HQ 556955

May 12, 1993

CLA-2 CO:R:C:S 556955 BLS

CATEGORY: Classification

TARIFF NO: 9802.00.50

Patrick D. Gill, Esq.

Rode & Qualey

295 Madison Avenue

New York, N.Y.

Re: Applicability of subheading 9802.00.50, HTSUS;

HRL 555740; Guardian Industries; Richardson;

19 CFR 10.8

Dear Mr. Gill:

This is in reference to your letters dated August 18, 1992,

and February 10, 1993, on behalf of Warner-Lambert Company

(\"Importer\") requesting a ruling regarding the eligibility for the

partial duty exemption under subheading 9802.00.50, Harmonized

Tariff System of the United States (HTSUS), of a product identified

as Pentostatin, to be imported from Germany.

FACTS:

Pentostatin is a adenosine deaminase inhibitor which has been

specifically developed as an anti-cancer agent, particularly for

hairy cell leukemia. It is manufactured in the U.S. in frozen

concentrate form for the importer by the Upjohn Company. In this

state, known in the industry as a fermentation \"broth\", or

fermentation \"cake\" (if part of the water is removed), it consists

of Pentostatin and fermentation by-products. Some purification of

the product occurs in the U.S. The product is then exported to

Europe, where further processing through crystallization removes

impurities and fermentation by-products. However, the operations

performed abroad do not alter the chemical composition of the

exported Pentostatin. The product, now in a powdered state, is

returned to the U.S. where it is sterilized and converted to

dosage form to be administered to cancer patients by injection.

ISSUE:

Whether the imported product is eligible for the partial duty

exemption under subheading 9802.00.50, HTSUS.

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LAW AND ANALYSIS:

Subheading 9802.00.50, HTSUS, provides a partial duty

exemption for articles returned to the U.S. after having been

exported to be advanced in value 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, the application of this tariff

provision is precluded where the operations performed abroad result

in articles with new or different uses or characteristics, or where

the foreign operations constitute a part of a manufacturing process

begun in the U.S. As stated by the appellate court in Dolliff &

Company Inc. v. U.S., 66 CCPA 77, C.A.D. 1225 (1979), alterations

are made only to completed articles and do not include intermediate

operations which are performed in the manufacture of finished

products. If the foreign processing is a step in the manufacture

needed to finish the article for its intended use, the statutory

provision for alterations will not be applicable. (See Guardian

Industries Corporation v. U.S., 3 C.I.T. 9 (1982), where

\"tempering\" of glass parts of patio doors was considered to be a

step in the manufacture of the finished product.) Congress did

not intend to permit uncompleted articles to be exported abroad and

there made into finished products and when returned to be subject

to duties only on the cost of the so-called alterations. U.S. v.

J.D. Richardson Co., 36 CCPA 15, C.A.D. 390 (1948).

In arguing that the imported product qualifies for the partial

duty exemption under subheading 9802.00.50, HTSUS, you point out

that it is specifically identified as Pentostatin in its form as

exported from the U.S., and retains its identity through the

foreign processing. You contend that the operations performed

abroad do not substantially transform the product into a new or

different article of commerce, and a finished pharmaceutical

product emerges only after return to the U.S. You also note that

the cost of removing the impurities abroad represents only about

8 percent of the value of Pentostatin up to that point and less

than 1 percent of the value of the finished product. You cite

Headquarters Ruling Letter (HRL) 555740, dated May 28, 1991, as

controlling, since 1) the identity of the article is not

destroyed by the foreign processing, 2) a new or different article

is not created when the product is further purified abroad, and 3)

when the product leaves the U.S. after manufacture, it is complete

for its intended use as a pharmaceutical and has no other use.

In HRL 555740, a herbicide was exported to France where it was

subjected to processes of formulation and granulation. The

chemical composition of the herbicide was unchanged by the foreign

processing, but made the product more marketable and \"user

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friendly\". In that case, we found that a market existed for the

product prior to exportation, and that in its exported condition

it was complete for its intended use as a herbicide.

In the instant case, while the product is identified and

recognized in the industry as Pentostatin prior to exportation, the

evidence fails to support the claim that, in its exported state,

it is complete for its intended use as a pharmaceutical. In fact,

it appears that even after the processing performed abroad, the

product would not meet this requirement. In a letter dated

February 5, 1993, submitted as an exhibit to the ruling request,

the Vice-President for Chemical Development for Parke-Davis

Pharmaceutical Research states that the returning material \"\...is

bulk powder and is not a pharmaceutical product. It cannot be used

in patients without further processing.\"

Under the circumstances, we find that the imported product is

not complete for its intended use as a pharmaceutical product upon

exportation from the U.S. Rather, the processing performed abroad

is an intermediate operation and constitutes part of a

manufacturing process begun in the U.S. Since these operations

constitute steps performed in the manufacture of the finished

product, following the reasoning in cases such as Dolliff and

Guardian, supra, such processing is not considered an alteration

within the meaning of subheading 9802.00.50, HTSUS, which applies

only to finished products.

HOLDING:

The operations performed abroad on the product known as

Pentostatin are not considered alterations within the meaning of

subheading 9802.00.50, HTSUS, since upon exportation from the U.S.

in a frozen concentrate form Pentostatin is not complete for its

intended use as a pharmaceutical product. Therefore, the imported

product is not eligible for the partial duty exemption under this

tariff provision.

Sincerely,

John Durant, Director

Commercial Rulings Division