CLA-2 CO:R:C:S 556955 BLS
TARIFF NO: 9802.00.50
Patrick D. Gill, Esq.
Rode & Qualey
295 Madison Avenue
New York, N.Y.
Re: Applicability of subheading 9802.00.50, HTSUS;
HRL 555740; Guardian Industries; Richardson;
19 CFR 10.8
Dear Mr. Gill:
This is in reference to your letters dated August 18, 1992,
and February 10, 1993, on behalf of Warner-Lambert Company
("Importer") requesting a ruling regarding the eligibility for the
partial duty exemption under subheading 9802.00.50, Harmonized
Tariff System of the United States (HTSUS), of a product identified
as Pentostatin, to be imported from Germany.
FACTS:
Pentostatin is a adenosine deaminase inhibitor which has been
specifically developed as an anti-cancer agent, particularly for
hairy cell leukemia. It is manufactured in the U.S. in frozen
concentrate form for the importer by the Upjohn Company. In this
state, known in the industry as a fermentation "broth", or
fermentation "cake" (if part of the water is removed), it consists
of Pentostatin and fermentation by-products. Some purification of
the product occurs in the U.S. The product is then exported to
Europe, where further processing through crystallization removes
impurities and fermentation by-products. However, the operations
performed abroad do not alter the chemical composition of the
exported Pentostatin. The product, now in a powdered state, is
returned to the U.S. where it is sterilized and converted to
dosage form to be administered to cancer patients by injection.
ISSUE:
Whether the imported product is eligible for the partial duty
exemption under subheading 9802.00.50, HTSUS.
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LAW AND ANALYSIS:
Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles returned to the U.S. after having been
exported to be advanced in value or improved in condition by means
of repairs or alterations. Such articles are dutiable only upon
the value of the foreign repairs or alterations, provided the
documentary requirements of section 10.8, Customs Regulations (19
CFR 10.8), are satisfied. However, the application of this tariff
provision is precluded where the operations performed abroad result
in articles with new or different uses or characteristics, or where
the foreign operations constitute a part of a manufacturing process
begun in the U.S. As stated by the appellate court in Dolliff &
Company Inc. v. U.S., 66 CCPA 77, C.A.D. 1225 (1979), alterations
are made only to completed articles and do not include intermediate
operations which are performed in the manufacture of finished
products. If the foreign processing is a step in the manufacture
needed to finish the article for its intended use, the statutory
provision for alterations will not be applicable. (See Guardian
Industries Corporation v. U.S., 3 C.I.T. 9 (1982), where
"tempering" of glass parts of patio doors was considered to be a
step in the manufacture of the finished product.) Congress did
not intend to permit uncompleted articles to be exported abroad and
there made into finished products and when returned to be subject
to duties only on the cost of the so-called alterations. U.S. v.
J.D. Richardson Co., 36 CCPA 15, C.A.D. 390 (1948).
In arguing that the imported product qualifies for the partial
duty exemption under subheading 9802.00.50, HTSUS, you point out
that it is specifically identified as Pentostatin in its form as
exported from the U.S., and retains its identity through the
foreign processing. You contend that the operations performed
abroad do not substantially transform the product into a new or
different article of commerce, and a finished pharmaceutical
product emerges only after return to the U.S. You also note that
the cost of removing the impurities abroad represents only about
8 percent of the value of Pentostatin up to that point and less
than 1 percent of the value of the finished product. You cite
Headquarters Ruling Letter (HRL) 555740, dated May 28, 1991, as
controlling, since 1) the identity of the article is not
destroyed by the foreign processing, 2) a new or different article
is not created when the product is further purified abroad, and 3)
when the product leaves the U.S. after manufacture, it is complete
for its intended use as a pharmaceutical and has no other use.
In HRL 555740, a herbicide was exported to France where it was
subjected to processes of formulation and granulation. The
chemical composition of the herbicide was unchanged by the foreign
processing, but made the product more marketable and "user
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friendly". In that case, we found that a market existed for the
product prior to exportation, and that in its exported condition
it was complete for its intended use as a herbicide.
In the instant case, while the product is identified and
recognized in the industry as Pentostatin prior to exportation, the
evidence fails to support the claim that, in its exported state,
it is complete for its intended use as a pharmaceutical. In fact,
it appears that even after the processing performed abroad, the
product would not meet this requirement. In a letter dated
February 5, 1993, submitted as an exhibit to the ruling request,
the Vice-President for Chemical Development for Parke-Davis
Pharmaceutical Research states that the returning material "...is
bulk powder and is not a pharmaceutical product. It cannot be used
in patients without further processing."
Under the circumstances, we find that the imported product is
not complete for its intended use as a pharmaceutical product upon
exportation from the U.S. Rather, the processing performed abroad
is an intermediate operation and constitutes part of a
manufacturing process begun in the U.S. Since these operations
constitute steps performed in the manufacture of the finished
product, following the reasoning in cases such as Dolliff and
Guardian, supra, such processing is not considered an alteration
within the meaning of subheading 9802.00.50, HTSUS, which applies
only to finished products.
HOLDING:
The operations performed abroad on the product known as
Pentostatin are not considered alterations within the meaning of
subheading 9802.00.50, HTSUS, since upon exportation from the U.S.
in a frozen concentrate form Pentostatin is not complete for its
intended use as a pharmaceutical product. Therefore, the imported
product is not eligible for the partial duty exemption under this
tariff provision.
Sincerely,
John Durant, Director
Commercial Rulings Division