HQ 225096 - Drawback for diaper changing bag; 19 U.S.C. 1313(a); 19 U.S.C. 1313(j)(1) - United States International Trade Commision Rulings

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HQ 225096

May 6, 1994

DRA-4-CO:R:C:E 225096 SR

CATEGORY: DRAWBACK

Mr. Richard W. Meade
A.W. Fenton Co., Inc.
6565 Eastland Road
Cleveland, Ohio 44181-0068

RE: Drawback for diaper changing bag; 19 U.S.C. 1313(a); 19 U.S.C. 1313(j)(1)

Dear Mr. Meade:

This is in response to your letter dated November 24, 1993, concerning drawback on diaper changing bags.

FACTS:

You wish to import diaper bags, bottom stiffeners for the bags, changing pads and small plastic bags for dirty diapers in separate shipments from China. Upon importation the diaper bag is essentially a completed bag with shoulder straps, handles, plastic lining, outside pockets, and inside bottle straps. After importation into the United States a bottom stiffener, a dirty garment bag, and a changing pad will be placed into each diaper bag then each bag will be stuffed with paper wading to shape the bag for shelf display and affixing a price sticker or tag. A portion of these repacked bags will be exported to Canada, Mexico and various South American cities.

ISSUE:

Whether the diaper changing bags are eligible to receive drawback.

LAW AND ANALYSIS:

Drawback for articles that are manufactured or produced in the United States is provided for in 19 U.S.C. 1313(a) which reads as follows:

(a) Upon the exportation of articles manufactured or produced in the United States with the use of imported merchandise, the full amount of the duties paid upon the
merchandise so used shall be refunded as drawback, less 1 per centum of such duties.

In order for a procedure to be considered a manufacture or production a transformation must occur; a new and different article must emerge having a distinctive name, character or use (Anheuser-Busch Brewing Association v. United States, 207 U.S. 556 (1907)). Articles that are merely repackaged are not considered to be manufactured under drawback law. In this case the merchandise is a diaper bag when it is imported and a diaper bag when exported. The bag is functional as a diaper bag even without the inserted items. No transformation has occurred, therefore, the bag does not meet the requirements for drawback under 19 U.S.C. 1313(a).

Same condition drawback allows a refund of duties on imported merchandise that is exported in the same condition as when imported. This is provided for under 19 U.S.C. 1313(j)(1), which reads as follows:

(1) If imported merchandise, on which was paid any duty, tax, or fee imposed under federal law because of its importation-

(A) is, before the close of the three-year period beginning on the date of importation-

(i) exported in the same condition as when imported, or
(ii) destroyed under Customs supervision; and

(B) is not used within the United States before such exportation or destruction;
then upon such exportation or destruction 99 per centum of the amount of each such duty, tax, and fee so paid shall be refunded as drawback.

In order to qualify for drawback under 19 U.S.C. 1313(j)(1), the merchandise which is exported must be the same merchandise in the same condition as imported. Certain incidental operations are exceptions to the "no use" requirement, including, but not limited to, repacking, cleaning or inspecting.

The bag lining, changing pads and dirty diaper bag are not inserted in a permanent or semi-permanent manner. The samples provided show that all 3 inserted items can be quickly and easily removed from the bag without changing the bag's condition in any way. As such, the samples you provided are potent witnesses.

(See Ruth F. Sturm's Customs law & Administration, (3rd Edition) p. 394 and cases cited therein.) Based on the samples, the addition of the lining and changing accessories do not change the condition of the bag or the accessories and the insertion of those materials would not under 19 U.S.C. 1313(j)(1) make the merchandise ineligible for drawback.

The drawback laws were substantively amended by section 632, title VI - Customs Modernization, Public Law 103-182 the North American Free Trade Implementation Act (107 Stat 2057) enacted December 8, 1993. Title VI of that Act amended 19 U.S.C. 1313(j). Section 692 of the Act provides that Title VI provisions take effect on the date of enactment.

Same condition direct identification drawback is changed under the new act. Section 632 provides that imported merchandise for which duty was paid and is, before the close of the 3-year period beginning on the date of importation, exported or destroyed under customs supervision and is not used within the United States before such exportation or destruction is eligible for "unused merchandise drawback". The law no longer requires that the merchandise be in the same condition as when imported.

A Senate Joint Report, Senate Report 103-189, (1993) at p. 82, discusses unused merchandise drawback as follows:

Section 632 renames the same condition drawback provision "Unused Merchandise Drawback," and amends the provision in several ways. The provision will allow exporters to claim drawback on imported merchandise, or other domestic or imported merchandise that is substituted for the imported merchandise, that is not used within the United States before exportation or destruction, while removing the requirement that the merchandise be in the same condition. This allows for the possibility that drawback may be claimed on exported or destroyed unused merchandise that has physically deteriorated.

The term used merchandise was not defined. Common sense dictates that it would mean used for its ordinary purpose. In this case the diaper bag and the inserted components were not used for their ordinary purposes; they were merely repacked. Therefore, the diaper bag and the components would be eligible for drawback under 19 U.S.C. 1313(j)(1).

HOLDING:

The diaper bag, bottom stiffener, changing pad, and dirty garment bag are only repackaged and would be eligible for
drawback under 19 U.S.C. 1313(j)(1) as amended by section 632, title VI - Customs Modernization, Public Law 103-182 the North American Free Trade Implementation Act (107 Stat 2057) enacted December 8, 1993.

Sincerely,

John Durant, Director

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