DRA-2-01-RR:IT:EC 226898 SAJ
Robert W. Hardy, Esq.
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4878
RE: Manufacturing Drawback, 19 U.S.C. 1313(a); Public Law 103-182, The North American Free Trade Agreement Implementation Act, 107 Stat. 2057; C.S.D. 79-40; C.S.D. 80-58; Assembly of a Scent Sprayer for a Fragrance Product; "Manufacture or Production" for Drawback Purposes; Packaging; 19 U.S.C. 1313(q).
Dear Mr. Hardy:
This is in reply to your letter of April 16, 1996, on behalf of your client Est_e Lauder Companies, Inc. (Est_e Lauder), wherein you requested a ruling regarding the applicability of manufacturing drawback for imported empty glass bottles and parts used for the assembly of scent sprayers, which package fragrance products.
FACTS:
Est_e Lauder (importer) imports empty glass bottles classified under the Harmonized Tariff Schedule of the United States (HTSUS) subheading 7010.94.20/3.2%, which provides for "bottles, flasks, jars,...and other containers of glass, of a kind used for the conveyance or packing of goods...[p]roduced by automatic machine." Importer also imports other parts such as caps and collars, each having a separate classification under the HTSUS. The empty glass bottles and other parts undergo an assembly process, producing a product classified under subheading 9616.10.00/2.2% of the HTSUS, which provides for "[s]cent sprayers and similar toilet sprayers".
Empty glass bottles and related integral parts, such as caps, collars, pumps, and actuators in a variety of shapes and sizes, are purchased from several vendors, both foreign and domestic. For the fragrance product "Knowing" eau de parfum, the empty glass bottles and the above-mentioned parts constitute a substantial portion of the value relative to the eau de parfum. For example, the eau de parfum costs $1.12, for the .5 oz. size of "Knowing". The imported and domestic parts used to assemble a scent sprayer to hold the eau de parfum cost $1.77. The imported parts used include the glass bottle, cap, and collar, and cost $1.52. For the 2.5 oz. size of "Knowing", the eau de parfum costs $5.25. The imported and domestic parts used to assemble a scent sprayer to hold the eau de parfum cost $1.88. The imported parts used include the glass bottle, cap, and collar, and cost $1.51.
The assembly process consists of various steps whereby the glass bottles and parts are assembled into scent sprayers or atomizers, which ultimately packages fragrance products such as "Knowing" eau de parfum, and are sold under various brands and labels worldwide (i.e. Est_e Lauder, Aramis, and Clinique). Some of these steps include: pumping the fragrance into manufacturing lines in preparation for bottling; moving the glass bottles via a conveyor belt into a cleaning machine, whereby air, under pressure, is forced into each bottle to blow out particles of dust; and crimping the pump ferrule over the neck of the glass bottle.
The glass bottles and parts are neither marketed nor sold separately from the finished fragrance product, and have no other use other than as a scent sprayer for the fragrance product. For purposes of this ruling, it is assumed that an approved manufacturing drawback contract in compliance with the applicable statute and regulations has been obtained.
ISSUE:
Whether the assembly operation of the glass bottles and parts to package a fragrance product is a "manufacture or production" within the meaning of 19 U.S.C. 1313(a), whereby upon exportation of the finished product, drawback could be obtained under that provision.
LAW AND ANALYSIS:
The applicable law is found in section 632, Title VI, Customs Modernization of the North American Free Trade Agreement (NAFTA) Implementation Act of 1993. Public Law 103-182; 107 Stat. 2057. Title VI of NAFTA amended 19 U.S.C. 1313(a), which provides that "[u]pon the exportation ... of articles manufactured or produced in the United States with the use of imported merchandise, provided that those articles have not been used prior to such exportation ...., the full amount of duties paid upon the merchandise so used shall be refunded as drawback, less 1 per centum of such duties..." Your request claims that the subject empty glass bottles and parts are eligible for manufacturing drawback under this provision.
Section 313(a) of the Tariff Act of 1930 (19 U.S.C. 1313(a)), requires that the exported articles upon which drawback is claimed be manufactured or produced with the use of imported merchandise. It is generally followed that a manufacture or production occurs when a new and different article emerges from the processing, having a distinctive name, character, or use.
In the instant case, importer assembles imported glass bottles and other related integral parts, such as caps and collars, into scent sprayers for "packaging" fragrance products. Mere "[p]acking, packaging, and wrapping operations are not considered a manufacture or production for drawback purposes." C.S.D. 81-65 (September 4, 1980); See also C.S.D. 80-183 (January 9, 1980).
"Drawback for packaging material under 19 U.S.C. 1313(q) provides:
Packaging material, when used on or for articles or merchandise
Exported or destroyed under subsection (a), (b), (c), or (j) of this
section, shall be eligible under such subsection for refund, as
drawback, of 99 percent of any duty, tax, or fee imposed under
Federal law on the importation of such material.
In view of the established facts, therefore, a determination of whether 19 U.S.C. 1313(q) applies is necessary. Drawback cannot be obtained for packaging that is filled with domestic product, unless drawback can be claimed on that domestic product under subsection 1313(b) or (j)(2). See Headquarters Ruling (HQ) 225772 (February 17, 1995). However, "[i]f the package itself is a new and different article, having a distinctive name, character, and use from what is imported, the package is an article manufactured or produced in the United States." C.S.D. 81-65. See C.S.D. 81-65, (holding that imported bags, which were already formed and ready for filing, merely requiring sewing the bags shut, did not constitute a manufacture or production for drawback purposes.)
Because the packaging of fragrance products requires assembly of a scent sprayer, the set of facts presented and the circumstances involved constitute more than a mere packing or filling of glass containers. The assembly process of the imported glass bottles and other parts result in scent sprayers having a different character and use than the initial imported articles. Similarly, in C.S.D. 80-183, Customs held that "[t]he importation of empty unsterilized glass vials and the transformation of the glass vials into sterile injectables ready for use... constitutes a manufacturing or production process under the drawback law."
Customs, in C.S.D. 79-40, stated that "[m]anufacture or production is defined for drawback as the process or processes which, through labor and manipulation, change or transform an article or articles into a new and different article having a distinctive name, character or use." See Anheuser-Bush Brewing Ass'n v. United States, 207 U.S. 556 (1907) (stating that "[t]he requirements that a manufactured article have a different character or use are satisfied when an imported article which is not suited for commercial use is further manufactured into one that is suited for commercial use.")
Likewise, in C.S.D. 80-58, Customs ruled for drawback purposes that a "manufacture or production" occurred where imported eyeglass frames were fitted with domestic lenses. An eyeglass frame has no commercial use apart from becoming part of eyeglasses which have a commercial use.
In the instant case, imported empty glass bottles and other parts are assembled into a scent sprayer to package fragrance products. The scent sprayer becomes a new and different article. The court in Anheuser-Bush provides the general rule that a manufacture or production changes or transforms an article into a new and different article having a distinctive character or use. In the case at hand, before assembly, each unit (i.e. glass bottles and related integral parts such as caps, collars, pumps, and actuators) cannot function separately and is not sold separately. After assembly, the assembled product is sold together as a scent sprayer, which functions to perform the dispersing of the fragrance.
A similar case, C.S.D. 79-39, involved the importation of watch movements in watch casings, the removal of the movements from the casings for testing and adjustment, the return of the movements to the casings which were then tested for water resistance, the attachment of metal bracelets and the boxing of the finished products. On the basis of the general rule, Customs ruled that a manufacture took place because a new and different article was produced. Customs stated that the "end product is a watch, whereas the imported articles were watch parts." The watch "has a specific name, character and use different from its component parts unassembled or only partly assembled."
The rule of the prior case, C.S.D. 80-58, would also apply to the facts of C.S.D. 79-39. The watch movements and casings, by themselves, prior to manufacture, are not suited for commercial use in the form of watches. This is essentially what C.S.D. 79-39 proposes when it states that the finished product has a specific character and use different from the unassembled component parts. This also is the meaning of the general rule which states that a new and different article with a distinctive character and use must emerge.
Moreover, as set out in the FACTS portion of this ruling, the price of the integral parts employed to assemble a scent sprayer is not negligible compared to the eau de parfum contents. These parts are a substantial part of the value, and therefore supports the premise that the scent sprayer is a new and different article, rather than mere packaging. The assembly parts into a scent sprayer do not merely serve as receptacles for the domestic product. The presentation of the scent sprayer is very important, and therefore, each part used to assemble the scent sprayer is "of very high quality and has been selected not only for functionality, but also for its design and appeal to purchasers." Robert Hardy Letter, p. 2, dated April 16, 1996. Thus, the relative value of the scent sprayer further strengthens the position that 1313(q) is inapplicable in the instant case.
All of the above-mentioned decisions involve an examination of the relationship between the parts and the finished products. On the facts here, the parts do not stand alone to independently function which have commercial identities and uses of their own. Their identities and uses do not remain the same after the assembly procedure. The finished product does not perform a function which is essentially the same as that performed by the parts individually. The finished product has a specific character and use different from its component parts unassembled.
Based on the foregoing, it is our belief that there has been a change or transformation into a new and different article with a distinctive character and use. Therefore, there has been a manufacture or production process sufficient to qualify this operation for manufacturing drawback. Consequently, upon exportation of the completely assembled fragrance product, the subject glass bottles, caps, and collars are eligible for drawback pursuant to 19 U.S.C. 1313(a), upon compliance with the applicable requirements.
HOLDING:
The subject glass bottles, caps, and collars are eligible for drawback within 19 U.S.C. 1313(a). The described assembly operation to create a scent sprayer is a manufacture or production for drawback purposes. Upon exportation of the assembled fragrance product, drawback could be obtained under 19 U.S.C. 1313(a), upon compliance with the applicable requirements.
Sincerely,
Director, International Trade
Compliance Division