Applicability of subheading 9802.00.50, HTSUS, to medical instruments exported to Mexico for packaging and sterilization

HQ 556773 January 7, 1993 CLA-2 CO:R:C:S 556773 RAH CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. Rudy A. Pina R.A. Pina & Associates, Inc. P.O. Box 2496 Nogales, Arizona 85628 RE: Applicability of subheading 9802.00.50, HTSUS, to medical instruments exported to Mexico for packaging and sterilization Dear Mr. Pina: This is in response to your letter dated June 11, 1992, requesting a ruling on whether certain medical instruments exported to Mexico for packaging and sterilization are entitled to a partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). FACTS: You state that your company is considering establishing a maquiladora operation in Mexico. You will send your Mexican subsidiary medical instruments for packaging, after which the instruments will be sterilized using ethylene oxide gas ("ETO"). The articles will then be returned to the United States for distribution. Additional information was obtained from you on December 15, 1992, during a telephone conversation with a member of my staff. All the articles in question are manufactured in the United States, after which they are warehoused until they are exported to Mexico for sterilization. The articles to be sterilized are in an "EZ Prep Kit" containing cotton swabs, bandaids, gauge, etc. ISSUE: Whether medical instruments exported to Mexico for packaging and sterilization are entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, upon return to the United States. 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 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, 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). 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). In the instant case, we find that the medical instruments exported to Mexico 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 instruments are not completed articles when exported because they are entirely unsuitable for their intended use in the United States without the sterilization. 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 its intended use. It is an intermediate processing operations performed, as a matter of course, in the production of the finished articles, i.e. sterilized medical instruments. HOLDING: Medical instruments exported to Mexico for packaging and sterilization are not entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States because they are not completed articles when exported to Mexico. Sincerely, John Durant, Director Commercial Rulings Division