Applicability of 9802.00.50 to packaged items that are cleaned, labeled, and/or re-labeled

HQ H262532 September 17, 2015 OT:RR:CTF:VS H262532 AJR CATEGORY: CLASSIFICATION Mr. Steven B. Zisser Zisser Group 9355 Airway Road, Suite 1 San Diego, California 92154 RE: Applicability of 9802.00.50 to packaged items that are cleaned, labeled, and/or re-labeled Dear Mr. Zisser: This letter is in response to your binding ruling request sent to the National Commodity Specialist Division (“NCSD”) of U.S. Customs and Border Protection (“CBP”), dated December 22, 2014, on behalf Four Seasons Design, Inc. (“FSD”). Your request inquires whether various packaged items, such as headphones, portable FM radios, MP3 players, and small toys, that will be exported to Mexico to be cleaned, labeled, and/or re-labeled in Mexico before re-entry into the United States are eligible for tariff treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (“HTSUS”). Your request was forwarded to this office. FACTS: FSD is a garment manufacturer that provides “Gifts with Purchase” to its customers, which means that FSD attaches a complimentary gift to the garments it sells to its customers in the United States. To run this “Gift with Purchase” operation, FSD acquires a wide variety of packaged items (“gifts”), including headphones, portable FM radios, MP3 players, and small toys, from different vendors. FSD first receives these gifts in the United States and each gift is already packaged in a sealed, see-through, and fitted and shaped to the product plastic clamshell that allows full visibility of the individual gift. FSD packs the gifts together in large cardboard boxes and/or gaylords, puts them on pallets, and loads them into trailers for transportation and exportation to FSD’s related facility in Mexico. In Mexico, the gifts are cleaned, labeled, and/or re-labeled as described in the four scenarios below. After undergoing one of the following scenarios, the gift is then attached to a t-shirt or other garment by means of a hanger and plastic ties, and shipped back to the United States. First Scenario – Cleaning Only: Step 1 (Inspection): The gifts are shipped to FSD’s Mexican facility, and each packaged gift is inspected. If the gift’s packaging is torn, broken, scratched, marked up, or otherwise damaged, the product is set aside for possible re-packaging or destruction. If the packaging is fine, then a visual inspection of the product is made through the packaging. If the product appears damaged from the visual inspection, then it is set aside for possible repair or destruction. If it looks fine, it moves on to the next step. Step 2 (Cleaning): All packaged gifts must be wiped clean with a cotton towel and cleaning solution in order to remove dirt, dust, grime, and any other contaminants. Second Scenario – Cleaning and Labeling: Step 1 (Inspection): Same inspection process as in the first scenario. Step 2 (Cleaning): Same cleaning process as in the first scenario. Step 3 (Labeling): A promotional paper label or sticker is placed on the outside of each packaged gift. Third Scenario – Cleaning and Re-labeling: Step 1 (Inspection): Same inspection process as in the first scenario. Step 2 (Cleaning): Same cleaning process as in the first scenario. Step 3 (Re-labeling): The original paper retail branding tags on each packaged gift is removed and replaced with a new paper branding tag. Fourth Scenario – Labeling Only: Step 1 (Inspection): Same inspection process as in the first scenario. Step 2 (Labeling): Same labeling process as in the second scenario. After the steps in the first, second, third, or fourth scenarios are complete, the packaged gift and attached garment are shipped from Mexico and imported, under separate classifications, back into the United States for retail sale. ISSUE: Whether the packaged gifts that undergo processing in Mexico as described in the four scenarios above are eligible for tariff treatment pursuant to subheading 9802.00.50, HTSUS? LAW & ANALYSIS: Subheading 9802.00.50, HTSUS, provides a full or partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Articles returned to the United States after having been repaired or altered in Mexico, whether or not pursuant to warranty, may be eligible for duty-free treatment, provided the documentary requirements of section 181.64, CBP Regulations, (19 C.F.R. § 181.64), are satisfied. Section 181.64(a) states, in pertinent part: ‘Repairs or alterations’ means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential character of, or create a new and commercially different good from, the good exported from the United States. Classification under subheading 9802.00.50, HTSUS, is precluded where: (1) the exported articles are not complete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles; or (2) the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See Guardian Indus. Corp. v. United States, 3 Ct. Int’l Trade 9 (1982), and Dolliff & Co., Inc., v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff’d, 66 C.C.P.A. 77, C.A.D. 1225, 599 F.2d 1015 (1979). With regard to the gifts that undergo cleaning in the first, second, and third scenarios, CBP has previously held that cleaning and sanitizing soiled garments and floor mats in a Mexican or Canadian laundry facility qualified as an alteration under subheading 9802.00.50, HTSUS. See Headquarters Ruling (“HQ”) 254785, dated September 17, 2014; HQ 559072, dated June 21, 1995; and HQ 221046, dated May 11, 1989. As in our prior decisions, we find that cleaning in the first scenario is an alteration, thereby entitling those packaged gifts to the duty exemption under subheading 9802.00.50, HTSUS. Similarly, the second and third scenarios are entitled to a duty exemption with regard to the value of the cleaning. The remaining issue concerns whether the value of the labeling or re-labeling in the second, third, and fourth scenarios is entitled to a duty exemption under subheading 9802.00.50, HTSUS. CBP has previously held that marking or affixing a label to a product constitutes an acceptable alteration for purposes of subheading 9802.00.50, HTSUS. See HQ W563554, dated November 13, 2006 (t-shirts exported to Mexico for re-labeling were entitled to tariff treatment under subheading 9802.00.50, HTSUS); HQ 562952, dated March 29, 2004 (belted jeans and pants exported to Mexico for inspection and tagging were entitled to duty-free treatment under subheading 9802.00.50, HTSUS); HQ 559639, dated June 25, 1996 (flashlights exported to Mexico, where a product nameplate or label was affixed and the company’s logo and product name were pad-printed onto the flashlight, were entitled to duty-free treatment under subheading 9802.00.50, HTSUS); HQ 557327, dated July 26, 1993 (vendor marking labels, flasher tags, hang tags, size tickets were operations that constituted an acceptable alteration under subheading 9802.00.50, HTSUS); HQ 555724, dated December 17, 1990 (air bag sensors exported to Mexico for re-labeling and testing operations were eligible for treatment under subheading 9802.00.50, HTSUS); HQ 554996, dated June 30, 1988 (sunglasses exported for inspection, temple adjustment, and retagging were entitled to partial duty exemption under item 806.20, TSUS, the precursor to subheading 9802.00.50, HTSUS); and HQ 071159, dated March 2, 1983 (diodes exported to Mexico for marking and packaging operations were entitled to treatment under item 806.20, TSUS, as the printing operation had no more significance than a label for identification purposes). After reviewing the above-referenced cases, we find that where labeling was found to be an acceptable alteration for purposes of subheading 9802.00.50, HTSUS, the labeling served an “identification purpose.” Namely, the identification informed anyone using the good that the good conformed to certain specifications. For instance: in HQ 071159 and HQ 559639, the labeling informed that the good conformed to the expectations of the brand identified; in HQ 557327, the labeling informed that the good conformed to the size identified by the label; and, in HQ 555724, the labeling informed that the good conformed to airbag requirements identified by the label. In this case, the re-labeling in the third scenario identifies the brand of the article, and informs that the good conforms to the expectations of that brand. Similarly, the labeling in the second and fourth scenarios identify that the good is a promotional product, and informs that the good conforms to the expectations of a good that is provided to promote something else. Therefore, we finding that the labeling process in the third scenario, and the re-labeling process in the second and fourth scenarios are entitled to a duty exemption under subheading 9802.00.50, HTSUS, with regard to the value of those processes. Accordingly, we find that the operations performed in Mexico under all four scenarios constitute proper repairs and alterations within the meaning of subheading 9802.00.50, HTSUS. This determination applies to the gifts only, and not to the garments to which the gifts are attached. HOLDING: On the basis of the information provided, it is our opinion that the cleaning, labeling, and/or re-labeling operations performed in Mexico, as described in the four scenarios above, along with the attachment operation, constitute acceptable alterations within the meaning of subheading 9802.00.50, HTSUS. Therefore, upon re-entry into the United States, the gifts are entitled to the tariff treatment under subheading 9802.00.50, HTSUS. This determination applies to the gifts only, and not to the garments to which the gifts are attached.  A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction Sincerely, Monika R. Brenner, Chief Valuation & Special Programs Branch