OT:RR:CTF:VS H302203 RMC
Alex Romero
A.F. Romero & Co. Customs Brokers
1749 Stergios Rd.
Calexico, CA 92231
Re: Subheadings 9801.00.10 and 9801.00.20, HTSUS; Section 301 Measures
Dear Mr. Romero:
This is in response to your letter, dated December 6, 2018, on behalf of Panacea Products Corp. (“Panacea”). In your letter, you request a binding ruling pursuant to 19 C.F.R. Part 177 on the applicability of subheadings 9801.00.10 and 9801.00.20, Harmonized Tariff Schedule of the United States (“HTSUS”), as well as the applicability of Section 301 measures, to proposed transactions involving Chinese-origin household goods.
FACTS:
Panacea, which acts as the importer of record, operates a wholly-owned packaging operation in Mexicali, Mexico under the name Panacea Products S. De R.L. de C.V. (“Panacea Mexico”). The packaging operation involves taking Chinese-origin household goods such as kitchen organizers, cutlery trays, and shower organizers and packaging them in Mexico for sale in the United States (either individually or along with other items as part of a set). Panacea states that its normal supply chain operation involves shipping the goods from China to the United States and then transferring the merchandise in-bond through the United States to Panacea Mexico’s packaging operation in Mexicali, Mexico. Panacea states that, while the products are in Mexico, they remain under bond at all times pursuant to Mexico’s maquiladora program and thus never enter the commerce of Mexico. In Mexicali, Panacea Mexico repackages the products, which consists only of placing the finished products in retail packaging for sale in the United States. Panacea then enters the packaged goods for consumption in the United States.
Panacea notes that several of its products are covered by actions taken by the United States Trade Representative pursuant to its authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). Specifically, several Panacea products are on “List 3” of the Section 301 measures, which is contained in U.S. Note 20(f) of Subchapter III, Chapter 99, HTSUS. That provision states that products of China on List 3 are subject to an additional 10% ad valorem rate of duty, rising to 25% on January 1, 2019. The increase to 25 percent was subsequently delayed until March 2, 2019. See 83 Fed. Reg. 65198.
Anticipating the increase of Section 301 duties from 10% to 25% for List 3 products, rather than proceeding immediately with the packaging operation in Mexico, Panacea plans to ship the goods back to the United States and enter them for consumption, thus triggering liability for U.S. duties and any applicable Section 301 measures. After a period of storage at a warehouse operated by its customs broker in the United States, Panacea will return the goods to Mexico, where they will be packaged for sale in the United States, as described above. Last, Panacea will ship the packaged products to the United States for resale, making a consumption entry. Panacea states that the goods will remain in Mexico for a period of a few months to a year before being returned to the United States. Panacea asks for confirmation that the goods, when returned to the United States after the packaging operation in Mexico, will be exempt from any additional duties, including Section 301 measures, pursuant to either subheading 9801.00.10, HTSUS, or subheading 9801.00.20, HTSUS.
ISSUES:
Whether the merchandise will be eligible for duty-free treatment under subheading 9801.00.10 or 9801.00.20, HTSUS, when reimported to the United States and, if so, whether the merchandise will be exempt from Section 301 measures upon reimportation.
LAW AND ANALYSIS:
Eligibility under Subheading 9801.00.10, HTSUS
Section 904(b) of the Trade Facilitation and Trade Enforcement Act of 2015 (Pub. L. 114-125, February 24, 2016) amended subheading 9801.00.10, HTSUS, to include any products which are returned within 3 years after having been exported. Previously, subheading 9801.00.10, HTSUS, applied only to products of the United States. Subheading 9801.00.10, HTSUS, now provides for the duty-free treatment of:
Products of the United States when returned after having been exported, or any other products when returned within 3 years after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad.
Here, Panacea states that the goods are products of China. Section 10.1, Customs and Border Protection (“CBP”) Regulations (19 C.F.R. § 10.1) sets forth the documentary requirements for entry under subheading 9801.00.10, HTSUS. We note that CBP has not yet amended the regulations to implement the change to subheading 9801.00.10, HTSUS. While portions of the regulations are no longer pertinent, some portions of 19 C.F.R. § 10.1 still remain valid. For example, 19 C.F.R. § 10.1(a)(1) requires the foreign shipper to declare the following information with regard to articles in a shipment valued over $2,500: the port of exportation, the date of exportation, the quantity, the description of the merchandise, the value of the merchandise, the date of the declaration, and whether the articles were returned without having been advanced in value or improved in condition by any process of manufacture or other means.
As the goods are of Chinese origin, they must be returned to the United States within three years in order to qualify under subheading 9801.00.10, HTSUS. Because Panacea proposes to enter the goods for consumption in the United States before sending them to Mexico for packaging and bringing them back to the United States for resale, the goods will qualify as “returned” for the purposes of subheading 9801.00.10, HTSUS. Furthermore, Panacea states that the goods will remain in Mexico for a period of a few months to a year (i.e., less than the three-year limit established in subheading 9801.00.10, HTSUS) before being returned to the United States. Accordingly, the remaining issue is whether the goods are “advanced in value or improved in condition by any process of manufacture or other means” when they are packaged for retail sale in Mexico.
The courts have consistently held that the mere packaging of an item does not constitute “advance[ing] in value or improv[ing] in condition” for purposes of subheading 9801.00.10, HTSUS. For example, in John v. Carr & Sons, Inc. v. United States, 69 Cust. Ct. 78, C.D. 4377, 347 F. Supp. 1390 (1972), aff’d 61 CCPA 52, C.A.D. 1118, 496 F.2d 1225 (1974), the court held that U.S.-origin fish hooks were not advanced in value or improved in condition when they were sent to Hong Kong to be sorted and placed into containers. The court explained that “[a]bsent an alteration or change in the fish hooks themselves, their mere sorting and repackaging, even for the purposes of resale to the ultimate consumer, do not preclude their classification as returned American products” for purposes of item 800.00, Tariff Schedules of the United States (TSUS) (the precursor provision to subheading 9801.00.10, HTSUS). See also Superscope, Inc. v. United States, 13 C.I.T. 997, 727 F. Supp. 629 (CIT 1989) (holding that certain glass panels of U.S. origin that were exported, repacked abroad with certain foreign components, and returned to the United States as part of unassembled audio cabinets, were entitled to free entry under item 800.00, TSUS, since the U.S. panel portion of the imported article was “not advanced in value or improved in condition . . . while abroad, but (was) merely repacked.”).
CBP decisions have followed this precedent. In Headquarters Ruling HQ H285605, dated August 31, 2017, for instance, we held that splice kits designed to protect cables from the elements were not advanced in value or improved in condition in Mexico, where they were packaged together as kits for sale in the United States. We noted that “[n]o other operations besides packaging the components into kits are performed while in Mexico” and that “mere repacking of the components into kits is not an advancement in value or improvement in condition.” Because all other requirements were met, the splice kits were eligible for a duty exemption under subheading 9801.00.10, HTSUS, when they were returned to the United States. See also HQ 555685 (holding that infant formulas that were exported in a finished condition to Canada and packaged into consumer-size cans without being subjected to any other operations were eligible for classification under 9801.00.10, HTSUS, when they were returned to the United States); and HQ 555148, dated March 15, 1990 (holding that soybean and corn oil that was shipped to Canada and packaged into consumer-size bottles were eligible for classification pursuant to subheading 9801.00.10, HTSUS, when the oils were returned to the United States).
Here, as in the cases and decisions cited above, the goods themselves will not be altered or changed in any way while they are abroad. Because the operation in Mexico consists of mere repackaging, the goods will be not “advanced in value or improved in condition” in Mexico. Accordingly, provided that all documentary requirements are met, the goods will be eligible for a duty exemption pursuant to subheading 9801.00.10, HTSUS, when Panacea returns them to the United States within three years after their prior entry for consumption into the United States.
Eligibility under Subheading 9801.00.20, HTSUS
Subheading 9801.00.20, HTSUS, provides a duty exemption for:
[a]rticles, previously imported, with respect to which the duty was paid upon such previous importation . . ., 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.
Because Panacea proposes to enter the goods for consumption in the United States before sending them to Mexico for packaging, the goods qualify as “articles, previously imported, with respect to which the duty was paid . . .” for purposes of 9801.00.20, HTSUS. Furthermore, and as explained above, the articles will be “reimported, without having been advanced in value or improved in condition . . . .” Finally, as Panacea will act as the importer of record both on the first and second entry into the United States, the goods will be “reimported by or for the account of the person who imported it into, and exported it from, the United States.” The sole remaining issue is therefore whether the goods will be returned “after having been exported under lease or similar use agreements.”
Panacea states that exporting the merchandise to Mexico pursuant to the Mexican maquiladora program is an exportation “under lease or similar use agreements” for purposes of subheading 9801.00.20, HTSUS. A lease is “a contract by which one owning . . . property grants to another the right to possess, use and enjoy it for specified period of time in exchange for periodic payment.” See Werner & Pfeiderer Corp. v. United States, 17 C.I.T. 916, 918 (1993) (quoting Black’s Law Dictionary 889 (6th ed. 1990)). Here, the goods will not be exported from the United States under a lease because Panacea Mexico will not provide consideration for the right to possess, use, or enjoy the goods. To the contrary, Panacea Mexico will receive compensation for services it provides related to the goods, namely, packaging the goods for sale in the United States.
Whether an agreement qualifies as a “similar use agreement” for purposes of subheading 9801.00.20, HTSUS, requires a detailed analysis of the specific agreement at issue and a clear understanding of the rights and obligations of each of the parties. In this case, however, Panacea has only stated that the merchandise will be exported to Mexico under the Mexican maquiladora program. Without more information on this program and how it applies to the transaction under consideration, we cannot determine whether it qualifies as a “similar use agreement” for purposes of subheading 9801.00.20, HTSUS.
Liability for Section 301 Measures Upon Reimportation
Panacea states that the merchandise at issue is covered by the Section 301 measures and concedes that it is liable for any applicable Section 301 duties when the merchandise is entered for consumption in the United States for the first time (i.e., when the merchandise is sent from Mexico to the United States to be stored temporarily). The sole issue addressed here is whether Section 301 measures will be assessed again when the merchandise is returned to the United States from Mexico and entered under subheading 9801.00.10, HTSUS or subheading 9801.00.20, HTSUS.
U.S. Note 20(e) to subchapter III of chapter 99 provides the following information on the applicability of List 3 Section 301 measures:
The additional duties imposed by heading 9903.88.03 do not apply to goods for which entry is properly claimed under a provision of chapter 98 of the HTSUS, except for goods entered under subheadings 9802.00.40, 9802.00.50, and 9802.00.60, and heading 9802.00.80. For subheadings 9802.00.40, 9802.00.50, and 9802.00.60, the additional duties apply to the value of repairs, alterations, or processing performed abroad, as described in the applicable subheading. For heading 9802.00.80, the additional duties apply to the value of the article less the cost or value of such products of the United States, as described in heading 9802.00.80.
Accordingly, Section 301 measures do not apply to goods for which entry is properly claimed under subheading 9801.00.10, HTSUS. Therefore, provided that the merchandise in this case is reimported with a proper claim under subheading 9801.00.10, HTSUS, the Section 301 measures will not apply upon reimportation.
HOLDING:
Provided that all documentary requirements are met, the merchandise will be eligible for the duty exemption provided for in subheading 9801.00.10, HTSUS, upon its reimportation to the United States. Without more information, we are unable to determine whether the merchandise will be eligible for the duty exemption provided for in subheading 9801.00.20, HTSUS.
If the merchandise is returned to the United States from Mexico and entered with a proper claim under subheading 9801.00.10, HTSUS, Section 301 measures will not apply upon reimportation.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
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.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch