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HQ 227312




December 4, 1997

DRA-4-RR:CR:DR 227312 CB

CATEGORY: DRAWBACK

David A. Eisen, Esq.
Siegel, Mandell & Davidson
One Astor Place
1515 Broadway
New York, NY 10036-8901

RE: Lipstick mass imported into United States; 19 U.S.C. 303:6(b) of NAFTA; 19 CFR 181.45(b)(1); Drawback

Dear Mr. Eisen:

This is in response to your letter of October 2, 1996, on behalf of Christian Dior Perfumes, Inc., requesting an advance binding ruling confirming NAFTA preference eligibility for certain cosmetic lipstick products. Our response to your request follows.

FACTS:

Christian Dior Perfumes, Inc. (Dior), contemplates importing bulk quantities of lipstick mass into the United States from France. Subsequent to importation, the lipstick bulk will be heated and bulletized for packaging into lipstick applicator tubes. Once in its respective immediate packaging, the cosmetic products will be packed in retail cartons. A portion may be exported to Canada and/or Mexico for sale.

The bulletizing process involves heating the lipstick mass to a consistency which can be poured; the mass is then poured into bullet-shaped molds and cooled to its original consistency. The bullet-shaped molds are then packaged in lipstick applicator tubes. You state that upon importation into the United States the bulk lipstick mass is classifiable under subheading 3824.90.40, Harmonized Tariff Schedule of the United States (HTSUS). Subsequent to processing in the United States, the finished lipstick products are classifiable in subheading 3304.10, HTSUS.

ISSUE:

Whether the bulletized and packaged lipstick are in the "same condition", under section 203 of the NAFTA Implementation Act and 19 CFR ?181.45(b), as the imported lipstick mass, or doest the process qualify for drawback under 19 U.S.C. ?1313(a).

LAW AND ANALYSIS:

Unused Merchandise Drawback:

Section 203 of the NAFTA Implementation Act (Pub. L. 103-182; 107 Stat. 2057, 2086; 19 U.S.C. ?3333), provides for the treatment of goods subject to NAFTA drawback. Under section 3333(a), such goods mean any good other than, among other things--

(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph--

(A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good[.] ...

Furthermore, this section provides that "[a] good exported to a NAFTA country in the same condition as when imported into the United States" is not a good subject to the NAFTA drawback limitation. We note, however, that this section applies only to goods imported into the United States that are subsequently exported into Canada on or after January 1, 1996, or into Mexico on or after January 1, 2001. See Annex 303.7, section C, NAFTA; 19 CFR ?181.41.

The Customs Regulations issued under the authority of the NAFTA Implementation Act specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country (for effective dates of the provisions in these regulations, see 19 CFR 181.41). Under 19 CFR 181.45(b), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition is eligible for drawback under 19 U.S.C. ?1313(j)(1) without regard to the limitation on drawback provided for in 19 CFR 181.44 (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Subparagraph (b)(1) of section 181.45 provides in that:

For purposes of this subpart, a reference to a good in the "same condition" includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good:

(i) Mere dilution with water or another substance;

(ii) Cleaning, including removal of rust, grease, paint or other coatings;

(iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint;

(iv) Trimming, filing, slitting, or cutting;

(v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or

(vi) Testing, marking, labeling, sorting or grading.

Before determining whether the subject lipstick mass is "used" within the meaning of 19 U.S.C. ?1313(j)(1), we must determine the intended purpose of the subject merchandise. You have stated that, prior to importation, the merchandise is dedicated to a specific end use as cosmetic preparations for the lips. Additionally, you state that (although no evidence has been provided to confirm this assertion) the mass is commercially viable and capable of application to the lips. Thus, you contend that the bulletizing process constitutes a simple repackaging operation. We conclude otherwise. The bulletizing process creates a new article of commerce. This conclusion is substantiated by the fact that the imported mass and the exported finished product are classifiable under different headings of the HTSUS. In HQ 734399 (dated December 28, 1992), we held that (within the context of a subheading 9802, HTSUS) the lipstick mass is considered to be incomplete for its intended use prior to the bulletizing process. The ruling went on to find that the imported lipstick mass is not a completed article and that the "bulletizing" process is more than a mere packaging process. "Instead, these operations constitute necessary finishing steps in the total manufacturing process of the finished article (i.e., tube lipstick)...." See HQ 734399, supra. Thus, we conclude that the bulletizing process described in your ruling request goes beyond the scope of the types of operations permissible for unused merchandise drawback.

Likewise, we conclude that the process you describe does not constitute packaging. The bulletizing process does not qualify as a packaging operation of the type covered by 19 CFR 181.45(b)(1)(v). As discussed below, the bulletizing process is a manufacturing process or a finishing operation which goes beyond the scope of operations permissible under 19 U.S.C.

Manufacturing Drawback:

Under 19 U.S.C. ?1313(a), as amended by ?632(a)(1) of the NAFTA Implementation Act, provides that "[u]pon the exportation ... of articles manufactured or produced in the United States with the use of imported merchandise, provided that those articles have not been used prior to such exportation or destruction, the full amount of duties paid upon the merchandise so used shall be refunded as drawback ...."

The courts have set forth the proposition that "manufacture or production" implies a change, but every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labor and manipulation. See generally, Anheuser-Busch Brewing Association v. United States, 207 U.S. 556 (1907). Later, the courts held that if an operation renders a commodity or article fit for a use for which it was otherwise not fit, the operation falls within the "letter and spirit" of "manufacture". See United States v. International Paint Co., Inc., 35 CCPA 87, C.A.D. 376 (1948). In C.S.D. 84-52 we held that the installation of a necessary component by noncomplex means in order to complete a larger apparatus constitutes a manufacture or production for drawback purposes. This decision was based on the United States Customs Court's holding in C.J. Holt & Co., Inc. v. United States, 27 Cust. Ct. 88, C.D. 1352 (1951), that the assembly of a tire onto a wheel, and the placing of that assembly into an automobile trunk was a manufacture or production for purposes of the drawback manufacturing law.

In the instant case, the lipstick mass must be subjected to the "bulletizing" process before it can be assembled into the lipstick applicator tubes. The assembly into the tubes is an additional process. As stated in HQ 734399, the heating of the mass until it can be poured, forming it into stick or bullet shapes in molds, cooling the shapes, and inserting them into individual applicator tubes result in a finished product which can be put to its intended use. Therefore, based on the foregoing discussion, the "bulletizing" process constitutes a "manufacture or production" for drawback purposes.

HOLDING:

The imported lipstick mass does not qualify for unused merchandise drawback under 19 U.S.C. ?1313(j)(1). However, it does qualify for manufacturing drawback under 19 U.S.C.

As to the Canadian and Mexican tariff treatment, it will be necessary for you to contact the Customs offices of those countries for their determination as to the eligibility of the lipstick for NAFTA preference treatment. This agency issues NAFTA preference rulings only in regard to products imported into the United States from Canada or Mexico.

Sincerely,

John Durant, Director
Commercial Rulings Division

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