Substitution, unused merchandise drawback: commercial interchangeability; 19 U.S.C. § 1313(j)(2) and (j)(3); 19 C.F.R § 191.32(c); Pouches and cases for contact lenses

HQ H056767 August 17, 2009 DRA-4 OT:RR:CTF:ER H056767 BAS Mr. Mark Kimsey National Drawback Account Manager UTi, United States, Inc. Attorney-in-Fact 825 Arthur Avenue Elk Grove Village, IL 60007 RE: Substitution, unused merchandise drawback: commercial interchangeability; 19 U.S.C. § 1313(j)(2) and (j)(3); 19 C.F.R § 191.32(c); Pouches and cases for contact lenses Dear Mr. Kimsey: This is in response to your request, on behalf of Bausch & Lomb, Inc. (“B&L”), for a formal ruling on the commercial interchangeability of imports and exports of “pouches and cases,” for contact lenses, which U.S. Customs and Border Protection (“CBP”) received on April 6, 2009. FACTS: According to B&L’s submission, B&L purchases and imports nylon woven pouches and plastic lens cases for contact lenses. Once imported, the lens cases along with one or two bottles of contact lens solution are placed in pouches and exported as starter kits. The pouches measure 57cm x 33 cm x 37 cm and are identified by one of two part numbers (3926900 or 66101). The plastic lens cases are identified by the corresponding part number 67904. The contact lens solution, while a component of the starter kit, is not part of the drawback claim. ISSUES: Whether the repackaging of contact lens cases and pouches constitute a use, pursuant to 19 U.S.C. § 1313(j)(2)(C)(i) and (3). Whether imported and exported contact lens cases and pouches are commercially interchangeable with one another, pursuant to 19 U.S.C. § 1313(j)(2). LAW AND ANALYSIS: For a drawback claim for substituted unused merchandise, pursuant to section 1313(j)(2), the merchandise must be commercially interchangeable with the imported merchandise. See 19 U.S.C. § 1313(j)(2)(A). The merchandise that is commercially interchangeable with the imported merchandise must not be used within the United States before exportation or destruction. See 19 U.S.C. § 1313(j)(2)(C)(i). In this case, the ultimate question is whether placing the contact lens case into a pouch and adding one or two bottles of contact lens solution within the United States constitutes a ‘use’ before export. The repackaging of the lens cases and pouches and addition of contact lens solution does not constitute a use, pursuant to 19 U.S.C. § 1313(j)(2)(C)(i) and (j)(3). The first question, is whether the addition of one to three bottles of contact lens solution to a contact lens case and pouch once imported would constitute a use, pursuant to 19 U.S.C. § 1313(j)(2)(C)(i), and thus prohibit a refund as drawback. The statute specifies that any operations not amounting to manufacture or production on the commercially interchangeable merchandise shall not be treated as a use for purposes of determining a drawback refund. See 19 U.S.C. § 1313(j)(3). The statute lists the operations as including “testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking.” Id. CBP Regulations define “manufacture or production” as a “process, including but not limited to, an assembly, by which merchandise is made into a new and different article having a distinctive ‘name, character or use.’” See 19 C.F.R. § 191.2(q)(1). CBP has addressed similar facts in a ruling involving repackaging of tractor parts or “kitting.” See HQ 225874, dated March 22, 1996. In HQ 225874, John Deere imported a number of specific parts (i.e. parts "A", "B" and "C") for use on pieces of John Deere (Deere) equipment. Prior to use in the United States, Deere "repackaged" the parts (that is, for example, put parts A, B and C in one package and called it "D") before exporting those parts from the United States for use or sale abroad. Thus, Deere either used the exported parts (in the same condition as they were imported) on pieces of John Deere equipment or "repackaged" or "kitted" the parts together for exportation and either use or sale outside the United States prior to their being used in the United States. In HQ 225874, we found that the repackaging described by Deere to be within the scope of 19 U.S.C. 1313(j)(3) such that such repackaging is not a use for the purposes of 19 U.S.C. 1313(j)(1) and (j)(2). [Emphasis added] We found that the repackaging described by Deere is essentially the same as, or is the same as, "repacking" within the meaning of 19 U.S.C.1313(j)(3). We reasoned that the parenthetical phrase of 19 U.S.C. 1313(j)(3), which describes operations which, if they do not amount to a manufacture or production for drawback purposes. shall not be treated as a use for purposes of 19 U.S.C. 1313, includes, but is not limited to, inter alia, "repacking" and "unpacking."  19 CFR 181.45(b)(1), which defines "same condition" for the purpose of the pertinent regulations is excerpted supra. 19 CFR 181.45(b)(1)(v) includes "packing, repacking, packaging, or repackaging." We found that the repackaging of parts by Deere is within the scope of 19 CFR 181.45(b)(1)(v) such that parts which are repackaged by Deere are in the same condition provided that the repackaging operation does not materially alter the characteristics of the parts. No evidence was submitted which to indicate that the characteristics of the parts were materially altered by the repackaging. Likewise in the instant case the “repackaging” of the contact lens solution with the pouch and cases is essentially the same as, or is the same as, "repacking" within the meaning of 19 U.S.C.1313(j)(3). Just as the repackaging of the tractor parts was not treated as a use for purposes of 19 U.S.C. § 1313, the repackaging of the merchandise at hand would also not be treated as a use for purposes of 19 U.S.C. § 1313. As as with the tractor parts, the repackaging of the pouches and contact lens cases does not materially alter the characteristics of the parts. This rationale is consistent with numerous rulings in which we have determined that repackaging of items or putting items into kits for individual sale is essentially the same as “re-packing” as listed in 19 USC § 1313 (j)(3). See also HQ 230166, January 29, 2004 (re-packing of dried fruits and vegetables from industrial size packages to individual use packages is not a use as defined by 19 USC § 1313 (j)(1) and 19 USC § 1313 (j)(3); HQ W229488, dated December 23, 2002 (holding that repackaging bulk toner into bottles of toner that are not made to fit a particular copy machine but are merely used to put the toner into the machine would not constitute a manufacture or production and would still be considered unused merchandise for drawback purposes); HQ 225467, dated October 7, 1994 (assembling sample size cosmetic and grooming products and placing the items in imported cosmetic bags which are exported with the inserted components does not constitute a use for drawback purposes); HQ 225096, dated May 6, 1994 (imported diaper bag which was stuffed with components prior to export was merely repacked and was not considered used for its ordinary purpose). Pouches and contact lens cases that are imported into the United States and repackaged with contact lens solution, are commercially interchangeable with other identical pouches and contact lens cases that are exported as a kit. To determine commercial interchangeability, U.S. Customs and Border Protection (“CBP”) evaluates the critical properties of the merchandise. In evaluating the critical properties, CBP considers factors such as the tariff classification of the merchandise, the relative value of the merchandise, the relevant governmental and recognized industrial standards for the product, the merchandise’s part numbers, and any other relevant factors. See 19 C.F.R. § 191.32(c). Commercial interchangeability is determined by an “objective, market-based consideration of the primary purpose of the goods in question”; and CBP examines the products “from the perspective of a hypothetical reasonable competitor.” See Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999)(citations omitted). Harmonized Tariff Code Numbers The Harmonized Tariff classification of the pouches (both imported and substituted) is 4202.32.9550, HTSUS. The imported and exported lens cases are classified under subheading 4202.39.9000, HTSUSA. The fact that the imported and substituted pouches and cases are classified under the same ten digit subheading would serve to indicate that the criterion would be met. Value The second factor is the relative value of the imported merchandise to the substituted merchandise. If other critical properties have been met, or there is an explanation for the material difference in value, then a variance in price may not necessarily preclude a finding of commercial interchangeability. See HQ 230898 (June 24, 20085); see also HQ H037294 (December 9, 2008)(10-63% price difference does not preclude commercial interchangeability); HQ 227473 (March 3, 1998)(65% price difference does not preclude commercial interchangeability, after evidence is provided showing market reason for price difference). According to Bausch and Lomb the value of the imported pouches, component part number 3926900 part number for the pouch (from 10/15/06 to the present) or 66101 (part number for the pouch for the time period 01/01/03 until 10/14/06) is $.81 including the cost of transportation and duty. The value of the imported lens case, part number 67904, is $.10 including transportation and duty. The value of the imported and substituted merchandise is the same. Therefore this criterion is met. Government Standards There are no governmental and recognized industry standards for contact lens kits or pouches. Part Numbers The part numbers for the pouches are 392600 or 66101. Although the part number changed, they are exactly the same pouches. The part number was changed from 66101 to 3926900 on October 15, 2006 while the merchandise is exactly the same. The part number for the lens case is 67904. HOLDING: Because adding contact solution bottles to the lens cases and putting them into a pouch is merely repacking the goods, it does not constitute a use, pursuant to 19 U.S.C. § 1313(j)(2)(C)(i) and (j)(3). Based on the weight of the evidence, imported and substituted lens cases having the same part number and value and imported and substituted pouches having the same part number are commercially interchangeable interchangeable for purposes of substitution, unused merchandised drawback, pursuant to 19 U.S.C. § 1313(j)(2). Notably, the drawback claim is limited to the contact lens cases and the pouches. The contact lens solution is not eligible for drawback nor is the claimant claiming drawback on the contact lens solution. Sincerely, William G. Rosoff, Chief Entry Process and Duty Refunds Branch