HQ 0085628 - Classification and Rate of Duty of Decorative Boxes Made in Countries Entitled to Most-Favored-Nation Treatment to be Imported as the Packing Materials of Glassware Made in a Countries Subject to Column 2 Rates of Duty - United States International Trade Commision Rulings

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HQ 085628

January 23, 1990

CLA-2 CO:R:C:G 085628 JBW

CATEGORY: CLASSIFICATION

RE: Classification and Rate of Duty of Decorative Boxes Made in Countries Entitled to Most-Favored-Nation Treatment to be Imported as the Packing Materials of Glassware Made in a Countries Subject to Column 2 Rates of Duty

This ruling is in response to your inquiry of September classification and rate of duty under the Harmonized Tariff Schedule of the United States Annotated (HTSUSA) of decorative boxes produced in countries subject to most-favored-nations (MFN) rates of duty that will serve as the packing materials for glassware made in countries subject to column 2 rates of duty.

FACTS:

The merchandise under consideration is described as decorative boxes or box sleeves. Box sleeves are similar to boxes except that they have no bottom; the sleeves fit over plain cardboard boxes to provide a finished exterior for retail sale. manufactured in a country in western Europe, whose products ordinarily enter the United States subject to MFN rates of duty. European country to serve as packing materials of glassware of that country and subject to column 2 rates of duty. The glassware and packing will then be imported into the United States.

ISSUE:

What is the classification and rate of duty for decorative boxes or box sleeves produced in countries that ordinarily are subject to MFN rates of duty that will serve as the packing material for glassware made in countries subject to column 2 rates of duty?

LAW AND ANALYSIS:

The General Rules of Interpretation (GRI's) set forth the legal framework in which merchandise is classified under the HTSUSA. GRI 5(b) states, in relevant part, 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.

Applying this rule, the decorative boxes and box sleeves are classified as glassware. This classification is not in dispute. If both the glassware and packing materials were to originate in eastern Europe, then they would be classified under the heading for glassware and be charged the column 2 rate of duty. You argue, however, that the decorative boxes and box sleeves, being products of western Europe, should be charged the MFN rate of duty. We disagree.

Stated differently, GRI 5(b), HTSUSA, requires, for classification purposes, that the identity of packing materials not suitable for repetitive use be subsumed by the identity of the goods contained. The effect of such a rule is that the container does not exist when determining classification; the product being imported is simply the good contained. Moreover, the statutory definition of transaction value, the principal determinant of the amount of duty paid other than classification, requires that the cost of packing materials be included in the value of the goods contained. 19 U.S.C.A. 1401a(b)(1)(A) (West Supp. 1989). In both instances, the statutes require that the packing materials be considered as part of the goods they contain, not as separate tariff entities. See Kurt S. Adler, Inc. v. United States, 68 Cust. Ct. 162, 167, C.D. 4345, aff'd, 61 C.C.P.A. 68, C.A.D. 1122 (1974) (recognizing long-standing Congressional policy of treating the cost of containers as part of the value of the goods, not separate as separate tariff entities).

General Note 3, HTSUSA, governs the application of rates of duty. General Note 3(a)(i), HTSUSA, provides: "[T]he rates of duty in column 1 are rates which are applicable to all products other than those countries enumerated in paragraph (b) of this note." General Note 3(b), HTSUSA, referred to in General Note 3(a)(i), states, in relevant part: "Notwithstanding any of the foregoing provisions of this note, the rates of duty shown in column 2 shall apply to products, whether imported directly or indirectly, of the [countries listed]."

The General Notes focus on products. As demonstrated above, customs law considers the good, not the packing material, to be the product imported. Thus, when these rules are read together, one may conclude that the good imported and not the packing material determines the country of origin for purposes of deciding whether column 1 or column 2 duty rates apply.

In your letter, you present three arguments. First, you contend that in order for goods to become "products of" a country for purposes of General Notes 3(a)(i) or 3(b), they must undergo either a substantial transformation in or become a bona fide part of commerce of the country. Second, you distinguish GRI 5(b) from General Headnote 6(b)(i) of the Tariff Schedule of the United States (TSUS) and conclude that GRI 5(b) directs only classification. Finally, you argue that MFN treatment will be denied to the packing materials of western European origin by their inclusion as part of their contents.

We acknowledge the requirement that General Note 3(b) be strictly construed. Furthermore, our determination in this case is reached independently of prior judicial and administrative interpretations of the TSUS. As stated above, we believe that the operation of GRI 5(b) creates, in essence, an additional mechanism by which the country of origin of packing materials is lost. Moreover, GRI 5(b) not only directs classification but also influences the rate of duty applied, for, as noted in your submission, rate of duty is the amount of duty applied, "resulting in the first instance, from the classification thereof." Bradford Co. v. American Lithographic Co., 12 C.C.P.A. 318, 323, No. 2386 (1924). Finally, MFN treatment is not denied. As stated by the United States Court of Customs and Patent Appeals, the packing materials receive no less favorable treatment than would the same items originating in any other MFN country under the same circumstances. Kurt S. Adler, 61 C.C.P.A. at 72.

In the course of your submission, you address a number of cases in which either the courts or the Customs Service has segregated goods, imported together, that include products subject to different rates of duty. E.g., Coastal States Marketing, Inc. v. United States, 10 C.I.T. 613, 646 F. Supp. 255 (1986). We believe that the operation of GRI 5(b) in this case distinguishes cases involving packaging materials from those involving the classification of and rate of duty for the products themselves. We do not, however, rule at this time as to the treatment of goods determined to be sets or composite goods under GRI 3, HTSUSA.
HOLDING:

Pursuant to GRI 5(b), the decorative boxes and box sleeves are classified with the glassware with which they will be imported. The decorative boxes and box sleeves will also be assessed the same rate of duty as the glassware.

Sincerely,

John Durant, Director

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