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HQ 557584


March 21, 1994

CLA-2 CO:R:C:S 557584 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9811.00.60

Marshall V. Miller, Esq.
400 International Square
1825 I Street, N.W.
Washington, D.C. 20006

RE: Applicability of duty exemption to pharmaceutical products packaged and/or manufactured in a foreign trade subzone; labeled; distributed to physicians as samples

Dear Mr. Miller:

This is in response to your letter of September 13, 1993, requesting a ruling on behalf of Mead Johnson & Company ("Mead Johnson") which is wholly owned by Bristol-Myers Squibb Company ("BMS"), concerning the free entry of pharmaceutical products.

FACTS:

Mead Johnson intends to distribute pharmaceutical products to physicians at no cost solely for the purpose of soliciting orders for these particular products. The pharmaceutical products will be entered into U.S. Customs territory from Mead Johnson's or BMS's foreign trade subzone ("subzone"). The operations performed by Mead Johnson or BMS in a subzone may involve: (1) admitting finished pharmaceutical products in bulk quantity (it is assumed that they are admitted in nonprivileged status) where they will be subject to quality control and packaging, and (2) admitting imported and/or domestic pharmaceutical product component materials where they will be manufactured into finished pharmaceutical products and packaged.

It is stated that the pharmaceutical products distributed to physicians will be packaged, labeled and marked according to the strict label statutory provisions of the U.S. Food and Drug Administration, 21 U.S.C. 352 and 21 CFR Part 201, and will be marked in a variety of packaging with "sample - not for sale", "sample", "samples", "patient starter units - not for sale", "patient starter", "sample package - not for sale", "professional sample - not for sale" or a substantially similar statement. In most cases, the Customs value of each pharmaceutical product dosage sample will be $1.00 or less; however, in any event, it is claimed that the marking of the pharmaceutical products as samples renders them suitable only for that purpose. Therefore, because all of the activities conducted within a subzone allegedly produce properly packaged and marked samples, subheading 9811.00.60, Harmonized Tariff Schedule of the United States (HTSUS), treatment is sought when they are entered into U.S. Customs territory.

ISSUE:

Whether pharmaceutical products packaged and/or manufactured in a subzone, and distributed to physicians as samples are entitled to duty-free treatment under subheading 9811.00.60, HTSUS.

LAW AND ANALYSIS:

Subheading 9811.00.60, HTSUS, provides for the free entry of:

[a]ny sample ... valued not over $1 each, or marked, torn, perforated or otherwise treated so that it is unsuitable for sale or for use otherwise than as a sample, to be used in the United States only for soliciting orders for products of foreign countries.

The controlling factor is whether the importer uses the samples for the purpose of soliciting purchase orders for foreign merchandise and the creation of demand for future orders.

It is alleged, consistent with Italian Drug Importing Co. v. United States, 46 Cust. Ct. 243, C.D. 2263 (1961), and Headquarters Ruling Letter (HRL) 556174 dated December 4, 1991, that the pharmaceutical products at issue qualify for free entry under subheading 9811.00.60, HTSUS. In Italian Drug Importing Co., the court allowed the free entry of vitamins marked "Sample - not for sale" which were distributed to physicians without charge for their patients. In HRL 556174, we determined that tablets imported in vials or blister packages marked "Sample - not for sale" for the purpose of distributing them to physicians in order to create a market in the U.S., qualified as samples under subheading 9811.00.60, HTSUS.

Similarly, in this case, the pharmaceutical products will be marked as samples (with the exception of those marked "patient starter units - not for sale" and "patient starter"), and will be distributed to physicians solely for the purpose of soliciting orders. Consequently, we find that the finished pharmaceutical products admitted into a subzone in bulk quantity and there subjected to quality control and packaging, are entitled to free entry under subheading 9811.00.60, HTSUS, if valued at $1.00 or less, and they are only used as samples for soliciting orders for products of foreign countries. However, in the instances where the value is greater than $1.00, only those products with markings which include the words "sample - not for sale" will be eligible for duty-free treatment under this provision.

In regard to the imported and/or domestic pharmaceutical component materials that are manufactured into finished pharmaceutical products and packaged in a subzone, in a meeting on March 3, 1994, with members of my staff, you claimed that these products should be entitled to free entry as samples as well because the underlying objective of subheading 9811.00.60, HTSUS, to promote international trade is achieved when the foreign pharmaceutical component material is brought into a subzone to produce the finished pharmaceutical products.

You also cite Carson M. Simon & Co. v. United States, 46 Cust. Ct. 118, C.D. 2243, and the court's analysis of the legislative history of Pub. L. No. 85-211, 71 Stat. 486 (1957), which added paragraph 1821 of the Tariff Act of 1930 (the predecessor provision of subheading 9811.00.60, HTSUS) as support that the pharmaceutical products manufactured in a subzone should be entitled to duty-free treatment as samples under subheading 9811.00.60, HTSUS. Arguably, the distribution of the pharmaceutical products at issue creates a demand for the importation of the foreign pharmaceutical component materials; however, the court in Simon held that the provisions of paragraph 1821 were met if the samples represent the goods to be ordered and the goods have been produced in a foreign country. In this instance, the finished pharmaceutical products manufactured in a subzone do not represent the goods to be ordered (i.e., the imported pharmaceutical component materials) and the finished pharmaceutical products are not produced in a foreign country. Consequently, we find that the finished pharmaceutical products manufactured from imported and/or domestic pharmaceutical component materials in a subzone are not entitled to free entry under subheading 9811.00.60, HTSUS.

HOLDING:

Based on the information submitted, the pharmaceutical products admitted into a subzone in nonprivileged status in bulk quantity and there subjected to quality control and packaging, and distributed to physicians at no cost for the sole purpose of soliciting orders of the particular pharmaceutical product produced in a foreign country, are entitled to free entry under subheading 9811.00.60, HTSUS, except if they are valued at greater than $1.00, they must be marked "sample - not for sale." However, the pharmaceutical products manufactured from imported and/or domestic pharmaceutical component materials in a subzone are not entitled to free entry under subheading 9811.00.60, HTSUS.

Sincerely,

John Durant, Director

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