us-cbp-cross-rulings-hq-555597•HQ 555597: Applicability of duty exemption under subheading 9801.00.10, HTSUS, to packaged contraceptive tablets
HQ 555597: Applicability of duty exemption under subheading 9801.00.10, HTSUS, to packaged contraceptive tablets
us-cbp-cross-rulings-hq-555597HQ 555597: Applicability of duty exemption under subheading 9801.00.10, HTSUS, to packaged contraceptive tabletsGuidance
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 555597
May 24, 1990
CLA-2 CO:R:C:V 555597 LS
CATEGORY: Classification
TARIFF NO.: 9801.00.10
Lynn S. Baker, Esq.
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60606-3693
RE: Applicability of duty exemption under subheading 9801.00.10,
HTSUS, to packaged contraceptive tablets
Dear Ms. Baker:
This is in response to your letter of February 16, 1990, on
behalf of G.D. Searle & Co., requesting a ruling on the
applicability of subheading 9801.00.10, Harmonized Tariff
Schedule of the United States (HTSUS), to packaged contraceptive
tablets to be imported from Costa Rica. No samples were
submitted.
FACTS:
G.D. Searle & Co.'s subsidiary in Puerto Rico, Searle & Co.
("Searle"), manufactures two oral contraceptive products which
are sold as prescription drugs under the brand names Norethin and
Demulen. The drug's active ingredients, Norethindrone USP,
Ethinyl Estradiol and Mestronol USP, are purchased by Searle in
bulk form from a U.S. distributor who imports them from the
Netherlands. The non-active ingredients are products of the U.S.
The manufacturing process in Puerto Rico consists of the
following steps:
1. Sample and inspect each lot of active ingredients and
non-active ingredients to ensure that they meet speci-
fications;
2. Measure and dispense each ingredient in the proper
quantity and sequence;
3. Mix the ingredients, moisten them with a suitable
liquid, and then dry the mixture in order to form a
granular intermediate;
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4. Mill the granular intermediate and mix it with
substances which aid in tablet formulation by acting as
lubricants and disintegrators;
5. Compress the product into tablet form;
6. Perform quality control tests and examinations to
ensure proper size, weight, assay, hardness, and other
properties in accordance with company and FDA specifi-
cations; and
7. Pack the tablets in blister or other primary forms of
packaging.
Searle intends to ship the packaged tablets in bulk
cartons to Costa Rica for final packaging operations to be
performed by another subsidiary, Searle Costa Rica, Inc.
Unfilled retail packages and printed literature inserts for these
packages, both products of the U.S., are also shipped to Costa
Rica from Puerto Rico. The packaging operation consists of the
following steps:
1. Place a finished blister package in a plastic tablet
dispenser (Compack);
2. Insert the directions for use in the Compack and close
the Compack;
3. Put the dispensers (multiple packs) into a holding
tray;
4. Place the tray filler in the holding tray to support
the dispensers;
5. Place the complete tray with the dispensers in a
Compack dispenser carton.
6. Insert over-the-counter reference insert (description,
clinical pharmacology, indications and usage, etc.) in the
carton.
7. Fold the top flap of the carton, add patient inserts
(one per each tablet dispenser), and close the carton;
8. Place the dispenser cartons in a corrugated box
(shipping box) and seal it;
9. Place the boxes (pre-labelled) on a pallet and transfer
the complete pallet to the warehouse; and
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10. Ship finished products back to Searle in Puerto Rico
or to G.D. Searle & Co. in the U.S. for release.
ISSUE:
Whether the contraceptive products in retail packages will
qualify for the duty exemption available under subheading
9801.00.10, HTSUS, when returned to the U.S.
LAW AND ANALYSIS:
Subheading 9801.00.10, HTSUS, provides for the free entry
of products of the U.S. that are exported and returned without
having been advanced in value or improved in condition by any
process of manufacture or other means while abroad, provided the
documentary requirements of section 10.1, Customs Regulations
(19 CFR 10.1) are met.
The first step in our analysis is to determine whether the
two oral contraceptive products in retail packages are products
of the U.S. when exported from Puerto Rico to Costa Rica. You
advise that the non-active ingredients of these products are of
U.S. origin. Since the active ingredients are imported from the
Netherlands in bulk form and combined with the inactive
ingredients in Puerto Rico to produce a prescription drug in
tablet form, we must determine whether these active ingredients
of foreign origin are rendered "products of the U.S." by virtue
of the operations performed in Puerto Rico, which is within the
customs territory of the U.S. To become products of the U.S.,
the foreign-made active ingredients must undergo a process of
manufacture in the U.S. which results in their substantial
transformation.
"[A] substantial transformation occurs when an article
emerges from a manufacturing process with a name, character, or
use which differs from those of the original material subjected
to the process." Torrington Co. v. United States, 764 F.2d 1563,
1568, 3 CAFC 158, 163 (Fed. Cir. 1985). This definition has been
adopted as the basic standard for determining whether a
substantial transformation has occurred under the various
provisions of Customs law.
In Headquarters Ruling Letter (HRL) 554308 dated November
24, 1986, clarified in HRL 543895 dated April 20, 1987, we held
that the processing of two bulk pharmaceutical chemicals,
naproxen and naproxen sodium, into final doses of the
prescription drugs, Naprosyn and Anaprox, constitutes a
substantial transformation into a new and different article with
a new name, character, and use. This decision was made in the
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context of determining the eligibility of the pharmaceuticals for
duty-free treatment pursuant to the Caribbean Basin Economic
Recovery Act (the "CBI"). The processing steps involved in HRL
554308 are similar to those in the instant case. The bulk
naproxen and naproxen sodium were separately mixed with non-
active ingredients, starch and lactose. This mixture was
combined with a solution of water, alcohol, and povidone, and
then dried to produce a processed blend. The blend was then
milled and screened, and tested for quality control. After
testing, the granulation was sent to rotary tablet presses and
tabletted in a prescription drug dosage.
Applying HRL 554308 to the instant case, we find that the
above-described manufacturing processes performed in Puerto Rico
result in the substantial transformation of the active
ingredients, Norethindrone USP, Ethinyl Estradiol, and Mestranol
USP, into new and different articles, i.e., the prescription
drugs, Norethin and Demulen, which have new names, characters,
and uses. The three active chemical ingredients are raw
materials in bulk form which you state are unsuitable for medical
use. The final prescription drugs, which are in tablet and
individual dosage form, are ready for immediate medical
application. Thus, we conclude that the two oral contraceptive
products in tablet form are products of the U.S. for purposes of
subheading 9801.00.10, HTSUS.
We must next determine whether the packaging operations
performed in Costa Rica result in an advancement in value or
improvement in condition of the contraceptive tablets. In United
States v. John V. Carr & Sons, Inc., 69 Cust. Ct. 78, C.D. 4377,
347 F. Supp. 1390 (1972), 61 CCPA 52, C.A.D. 1118, 496 F.2d 1225
(1974), the court stated that absent some alteration or change in
the item itself, the mere repackaging of the item, even for the
purpose of resale to the ultimate consumer, is not sufficient to
preclude the merchandise from being classified under item 800.00,
Tariff Schedules of the United States (TSUS) (the precursor to
subheading 9801.00.10, HTSUS).
We find that the operations performed in Costa Rica are
simple packaging operations that do not result in an advancement
in value or improvement in condition of the two contraceptive
products. See HRL 555559 dated April 20, 1990 (subheading
9801.00.10, HTSUS, determined to be applicable where U.S.
blister-packaged contraceptive tablets were shipped to the
Dominican Republic where they were inserted into compacts,
various quantities of which were then placed into printed
cartons, which, in turn, were placed into carton packers and
shipping cartons for shipment to the U.S.). Accordingly, the two
brands of contraceptive tablets will be eligible for the duty
exemption under subheading 9801.00.10, HTSUS.
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With respect to the packaging materials, we find that they
are also entitled to free entry under subheading 9801.00.10,
HTSUS, since they are U.S. products which are returned without
having been advanced in value or improved in condition while
abroad. See HRL 555559 dated April 20, 1990, and HRL 731806
dated November 18, 1988 (duty-free treatment provided by
subheading 9801.00.10, HTSUS, extends to an American-made
container which is exported and then reimported with its
contents, provided that it meets all of the criteria for
classification within that subheading).
HOLDING:
The two oral contraceptive products, Norethin and Demulen,
are products of the U.S., within the meaning of subheading
9801.00.10. HTSUS, because the active ingredients of foreign
origin are substantially transformed in the U.S. into new and
different articles with new names, characters, and uses. Because
the contraceptive tablets, along with the U.S. origin packaging
materials and literature inserts, will not be advanced in value
or improved in condition as a result of the packaging operations
performed in Costa Rica, they will be eligible for the duty
exemption under subheading 9801.00.10, HTSUS, upon compliance
with the documentary requirements of 19 CFR 10.1.
Sincerely,
Acting Director
Commercial Rulings Division
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