HQ 554838: Applicability of duty exemption of subheading 9801.00.10, HTSUS, to latex prophylactics (condoms)

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                                      HQ 554838

                                  October 31, 1988

          CLA-2  CO:R:C:V  554838  DBI

          CATEGORY:  Classification

          TARIFF NO.:  9801.00.10, HTSUS

          Mr. John D. X. Corcoran
          Arthur Andersen & Co.
          10 South LaSalle Street
          Chicago, Illinois  60603

          Re:   Applicability of duty exemption of subheading 9801.00.10,
                HTSUS, to latex prophylactics (condoms)

          Dear Mr. Corcoran:

                This is in response to your letter dated September 20,
          1988, and that of your client, Merle Margelofsky, General Manager
          of Ansell Incorporated, dated April 20, 1988, requesting a ruling
          concerning the applicability of item 800.00, Tariff Schedules of
          the United States (TSUS), to latex prophylactics (condoms) to be
          tested, foil wrapped with lubricant or spermicide, or with
          neither, and packaged in retail packages and cartons in Mexico.

          FACTS:

                You advise that the condoms will be shipped to Mexico where
          they will be electronically tested.  The nature of the testing is
          that the condom will be rolled over a form, covered with a
          metallic sheet and electronically analyzed.  The condom will then
          be re-rolled and placed in line for packaging with lubricant or
          spermicide.  A small number of condoms, previously subject to
          electronic testing, will be removed from the line and inflated
          with air until they burst.  Any condoms that do not pass the
          electronic testing process will be discarded.

                The condoms, some of which will be foil wrapped with
          lubricant or spermicide and some with neither, will be placed in
          retail packages of three or a dozen or in bulk foil wrap.  The
          retail packages will then be placed in small boxes which will
          later be placed in large cartons and returned to the U.S.  The
          condoms, lubricant, spermicide, foil wraps, retail packages and
          cartons will all be of U.S. manufacture.


















                                         -2-



          ISSUE:

                Whether the described latex condoms, when returned to the
          U.S., will be eligible for the exemption from duty in subheading
          9801.00.10, Harmonized Tariff Schedule of the United States,
          HTSUS (800.00, TSUS).

          LAW AND ANALYSIS:

                As you are probably aware, the HTSUS will replace the TSUS,
          effective January 1, 1989.  Item 800.00, TSUS, will be carried
          over into the HTSUS without change as subheading 9801.00.10.
          Subheading 9801.00.10, HTSUS, provides for the free entry of
          articles of U.S. origin which are exported and returned without
          having been advanced in value or improved in condition while
          abroad.

                You point out in your letter that we have previously held
          in a ruling dated August 9, 1983 (HQ 721856), that the testing,
          rolling, lubricating, foiling and packaging of latex condoms does
          not constitute a substantial transformation.  However, you
          concede that the test for substantial transformation is much
          "broader" than the language in subheading 9801.00.10, HTSUS,
          which prohibits any advancement in value or improvement in
          condition.  You also cite United States v. Oakville Company, 402
          F.2d 1016, 56 CCPA 1, C.A.D. 943, to support your position that
          where two American-made articles are combined in such a way that
          the combination is identifiable as having been made from the
          exported items, the combination is within the contemplation of
          the American goods returned provision.

                With regard to the Oakville case, it should be noted that
          this case was decided under paragraph 1615(a), of the Dutiable
          List (19 U.S.C. 1001, 1960 Ed.), which subsequently evolved into
          sections 800.00 and 807.00, TSUS.  The combination of American-
          made articles abroad is now subject to a duty allowance solely
          under item 807.00, TSUS, which provides that the value of
          American-made components assembled abroad may be exempt from
          duty, upon the return of the assembled article, provided certain
          requirements are met.  Item 807.00, TSUS, would not apply to the
          processing of the instant condoms in Mexico since no assembly
          takes place (only solids can be assembled and packaging is not an
          assembly).  

















                                         -3-



                 Under subheading 9801.00.10, HTSUS, the test is whether
          the articles which are exported have been returned without having
          been advanced in value or improved in condition while abroad.
          Articles may be advanced in value or improved in condition
          without a substantial transformation having occurred.

                In the present case, it is our opinion that the addition of
          spermicide or lubricant in the foil wrap advances the value and
          improves the condition of the condoms.  A condom without a
          spermicide or lubricant is a different article of commerce than a
          condom which contains these enhancements.  The spermicide
          improves the contraceptive quality of the condom while the
          lubricant gives it a smoother surface.  In doing so, the addition
          of a spermicide or lubricant serves a different consumer market
          than the condom without these features.  While these two
          enhancements may serve different purposes, they both advance the
          value and improve the condition of the condoms.

                It is our further opinion that the testing of these
          condoms, whether or not a spermicide or lubricant is added, would
          also preclude them from treatment under subheading 9801.00.10,
          HTSUS.  Under subheading 9801.00.10, HTSUS, the words "improved
          in condition" must be taken in a commercial sense and the actual
          nature of the commercial entity, (here, the condoms) must be
          considered.  Amity Fabrics, Inc. v. United States, 43 Cust. Ct.
          64, C.D. 2104 (1959).  You state that all of the condoms will be
          electronically tested, and, some will be subjected to destructive
          testing.  Since an untested condom, if not unsaleable, is at
          least commercially distinguishable from one that is tested, it is
          our opinion that the testing performed abroad clearly advances
          the value and improves the condition of the condoms.

          HOLDING:

                Based on the information submitted, we are of the opinion
          that latex condoms which are foil wrapped both with or without
          the addition of lubricant or spermicide are advanced in value and
          improved in condition and, therefore, are not entitled to free
          entry as American goods returned under subheading 9801.00.10,
          HTSUS.

                                     Sincerely,





                                     John Durant
                                     Director, Commercial
                                     Rulings Division