Applicability of duty allowance under HTSUS subheading 9802.00.50 to copolyamide products imported from Switzerland; nylon resins; caprolactam; FDA requirements

HQ 557835 April 28, 1994 CLA-2 CO:R:C:S 557835 MLR CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. Gary L. Croskey EMS-American Grilon Inc. 2060 Corporate Way P.O. Box 1717 Sumter, S.C. 29151-1717 RE: Applicability of duty allowance under HTSUS subheading 9802.00.50 to copolyamide products imported from Switzerland; nylon resins; caprolactam; FDA requirements Dear Mr. Croskey: This is in reference to your letter of January 31, 1994, requesting a ruling concerning the eligibility of copolyamide products from Switzerland for a duty allowance under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). FACTS: EMS-American Grilon Inc. ("EMS") manufactures copolyamide products by condensation of epsilon-caprolactam with: omega- dodecalactam 11-aminoundecanoic acid, and/or mixtures of hexamethylene-diamine and di-acids such as adipic, azaleic, sebacic and dodecanedioic. These products are identified as nylon resins and are referenced in section 177.1500, Food and Drug Regulations (21 CFR 177.1500). These resins are exported in solid, granular, or chip form to EMS's parent company, EMS Chemie AG, in Switzerland. The tradename of these resins is "Grilon E", and each resin has a different identifying number depending upon the specific chemical structure and viscosity or molecular weight. You have provided a list of the existing commercial Grilon resins that you export or plan to export to Switzerland. The letter "E" at the end of the identifying number denotes that the product contains small amounts of caprolactam. In Switzerland, the Grilon "E" granules are conveyed to an extraction column where they are washed with hot water (circa 100 degree Celsius). Because caprolactam is soluble in hot water, this process removes or extracts the caprolactam from the Grilon "E" granules. (You also state that the copolyamide Grilon is insoluble in water.) The wet extracted Grilon granules are then dried with nitrogen (nitrogen is required to prevent the Grilon from turning yellow) and bagged for return to EMS. For every pound of Grilon "E" products shipped to Switzerland, only about 0.92 to 0.95 pound of Grilon is returned because of the caprolactam extracted and other losses (waste) incurred during the processing. EMS indicates that the Grilon returned to the U.S. is not chemically altered, and is in the same form and appearance as the Grilon E exported to Switzerland. The reason for extracting the free caprolactam is to meet the Food and Drug Administration's (FDA) requirements for film packaging applications, or to permit EMS's customers to extrude the Grilon granule into acceptable quality monofilaments (i.e., fishing line, weaving applications, brushes, etc.). In a letter dated March 10, 1994, EMS indicates that chemically speaking, all polyamides produced from caprolactam will contain some amounts of caprolactam and for most markets or applications, these caprolactam-containing polyamides can be sold on an "as is" basis. These applications include extrusion into tubes, rods, and monofilaments and the injection molding of a wide variety of plastic parts. One of the key markets for EMS's products, however, is the blown film packaging market and mainly because of FDA requirements, these products cannot be used unless most of the caprolactam is removed. ISSUE: Whether the extraction of caprolactam from the copolyamide products in Switzerland constitutes an alteration, thereby entitling the returned product to be eligible for the duty allowance available under subheading 9802.00.50, HTSUS. 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. EMS states that the caprolactam is extracted to meet FDA requirements for film packaging applications, or to permit its customers to extrude the Grilon granule into acceptable quality monofilaments. Section 177, Food and Drug Regulations (21 CFR 177.1500) discusses how nylon resins may be safely used to produce articles intended for use in processing, handling, and packaging food. In particular, specifications for the nylon resins are provided, such as their melting point and solubility. EMS indicates that caprolactam is soluble in hot water and that the Grilon is not. We note that the softening and solubility behaviors of polyamides is controlled by the magnitude of the intermolecular forces between their individual chains. See Encyclopedia Britannia (1975). The closer the amide groups are in the chain, the stronger is the cohesion between chains, and the stronger the cohesion, the higher the melting point, and the greater the insolubility. Id. Based on this, it is our opinion that the processing performed in Switzerland enables the nylon resins to be used for food packaging applications. In Headquarters Ruling Letter (HRL) 554883 dated June 16, 1989, Customs considered the coating of polypropylene film in Canada with either acrylic or saran, which imparted some new capabilities and uses to the uncoated film. Customs found the end use of the film basically to be the same; however, the uncoated film tended to pucker and shrink before it reached its sealing temperature or melting point, thus eliminating the film's usage in many food applications, whereas the coated film was primarily intended for use as food wrapping. Consequently, it was determined that the foreign coating of the polypropylene film exceeded the meaning of the term "alteration" under item 806.20, Tariff Schedules of the United States (TSUS) (now subheading 9802.00.50, HTSUS). In HRL 556955 dated May 12, 1993, Customs considered pentostatin exported to Europe in a frozen concentrate form. In Europe, a crystallization operation removed impurities and fermentation by-products, which did not alter the chemical composition of the product, but changed the product into a powdered state. Because the pentostatin could not be used in patients without the processing abroad, it was held that the processing abroad was considered an intermediate operation and beyond the scope of subheading 9802.00.50, HTSUS. In this case, as in HRL 554883 and HRL 556955, we find that the nylon resins, in their condition as exported from the U.S. are not considered complete for their intended use as food packaging, unless they undergo further processing to extract the free caprolactam. Therefore, it is our opinion that the processing performed in Switzerland is an intermediate operation and constitutes part of an ongoing manufacturing process beyond the scope of subheading 9802.00.50, HTSUS. HOLDING: On the basis of the information submitted, we find that the extraction of the caprolactam from the copolyamide products completes the nylon resins for their intended purpose. Therefore, the processing abroad exceeds an alteration within the meaning of subheading 9802.00.50, HTSUS. Sincerely, John Durant, Director