefore, the formulation and granulation operations were held to be an alteration under this subheading. See also HRL 556320 dated February 3, 1992 (holding that formulation and granulation operations performed on U.S.-origin herbicide in France constitute an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS).

With regard to the facts that you have presented and consistent with the above cases, we are of the opinion that the incorporation of U.S.-origin herbicide in water soluble film overseas constitutes an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS. As in HRL 555740, the herbicide in the instant case, was complete in its condition when exported to France for incorporation in water soluble film. The operations performed in France do not have the effect of destroying the identity of the herbicide or changing its chemical composition. Moreover, the foreign operations do not result in any significant change in the character or use of the herbicide. The overseas process merely facilitates the use of the herbicide and makes it safer for the consumer.

HOLDING:

On the basis of the information submitted, as the herbicide will be advanced in value and improved in condition abroad as a result of the operations performed in France, it will not qualify for the duty exemption available under subheading 9801.00.10, HTSUS. However, as the packing materials of U.S.-origin will not be advanced in value or improved in condition abroad as a result of the packaging operation in France, they are entitled to duty- free treatment under subheading 9801.00.10, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.1.

Finally, we find that the process of incorporating the U.S.- origin herbicide into water-soluble film in France constitutes an alteration within the meaning of subheading 9802.00.50, HTSUS. Therefore, the herbicides will be entitled to classification under this tariff provision with duty to be assessed only on the cost or value of the operations performed in France, upon compliance with the documentary requirements of 19 CFR 10.8.

Sincerely,

John Durant, Director

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