CLA-2-CO:R:C:S 557175 RAH
District Director
U.S. Customs Service
Customshouse
1 La Puntilla Street
Old San Juan, P.R. 00901
RE: Internal Advice No. 78/92; Merchandise Processing Fee; U.S.
Note 2(b), subchapter II, chapter 98, HTSUS
Dear Mr. Robles:
This is in reference to your memorandum of November 2, 1992,
forwarding a Request for Internal Advise from Nestro Reyes, Inc.,
on behalf of Abbot Health Products, Inc. ("Abbott"), regarding
the applicability of the merchandise processing fee ("MPF") to
certain medical devices. Your correspondence was forwarded to us
by the New York Seaport.
FACTS:
Abbot manufactures medical devices (medical tubing sets) in
its plants in Puerto Rico and0 the Dominican Republic, which are
made wholly from U.S. components.
At the time of entry the medical tubing sets are classified
under subheading 9018.90.80, Harmonized Tariff Schedule of the
United States (HTSUS), and they are entered free of duty under
subheading 9802.00.8040, HTSUS, based on U.S. Note 2(b) of
subchapter II of chapter 98, HTSUS ("Note 2(b)").
Abbott claims that the articles are "substantially
transformed" through the operation performed in the Dominican
Republic, so that they are a "product of" that country. They
therefore claim that they would not have to pay the MPF at the
time of entry.
The Chief, National Import Specialist Division, Branch 3,
New York Seaport believes that since no duty was assessed on any
part of the value of the imported merchandise, no MPF can be
assessed on these importations.
ISSUE:
Whether the imported medical devices, assembled wholly from
U.S. components in the Dominican Republic and entered under
subheading 9802.00.8040, HTSUS, are subject to assessment of the
MPF.
LAW AND ANALYSIS:
Note 2(b) provides, in pertinent part, that no article may
be treated as a foreign article, or as subject to duty, if (1)
the article is assembled or processed in whole of fabricated
components or ingredients that are a product of the U.S. in a
Caribbean Basin Initiative country ("BC"), and (2) neither the
fabricated components, materials, or ingredients, after
exportation from the U.S., nor the article itself, before
exportation into the U.S., enters the commerce of any foreign
country other than the BC. The Dominican Republic is a BC.
(See General Note 3(c)(v)(A), HTSUS).
Articles assembled or processed in a BC, and which otherwise
comply with Note 2(b), shall be reported, for statistical
purposes, under subheading 9802.00.8040 (articles assembled in a
BC), or 9802.00.5010 (articles processed other than by an
assembly in a BC), HTSUS. See Statistical Note 2, subchapter II,
Chapter 98, HTSUS.
According to 19 U.S.C. 58c(b)(8)(B)(i), the MPF may not be
charged for the processing of any article "provided for under any
item in chapter 98 of the Harmonized Tariff Schedule of the
United States, except subheading 9802.00.60 or 9802.00.80...."
(Emphasis added). 19 U.S.C. 58c(b)(8)(D)(iv) provides that "in
the case of merchandise classified under heading 9802.00.80, the
MPF shall "be applied to the full value of the merchandise, less
the cost or value of the component United States products."
(Emphasis added).
In Headquarters Telex 1259071, Customs states that
merchandise qualifying for duty-free treatment under Note 2(b)
would not be subject to the MPF if substantially transformed in
the BC. If not substantially transformed in the BC but entered
under subheading 9802.00.5010, HTSUS, the merchandise also would
not be subject to the MPF. However, the telex states that, if
the merchandise is not substantially transformed in the BC and it
is entered under subheading 9802.00.8040, HTSUS, then the MPF
would be assessed on the full value of the article less the value
of the U.S. components.
After further consideration of this issue, it is now our
opinion that all articles qualifying for duty-free treatment
under Note 2(b) are fully exempt from the MPF, even those entered
under subheading 9802.00.8040, HTSUS. First, we find that
articles entitled to Note 2(b) treatment are "provided for" in an
item of chapter 98, HTSUS, within the meaning of the MPF
exclusion found at 19 U.S.C. 58c(b)(8)(B)(i). By using the words
"provided for in an item of chapter 98", rather than "classified
under chapter 98", it appears that Congress did not intend to
limit the exclusion only to articles described in the Chapter 98
classification provisions. Note 2(b) is not a classification
provision but it does "provide for" a class of articles which are
duty free.
Second, we find that articles qualifying for Note 2(b)
treatment are neither "provided for" nor classified under
subheading 9802.00.80, HTSUS. This subheading provides a partial
duty exemption for articles assembled abroad in whole or in part
of U.S. fabricated components, provided certain conditions (not
relevant to Note 2(b) articles) are satisfied. Although articles
qualifying for Note 2(b) treatment are entered under subheading
9802.00.8040, HTSUS, (if merely assembled in a BC), this is for
statistical purposes only. The statistical breakout created
under this subheading (and subheading 9802.00.50, HTSUS) for
articles qualifying for Note 2(b) treatment was made necessary
because section 222 of the Customs and Trade Act of 1990 -- the
statute which created Note 2(b) -- failed to also create a
classification provision for Note 2(b) articles.
As a result of our determination that articles qualifying
for duty-free treatment under Note 2(b) and entered under
subheading 9802.00.8040, HTSUS, are not subject to the MPF, an
additional telex, reflecting our revised position on this issue,
will be issued.
HOLDING:
Medical devices assembled in the Dominican Republic from
U.S. fabricated components, entered under subheading
9802.00.8040, and otherwise qualifying for duty-free treatment
under Note 2(b), are not subject to imposition of the MPF.
Sincerely,
John Durant, Director