CLA-2 RR:TC:SM 562175
Mr. Daniel J. Gluck
Serko & Simon, LLP
C/o Baker & Hostetler
666 – 5th Avenue
16th Floor
New York, NY 10103
RE: Applicability of the partial duty exemption under subheading 9802.00.50, HTSUS to sodium chondroitin sulfate concentrate exported to Spain; change in form from liquid to powder; complete for intended use upon exportation; HRL 560274; HRL 557836; HRL 561918
Dear Mr. Gluck:
This is in response to your letter dated July 5, 2001, on behalf of your client, Bioiberica-Nebraska, which requests a binding ruling regarding the eligibility of sodium chondroitin sulfate for the partial duty exemption provided under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
We are informed that the product sodium chondroitin sulfate, a natural sulfated glycosaminoglycan formed by the polymerisation of a disaccharide unit composed of a N-acetylgalactosaminesulfate unit linked to glucuronic acid, is exported to Spain for further processing. In its condition as exported, the U.S.-origin chondroitin sulfate is in liquid form in a solution which consists of 5-12% chondroitin sulfate, 25-55% water and 30-50% other substances. In its appearance, the exported product is a brown/orange, stiff, aqueous solution with a strong characteristic odor.
Once exported to Spain, the liquid chondroitin solution is processed in the following manner:
1). The chondroitin sulfate concentrate solution is diluted with water.
2). The resulting liquid is filtered.
3). The chondroitin sulfate is purified in steps by three separate precipitations in order to reach the desired level of purity.
4). The chondroitin sulfate, now in solid form, is filtered out.
5). The solid chondroitin sulfate is dried, sieved and milled, and then homogenized.
The resulting product is a solid white or off-white powder with a characteristic odor. In Spain, the processing operations described above are utilized to produce two different powders. The composition of the first is over 90% chondroitin sulfate, less than 10% water and less than 10% other substances. The second powder is composed of over 95% chondroitin sulfate, less than 10% water and less than 10% other substances. Upon completion of processing, the powders are packed in double plastic bags, placed inside cardboard drums and shipped to the United States.
You state that the exported chondroitin sulfate concentrated solution and the returned powdered chondroitin sulfate are both classifiable under subheading 3913.90.2050, HTSUS, and assert that the exported solution is the same chemical entity as the purified powder.
You also state that both the liquid chondroitin sulfate solution manufactured by Bioiberica-Nebraska and the returned powdered chondroitin sulfate returned from Spain can be, and are currently, sold in both forms to health food supplement manufacturers, who further process the product for sale to consumers. Prior to its sale to consumers, the chondroitin sulfate concentrated solution is further formulated by the addition of excipients, preservatives, other active ingredients, flavoring agents and the removal or addition of coloring agents, as each supplement manufacturer deems necessary in presenting its final product. Likewise, the imported powdered chondroitin sulfate is also further formulated by health food supplement manufacturers, through the addition of excipients, other active ingredients, and flavoring/coloring agents, as deemed necessary by the manufacturer to differentiate its product in the consumer marketplace. You advise that the health food supplement industry sells chondroitin sulfate in powdered and liquid form as well as tablets and softgels.
ISSUE:
Whether U.S.-origin sodium chondroitin sulfate exported to Spain in liquid form, for purification and processing into powdered form is advanced in value or improved in condition by means of repairs or alterations, and therefore eligible for the duty exemption provided by subheading 9802.00.50, HTSUS, when returned to the United States.
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 a repair or alteration and duty is assessed only on the cost or value of the repair or alteration abroad, provided that the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are met. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff’d C.D. 1752, 36 Cust.Ct. 46 (1956) and Guardian Industries Corp. v. United States, 3 CIT 9 (1982). The partial duty exemption provided by subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use and the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of finished articles. See Dolliff & Company, Inc., v. United States, 81 Cust.Ct. 1, C.D. 4755, 455 F.Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015, 1019 (1979).
In Dolliff & Company, Inc. v. U.S., supra, the court found that the processing steps performed on exported greige goods were undertaken to produce the finished fabric and could not be considered as alterations. At issue in Dolliff was the question of whether certain Dacron polyester fabrics, which were manufactured in the U.S., and exported to Canada for heat setting, chemical scouring, dyeing, and treating with chemicals were eligible for the partial duty exemption available under item 806.20, Tariff Schedules of the United States (TSUS) (the precursor to HTSUS subheading 9802.00.50), when returned to the U.S. Specifically, the U.S. Court of Customs and Patent Appeals stated that:
. . . repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or manufacture of finished articles. In the instant situation, the operations performed in Canada comprise further processing steps which are performed on unfinished goods and which lead to completed articles, i.e., the finished fabrics, and, therefore, the processing cannot be considered alterations.
Congress did not intend to permit uncompleted articles to be exported and made into finished products in the foreign country and when returned to be subject to duties only on the cost of the so called alterations. U.S. v. J.D. Richardson Company, 36 CCPA 15, C.A.D. 390 (1948), cert. denied, 336 U.S. 936 (1949). Therefore, the focus is upon whether the exported article is “incomplete” or “unsuitable for its intended use” prior to the foreign processing. Guardian Industries Corp. v. United States, 3 CIT 9 (1982).
In Headquarters Ruling Letter (HRL) 560274, dated May 16, 1997, Customs considered the question of whether granular and pellet herbicides manufactured in the U.S. and then exported to Switzerland to be ground into powder, heated and bagged, were eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S. Customs concluded that the granules were complete for their intended use prior to exportation to Switzerland and determined that the foreign processing operations did not have the effect of destroying the identity of the products or changing their chemical compositions but only altered their form and did not result in any significant change in the character or use of the products. Accordingly Customs held that the process of grinding the granules and pellets in Switzerland constituted an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS.
Similarly, in HRL 557836, dated April 11, 1994, Customs considered whether nylon resin manufactured in the U.S. in granular form and exported to Switzerland where it was cooled with liquid nitrogen and then ground into powder, heated, blended and bagged, was an alteration within the meaning of subheading 9802.00.50, HTSUS. The finished powders were used in the formulation of adhesive pastes. The exported nylon resin was complete for its intended adhesive application and a purchaser could either buy the powder or resin form. The adhesive action was essentially the same and the granules and powders were sold in the same end use markets. Customs held that the processing of the nylon resins in Switzerland was an alteration within the meaning of subheading 9802.00.50, HTSUS. See also HRL 555740, dated May 28, 1991; HRL 556616, dated June 16, 1992; and HRL 557534, dated December 17, 1993.
Likewise, in HQ 561918, dated July 30, 2001, Customs determined that the processing by which exported acrylic coatings were changed from liquid into aerosol form by the addition of solvents and propellants was an acceptable alteration for purposes of subheading 9802.00.50, HTSUS, and held that the returned product was eligible for the partial duty exemption provided by that subheading. It was found that the coatings, both before and after the foreign processing, were suitable for their intended use.
In the instant case, with regard to the facts and supporting documentation you have presented and consistent with the rulings described above, we find that the processing of the U.S.-origin sodium chondroitin sulfate constitutes an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS. The chondroitin sulfate is complete for its intended use prior to being exported to Spain to undergo the above-described operations, and is, in fact, sold to health food supplement manufacturers in both its liquid and powdered form. Those manufacturers use both forms to make consumer chondroitin sulfate products in liquid, powder, gel or tablet form. The operations performed in Spain do not have the effect of destroying the identity of the chondroitin sulfate or changing its chemical composition, but only serve to change the form of the product. The foreign operations do not result in any significant change in the character or use of the product. The evidence submitted indicates that the exported liquid is used in the same end use markets as the chondroitin sulfate powder, which is returned to the U.S. Regardless of whether liquid or powder form is utilized, the chemical action of the chondroitin sulfate is the same, and is used by health food supplement manufacturers in the same manner.
HOLDING:
On the basis of the information provided, the process of purification and rendering liquid sodium chondroitin sulfate solution into powdered form constitutes an acceptable alteration for purposes of subheading 9802.00.50, HTSUS. Therefore, the returned powder is entitled to classification under this tariff provision with duty to be assessed only upon the cost or value of the operations performed in Spain, provided the documentary requirements of 19 CFR 10.8 are satisfied.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer.
Sincerely,
John Durant
Director
Commercial Rulings Division