Applicability of duty allowance under HTSUS subheading 9802.00.50 to Acetochlor; herbicide; microencapsulating

HQ 557534 December 17, 1993 CLA-2 CO:R:C:S 557534 MLR CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. Patrick Mc Glinchey International Logistics Specialist Zeneca Inc. P.O. Box 751 Wilmington, Delaware 19897 RE: Applicability of duty allowance under HTSUS subheading 9802.00.50 to Acetochlor; herbicide; microencapsulating Dear Mr. Mc Glinchey: This is in reference to your letter of June 29, 1993, requesting a ruling concerning the eligibility of Acetochlor for a partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). FACTS: Zeneca Inc. intends to ship domestically produced Acetochlor to Belgium where it will be microencapsulated. Acetochlor is a pre-emergence herbicide for the control of annual grass and broad-leaf weeds in corn. The microencapsulation process basically involves the containment of the Acetochlor within polymer capsules which are suspended in water. After this process, the product is referred to as Acetochlor 3.2CS. The purpose of microencapsulating the Acetochlor is to control its release rate when it is applied on a field, and to reduce dermal toxicity. It is stated that the Acetochlor is not chemically altered by the microencapsulation process, and that its identity and herbicidal properties remain intact. Only the form of the product is altered, but this allegedly is not a necessary step in the preparation or manufacture of Acetochlor itself. ISSUE: Whether the microencapsulation process performed on the U.S.-origin Acetochlor in Belgium constitutes an alteration, thereby entitling it to the partial duty exemption available under subheading 9802.00.50, HTSUS, when returned to the U.S. LAW AND ANALYSIS: Articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, provided the foreign operation does not destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Accordingly, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended purpose prior to the foreign processing and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 455 F.Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations when returned to the U.S., provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. In Headquarters Ruling Letter (HRL) 556616 dated June 16, 1992, we considered a herbicide in a water dispersible granule that was exported to France for incorporation into water-soluble film which is a highly specialized plastic, designed for compatibility with agricultural chemical and applications technology. It was held that the incorporation of the U.S.- origin herbicide in water-soluble film in France, constituted an acceptable alteration within the meaning of subheading 9802.0050, HTSUS, because this process did not change the chemical structure or use of the product, the identity and properties of the herbicide remained intact, and the U.S.-manufactured herbicide was sold and could be used in its pre-processed form. We find HRL 556616 to be similar to the case at hand. As in HRL 556616, the microencapsulation process only changes the form of the herbicide. The Office of Laboratories & Scientific Services has verified that although the entire encapsulation process in Belgium is not free of chemical reactions, the Acetochlor compound does not undergo any chemical changes. Based on this information, we are of the opinion that the microencapsulation process constitutes an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS. HOLDING: On the basis of the information submitted, we find that the microencapsulation process constitutes an alteration within the meaning of subheading 9802.00.50, HTSUS. Therefore, the Acetochlor 3.2CS is entitled to classification under this tariff provision with duty to be assessed only on the cost or value of the operations performed in Belgium, upon compliance with the documentary requirements of 19 CFR 10.8. Sincerely, John Durant, Director Commercial Rulings Division