Internal Advice 10/038; Subheading 9801.00.10, HTSUS; Exported U.S.-origin Plastic Cups, Filled with Fruit, Sealed, Heat-treated and Returned to the United States

HQ H145539 May 10, 2011 CLA-2 OT:RR:CTF:VS H145539 HkP CATEGORY: Classification Port Director Port of San Francisco U.S. Customs and Border Protection 555 Battery Street San Francisco, CA 94111 RE: Internal Advice 10/038; Subheading 9801.00.10, HTSUS; Exported U.S.-origin Plastic Cups, Filled with Fruit, Sealed, Heat-treated and Returned to the United States Dear Port Director: This is in response to your memorandum, dated December 6, 2010, requesting Internal Advice concerning the applicability of subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), to U.S.-origin plastic cups exported to China, filled with fruit, sealed, heat-treated and returned to the United States. FACTS: At various times in 2009 and 2010, the Del Monte Corporation imported fruit cups from China. Fruit cups are prepared fruit (e.g., diced pears in syrup) in sealed four-ounce plastic cups, packed for retail sale in cardboard sleeves, four cups per sleeve. The foreign manufacturer purchased the plastic cups from a U.S. manufacturer and shipped them to China, where they were filled with fruit product, sealed with plastic sheeting manufactured in the Netherlands, heat-treated, cooled, and packaged for export to the United States. Upon importation of the fruit cups, Del Monte itemized the cups separately from the fruit on the entry documents. The cups were entered as products of the United States returned after having been exported, without having been advanced in value or improved in condition, under the provisions of subheading 9801.00.10, HTSUS. ISSUE: Whether the U.S.-origin cups imported into the United States qualify for duty free treatment under subheading 9801.00.10, HTSUS, after having been filled with fruit, sealed, and heat-treated in China. LAW AND ANALYSIS: Subheading 9801.00.10, HTSUS, provides a full duty exemption for: Products of the United States when returned after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad. Articles satisfying the above conditions of the statute will be afforded duty-free treatment, provided the documentary requirements of section 10.1, U.S. Customs and Border Protection (CBP) Regulations (19 C.F.R. § 10.1) are met. It is the position of the port that the U.S.-origin plastic cups underwent a significant change in condition in China and, therefore, do not qualify for duty-free treatment under subheading 9801.00.10, HTSUS. The Port believes that the overall condition of the article at the time of export should be compared with its overall condition at the time it is returned to the United States. Specifically, the Port argues that empty cups that had no use at the time of export, were filled with foreign fruit, sealed with a foreign lid and heat-treated in a foreign country. In the port’s view, the imported product should be treated as foreign fruit combined with a U.S.-origin cup and relies, in part, on General Rule of Interpretation (GRI) 3(a) and GRI 3(b) in support of its position. Relevantly, GRI 3 states: When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to only part of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. (b) Mixtures, composite goods consisting of different materials, or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. The port believes that the essential character of a fruit cup is the fruit, because when a consumer buys a fruit cup, they are buying a fruit product only, not a fruit product and a plastic cup. U.S. Note 1 to Chapter 98, HTSUS, provides: The provisions of this chapter are not subject to the rule of relative specificity in general rule of interpretation 3(a). Any article which is described in any provision in this chapter is classifiable in said provision if the conditions and requirements thereof and any applicable regulations are met. Accordingly, we note that GRI 3(a) is not applicable to goods of chapter 98, HTSUS. Moreover, we find that GRI 3(b) is not applicable in this case because the fruit cups are not mixtures, composite goods, or goods put up in sets for retail sale. Fruit cups are prepared fruit packed in a single-use container. See New York Ruling Letter (NY) N007542, dated March 6, 2007, concerning the classification of prepared fruit, which is classified under the provisions of GRI 1, that is, according to the terms of the heading. With respect to the classification of goods packed in containers, GRI 5 provides, in relevant part: In addition to [GRI 1 through 4], the following rules shall apply in respect of goods referred to therein: … (b) Subject to the provisions of rule 5(a) above, 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 is not binding 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. See Headquarters Ruling Letter (HQ) 557544 (Oct. 28, 1993), (holding that shoe boxes of foreign origin were to be duty-free because they were filled with footwear which qualified for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS). However, CBP has also 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 HQ 559345 (Dec. 5, 1995), HQ 556956 (July 22, 1993), HQ 951319 (May 13, 1992), HQ 555527 (Mar. 19, 1990), and HQ 731806 (Nov. 18, 1988). Further, CBP has found that a change in condition is allowed and the item may still qualify for duty free treatment, so long as there is not an improvement in condition. See Border Brokerage Company Inc. v. United States, 65 Cust. Ct. 50, C.D. 4052, 314 F. Supp. 788, appeal dismissed, 58 CCPA 165 (1970). See also HQ 555606 (July 26, 1990)(finding that the stamping of non-sterile lot numbers onto chipboard boxes and master cartons would not preclude the packaging material from receiving duty-free treatment under 9801.00.10, HTSUS), and HQ 561449 (July 29, 1999) (display boxes, their contents, and shipping cartons, formed by folding along predetermined lines and fastened with tabs was not advanced in value or improved in condition as a result of the operations overseas). With regard to its view that the condition of the cups has changed, the port argues that combining the foreign fruit with the U.S. cup makes the finished product (a fruit cup) more marketable. In addition, because of the sterilization process that the fruit cups undergo, the port believes that the cups underwent a manufacturing process which changed their condition, and cites in support of its position Amity Fabrics v. United States, C.D. 2104; 305 F. Supp. 4 (Cust. Ct. 1959). Therefore, it is the view of the port that “the commercial sense of the product has improved” so that it is disqualified from being treated as an American good returned. In support of its position, the port cites HQ 554838 (Oct. 31, 1998), which states that “the words ‘improved in condition’ must be taken in a commercial sense and the actual nature of the commercial entity must be considered.” In Amity Fabrics, the court determined that velveteen redyed abroad to render the fabric more marketable had been advanced in value or improved in condition. However, the court in considering the precursor to subheading 9802.00.50, HTSUS (not at issue here), also found that the identity of the good was not destroyed by the dyeing process and that no new article was created. In HQ 554838, dated October 31, 1998, condoms were shipped to Mexico to be tested and packaged. After testing, some of the condoms were packaged in U.S.-origin foil wrapping containing lubricant or spermicide, and some were not. CBP found that both the testing and the addition of spermicide or lubricant advanced the value and improved the condition of the condoms such that entry under subheading 9801.00.10, HTSUS, was not available. Sterilization (heat treatment) of the cups occurs after the cups are filled and sealed, and is a normal procedure in the “canning” of food products to render them sterile. See McGraw-Hill Encyclopedia of Science and Technology (2005), available at http://www.answers.com/topic/sterilization, accessed Apr. 15, 2011. See also Additional U.S. Note 1 to Section IV, HTSUS: “In this section the term ‘canned’ means preserved in airtight containers by heat processing to destroy or inactivate micro-organisms and enzymes that otherwise could cause spoilage.” Accordingly, the fruit packed inside the cups, and not the cups themselves, was sterilized by heat processing in China. We conclude that the cups were not improved in value or advanced in condition, in a “commercial sense”, as a result of the sterilization of the fruit with which they were packed. As noted above, Amity Fabrics is not applicable in this situation because the case pertained to the precursor to subheading 9802.00.50, HTSUS. The facts in HQ 554838 are also distinguishable from the instant case. In HQ 554838, the exported condoms themselves underwent a process that advanced their value and improved their condition, while in this case it is the fruit in the cup that undergoes processing in China and not the cups themselves. In addition, in HQ 554838 the eligibility of the foil wrapping to benefit from the provisions of subheading 9801.00.10, HTSUS, was not in issue. After considering all the facts, we find that the cups are eligible to be entered duty free under the provisions of subheading 9801.00.10, HTSUS, provided the documentary requirements of 19 C.F.R. § 10.1 are met. HOLDING: The U.S.-origin cups exported to China, filled with fruit, sealed, heat-treated, and returned to the United States, are not advanced in value or improved in condition as a result of the operations in China. Therefore, upon their return to the United States, they qualify for duty free treatment under the provisions of subheading 9801.00.10, HTSUS, provided the documentary requirements of 19 C.F.R. § 10.1 are met. You are to mail this decision to the internal advice requester no later than 60 days from the date of the decision. At that time, the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public on the CBP Home Page at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch