Request for a ruling concerning eligibility of certain plastic tubing sacks for unused merchandise duty drawback.

HQ H260746 June 12, 2015 DRA 2, DRA 4 OT:RR:CTF:ER H260746 ECG Neville Peterson LLP One Exchange Plaza 55 Broadway, Suite 2602 New York, NY 10006 Attn: Maria E. Celis Re: Request for a ruling concerning eligibility of certain plastic tubing sacks for unused merchandise duty drawback. Dear Ms. Celis: This is in response to your ruling request dated January 6, 2015, on behalf of Kureha America LLC (“Kureha”), regarding whether certain cutting and sealing operations performed on continuous length plastic tubing constitute a manufacture or production for purposes of unused merchandise duty drawback pursuant to 19 U.S.C. § 1313(j). Our response follows. FACTS: You state that Kureha imports shrinkable plastic film as continuous length, flat laying plastic tubing. The tubing is used to encase cold meats and cheeses to form a sanitary seal. The shrinkable plastic film is known ML40 casing film, which is comprised of several different layers of material. The layers include: 1) PET polyester (for glass and temperature resistance); 2) tie layer (glue for the two adjacent layers); 3) polyamide or nylon (to give strength to the film); 4) ethylene vinyl alcohol (to give a high barrier for gases, especially oxygen and carbon dioxide); 5) tie layer; and 6) polyethylene sealing layer. These layers preserve foods by blocking gases which promote oxidation and decay, while allowing harmful gases to escape. Kureha imports the ML40 casing film tubing in continuous lengths of up to 2,000 meters and varying widths between 165 and 600 millimeters. After importation, a machine will cut the continuous length tubing to specific lengths, leaving openings at each end of the newly created tubing sections. Right after the machine cuts the new edge, it heat seals that end to form a sack between 200 and 1,000 millimeters in length. After the formation of the sack, Kureha will export the sack form tubing. Customers use the ML40 casing film tubing in both continuous length and sack forms to seal meats and cheeses in a sanitary seal. A customer using the sack form will seal the open end of the sack to enclose the meats or cheeses inside the sack. The sack tubing is easier for customers to use with products that are fixed sizes. Customers with products that are varying sizes can use the continuous length tubing by cutting the tubing on one end to create the desired size and then sealing the tube on both ends. Both the pre-cut sacks and continuous length tubing require additional sealing and heat application to shrink the wrap, which encloses the products and forms the ML40 casing film’s sanitary seal. Kuhera states that it will export the ML40 casing film sacks and inquires whether it may claim unused merchandise drawback on the imported ML40 continuous length tubing. ISSUE: Whether certain cutting and sealing operations performed on ML40 continuous length tubing constitute a manufacture or production for purposes of duty drawback eligibility pursuant to 19 U.S.C. § 1313(j). LAW AND ANALYSIS: Section 313(j), of the Tariff Act of 1930, as amended (19 U.S.C. § 1313(j)) provides for a refund of duty if a duty-paid article is exported in the same condition as when imported, within three years from date of importation, and was not used in the United States. The statute provides in 19 U.S.C. § 1313(j)(3) that: [t]he performing of any operation or combination of operations (including, but not limited to, testing, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking), not amounting to a manufacture or production for drawback purposes . . . For Kureha to claim drawback under 19 U.S.C. § 1313(j), the combination of operations it performs on the continuous length tubing while in the United States cannot be considered a “use” within the meaning of the statute. Certain processes are permitted, but they cannot rise to the level of a manufacture. Therefore, an operation or series of operations that is deemed to be a “manufacture or production” would disqualify the continuous length tubing from this type of drawback. We note that “cutting” is specifically listed in 19 U.S.C. § 1313(j)(3), however, sealing is not. Therefore, we need to consider whether the sealing would constitute a manufacture. CBP regulation, 19 C.F.R. § 191.2(q), defines the “manufacture or production” within the drawback context as follows: (q) Manufacture or production. Manufacture or production means: (1) A process, including, but not limited to, an assembly, by which merchandise is made into new and different articles having a distinctive “name, character or use”; or (2) A process, including but not limited to, an assembly, by which merchandise is made fit for a particular use even though it does not meet the requirements of paragraph (q)(1) of this section. This definition reflects the holding in Customs Service Decision (“C.S.D”) 82-67, dated December 22, 1981. In that decision, Legacy Customs considered whether certain operations performed on imported cotton towels constituted a manufacture or production for purposes of manufacturing drawback. Those operations included weighing, inspecting, trimming, folding, spraying, and wrapping the towels in polyethylene film for use by airline passengers. In the analysis, the decision discussed the judicial test established by the Supreme Court of the United States in Anheuser-Busch v. United States, 207 U.S. 556, 562 (1907). In that case, the Court held: [m]anufacture implies change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor and manipulation. But something more is necessary . . . . There must be a transformation; a new and different article must emerge, having a different name, character, or use. Additionally, C.S.D. 82-67 adopts the “fit for a particular use” standard established by the former Court of Customs and Patent Appeals in United States v. International Paint Co., Inc., 35 CCPA 87 (C.C.P.A. 1948). C.S.D. 82-67 states that the decision in International Paint:  [a]ppears to support Customs’ more recent interpretation of “manufacture” as a process brought about by significant investment of capital and labor to produce articles or commodities which, despite the fact they are in some cases much the same as their commodities prior to processing, have been made suitable for a particular intended use. In determining what constitutes a manufacture, we have held in our administrative rulings that if an operation involves special treatment of merchandise to obtain certain properties required for a specific use by the entity performing the operation or his customers and the operation involves significant capital and labor expenditure, then that operation is a manufacture or production. Thus, to determine whether an article is one that is manufactured or produced, it is necessary to compare the imported merchandise with the finished article. If the finished article has been rendered fit for a particular use, or is a new and different article having a distinctive name, character or use, vis-à-vis the imported merchandise, a manufacture or production has taken place. For instance, in Washington International Insurance Co. v. United States, stainless steel scrap was imported for testing, sorting, reducing in size, cleaning, and pressing into bales or briquettes for exportation. 395 F.3d 1258 (Fed. Cir. 2005). The court concluded that between the importation of the stainless steel scrap and the exportation of the bales or briquettes no manufacture or process of manufacture within the meaning of subheading 806.30, Tariff Schedules of the United States, had taken place because such manipulation of the steel scrap did not “transform a raw material into a final product.” Id. at 1262. As the stainless steel scraps were still stainless steel scraps after processing it by sorting, cleaning, and changing its size and form, no manufacture or process occurred. Similarly, in HQ H128998, dated May 28, 2013, CBP determined that imported prunes with a moisture level of approximately 18 percent, which were then pitted and hydrated to a moisture content of 25 percent, were not transformed into a different product. They were imported as prunes and exported as prunes after the hydration and pitting. Moreover, the prunes’ character, name, and use had not changed either. Id. Additionally, CBP has found that an article is manufactured or produced when the articles is fitted for a particular use. In HQ H153066, dated May 31, 2012, CBP determined that filling pillow case shells with padding and zipping the shells closed to make a pet bed was a manufacture or production. Without the filling, the pillow case shell was essentially fabric and unsuitable for pets to use for rest and sleep. By filling the pillow shells with padding, it made them fit for their particular use as pet beds. Conversely, in HQ H128998, CBP determined that the hydrating and pitting process did not fit the prunes for a particular use. In both the imported and exported prunes, they shared the same nutritional value and the use remained for human consumption, and thus, the prunes were not fitted for a particular purpose. Rather, these operations were intended to make the product more desirable, and therefore, no manufacture or production occurred. In the instant case, the combination of the cutting and sealing processes does not form a new or different article with a distinctive name, character, or use. The cutting and sealing process is similar to the testing, sorting, reducing in size, cleaning, and pressing processes that were held not to be a manufacture or production in Washington International Insurance Co.. Much like the stainless steel scrap that was reshaped into steel bales or briquettes, the continuous length ML40 casing film tubing is only cut and sealed into ML40 casing film sacks. Similar to the steel that was not transformed from a raw material into a final product, the continuous length ML40 casing film tubing is not transformed into a final product because the ML40 casing film sacks require additional sealing to form the ML40 casing film’s sanitary barrier. Furthermore, the cutting and sealing process is similar to the hydrating and pitting procedures held not to be a manufacture or production in HQ H128998. Much like HQ H128998 where there was no change in the use, name, or character of the prunes after the hydrating and pitting process, the sealing and cutting process does not change the ML40 casing film’s name, use, or character. After the cutting and sealing process, the ML40 casing film is still ML40 casing film. The name does not change as both the imported continuous length tubing and exported sacks are still referred to as ML40 casing film. Additionally, the cutting and sealing process does not change the character of the imported ML40 casing film tubing because the cutting and sealing process does not change the ML40 casing film’s properties. Both before and after the sealing process, the ML40 casing film maintains its ability to block certain gases that promote decay and allow certain harmful gases to escape, thereby providing a sanitary seal on meats and cheeses once the food is inserted and both ends are sealed. Accordingly, the cutting and sealing process does not change the ML40 casing film’s name, use, or character when forming the sacks from the continuous tubing. Furthermore, in this case, the cutting and sealing process does not make the ML40 casing film fit for a particular use. The combination of the cutting and sealing processes is akin to the processes in HQ H128998 where the pitted and hydrated prunes were not made fit for a particular use. Like the imported and exported prunes that retained the same nutritional value after the pitting and hydrating processes, after the cutting and sealing processes, the continuous length tubing and sacks maintain the same chemical composition that enables the film to block certain gases that promote decay and allow certain harmful gases to escape. Furthermore, the imported and exported prunes were both intended for human consumption, much like the continuous length tubing and sacks that are both intended for customers to use to encase meats and cheeses in a sanitary seal. The combination of the cutting and sealing process is also like the hydrating and pitting processes in that both make the product more desirable for customers. Here, the cutting and sealing cuts the tubing into smaller sizes to facilitate the encasing of meats and cheeses, which is advantageous for customers encasing standardized sized meats and cheeses in ML40 film. However, the instant case is unlike HQ H153066, where CBP found that filling the pillow shells with padding made the pillow shells fit for their particular use as pet beds, and was thus a manufacture or production. In HQ H153066, the pillow shells were essentially fabric before filling them with padding, and once they were filled, were suitable as pet beds. Conversely, the continuous length ML40 casing film tubing, when cut and sealed to form sacks, is still ML40 casing film that requires additional operations to encase meats and cheeses. The sealing process is an intermediary step performed on the ML40 casing film. Accordingly, the cutting and sealing has not fit the continuous length ML40 casing film tubing for a particular use, and therefore, does not constitute a manufacture or production. HOLDING: Based on the above, the combination of the cutting and sealing processes performed on the imported continuous length tubing is not a manufacture or production for duty drawback and the ML40 could be eligible for unused merchandise drawback pursuant to 19 U.S.C. § 1313(j). Please note that 19 C.F.R. §177.9(b) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service filed office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” Sincerely, Carrie L. Owens, Chief Entry Process and Duty Refunds Branch