CLA-2 CO:R:C:S 557584 MLR
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
Commercial Rulings Division