HQ 0734399 - Applicability of subheadings 9801.00.10 and 9802.00.50, HTSUS, to packaged tube lipstick; "lipstick mass" exported to China and subjected to heating, pouring into molds to form stick shapes, cooling, inserting into applicator tubes, and packaging; alteration; incomplete article; Country of origin marking requirements for lipstick and applicator with a seal which has a U.S. patent number inscribed; substantial transformation; Carr; Guardian; Dolliff; 19 CFR 134.35; 19 CFR 134.46; T.D. 86-129; C.S.D. 85-47; C.S.D. 89-35; HQ 555174; HQ 554736; HQ 732816; HQ 731305 - United States International Trade Commision Rulings

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HQ 734399

December 28, 1992

MAR-2-05 CO:R:C:V 734399 AT

CATEGORY: MARKING CLASSIFICATION

TARIFF NO.: 9801.00.10 and 9802.00.50

Peter W. Klestadt, Esq.
Harold I. Loring, Esq.
Grunfeld, Desiderio, Lebowitz & Silverman 12 East 49th Street
New York, New York 10017

RE: Applicability of subheadings 9801.00.10 and 9802.00.50, HTSUS, to packaged tube lipstick; "lipstick mass" exported to China and subjected to heating, pouring into molds to form stick shapes, cooling, inserting into applicator tubes, and packaging; alteration; incomplete article; Country of origin marking requirements for lipstick and applicator with a seal which has a U.S. patent number inscribed; substantial transformation; Carr; Guardian; Dolliff; 19 CFR 134.35; 19 CFR 134.46; T.D. 86-129; C.S.D. 85-47; C.S.D. 89-35; HQ 555174; HQ 554736; HQ 732816; HQ 731305

Dear Mr. Klestadt and Mr. Loring:

This is in response to your letter dated November 6, 1991, supplemented by your letter dated May 8, 1992, requesting a ruling, on behalf of Arthur Matney Co., Inc. (hereinafter "Arthur Matney"), regarding the applicability of subheadings 9802.00.10 and 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to packaged tube lipstick. You have also requested a ruling as to whether the product is exempt from country of origin marking requirements. The following samples were submitted: a small portion of the "lipstick mass", which is the bulk form exported to China; the lipstick packaged in a tube applicator with a clear seal affixed; and the lipstick packaged in a tube applicator and encased in a blister pack. A conference was held at Customs Headquarters on April 14, 1992.

FACTS:

In the U.S., Arthur Matney manufactures a bulk product, referred to as "lipstick mass", which is in the shape of very large rectangular bricks. Arthur Matney plans to export the lipstick mass to China where the following operations will occur. First, the mass is warmed in vats until it reaches a consistency which can be poured. The mass is then poured into tubular molds and cooled to its original consistency to form the "stick" or "bullet" shape of the individual lipstick products. You state that both before and after these operations the lipstick substance has the same consistency, i.e., it is a semi-solid gelatinous mass. You claim that the heating process, which makes the mass less viscose, does not change its chemical composition but merely permits the pouring of the mass into molds for purposes of packaging.

The next operation performed in China consists of manually inserting each lipstick into the base of a non-reusable, retail plastic tube applicator which is manufactured in China. Each lipstick is then quickly passed near a flame to create a gloss effect on the outside, thus making it look more attractive in the applicator. After the plastic cap of the applicator is placed over the lipstick, two alternative types of packaging are used to prepare the lipstick for sale. In one type, a clear plastic seal is attached to the applicator to prevent the cap from being removed prior to sale. This seal is imprinted with a list of ingredients, a U.S. patent number applicable to the seal, and a warning which states: "Do Not Open. Purity Sealed for Your Protection." At the bottom of the applicator is a round seal which contains the registered and Customs-recorded trademark name of Arthur Matney, i.e., "Artmatic U.S.A.", as well as the company's U.S. address, "Brooklyn, N.Y. 11232". In the alternative packaging, the lipstick is encased in a blister pack of foreign origin, which lists the ingredients on the reverse side and contains the same information which appears on the bottom of the applicator. The words "Made in U.S.A." are also printed on the reverse side of the blister pack directly below the company's address.

At the conference held at Headquarters, and in your supplemental letter of May 8, 1992, you stated that the bulk product exported to China has a formulation which can only be used in the tube applicators as "lipstick", and in no other format such as the "liquid lipstick", which is also manufactured by Arthur Matney. You stated that the word "lipstick" is a generic term used in the trade to describe lipstick products both in stick and non-stick form. For example, the bulk product exported to China is referred to as "lipstick mass", and a lipstick product which is sold in a container with a brush-type applicator is referred to as "liquid lipstick".

You contend that the packaged lipsticks are entitled to free entry under subheading 9801.00.10, HTSUS, or alternatively, are entitled to a partial duty exemption under subheading 9802.00.50, HTSUS. With respect to subheading 9801.00.10, HTSUS, you claim that the processes performed in China are merely retail repackaging operations which do not advance the lipstick in value or improve it in condition. With respect to subheading 9802.00.50, HTSUS, you assert that if the lipstick is considered to be advanced in value or improved in condition as a result of the foreign operations, those operations are, at the most, deemed to be "alterations." This argument is based on your opinion that the lipstick mass, at the time of exportation to China, is in a condition suitable for its intended use, except for retail packaging, and is therefore considered a "completed" article. You claim that the change in the shape of the article as a result of repackaging for retail sale should not preclude its entitlement to a partial duty exemption under subheading 9802.00.50, HTSUS.

You state that the U.S. origin lipstick is not substantially transformed by virtue of the repackaging operation performed in China, and therefore the lipstick remains a product of the U.S. You also state that because the U.S. lipstick is not substantially transformed in China it is excepted from country of origin marking under 19 CFR 134.32(m), as a U.S. product exported and returned. You contend that the foreign origin lipstick applicators are also excepted from country of origin marking under 19 CFR 134.24(d) since they are considered to be non- reusable disposable containers. Furthermore, you state that the U.S. references which are printed on the seal (U.S. patent number), bottom of the applicator (Artmatic U.S.A. and Brooklyn, N.Y. 11232), and the blister pack (Artmatic U.S.A., Brooklyn, New York 11232 and "Made in U.S.A.") are not misleading because the lipstick is of U.S. origin and no reasonable purchaser would interpret the U.S. address and U.S. patent number as referring to the origin of the plastic applicator.

ISSUES:

1. Whether the packaged lipstick imported into the U.S. from China is entitled to duty-free entry under subheading 9801.00.00, HTSUS.

2. Whether the packaged lipstick imported into the U.S. from China is entitled to a partial duty exemption under subheading 9802.00.50, HTSUS.

3. Whether the lipstick and plastic applicator are excepted from country of origin marking requirements.

LAW AND ANALYSIS:

I. Applicability of subheading 9801.00.10, HTSUS

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. 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 Co. v. United States, 65 Cust. Ct. 50, C.D. 4052, 314 F.Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).

In United States v. John V. Carr & Sons, Inc., 69 Cust. Ct. 78, C.D. 4377, 347 F.Supp. 1390 (1972), 61 CCPA 52, C.A.D. 1118, 496 F.2d 1225 (1974), 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).

Based upon the foregoing facts, we find that the processes performed in China constitute more than mere repackaging of the bulk lipstick. As will be discussed below regarding the applicability of subheading 9802.00.50, HTSUS, we believe that the lipstick mass exported to China is not suitable for its intended use prior to the operations performed in that country. You state that this lipstick mass has a formulation which can only be used as lipstick in the tube applicators. Since the exported mass is not marketable until it is heated, formed into stick or bullet shapes by being poured into molds and cooled, and inserted into individual applicator tubes, it is clearly advanced in value and/or improved in condition as a result of these processes. Therefore, the retail packaged tube lipstick imported into the U.S. from China is ineligible for duty-free entry under subheading 9801.00.10, HTSUS.

II. Applicability of subheading 9802.00.50, HTSUS

Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Such articles are dutiable only upon the value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8) are satisfied. However, entitlement to this tariff treatment 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); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing. Guardian. As stated in Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F.Supp. 618 (1978), aff'd, 66 CCPA 77, 82, C.A.D. 1225, 599 F.2d 1015, 1019 (1979), "repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or the manufacture of finished articles."

Since the "lipstick mass" formulation exported from the U.S. can only be used to make lipsticks in tube applicators for retail sale, there is no viable commercial use of the exported article until it undergoes the further processing operations in China. In order for this lipstick mass to be put into a form suitable for its intended use as lipstick by consumers, it must first be shaped into "bullet" or stick configurations, and then inserted into applicators. Not until these processes occur can a consumer effectively apply this lipstick product onto the lips. We do not consider the following two factors dispositive here in determining whether an "alteration," as that term is used in subheading 9802.00.50, HTSUS, will occur in China: (1) the lack of change in the ingredients and chemical composition of the lipstick mass as a result of the foreign processing; and (2) the fact that the generic term "lipstick" is used in the names of both the bulk product and the retail product.

Thus, following the reasoning set forth in Guardian and Dolliff, we find that the lipstick mass exported to China is not a completed article because it is not in a condition suitable for its intended use prior to the foreign processing operations. The foreign operations consisting of heating the mass until it can be poured, forming it into stick or bullet shapes in molds, cooling the stick shapes, and inserting the sticks into individual applicator tubes are more than mere packaging operations. Instead, these operations constitute necessary finishing steps in the total manufacturing process of the finished article (i.e., tube lipstick), which is begun in the U.S. Since these operations are not alterations, within the meaning of subheading 9802.00.50, HTSUS, the packaged lipstick product imported into the U.S. is not eligible for a partial duty exemption under that tariff provision. See HRL 555174 dated April 25, 1989 (where continuous rolls of decorative banner material, measuring approximately 140 feet in length, were exported to Mexico and cut there to shorter lengths of approximately 32 inches for retail sale, the cutting operation was found to exceed an alteration within the meaning of subheading 9802.00.50, HTSUS, because it constituted a finishing step in the manufacture of the completed decorative banners); HRL 554736 dated February 16, 1988 (where facial tissue paper was to be exported to Mexico in rolls for cutting to length, folding, and packaging for retail sale, the cutting operation constituted a finishing step in the manufacture of a usable facial tissue product and was, therefore, not an alteration within the meaning of item 806.20, Tariff Schedules of the United States (TSUS), the precursor of subheading 9802.00.50, HTSUS); see also 071475 dated September 20, 1983.

III. Country of origin marking requirements for U.S. origin lipstick processed and repackaged in China

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article.

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "country of origin" as 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 must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of Part 134. A substantial transformation occurs when an article loses its identity and becomes a new article having a new name, character, or use. Koru North America v. United States, 12 CIT 1120, 701 F.Supp. 229 (1988).

In C.S.D. 84-112 (July 2, 1984), Customs ruled that the processing of refined honey from imported crude honey using a complex process involving liquefication, flash heating, purification, blending and retail packaging, did not constitute substantial transformation. In that case Customs found that notwithstanding the complex domestic processing, some of which required highly skilled labor, the final result of the domestic processing and blending was merely honey -- in a more refined state than when imported, but not fundamentally changed. None of the processing operations were found to constitute a substantial transformation. Customs rejected the notion that the blending of honeys creates a new and different article of commerce. In C.S.D. 85-47 (September 4, 1985), Customs ruled that imported orange juice concentrate which was used in the production of frozen concentrated orange juice or reconstituted orange juice was not substantially transformed after undergoing further processing in the United States which included testing, blending, the addition of orange essences and oils, pasteurization, freezing and repacking. In that case Customs found that although the domestic operations attempted to achieve a uniform retail product (frozen orange juice concentrate) and may have in fact improved the taste of the final product, the processing did not change the fundamental character of the imported product in that the imported concentrate imparted the essential character to the juice which made it orange juice.

Similarly, in this case, we find that the U.S. origin lipstick mass is not substantially transformed when further processed into lipstick bullets and repackaged into the lipstick applicators in China. As in the honey and orange juice cases, the processing of the lipstick mass does not change the fundamental character of the original article. The imported lipstick mass imparts the essential character to the lipstick albeit it is now named lipstick and not lipstick mass. Although the U.S. origin lipstick mass must be heated to achieve a change in shape (lipstick bullet), the essential physical and chemical characteristic of the lipstick mass has not changed when compared to the finished lipstick. Furthermore, the processing of the lipstick mass into lipstick bullets does not change the name and use of the lipstick in that it still has the same name and use as lipstick. Therefore, the U.S. origin lipstick mass is not substantially transformed by being further processed and repackaged in China and the country of origin of the finished lipstick is the U.S.

Section 134.32(m), Customs Regulations (19 CFR 134.32(m)), provides that products of the U.S. exported and returned are excepted from country of origin marking requirements. Accordingly, since the country of origin of the finished lipstick imported from China is U.S., the lipstick is excepted from country of origin marking requirements under section 134.32(m).

IV. Country of origin marking requirements for lipstick applicator in which lipstick bullet is repackaged prior to export to the U.S.

You state that the lipstick applicators which are filled and repackaged with the lipstick bullets in China are excepted from being marked with their country of origin "Taiwan" under 19 CFR 134.24(d), since the lipstick applicators are considered to be non-reusable disposable containers.

Section 134.24(d) provides that usual disposable containers imported full and used as such at the time of importation shall not be required to be marked to show the country of their origin, but shall be marked to indicate the origin of their contents regardless of the fact that the contents are excepted from marking requirements. In HQ 731863 (February 14, 1990), Customs ruled under a related provision of the Customs Regulations, 19 CFR 134.24(c), that plastic cosmetic compacts which were filled with blush in the U.S. were considered to be disposable non- reusable containers and were excepted from country of origin marking. In that case, Customs found that after the blush was used up, the consumer would dispose of the compact and would then buy a new compact containing blush. Customs also found that as offered in the market, the compact was a disposable container in that it was not sold with intent to be refilled after its contents was used up.

Similarly, in this case, we find that the lipstick applicator which is filled with lipstick and repacked in China for export to the U.S. is a non-reusable disposable container, and therefore is excepted from marking under 19 CFR 134.24(d). As in the cosmetic compact ruling, the lipstick applicator is disposed of by the consumer after the lipstick is used up. Also, the lipstick applicator is not marketed as a container which can be refilled by the consumer once the lipstick has been used up.

V. Are the U.S. references printed on the seal of the applicator, or alternatively on the back of the blister pack misleading to an ultimate purchaser.

You state that the U.S. references which are printed on the seal (U.S. patent number), bottom of the applicator (Artmatic U.S.A. and Brooklyn, N.Y. 11232), and the blister pack (Artmatic U.S.A., Brooklyn, New York 11232 and "Made in U.S.A.") are not misleading because a reasonable purchaser would interpret the U.S. address and U.S. patent number as referring to the origin of the lipstick itself and not the origin of the plastic applicator.

Section 134.46, Customs Regulations (19 CFR 134.46), requires that when the name of any city or locality in the U.S., or the name of any foreign country or locality other than then name of the country or locality in which the article was manufactured or produced, appear on an imported article or its container, there shall appear, legibly and permanently, in close proximity to such words, letters or name, and in at least a comparable size, the name of the country of origin preceded by "Made in," "Product of," or other words of similar meaning. The purpose of 19 CFR 134.46 is to prevent the possibility of misleading or deceiving the ultimate purchaser as to the origin of the imported article.

In T.D. 86-129 (June 26, 1986), Customs determined that a U.S. patent number on footwear would trigger the requirements of 19 CFR 134.46, because whether or not a potential purchaser would be misled by such reference would depend in large part on the sophistication of the potential purchaser and the degree of scrutiny the purchaser performs to determine the country of origin of the article. The decision further indicated that a definitive rule is necessary to ensure that all ultimate purchasers are properly informed of the country of origin and to provide for uniformity of application of the country of origin marking requirements of 19 U.S.C. 1304 and 19 CFR 134.46.

In HQ 731305 (November 30, 1988), C.S.D. 89-35, Customs indicated that the principles stated in T.D. 86-129 would also apply to other products. However, in HQ 732816, November 24, 1989, Customs determined that U.S. patent registration information and a U.S. address which appeared on the back of a display ticket on a pair of gloves would not invoke 19 CFR 134.46, because the U.S. references would not raise the possibility of confusion or deception since they were not in a location directly apparent to the ultimate purchaser at the point of sale.

In this case, we find that the U.S. references printed on either the seal of the lipstick applicator or alternatively on the front and back of the blister pack would not be misleading to an ultimate purchaser, and therefore do not invoke the marking requirements of 19 CFR 134.46. In both situations, an ultimate purchaser would presume that the U.S. references only refer to the lipstick and not to the plastic applicator since it is the lipstick itself that the consumer is deciding whether to purchase and not the applicator. Also, although the U.S. references printed on the seal of the applicator can easily be seen by an ultimate purchaser, unlike the display ticket in HQ 732816, it is clear that a consumer would not be misled by these references. The purchasing decision is determined by the color and composition of the lipstick and not the plastic applicator.

We also find that the U.S. references are not misleading within the meaning of 19 CFR 134.36(b) since the markings do not imply that the lipstick was made or produced in a country other than the actual country of origin, the U.S.

With respect to the marking "Made in U.S.A." printed on the sample blister pack, we advise you to contact the Federal Trade Commission, Division of Enforcement, 6th & Pennsylvania Avenue, NW, Washington, D.C. 20508 before your client Arthur Matney undertakes to mark the blister packs in this fashion, since use of the phrase "Made in U.S.A." is under that agency's jurisdiction.

HOLDING:

The retail packaged lipstick imported into the U.S. from China will be ineligible for duty-free entry under subheading 9801.00.10, HTSUS, because the U.S. manufactured lipstick mass exported to China is advanced in value and/or improved in condition as a result of the processes performed there. In addition, the retail packaged lipstick will not be eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, because the exported lipstick mass is considered to be incomplete for its intended use prior to the foreign operations of heating, forming into stick or "bullet" shapes by pouring into molds, and inserting into individual applicator tubes.

The U.S. origin lipstick mass which is exported to China where it is further processed into lipstick bullets to be filled into plastic lipstick applicators for export to the U.S. is not substantially transformed in China, and therefore the country of origin of the retail packaged lipstick is U.S. Accordingly, the retail lipstick imported into the U.S. from China is excepted from country of origin marking under 19 CFR 134.32(m), as a U.S. product exported and returned.

The plastic lipstick applicators into which the lipstick bullets are repacked in China for export into the U.S. are considered to be non-reusable disposable containers. Accordingly, the lipstick applicators are excepted from being marked with their country of origin "Taiwan" under 19 CFR 134.24(d).

The U.S. references printed on the seal of the plastic lipstick applicators or alternatively on the front and back of the blister pack are not misleading to an ultimate purchaser, and therefore the marking requirements of 19 CFR 134.46 are not invoked. Also, the U.S. references printed on the seal or alternatively on the blister pack are not misleading within the meaning of 19 CFR 134.36(b) since the markings do not imply that the lipstick was made or produced in a country other than the actual country of origin, the U.S.

Accordingly, except for the marking "Made in U.S.A." printed on the blister packs, about which we express no opinion and urge you to contact the Federal Trade Commission, the marking on the sample lipstick with applicator and/or blister pack, is acceptable under the provisions of 19 U.S.C. 1304 and 19 CFR Part 134.

Sincerely,

John Durant, Director

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