HQ 556616

June 16, 1992

CLA-2 CO:R:C:S 556616 WAW

CATEGORY: Classification

TARIFF NO.: 9801.00.10; 9802.00.50

Ms. Margaret Solinger

E.I. Dupont de Nemours & Co., Inc.

Wilmington, DE 19898

RE: Applicability of duty exemptions for herbicides under HTSUS

subheadings 9801.00.10 and 9802.00.50; 19 CFR 10.8; HRL

555740; 556320; C.S.D. 83-101; 079133

Dear Ms. Solinger:

This is in reference to your letter of March 24, 1992,

concerning the applicability of the duty exemptions under

subheadings 9801.00.10 and 9802.00.50, Harmonized Tariff Schedule

of the United States (HTSUS), to a herbicide (referred to as

\"Accent\") imported from France. A separate response will be

forthcoming regarding the country of origin marking issue.

FACTS:

You state that you are a domestic manufacturer of various

agricultural chemical products, including \"Accent.\" Accent is a

post-emergence herbicide intended for use on field corn. It is a

water dispersible granule containing 75% active ingredient by

weight. As indicated on the enclosed Material Safety Data Sheet,

Accent causes moderate eye irritation and is harmful when

absorbed through the skin. Users are cautioned to avoid contact

with skin, eyes and clothing.

Because of the potential hazards of accidental contact with

a user\'s eyes or skin, you intend to export domestically

manufactured Accent to France for incorporation into water-

soluble film. This film is a highly specialized plastic designed

for compatibility with agricultural chemical and applications

technology. The incorporation process will enable a grower to

drop a pre-measured, sealed, water-soluble packet of Accent into

a designated amount of water, where the film will dissolve, and

the Accent disperse.

The Accent which you intend to export for the above-

described purpose will be manufactured at your El Paso, Illinois

facility. The herbicide will be transported in bulk in drums to

your subsidiary in France (\"Ducotech\"). Ducotech has contracted

with Nedi, an unrelated French concern in Les Mannes, France to

perform the processing. Nedi was chosen because it possesses the

technology and equipment necessary to assure product safety,

quality and exact dosage application. Nedi will invoice Ducotech

for the cost of the processing, and Ducotech will, in turn,

invoice you for that amount plus five percent. You state that at

all times you will retain title and ownership of the goods.

You state that for the initial shipment, you will export to

France 9600 pounds of U.S. manufactured Accent in 110-pound

drums. You will also provide to Nedi 500 pounds of special

water-soluble film, 12,000 folders printed with directions for

use, 12,000 barrier pouches, 1,000 inner cartons, and 350 outer

cartons.

In France, Nedi will place the Accent in what is commonly

referred to as a \"form and fill\" machine, which will incorporate

the Accent into 3.3 oz. water soluble pouches. Four of the 3.3

oz. water soluble film pouches will be inserted into one barrier

pouch. The barrier pouches are composed of aluminum between two

layers of polyethylene plastic, which protects the film and its

contents from adverse conditions such as humidity. The barrier

pouch is then heat-sealed and placed in an inner carton along

with eleven other inner cartons which are packed in a shipping

carton. You state that all of the Accent will be returned to the

U.S.

You state that the process whereby the Accent is

incorporated into the pre-measured water soluble film does not

change the chemical structure or use of the product. The

identity and properties of the herbicide remain intact. You

argue that although the processing will alter the form of

application of the product, it is not a necessary step in the

preparation or manufacture of the product. See Dolliff &

Company, Inc. v. United States, 599 F.2d 1015 (1979). The Accent

which is manufactured in the U.S. is currently sold and can be

used in its domestic form prior to performing the overseas

operations. The overseas operations performed on the

domestically manufactured Accent render the herbicide safer and

easier to use.

You argue that the imported Accent is eligible for the

partial duty exemption under HTSUS subheading 9802.00.50 for

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

repairs or alterations. Accordingly, you believe that duties are

payable only upon the cost to you of the processing in France,

plus the 5% fee paid to your French subsidiary.

ISSUE:

\(1\) Whether the herbicide which is incorporated into water-

soluble film and the packaging materials will be eligible for the

duty exemption available under subheading 9801.00.10, HTSUS, when

imported into the U.S.

\(2\) Whether the herbicide will be eligible for the partial

duty exemption under subheading 9802.00.50, HTSUS, when imported

into the U.S.

LAW AND ANALYSIS:

I. Applicability of subheading 9801.00.10, HTSUS

Subheading 9801.00.10, HTSUSA, provides for the free entry

of U.S. products that are exported and returned without having

been advanced in value or improved in condition by any means

while abroad, provided the documentary requirements of section

10.1, Customs Regulations (19 CFR 10.1), are met. While some

change in the condition of the product while it is abroad is

permissible, operations which either advance the value or improve

the condition of the exported product render it ineligible for

duty-free entry upon return to the U.S. See Border Brokerage

Company Inc. v. United States, 65 Cust. Ct. 50, C.D. 4052, 314 F.

Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).

The packaging abroad of U.S.-made products will not preclude

classification under this tariff provision when there is no

improvement in condition or advancement in value of the products

themselves, apart from their containers. See United States v.

John V. Carr & Sons, Inc., 69 Cust. Ct. 78, C.D. 4377 (1972), in

which 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).

However, we have previously held that the encapsulation of

vitamins of U.S.-origin which are shipped in bulk to Mexico is

not permissible under subheading 9801.00.10, HTSUS. See C.S.D.

83-101, 17 Cust. Bull. 944 (1983). We held in C.S.D. 83-101 that

the effect of this procedure was to render the bulk product

suitable for direct administration by the ultimate consumer in an

individual dose; the capsules therefore became part of the

imported product to be swallowed and thus were distinguished from

those containers or packings which were merely intended to

facilitate transportation or retail sale and which have a

function separate and distinct from the products which they

contain. See also HRL 079133 dated June 23, 1987, which held

that a barium sulphate product of U.S.-origin shipped in bulk to

Canada and distributed into enema bags in measured doses is not

considered a packaging operation under item 800.00, Tariff

Schedules of the United States (TSUS) (the precursor to

9801.00.10, HTSUS).

It is our opinion that the incorporation of vitamins into

capsules and barium sulphate into bags in the above-described

cases is closely analogous to the processing of the herbicide in

the instant case. The operation in this case serves more than

merely to facilitate the transportation or retail sale of the

herbicide. As a result of this operation, the plastic pouch

becomes an integral part of the herbicide and the dispersal

process. The incorporation of the herbicide in pre-measured,

sealed, water-soluble packets enhances the value of the herbicide

and improves its condition by facilitating its use by the

consumer and reducing the risk of injury from accidental contact

with a user\'s eyes or skin. Accordingly, we find that the

herbicide will not qualify for the duty exemption under HTSUS

subheading 9801.00.10.

With respect to the dutiability of the packaging materials,

General Rule of Interpretation 5(b), HTSUS, provides that:

\[p\]acking materials and packing containers entered with the

goods therein shall be classified with the goods if they are

of a kind normally used for packing such goods. However,

this provision does not apply when such packing materials or

packing containers are clearly suitable for repetitive use.

Therefore, the value of non-reusable packing materials or

containers normally used for packing such goods is considered a

part of the value of its contents and is dutiable at the rate of

its contents. However, we have held that U.S.-origin packaging

materials which are not advanced in value or improved in

condition while abroad are separately entitled to duty-free

treatment under subheading 9801.00.10, HTSUS. The act of being

filled with their contents is not considered to be an advancement

in the condition of the container or materials. See HRL 731806

dated November 18, 1988, which held that containers of U.S.-

origin are entitled to duty-free treatment under subheading

9801.00.10, HTSUS, when returned with their contents. Thus,

since the U.S.-origin packing materials are not suitable for

repetitive use and have not been advanced in value or improved in

condition while abroad, they are entitled to duty-free treatment

under subheading 9801.00.10, HTSUS, when returned to the U.S.

II\. Applicability of subheading 9802.00.50, HTSUS

Subheading 9802.00.50, HTSUS, provides for the assessment of

duty on the value of repairs or alterations performed on articles

returned to the U.S. after having been exported for that purpose.

However, the application of this tariff provision 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), aff\'d, C.D. 1752, 36 Cust. Ct. 46 (1956); and

Guardian Industries Corporation v. United States, 3 CIT 9 (1982),

Slip Op. 82-4 (Jan. 5, 1982). Subheading 9802.00.50, HTSUS,

treatment is also precluded where the exported articles are

incomplete for their intended use and the foreign processing

operation is a necessary step in the preparation or manufacture

of finished articles. See 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, 599 F.2d 1015 (1979). Articles

entitled to this partial duty exemption are dutiable only upon

the cost or value of the foreign repairs or alterations, provided

the documentary requirements of section 10.8, Customs Regulations

(19 CFR 10.8), are satisfied.

In Headquarters Ruling Letter (HRL) 555740 dated May 28,

1991, Customs held that formulation and granulation operations

performed on a herbicide constituted an acceptable alteration

within the meaning of subheading 9802.00.50, HTSUS. In HRL

555740, the herbicide in its condition upon exportation from the

U.S. was considered complete for its intended use as an

herbicide, and, in fact, could have been marketed within the

agricultural industry in that condition. Customs also found

that, since the chemical composition was not changed by the

addition of the dilutents, dispersants, wetting agents, buffers,

etc., the identity of the exported herbicides was not destroyed.

In addition, the foreign operations did not appear to result in

any significant change in the quality or character of the

herbicide, inasmuch as the herbicide retained its weed killing

properties. Therefore, the formulation and granulation

operations were held to be an alteration under this subheading.

See also HRL 556320 dated February 3, 1992 (holding that

formulation and granulation operations performed on U.S.-origin

herbicide in France constitute an acceptable alteration within

the meaning of subheading 9802.00.50, HTSUS).

With regard to the facts that you have presented and

consistent with the above cases, we are of the opinion that the

incorporation of U.S.-origin herbicide in water soluble film

overseas constitutes an acceptable alteration within the meaning

of subheading 9802.00.50, HTSUS. As in HRL 555740, the herbicide

in the instant case, was complete in its condition when exported

to France for incorporation in water soluble film. The

operations performed in France do not have the effect of

destroying the identity of the herbicide or changing its chemical

composition. Moreover, the foreign operations do not result in

any significant change in the character or use of the herbicide.

The overseas process merely facilitates the use of the herbicide

and makes it safer for the consumer.

HOLDING:

On the basis of the information submitted, as the herbicide

will be advanced in value and improved in condition abroad as a

result of the operations performed in France, it will not qualify

for the duty exemption available under subheading 9801.00.10,

HTSUS. However, as the packing materials of U.S.-origin will not

be advanced in value or improved in condition abroad as a result

of the packaging operation in France, they are entitled to duty-

free treatment under subheading 9801.00.10, HTSUS, upon

compliance with the documentary requirements of 19 CFR 10.1.

Finally, we find that the process of incorporating the U.S.-

origin herbicide into water-soluble film in France constitutes an

alteration within the meaning of subheading 9802.00.50, HTSUS.

Therefore, the herbicides will be entitled to classification

under this tariff provision with duty to be assessed only on the

cost or value of the operations performed in France, upon

compliance with the documentary requirements of 19 CFR 10.8.

Sincerely,

John Durant, Director

Commercial Rulings Division