OT:RR:CTF:VS H090975 BGK
Michael T. Shor
Arnold & Porter LLP
555 Twelfth Street, NW
Washington, DC 20004-1206
RE: Modification of NY N077738; Tariff Classification and Eligibility for Duty-free Treatment under Subheading 9801.00.20, HTSUS, for Certain Heater/Diffusers
Dear Mr. Shor:
This letter concerns New York Ruling Letter (NY) N077738, issued to you on October 28, 2009, on behalf of your clients Jeyes Limited and Jeyes, Inc. by the National Commodity Specialist Division, U.S. Customs and Border Protection (CBP). At issue in the ruling was the tariff classification of certain heater/diffusers and their eligibility for duty-free treatment under subheading 9801.00.20, Harmonized Tariff Schedule of the United States (HTSUS). We have reconsidered that ruling and found it to be incorrect as it relates to our finding that the heater/diffusers were not eligible for duty-free treatment. As we agree with your classification of the diffusers under subheading 9801.00.20, we will also address your other questions in your September 24, 2009 ruling request.
Pursuant to section 625(c), Tariff Act of 1930 (19 U.S.C. § 1625(c)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed modification was published on April 13, 2011, in the Customs Bulletin, Vol. 45, No. 16. No comments were received on the proposed action.
The merchandise was described in NY N077738, in relevant part, as follows:
The article in question is described as a plug-in electric room fragrance heater/diffuser you plan to import from China, pay duty, and then re-export to Mexico for packaging in retail sets with dedicated, replaceable scent bulbs filled with scented oil. . . . The heater/diffuser is an electrothermic device incorporating an electric heating element that heats scented oil within a scent bulb. The scent bulb is designed to attach directly to and is dedicated for use with the heater/diffuser.
Considering the provisions of subheading 9801.00.20, HTSUS, CBP found that the packaging with the scent bulb in Mexico created a “complete, albeit unassembled, electrothermic appliance. . .” which would not meet the “previously imported” requirement of subheading 9801.00.20, HTSUS. It was found that the heater/diffuser would not be separately eligible for treatment under subheading 9801.00.20, HTSUS.
I. Whether the heater/diffuser is eligible for duty-free treatment under subheading 9801.00.20, HTSUS, upon re-importation from Mexico.
II. What is the tariff classification of the scent bulb if the heater diffuser is entered under subheading 9801.00.20, HTSUS?
III. What are the applicable marking requirements for the heater/diffuser and the scent bulb?
LAW AND ANALYSIS:
I. The eligibility of the heater diffuser for duty-free treatment under subheading 9801.00.20, HTSUS, upon re-importation from Mexico:
Subheading 9801.00.20, HTSUS, provides duty-free treatment for:
Articles, previously imported, with respect to which the duty was paid upon such previous importation or which were previously free of duty pursuant to the Caribbean Basin Economic Recovery Act or Title V of the Trade Act of 1974, if (1) reimported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, after having been exported under lease or similar use agreements, and (2) reimported by or for the account of the person who imported it into, and exported it from the United States.
The heater/diffuser in this case will be imported by Jeyes into the U.S. from China. Duty will be paid upon importation into the U.S., and then the heater/diffusers will be exported to Mexico to be packaged with a scent bulb and reimported.
NY N077738 held that because the scent bulb and heater/diffuser are classifiable as one complete, unassembled article of commerce upon importation into the U.S., the heater diffuser would not meet the “previously imported” requirement of subheading 9801.00.20, HTSUS. NY N077738 considered Headquarters Ruling Letter (HRL) 964960, dated September 4, 2002, where sheets and pillowcases were imported from Pakistan into the U.S., exported to Mexico to become part of a bed in a bag set, and then reimported under subheading 9801.00.20, HTSUS. NY N077738 distinguished HRL 964960 on the ground that the scent bulb and heater/diffuser, when packaged together, create a complete, unassembled article of commerce classifiable under one HTSUS number under General Rule of Interpretation (GRI) 2(a), whereas the pieces in the bed in a bag set each remained separate articles of commerce prima facie classifiable under different HTSUS headings under GRI 3(b) as a set. We note that HRL 964960 did not consider the classification of the sheets and pillowcases as part of a set in determining that they were eligible for subheading 9801.00.20, HTSUS, treatment. Instead, relying on HRL 560511, dated November 18, 1997, it was determined that mere packaging of the sheets and pillowcases into the set was not an advancement in value or improvement in condition.
In HRL 560511, Gerber imported bibs into the U.S. from China and then exported them to the Dominican Republic to be packaged with onesies and reimported. These goods were not considered a set, and were classified separately. The focus of the inquiry with regard to whether the bibs would be eligible for subheading 9801.00.20, HTSUS, treatment turned on whether the bibs met the requirements of subheading 9801.00.20, HTSUS, not their classification with respect to the onesies. It was determined that the bibs were eligible for subheading 9801.00.20, HTSUS, treatment upon reimportation into the U.S because “Customs does not consider merely packaging a good for retail sale as an advancement in value or improvement in condition.” HRL 560511 (citing John v. Carr & Son, Inc., 69 Cust. Ct. 78, C.D. 43377 (1972), aff’d, 61 CCPA 52, C.A.D. 1118 (1974)).
Similarly, batteries imported from Singapore, exported to Canada for packaging and reimported were held to be eligible for subheading 9801.00.20, HTSUS, treatment in HRL H016586, dated October 15, 2007. This case was also decided on the principle that repackaging will not affect eligibility for subheading 9801.00.20, HTSUS, treatment. All these cases analyzed the eligibility of the articles for subheading 9801.00.20, HTSUS, treatment without regard to the classification of the goods or their packaging with other items.
The requirements of subheading 9801.00.20 are similar to those of subheading 9801.00.10, HTSUS, the predecessor of which, item 800.00, Tariff Schedule of the United States (TSUS), was examined in Superscope, Inc. v. United States, 727 F. Supp. 629 (CIT 1989). In Superscope, glass panels manufactured in the U.S. were exported to New Zealand, packaged with the remaining components of unassembled cabinets, for which the glass would serve as doors or lids, and reimported into the U.S. Superscope, 727 F. Supp. at 630. The court held that “since the glass panels were not ‘advanced in value or improved in condition. . . while abroad,’ but were merely repacked, they are entitled to duty free entry under item 800.00 TSUS.” Id. at 632 (discussing John v. Carr & Son). The Court of International Trade reasoned that “strict construction of item 800.00, TSUS, would frustrate what seems to be the fundamental legislative policy embodied in that item.” Id. at 633. The court also stressed throughout the opinion that the mere sorting and repackaging of goods should not preclude goods from being classified under item 800.00, TSUS. See id. at 632-634. As subheading 9801.00.20, HTSUS, and subheading 9801.00.10, HTSUS, contain similar requirements, particularly “without having been advanced in value or improved in condition”, the reasoning given by the court in Superscope, should apply to goods being reimported under subheading 9801.00.20, HTSUS, the same as it would for American goods returned under subheading 9801.00.10, HTSUS.
The Superscope Court also discussed Headnote 1 to schedule 8, TSUS, (now U.S. Note 1, Subchapter 1, Chapter 98, HTSUS), which provides as follows:
The provisions of this chapter are not subject to the rule of relative specificity in general rule of interpretation 3(a). Any article which is described in any provision in this chapter is classifiable in said provision if the conditions and requirements thereof and of any applicable regulations are met.
U.S. Note 1, Chapter 98, HTSUS (2010). Therefore, although Superscope involved a complete, unassembled, single article of commerce, the court determined that articles that meet the requirements of the provision would be afforded treatment under the provision, without regard to the classification of the article or articles.
In this case, like in Superscope and the above mentioned rulings, the heater/diffusers are merely repackaged with the scent bulbs in Mexico. While, like in Superscope, they are being repacked with other articles to create a complete, unassembled article, this alone will not preclude the application of subheading 9801.00.20, HTSUS. As long as the requirements of subheading 9801.00.20, HTSUS, are met, the classification of the repackaged heater/diffuser and scent bulb will not affect the heater/diffuser’s eligibility for subheading 9801.00.20, HTSUS, treatment. Also, as emphasized by Superscope and the above rulings, “Customs does not consider merely packaging a good for retail sale as an advancement in value or improvement in condition.” HRL 560511. The heater/diffusers are being reimported without having been advanced in value or improved in condition while abroad.
Subheading 9801.00.20, HTSUS, also requires that the articles be exported under a lease or similar use agreement. You state that there will be a written agreement between Jeyes and Jeyes Mexico, pursuant to which Jeyes will retain ownership of the diffuser at all times. You have provided a copy of the agreement.
In HRL 560511 it was found that the bibs were exported under a similar use agreement, for purposes of subheading 9801.00.20, HTSUS, as Gerber retained ownership throughout the process. As in HRL 560511, Jeyes will retain ownership of the heater/diffusers at all times. Therefore we find they are exported under a similar use agreement for purposes of subheading 9801.00.20, HTSUS.
In addition, subheading 9801.00.20, HTSUS, requires that the same party, who originally imported and exported the article to and from the U.S., reimport the article, or that the article is reimported on their behalf. In this case, Jeyes retains ownership of the articles throughout the whole process, and is the party importing, exporting, and reimporting the heater/diffusers.
Therefore, we find that the heater/diffusers are eligible for duty-free treatment under subheading 9801.00.20, HTSUS, upon reimportation into the U.S. after exportation for repackaging in Mexico.
II. The tariff classification of the scent bulb:
In NY N077738, CBP stated that the scent bulb would be classified, if presented separately, under subheading 8516.90.90, HTSUS. Further, under GRI 2(a), once packaged with the heater/diffuser, NY N077738 found that the classification is subheading 8516.79.00, HTSUS. The fact that the heater/diffuser is eligible for treatment under subheading 9801.00.20, HTSUS, does not change this determination. Therefore, as stated in NY N077738, the scent bulb will be classified under subheading 8516.79.00, HTSUS.
III. Marking Requirements for the heater/diffuser and scent bulb:
The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. § 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. 19 U.S.C. § 1304(a). Part 134, Customs Regulations (19 C.F.R. Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304.
Section 134.1(b) of the Customs Regulations, defines "Country of origin" as:
the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 134.1(j) provides that the “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) of the regulations, defines a "good of a NAFTA country" as “an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules.” As the heater/diffuser is being imported from Mexico, the NAFTA Marking Rules must be applied.
The NAFTA Marking Rules are set forth in 19 C.F.R. Part 102. Section 102.11(a) contains the “General rules” for determining country of origin:
(a) The country of origin of a good is the country in which:
The good is wholly obtained or produced;
The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in § 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
The heater/diffuser and scent bulb packaged together in Mexico have different countries of origin, therefore, they cannot be considered wholly obtained or produced, nor produced exclusively from domestic materials. In such circumstances, section 102.11(a)(3) is applied next. Under section 102.11(a)(3), the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20, Customs Regulations (19 C.F.R. § 102.20). However, section 102.17, Customs Regulations (19 C.F.R. § 102.17), states that a foreign material shall not be considered to have undergone an applicable change in tariff classification by reason of simple packing, repacking or retail packaging without more than minor processing. In the present case, the facts presented indicate that the Mexican operations on the heater/diffuser consist only of retail packaging.
In such circumstances, the next step in the hierarchy is section 102.11(b), Customs Regulations (19 C.F.R. § 102.11(b)). That section states:
(b) Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good....
19 C.F.R. § 102.11(b).
As described above, the heater/diffuser and scent bulb are not classified as a set under the HTSUS. Section 102.18(b)(1), Customs Regulations (19 C.F.R. § 102.18(b)(1)), provides that for purposes of applying section 102.11, only those domestic and foreign materials “that are classified in a tariff provision from which a change in tariff classification is not allowed under the section 102.20 specific rule or requirements applicable to the good” shall be taken into consideration in determining the parts or materials that determine the essential character of the good. Moreover,
section 102.18(b)(2), Customs Regulations (19 C.F.R. § 102.18(b)(2)), states that for purposes of determining which material imparts the essential character to a good, various factors may be examined depending upon the type of good involved. Those factors may include, but are not be limited to, the nature of the material (such as its bulk, quantity or value) and the role the material plays relative to the good's use.
In applying the above factors we first note that the heater/diffuser is the component that controls the release of the fragrance from the scent bulb. The purpose of the two components together is to release a fragrance into a room. CBP is of the opinion that the heater/diffuser represents the essential character of the article. Therefore, the country of origin of the complete, unassembled article of commerce consisting of the heater/diffuser and scent bulb is China, the country of origin of the heater/diffuser. See HRL 560352, dated October 23, 1997. Therefore, your proposal to mark the package, “Diffuser Made in China; Fragrance Made in Mexico” is inappropriate. Rather, the packaging should be marked “Made in China.”
The portion of NY N077738 relating to the classification of the heater/diffusers under subheading 8516.79.00, HTSUS, remains the same. The heater/diffuser is eligible for duty-free treatment under subheading 9801.00.20, HTSUS, when returned to the United States. The scent bulb remains classified in subheading 8516.79.00, HTSUS, as an unassembled electrothermic device, when packaged with the heater/diffuser, even though the heater/diffuser is eligible for treatment under Chapter 98, HTSUS. Pursuant to 19 C.F.R. § 102.11(b), the country of origin is China, and the packaging should be marked as such.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction.
EFFECT ON OTHER RULINGS:
NY N077738, dated October 28, 2009, is hereby modified.
Myles B. Harmon,
Director, Commercial Trade and Facilitation Division.