Applicability of duty exemption in HTSUS subheading 9802.00.80 or subheading 9801.00.10 to corrugated containers imported from Mexico

HQ 555527 March 19, 1990 CLA-2 CO:R:C:V 555527 KAC CATEGORY: CLASSIFICATION TARIFF NO.: 9802.00.80 - 9801.00.10 Mr. K.W. Schaake Gaylord Container Corporation P.O. Box 2018 3323 E. Commerce San Antonio, Texas 78297 RE: Applicability of duty exemption in HTSUS subheading 9802.00.80 or subheading 9801.00.10 to corrugated containers imported from Mexico Dear Mr. Schaake: This is in response to your letter of November 2, 1989, requesting a ruling on the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to corrugated containers imported from Mexico. Samples and Gaylord's Fibre Box Handbook were submitted for examination. FACTS: Your company will send U.S.-manufactured flat corrugated sheets worth $5,000.00 per truckload to a plant in Nuevo Laredo, Mexico. In Mexico, the flat sheets will be scored, slotted, and if required, a manufacturer's joint will be formed, after which the sheets will be printed. The flat corrugated container is then formed into its three dimensional shape by gluing, taping or stitching the edges of the container together. At this time, the origin of the glue, tape and stitch is unknown. The finished containers, now worth $7,500.00 per truckload, are then sold to customers in Mexico where they are packed with goods and returned to the U.S. For purposes of this ruling, we are assuming that the containers are packed with foreign goods. ISSUE: Whether the foreign operations constitute an "assembly," thereby entitling the corrugated containers to the duty exemption under HTSUS subheading 9802.00.80 or subheading 9801.00.10 when returned to the U.S. LAW AND ANALYSIS: With respect to containers, General Rule of Interpretation 5(b), HTSUS, provides that "packing 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 a non-reusable container 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 upon submission of satisfactory proof that a container is of U.S. origin and that it is returned without having been advanced in value or improved in condition while abroad, it is entitled to duty-free treatment under subheading 9801.00.10, HTSUS. The act of being filled with its contents is not considered to constitute such an advancement or improvement. See, Headquarters Ruling Letter 731806 dated November 18, 1988. Thus, HTSUS subheading 9802.00.80 which provides a partial duty exemption for: [a]rticles assembled abroad in whole or in part of a fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubrication, and painting.... does not apply to this case. See, Van Camp Sea Food Co, v. United States, 73 Cust.Ct. 35, C.D. 4551 (1974), which held that item 807.00, Tariff Schedules of the United States (TSUS) (now known as subheading 9802.00.80, HTSUS), does not apply to the importation of ordinary non-reusable containers of American origin. HTSUS subheading 9801.00.10 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). In the instant case, we believe that the foreign operations performed in Mexico advance in value and improve the condition the exported product. Flat corrugated sheets worth $5,000.00 per truckload are sent to Mexico for various foreign operations, including scoring, slotting, printing, cutting, gluing, stitching, and taping. Thereafter, completed corrugated containers worth $7,500.00 per truckload are returned to the U.S. containing goods. Thus, there is an economic advancement in value of $2,500.00 and a physical improvement in condition as flat sheets are formed into square containers. HOLDING: On the basis of the information and samples submitted, the corrugated containers are not eligible for duty exemption under HTSUS subheading 9802.00.80 because the subheading does not apply to the importation of ordinary non-reusable containers of American origin. The U.S. flat corrugated sheets will also not qualify for the duty exemption under HTSUS subheading 9801.00.10 upon their return to the U.S., because they will be advanced in value and improved in condition as a result of the foreign operations. Therefore, the cost of the value of the corrugated container will be dutiable as part of the value of its foreign contents. Sincerely, John Durant, Director Commercial Rulings Division cc: Asst. Area Dir., NIS 846878