OT:RR:CTF:VS H286758 JMV
U.S. Customs and Border Protection
Pharmaceuticals, Health & Chemicals CEE
6747 Engle Road
Middleburg Heights, OH 44130
RE: Protests and Applications for Further Review 2095-17-100654, 2095-17-100655 and 2095-17-100656; prototype
Dear Director:
This is in response to the Applications for Further Review (“AFR”) of Protest Nos. 2095-17-100654, 2095-17-100655 and 2095-17-100656, all dated February 6, 2017, and filed against Customs and Border Protection's (CBP's) decision to liquidate the merchandise at issue under subheadings 2935.00.75 and 3824.90.92, Harmonized Tariff Schedule of the United States (“HTSUS”), which, at the time of entry, provided for “Sulfonamides: Other” and “Prepared binders for foundry molds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included: Other: Other: Other,” respectively. The Protestant, Merck, Sharp & Dohme Corp. (“Protestant”), seeks treatment of the merchandise under subheading 9817.85.01, HTSUS, which provides for “Prototypes to be used exclusively for development, testing, product evaluation, or quality control purposes.”
FACTS:
The merchandise was entered on August 6, 2016, under subheadings 2935.00.75 and 3824.90.92, HTSUS. Subsequently, the Protestant submitted Post Summary Corrections (“PSC”) on September 8, 2016, claiming the merchandise is properly classified as a prototype under 9817.85.01, HTSUS.
The PSCs included commercial invoices, with the following text: “These materials contain a new intermediate for investigational use only in laboratory research” and “NO COMMERCIAL VALUE! VALUE FOR CUSTOMS PURPOSES ONLY! NOT FOR RESALE! FOR LABORATORY RESEARCH ONLY!”
Your office denied the PSCs on January 4, 2017, citing the “Info: Guidance for Pharmaceutical Imports” Memorandum of June 29, 2011, which references Headquarters Ruling Letter (“HQ”) W563169, dated August 31, 2007, and 19 CFR §§ 10.133 and 10.134 as support for this decision. HQ W563169 addressed the issue of a post-importation claim for prototype treatment and focused on the entry of the merchandise and its “actual use.” Your office stated that actual use could be demonstrated by the importer either indicating an actual use subheading (9817.85.01, HTSUS) or filing a declaration as to the intended use per 19 CFR 10.134. Since your office has no concerns regarding the actual use of the imported material, your office looked at the issue of declaration. Your office contends that neither the commercial invoice, nor the documents that are associated with this protest were sufficient to meet the declaration requirement of the statute. Your office states that the language on the invoice makes no mention of actual use, prototypes or language mirroring U.S. Note 7 to Subchapter XVII, Chapter 98, HTSUS.
The Protestant was told to re-submit their claim via protest and to differentiate their claim from HQ W563169. On February 3, 2017, the merchandise was liquidated under subheadings 2935.00.75, HTSUS and 3824.90.92, HTSUS, and the Protestant timely filed its protests on February 6, 2017.
When the Protestant filed its protest, it included additional documentation to support its claim for prototype treatment under subheading 9817.85.01, HTSUS. The protest included two letters: one from Protestant’s Chemical Sourcing Manager, dated August 4, 2016, and the other from the exporter, dated August 9, 2016. Both letters state:
Please be advised that the merchandise imported under the referenced air waybill is to be used exclusively by Merck Research Laboratories in development, testing or product evaluation of pharmaceutical's that are in preproduction, production or postproduction stage. The merchandise is imported in small non-commercial quantities, and will not be sold after importation or incorporated into other products that are sold. For these reasons the merchandise is being entered under heading 9817.85.01, HTSUS.
Your office states that while these letters are an appropriate declaration, they arrived with the protest, which makes them ineligible for consideration according to the guidelines and HQ W563169.
ISSUE:
Whether the entered merchandise is entitled to treatment as a prototype under subheading 9817.85.01, HTSUS.
LAW AND ANALYSIS:
Subheading 9817.85.01, HTSUS provides for “prototypes to be used exclusively for development, testing, product evaluation, or quality control purposes.” U.S. Note 7 to Subchapter XVII, Chapter 98, HTSUS, provides, in relevant part:
The following provisions apply to heading 9817.85.01:
(a) For purposes of this subchapter, including heading 9817.85.01, the term "prototypes" means originals or models of articles that –
(i) are either in the preproduction, production, or post production stage and are to be used exclusively for development, testing, product evaluation, or quality control purposes;
(ii) in the case of originals or models of articles that are either in the production or postproduction stage, are associated with a design change from current production (including a refinement, advancement, improvement, development, or quality control in either the product itself or the means for producing the product).
(b) (i) Prototypes may be imported only in limited noncommercial quantities in accordance with industry practice.
(ii) Except as provided for by the Secretary of the Treasury, prototypes or parts of prototypes may not be sold after importation into the United States or be incorporated into any other products that are sold. . . .
In previous rulings, we have found that the testing of compounds to determine whether they were of pharmacological interest fell within the preproduction stage of pharmaceuticals. In HQ H254047, dated November 4, 2014, CBP determined that various unique organic compounds imported in limited quantities for pharmaceutical research and drug discovery were prototypes. See also, HQ 562174, dated June 19, 2002, (finding that, when all other conditions of Note 7 are met, imported organic compounds that were to be tested to determine whether they had properties that were of interest for further pharmaceutical research were prototypes).
In this case, your office does not doubt the Protestant’s claim that a limited quantity was imported for testing, development, or product evaluation. Your office questions whether the guidance memorandum, which refers to 19 CFR §§ 10.133 and 10.134, was met. As noted in HQ H283095, dated July, 12, 2017, the applicable regulation is not 19 CFR §§ 10.133 and 10.134, but 19 CFR § 10.91, which applies to prototypes used exclusively for product development and testing. The facts of HQ H283095 were similar to the case at hand. There, only after liquidation under heading 2934, HTSUS, did the Protestant file a protest claiming the merchandise was classifiable as a prototype under subheading 9817.85.01, HTSUS. In HQ H283095, the Port denied the protest citing HQ W563169, in which CBP denied a protest seeking subheading 9817.85.01, HTSUS treatment because the protestant failed to file a declaration of actual use or to enter the goods under subheading 9817.85.01, HTSUS, at the time of entry. However, as indicated by HQ H283095, since the entry at issue in HQ W563169 was liquidated prior to the effective date of 19 CFR § 10.91 (February 20, 2004 and November 2, 2004, respectively), the decision did not apply the language of the applicable regulation. Instead, HQ W563169 relied upon 19 CFR §§ 10.133 and 10.134, which were utilized at the time of the particular entry at issue. As in HQ H283095, because HQ W563169 did not apply 19 CFR § 10.91, it is distinguishable from the matter before us. See also HQ H290268, dated January 5, 2018 (finding that compounds imported for drug testing should be classified as a prototype under 9817.85.01, HTSUS when the claim for prototype treatment was not brought up until the protest stage).
Section 10.91, in relevant part, states:
(a) Duty-free entry; declaration of use; extension of liquidation –
(1) Entry or withdrawal for consumption. Articles defined as "prototypes" and meeting the other requirements prescribed in paragraph (b) of this section may be entered or withdrawn from warehouse for consumption, duty-free, under subheading 9817.85.01, Harmonized Tariff Schedule of the United States (HTSUS), on CBP Form 7501 or an electronic equivalent. ...
(2) Importer declaration. (i) Entry accepted as declaration. Entry or withdrawal from warehouse for consumption under HTSUS subheading 9817.85.01 may be accepted by the port director as an effective declaration that the articles will be used solely for the purposes stated in the subheading.
Section 10.91(a)(2)(ii) addresses requests for proof of actual use by the port director for liquidation of merchandise under subheading 9817.85.01, HTSUS, if the port director believes circumstances warrant such a request.
Section 10.91 indicates that entry of the merchandise under subheading 9817.85.01, HTSUS, may be accepted as an effective declaration of the intended use of the merchandise for the purposes stated in the subheading. However, the regulation does not preclude other methods of indicating the intended use of the merchandise at the time of importation. Nor does it indicate that classification of merchandise under subheading 9817.85.01, HTSUS, may only be asserted at the time of importation, and that failure to assert such classification at that time, whether by inadvertence or ignorance, cannot be remedied prior to final liquidation.
In this case, the merchandise was originally entered under subheadings 2935.00.75, HTSUS and 3824.90.92, HTSUS and the Protestant sought to correct the mistake in classification prior to liquidation. The Protestant filed a PSC to claim the merchandise as a prototype classifiable under subheading 9817.85.01, HTSUS, which according to 19 CFR § 10.91, is an appropriate form of declaration of use. Although Protestant did not raise classification as a prototype under subheading 9817.85.01, HTSUS at entry, nothing in 19 CFR § 10.91 limits a claim to the time of entry. Therefore, the protest should be granted.
However, if the Port Director wishes to exercise the discretion afforded in 19 CFR § 10.91(a)(2)(ii) and require submission of proof of actual use prior to reliquidation of the entry, the Port Director may do so.
HOLDING:
The Protestant meets the declaration of use requirements for classification of merchandise as a prototype under subheading 9817.85.01, HTSUS and the protest should be allowed provided the Port is satisfied that the requirements of 19 CFR § 10.19(a)(2)(ii) have been met.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant, through its counsel, no later than 60 days from the date of this letter. Any reliquidation of the entry, in accordance with the decision, must be accomplished prior to mailing of the decision.
Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System (“CROSS”) at https://rulings.cbp.gov/, which can be found on the CBP website at http://www.cbp.gov and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division