OT:RR:CTF:ER
H198355 PTM
Nick Da’Maico
Customs Team Leader
U.S. Customs and Border Protection
JFK International Airport, Building 77
Jamaica, NY 11430
Dear Mr. Da’Maico,
We are writing in response to your correspondence dated November 18, 2011, concerning the request for internal advice, by Chugai Pharma USA (“Chugai”). Our response follows.
FACTS:
Chugai states that it imports a pharmaceutical product called CH5424802 (herein the “product”) into the United States. The product is an investigational drug designed to treat lung cancer. The product is manufactured in crude powder form in Japan and is not usable as a pharmaceutical in this form. Chugai states that the product must undergo a process called micronization in the United States in order to achieve sufficient intestinal permeability. Micronization is the process of milling the product from crude powder into fine powder form. Milling takes place in a central chamber of a jet mill. The material is driven at near sonic velocity around the perimeter of a chamber by multiple jets of air or steam. No grinding occurs; size reduction of the material is the result of high-velocity collisions between the particles. The product is not sold in the United States, and the finished fine powder is returned to Japan.
Chugai states that the milled material is extremely fine, and that some of the material adheres to the surface milling equipment. Some material adheres to the filters. Further, it states that the loss rate depends on the type of equipment used and the characteristics of the milled product. Chugai estimates that the amount of loss of the product will be between 2 and 6 percent. None of the loss is recoverable. The product remaining the jet mill is washed out into cleaning waste. A small amount of the product in powder form will also be captured for analysis, and that this amount will be accounted for by Chugai.
ISSUES:
Whether the operation described qualifies for duty-free treatment under a temporary importation under bond (TIB) pursuant to subheading 9813.00.05.20 HTSUS.
Whether the applicant must account for waste resulting from the micronization process.
LAW AND ANALYSIS
You query whether the importation of the product and its subsequent processing qualifies for TIB entry pursuant to 9813.00.05.20. Further, you wish to know how CBP will treat the valueless waste resulting from the micronization process. We find that the micronization of the product is a process within the meaning of 9813.00.05 and consequently, is eligible for TIB entry. The micronization results in a product manufactured in the United States, and therefore must be accounted for pursuant to U.S. Note 2(b), Subchapter XIII, Chapter 98 HTSUS.
You posit that the importation of CH5424802 product qualifies for duty-free TIB treatment under 9813.00.05 HTSUS. Pursuant to U.S. Note 1 (a) of Subchapter XIII of Chapter 98, HTSUS, articles to be repaired, altered or processed, may enter into the United States temporarily free of duty under a TIB for exportation within one year from the date of importation. This one-year period may be extended for one or more additional periods, which when added to the initial period may not exceed three years. See 19 C.F.R. § 10.37. The imported merchandise may not be imported for the purpose of a sale or sale on approval. See U.S. Note I. (a)., Chapter 98, Subchapter XIII, HTSUS. Consequently, we must examine whether the use of the imported material described above qualifies as a “process” within the meaning of 9813.00.05 HTSUS.
In Headquarters Ruling Letter HQ 224661 (Jan. 11, 1994), which pertained to subheading 9813.00.05, we stated that “[t]he processing can be a relatively minor procedure or extensive enough to be considered a manufacture or production.” A prior CBP Headquarters Ruling addressed whether milling products meets the requirements for TIB entry under 9813.00.05 HTSUS. In HQ 228961 (Jan. 23, 2002), this office held that the process of milling indigo powder and suspending it in water to form a paste was a process for the purposes of 9813.00.05 HTSUS. Additionally, when applying the more stringent definition of “manufacture” for duty drawback, CBP found that grinding a course powder into a finer powder is a “manufacture.” See HQ 157616 (Jan. 23, 2012), see also, Tropicana Products Inc. v. United States, 789 F. Supp. 1154, 1158 (CIT 1992) (explaining that there is a “high threshold” for finding a manufacturing to have occurred for purposes of drawback). The milling process undertaken here reduces the size of the product to make it useable as a pharmaceutical. Based on the CBP precedent discussed, we find that this is a process for the purpose of 9813.00.05. Therefore, TIB entry for the product under 98113.00.05 is permissible for the process described in your request.
You also query as to how CBP will treat the waste generated from the micronization process. Note 2(b) of Subchapter XIII, HTSUS, requires that, when processing of merchandise admitted into the United States under subheading 9813.00.05, HTSUS, results in an article manufactured or produced in the United States:
(i) a complete accounting will be made to the Customs Service for all articles, wastes and irrecoverable losses resulting from such processing; and (ii) all articles and valuable wastes resulting from such processing will be exported or destroyed under customs supervision within the bonded period; except that in lieu of the exportation or destruction of valuable wastes, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.
In Anheuser-Busch Brewing Assoc. v. United States, 207 U.S. 556, 562 (1907), the U.S. Supreme Court discussed manufacture or production:
Manufacture implies change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor and manipulation… There must be a transformation; a new and different article must emerge, "having a different name, character, or use."
See, e.g., HQ 230942 (June 6, 2005) (applying the “distinctive name, character, and use” standard for manufacture for a TIB). Accordingly, in order to determine whether a manufacture has occurred, it is necessary to determine whether the micronization process results in a product with a different name, character or use.
In its unmicronized form, the crude power is unusable as its larger particle size does not permit sufficient intestinal permeation for the drug to be effective. Milling the product micronizes the product into a fine powder, which has sufficient permeability to be used in pharmaceutical products. Because the use of the product changes due to the micronization process, we find that a manufacture has occurred. See HQ H157616 (Jan. 23, 2012). Consequently, Chugai must comply with the accounting requirements in U.S. Note 2(b)(i) of Subchapter XIII of Chapter 98 HTSUS, and must provide a complete accounting for the entire imported product, including accounting for all articles, wastes, or irrecoverable losses resulting from the processing. Specific documentation of these matters is an essential requirement of qualifying for duty-free entry under a TIB. However, we note that according to the facts Chugai provided, the waste is valueless as it is irrecoverable, either remaining on the equipment and filters or being washed away. See HQ 229265 (Sept. 27, 2002) (explaining that only product that can be recaptured from the filers, etc. and retained value would qualify as valuable waste).
HOLDING:
The micronization process on the imported product qualifies as a “process” for the purposes of 9813.00.05 HTSUS. Therefore, entry under TIB under 9813.00.05 is permissible. All of the imported product must be accounted for, including all articles, wastes and irrevocable losses resulting from the processing.
You are to mail this decision to the importer no later than 60 days from the date of this letter. On that date, the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division