HQ 556520: Applicability of duty exemption under HTSUS subheading 9802.00.50 to medical devices and pharmaceutical products exported to Canada for sterilization

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 556520

                        November 20, 1992

CLA-2 CO:R:C:S 556520 RAH

CATEGORY:  Classification

TARIFF NO.  9802.00.50

Mr. E. Thomas Honey 
Barnes, Richardson & Colburn
475 Park Avenue South
New York, N.Y.  10016

RE:  Applicability of duty exemption under HTSUS subheading
     9802.00.50 to medical devices and pharmaceutical products
     exported to Canada for sterilization

Dear Mr. Honey:

     This is in response to your letter of January 20, 1992, in
which you request a ruling on the applicability of subheading
9802.00.50, Harmonized Tariff Schedule of the United States
(HTSUS), to medical devices and pharmaceutical products exported
to Canada for sterilization.  A meeting was held with Peter
Martin, Esquire, of your firm on November 17, 1992.

FACTS:

     You state that your client is a "Custom Contract Sterilizer"
of medical devices and pharmaceutical supplies with production
facilities located in Toronto, Ontario and Montreal, Quebec. 
Your client plans to have a manufacturer located in the United
States ship their products to the facilities in Toronto and
Montreal to be sterilized by treatment with a "Vacugas Process." 
The medical devices or pharmaceutical supplies will be received
by your client in their final packaged form.  The products are
not opened, repacked or repalletized during the "Vacugas
Process."  The products are placed into retort chambers where
they are treated by the "Vacugas Process."  Upon completion of
the process, the product is removed from the retort chamber and
placed into storage awaiting shipment back to the United Sates.  

     You further state that packaged products or components which
are used for medical or pharmaceutical applications are
manufactured, labelled and sold as a sterile device or product
under the legal definition of "sterile."  A sterile device or
product must be free of all microbiological contamination as
evident by a prescribed sterility test method (United States
Pharamacoepia, Edition XXII, methodology for sterility testing of
a sterile device or a pharmaceutical product).  You further state
that sterilization of these products is not an optional quality
control assurance activity but is required by the Food and Drug
Administration (FDA).

     The purpose of sterilization is to ensure the end-user
(patient) does not develop post-operative or post-treatment
infection from bacteria, micro-plasms or viruses.  Infections can
be responsible for post-operative and post-treatment
complication.  Virulent Bacteria can also introduce disease, and
many forms of bacteria have a toxic effect.  Infection often adds
several weeks to the patient's stay in the hospital, and may even
result in the patient's death. 

     The "Vacugas Process" method of sterilization utilized by
your client subjects the products to ethylene oxide gas in a
vacuum chamber where ideal conditions of temperature, relative
humidity and gas concentration are used.  All pre-processed
products contain bacteria which can be qualified and quantified. 
Post-sterilized material is free of bacteriological growth which
is evidenced microbiologically.  You contend that the only change
to the medical device or pharmaceutical product is its
microbiological content.

     The actual cost of the service to the manufacturer is
typically 2 percent of the cost of the final product.  You
contend that the sterilization process in Canada results in an
alteration of the medical devices and pharmaceutical supplies
under subheading 9802.00.50, HTSUS. 

ISSUE:

     Whether sterilization of medical devices and pharmaceutical
products in Canada constitutes an alteration within the purview
of subheading 9802.00.50, HTSUS.
     
LAW AND ANALYSIS:

     Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles returned to the United States after having
been exported to be advanced or improved in condition by means of
repairs or alterations.  Such articles are dutiable only upon the
value of the foreign repairs or alterations, provided the
documentary requirements of section 10.8, Customs Regulations (19
CFR 10.8), are satisfied.

     However, entitlement to this tariff treatment is precluded
in circumstances where the operations performed abroad destroy
the identity of the articles or create new or commercially
different articles.  See A.F. Burstrom v. United States, 44 CCPA
27, C.A.D. 631 (1956); Guardian Industries Corp. v. United
States, 3 CIT 9 (1982).  Tariff treatment under subheading
9802.00.50, HTSUS, is also precluded where the exported articles
are incomplete for their intended use prior to the foreign
processing.  Guardian; Dolliff & Company, Inc. v. United States,
81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 
CCPA 77, C.A.D. 1225, 82, 599 F.2d 1015, 119 (1979).

     You contend that the articles exported to Canada will be
completed products fully packaged and that they will be the same
completed articles when returned to the United States.  You
further claim that the name, character, use and tariff
classification will not change.  In support of your position you
cite Headquarters Ruling Letter 044410 dated June 1, 1976.  That
ruling provides in part that "... foreign sterilization
constitutes an advance in value or at least an improvement in
condition ... within the alteration provision of item 806.20,
TSUS."

     As you know, effective November 9, 1992, Customs modified
its position regarding sterilization of surgical items under
subheading 9802.00.50, HTSUS, to reflect that such articles,
unsterilized, are entirely unsuitable for their intended use in
the United States and are therefore not entitled to a partial
duty exemption under subheading 9802.00.50, HTSUS.  See, C.S.D.
92-35, Customs Bulletin and Decisions Vol 26, No. 42 (October 14,
1992).  We note that you submitted comments to our proposed
change in position, which our office considered before issuing
the change.  In your comments, you contend that merely because an
article is unsuitable for its intended use does not mean it is
therefore not a completed article.  You maintain that our
interpretation would cause the relevant tariff provision to be
virtually meaningless since "[a]ny article that requires a repair
or an alteration is, by the very fact that it requires such
repair or alteration, unsuitable for its intended use" (your
emphasis).  Moreover, you state that a sponge or other article is
not changed by sterilization but is free of microbiological and
bacteriological contaminants after sterilization. 

     In the instant case, we find that the unsterilized medical
devices and pharmaceutical supplies exported to Canada for
sterilization and returned to the United States are not entitled
to a partial duty exemption under subheading 9802.00.50, HTSUS. 
It is our opinion that exported, unsterilized medical devices and
pharmaceutical supplies are not completed articles when exported
because they are entirely unsuitable for their intended use in
the United States.  This is evident by your submission that the
FDA prohibits the use of the articles in question without
sterilization.  In addition, you state that the purpose of
sterilization is to ensure the end-user (patient) does not
develop post-operative or post-treatment infection from bacteria,
micro-plasms or viruses which may add several weeks to the
patient's stay in the hospital, and may even result in the
patient's death.  

     Additionally, it logically follows that an article must be
completed before it is repaired or altered under subheading
9802.00.50, HTSUS.  That is, the initial manufacturing process
must be completed.  In your case, the sterilization is part of
the initial preparation of the article for sale, and the articles
are not suitable for the purpose for which they will be sold
without such sterilization.  Therefore, we find that the
operations performed in Canada will be intermediate processing
operations performed, as a matter of course, in the production of
the finished articles, i.e., sterilized medical devices and
pharmaceutical products.  

HOLDING:

     Medical devices and pharmaceutical supplies exported to
Canada for sterilization are not entitled to a partial duty
allowance under subheading 9802.00.50, HTSUS, when returned to
the United States because they are not completed articles when
exported to Canada.  

                                   Sincerely,



                                   John Durant, Director
                                   Commercial Rulings Division