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HQ 557175


September 9, 1993

CLA-2-CO:R:C:S 557175 RAH

CATEGORY: CLASSIFICATION

District Director
U.S. Customs Service
Customshouse
1 La Puntilla Street
Old San Juan, P.R. 00901

RE: Internal Advice No. 78/92; Merchandise Processing Fee; U.S. Note 2(b), subchapter II, chapter 98, HTSUS

Dear Mr. Robles:

This is in reference to your memorandum of November 2, 1992, forwarding a Request for Internal Advise from Nestro Reyes, Inc., on behalf of Abbot Health Products, Inc. ("Abbott"), regarding the applicability of the merchandise processing fee ("MPF") to certain medical devices. Your correspondence was forwarded to us by the New York Seaport.

FACTS:

Abbot manufactures medical devices (medical tubing sets) in its plants in Puerto Rico and0 the Dominican Republic, which are made wholly from U.S. components.

At the time of entry the medical tubing sets are classified under subheading 9018.90.80, Harmonized Tariff Schedule of the United States (HTSUS), and they are entered free of duty under subheading 9802.00.8040, HTSUS, based on U.S. Note 2(b) of subchapter II of chapter 98, HTSUS ("Note 2(b)").

Abbott claims that the articles are "substantially transformed" through the operation performed in the Dominican Republic, so that they are a "product of" that country. They therefore claim that they would not have to pay the MPF at the time of entry.

The Chief, National Import Specialist Division, Branch 3, New York Seaport believes that since no duty was assessed on any part of the value of the imported merchandise, no MPF can be assessed on these importations.

ISSUE:

Whether the imported medical devices, assembled wholly from U.S. components in the Dominican Republic and entered under subheading 9802.00.8040, HTSUS, are subject to assessment of the MPF.

LAW AND ANALYSIS:

Note 2(b) provides, in pertinent part, that no article may be treated as a foreign article, or as subject to duty, if (1) the article is assembled or processed in whole of fabricated components or ingredients that are a product of the U.S. in a Caribbean Basin Initiative country ("BC"), and (2) neither the fabricated components, materials, or ingredients, after exportation from the U.S., nor the article itself, before exportation into the U.S., enters the commerce of any foreign country other than the BC. The Dominican Republic is a BC. (See General Note 3(c)(v)(A), HTSUS).

Articles assembled or processed in a BC, and which otherwise comply with Note 2(b), shall be reported, for statistical purposes, under subheading 9802.00.8040 (articles assembled in a BC), or 9802.00.5010 (articles processed other than by an assembly in a BC), HTSUS. See Statistical Note 2, subchapter II, Chapter 98, HTSUS.

According to 19 U.S.C. 58c(b)(8)(B)(i), the MPF may not be charged for the processing of any article "provided for under any item in chapter 98 of the Harmonized Tariff Schedule of the United States, except subheading 9802.00.60 or 9802.00.80...." (Emphasis added). 19 U.S.C. 58c(b)(8)(D)(iv) provides that "in the case of merchandise classified under heading 9802.00.80, the MPF shall "be applied to the full value of the merchandise, less the cost or value of the component United States products." (Emphasis added).

In Headquarters Telex 1259071, Customs states that merchandise qualifying for duty-free treatment under Note 2(b) would not be subject to the MPF if substantially transformed in the BC. If not substantially transformed in the BC but entered under subheading 9802.00.5010, HTSUS, the merchandise also would not be subject to the MPF. However, the telex states that, if the merchandise is not substantially transformed in the BC and it is entered under subheading 9802.00.8040, HTSUS, then the MPF would be assessed on the full value of the article less the value of the U.S. components.

After further consideration of this issue, it is now our opinion that all articles qualifying for duty-free treatment under Note 2(b) are fully exempt from the MPF, even those entered under subheading 9802.00.8040, HTSUS. First, we find that articles entitled to Note 2(b) treatment are "provided for" in an item of chapter 98, HTSUS, within the meaning of the MPF exclusion found at 19 U.S.C. 58c(b)(8)(B)(i). By using the words "provided for in an item of chapter 98", rather than "classified under chapter 98", it appears that Congress did not intend to limit the exclusion only to articles described in the Chapter 98 classification provisions. Note 2(b) is not a classification provision but it does "provide for" a class of articles which are duty free.

Second, we find that articles qualifying for Note 2(b) treatment are neither "provided for" nor classified under subheading 9802.00.80, HTSUS. This subheading provides a partial duty exemption for articles assembled abroad in whole or in part of U.S. fabricated components, provided certain conditions (not relevant to Note 2(b) articles) are satisfied. Although articles qualifying for Note 2(b) treatment are entered under subheading 9802.00.8040, HTSUS, (if merely assembled in a BC), this is for statistical purposes only. The statistical breakout created under this subheading (and subheading 9802.00.50, HTSUS) for articles qualifying for Note 2(b) treatment was made necessary because section 222 of the Customs and Trade Act of 1990 -- the statute which created Note 2(b) -- failed to also create a classification provision for Note 2(b) articles.

As a result of our determination that articles qualifying for duty-free treatment under Note 2(b) and entered under subheading 9802.00.8040, HTSUS, are not subject to the MPF, an additional telex, reflecting our revised position on this issue, will be issued.

HOLDING:

Medical devices assembled in the Dominican Republic from U.S. fabricated components, entered under subheading 9802.00.8040, and otherwise qualifying for duty-free treatment under Note 2(b), are not subject to imposition of the MPF.

Sincerely,

John Durant, Director

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