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HQ 225467




October 7, 1994

DRA-4-CO:R:C:E 225467 SR

CATEGORY: DRAWBACK

Mr. Leonard M. Shayne
Leading Forwarders, Inc.
149-09 183 ST
Springfield Gardens,, NY 11413

RE: Drawback for cosmetic bags; 19 U.S.C. 1313(j)(1); Public Law 103-182 the North American Free Trade Implementation Act 107 Stat 2057), Section 632.

Dear Mr. Shayne:

This is in response to your letter dated June 2, 1994, concerning drawback on cosmetic bags.

FACTS:

Cosmetic bags will be imported. Some of the bags are made up of nylon fabric and entered under subheading 4202.92.30, Harmonized Tariff Schedule of the United States (HTSUS) at a duty rate of 20% ad valorem. Other bags are chiefly made of ramie and entered under subheading 4202.92.20, HTSUS, at a duty rate of 6- 1/2% ad valorem. In the United States the importer will assemble various sample size cosmetic and grooming products and place them in the bags and then export the filled bags.

ISSUE:

Whether the cosmetic bags may be eligible for drawback under 19 U.S.C. 1313(j)(1).

LAW AND ANALYSIS:

Same condition drawback is provided for under 19 U.S.C. 1313(j)(1), 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.

However, 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.

Section 632 of the new act changes same condition direct identification drawback by providing 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.

A definition of the term used merchandise was not provided in the language of the new act. However, in C.S.D. 81-222 and C.S.D. 82-135 it was found that an article is used when it is employed for the purpose for which it was manufactured and intended. An article is also considered used when it is used in the manufacture or production of another article. C.S.D. 81-179. The performance of certain "incidental operations" (such as testing cleaning, and inspecting) on the imported item, not amounting to a manufacture or production, is not treated as a use
of the merchandise. 19 U.S.C. 1313(j)(3). In this case, according to the facts provided, the cosmetic bags would merely be filled with the inserted components would not be used for their ordinary purposes. This would be considered an incidental operation. Therefore, the cosmetic bags would be eligible for drawback under 19 U.S.C. 1313(j)(1).

HOLDING:

The cosmetic bags are merely 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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