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HQ 556355

February 21, 1992
CLA-2 CO:R:C:S 556355 SER

CATEGORY: CLASSIFICATION

TARIFF NO.: 4420.90.4000, 9801.00.10

Mr. Arthur J. Humphreys
Border Brokerage Co., Inc.
P.O. Box 249
Sumas, WA 98295

RE: Tariff status of a shoe shine kit with box from Canada; HRL 555632; Superscope v. U.S.

Dear Mr. Humphreys:

This is in response to your letter of September 16, 1991, on behalf of Aroma Cedar Inc., concerning the tariff status of shoe shine kits to be imported from Canada.

FACTS:

A cedar shoe shine box with three compartments and a handle is made in Canada. Imported into Canada for incorporation into the shoe shine kit are two shoe shining brushes and two dauber brushes made in Brazil, two shoe polishes made in England, and two shoe shining cloths made in the U.S. The kits are packaged and sold in the U.S. as "cedar shoe shine kits".

ISSUES:

1. What is the proper classification of the shoe shine kits? 2. Whether the kits are eligible for preferential treatment under the U.S.-Canada Free Trade Agreement (CFTA).

3. Whether the two shoe shining cloths of U.S. origin will qualify for the duty exemption provided under subheading 9801.00.10, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), when returned to the U.S.

LAW AND ANALYSIS:

1. Tariff Classification under the HTSUSA

Classification of goods under the HTSUSA is governed by the General Rules of Interpretation (GRIs), taken in order. When goods are prima facie classifiable under two or more headings, GRI 3 is applicable. In this case, classification is determined by application of GRI 3(b), which provides:n-2-

[G]oods put up in sets for retail sale, ...shall be classifiable as if they consisted of the ...component which gives them their essential character ....

The Explanatory Notes to the HTSUSA constitute the official interpretation of the tariff at the international level. The Explanatory Notes to GRI 3(b) provide, in part:

For the purposes of this Rule, the term "goods put in sets for retail sale" shall be taken to mean goods which:

(a) consist of at least two different articles which are, prima facie, classifiable in different headings;

(b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and

(c) are put up in a manner suitable for sale directly to users without repacking.

The merchandise at issue meets this three part test as they are, prima facie, classifiable in different headings, packed and sold together as "cedar shoe shine kits", and put up together to carry out a specific activity.

It remains to determine what item in the shoe shine kits constitutes the essential character of the set. In general, essential character has been construed to mean the attribute which strongly marks or serves to distinguish what an article is; that which is indispensable to the structure, core or condition of the article. In addition, the Explanatory Notes set forth additional factors in determining the essential character of goods. Such factors include the material's bulk, quantity, weight or value, or its role in relation to the use of the goods. However, the factors which determine essential character will vary between different kinds of goods.

Based on the cost, bulk, and use of the cedar box, it is our opinion that the essential character of this set is imparted by the cedar box. Accordingly, the proper classification of the cedar shoe shine kit would be subheading 4420.90.4000, HTSUSA, which provides for tool or utensil cases and similar boxes, cases and chests of wood, not lined with textile fabrics. The duty rate applied to articles entered under this subheading is 6.7% ad valorem, or 4.6% ad valorem for articles from Canada which satisfy the CFTA's legal requirements.

2. Eligibility for Preferential Treatment under the CFTA

To be eligible for tariff preferences under the CFTA, imported merchandise must qualify as "originating goods" under the rules of origin in General Note 3(c)(vii)(B), HTSUSA. This Note states, in relevant part, that goods are considered to be of Canadian origin for CFTA 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), HTSUSA. However, General Note 3(c)(vii)(C)(1), HTSUSA, provides that, even if articles are considered to be "goods originating in the territory of Canada" pursuant to General Note 3(c)(vii)(B), HTSUSA, they will not be eligible for preferential treatment under the FTA "merely by virtue of having undergone simple packaging or ...combining operations."

In Headquarters Ruling Letter (HRL) 555632 dated March 18, 1991, Customs ruled on the eligibility for preferential duty treatment under the FTA of first aid kits from Canada. The kits contained various articles such as gauze, bandages, tweezers, etc., some of which were of Canadian and U.S. origin and some of which were of third-country origin. Customs held that the first aid kits which contained articles of third-country origin, which were merely packaged or combined in Canada with the Canadian and U.S. components precluded the entire set from receiving CFTA preferential duty treatment. Consistent with HRL 555632, the simple packaging or combining of the third-country shoe shine items with the Canadian cedar box and the U.S. shining cloths will preclude the entire cedar shoe kit from receiving CFTA tariff treatment.

3. Entitlement of U.S.-manufactured goods to duty-free treatment under subheading 9801.00.10, HTSUSA, when returned to the U.S.

Since the shining cloths are of U.S.-origin, and are to be returned to the U.S. as part of the shoe shine kits, the issue arises as to whether the cloths are entitled to a duty exemption as American goods returned. Subheading 9801.00.10, HTSUSA, 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 the case of Superscope, Inc. v. U.S., 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 n-4-
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, HTSUSA). This was based on the fact that 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 HTSUSA, the decision is believed to be equally applicable to similar situations arising under the HTSUSA, since item 800.00, TSUS, and the relevant Schedule 8, TSUS, headnotes was carried over virtually unchanged into the HTSUSA.

Applying the rationale of the Superscope case, the mere packaging of the U.S.-origin shining cloths within the shoe shine kit neither advances the cloths in value nor improves them in condition. Therefore, an allowance in duty may be made under subheading 9801.00.10, HTSUSA, for the cost or value of the U.S.- origin shine cloths upon their return to the U.S. as part of the shoe shine kits. This is contingent upon compliance with the documentation requirements of 19 CFR 10.1 and satisfying the district director of Customs at the port of entry that the shine cloths are, in fact, of U.S. origin.

HOLDING:

The shoe shine kits are properly classified in subheading 4420.90.4000, HTSUSA, dutiable at the rate of 6.7% ad valorem. The kits are not eligible for preferential duty treatment under the CFTA pursuant to General Note 3(c)(ii)(C), HTSUSA. An allowance in duty may be made under subheading 9801.00.10, HTSUSA, subject to the documentation requirements of 19 CFR 10.1, for the cost or value of the U.S.-origin shine cloths, that are merely packaged abroad in the kits and returned.

Sincerely,

John Durant, Director

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