Internal Advice Request No. 15/91; Subheading 9802.00.50, HTSUS, not applicable to laparotomy sponges exported to Mexico in unsterile condition for various processes and packaging and returned to the U.S. for sterilization; incomplete article; Guardian; 555143; Modification of 063187, 067862, 052972, 052973, 044080; U.S. originorigin materials eligible under subheading 9801.00.10, HTSUS; 555559; 731806; 555144; 071449; 054141

HQ W556007 September 9, 1992 CLA-2 CO:R:C:S W556007 LS CATEGORY: Classification TARIFF NO.: 9802.00.50; 9801.00.10 District Director of Customs Lincoln Juarez Bridge, Bldg. #2 P.O. Box 3130 Laredo, Texas 78044-3130 RE: Internal Advice Request No. 15/91; Subheading 9802.00.50, HTSUS, not applicable to laparotomy sponges exported to Mexico in unsterile condition for various processes and packaging and returned to the U.S. for sterilization; incomplete article; Guardian; 555143; Modification of 063187, 067862, 052972, 052973, 044080; U.S. origin origin materials eligible under subheading 9801.00.10, HTSUS; 555559; 731806; 555144; 071449; 054141 Dear Sir: This is in response to your memorandum of March 1, 1991, forwarding a request for internal advice dated January 4, 1991, initiated by Anago, Inc. The request was forwarded to us through the National Import Specialist in New York. The request relates to the applicability of subheadings 9802.00.50 and 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), to packaged laparotomy sponges imported from Mexico in an unsterile condition. A sample of the product was submitted for examination. FACTS: The following facts are based upon letters dated January 4, March 18, and August 17, 1991, from a representative of Anago, Inc. and telephone conversations between that representative and a member of my staff. The merchandise consists of 4-ply cotton laparotomy sponges with an X-ray detectable barium strip and a 13-inch blue fabric loop handle sewn into one corner. The sponges are imported into the U.S. from China already delinted, and in an unfolded condition. In the U.S. the sponges are laundered, dried, and bulk stacked into plastic bags for shipment to Mexico. The sponges are exported to Mexico without benefit of drawback. The other components exported to Mexico are of U.S. origin and consist of the following: 14-inch paper bands; "CSR" wrap; perforated closure tapes; ethylene oxide indicators; "Chevron Kwikbreath" pouches; plastic case liners; and corrugated boxes. The sponges undergo various operations in Mexico and are returned to the U.S. where they are sterilized and subject to further testing to confirm the integrity of the sterilization. The operations performed in Mexico consist of the following: Visual inspection. The sponges are carefully examined and all loose threads must be removed to eliminate the possibility that threads would be left in the body after surgery. Loose threads are removed by hand or clipped from the sponges. Sponges with major defects are discarded. Folding. Each sponge is folded in three steps to create a 4.5 inch by 9 inch finished size with the blue handle extended at the top left side. Five such sponges are stacked one on top of the other. The blue handles are gathered together and twisted twice. All five handles are then placed together between the middle fold of the top sponge. The purpose of the special twisting is to enable the operating room nurse to count the sponges without human contact when the "CSR" wrap is partially opened. The special surgical fold aids the surgeon in placing the sponge inside the surgical cavity and contributes to the primary use of the sponge in wicking fluids and walling off body organs. During folding, a ''spore strip" is inserted into a prescribed number of 5-packs, which are designated as "spored samples." These spored samples are subjected to testing following the sterilization process which occurs in the U.S. Wrapping. A 14-inch paper band is then placed around each stack of five sponges. The blue colored "CSR" wrap, which is made of an antistatic polyethylene film, is folded around each stack in a "hospital fold" which involves an 8-step operation. Wrapping in units of five is a procedural requirement in the operating room. This special folding operation and the twisting of the handles described above are exclusive Anago features which enable the operating room nurse to partially open the "CSR" wrap while holding the bottom half of the wrapped stack, and then to shake loose the blue handles with one or two flicks of the wrist. Thus, the nurse can visually count the five sponges without human contact. The wrap is sealed with a perforated closure tape which allows for the seal to be broken without tearing the wrap. An ethylene oxide indicator tape is affixed over the closure tape. After sterilization is performed in the U.S., the stripes on the tape change from yellow to red as an indication that sterilization was achieved. Packaging steps which render the sponges "sterilization ready."  The wrapped sponges, in groups of five, are inserted in a "Kwikbreath" pouch which is heat sealed. The pouch is made of a porous material which allows for the penetration of sterile gasses when exposed to heat and moisture during the sterilization process. At the time of sealing, an FDA lot number is embossed and inked onto the pouch in the seal area. This FDA number is for identification purposes so that if there is a recall of the product, the appropriate lot numbers affected by the recall can be identified. The numbers are also used by the operating room staff for record keeping so that notations can be made of the sponges as they are used in surgery. The packaged sponges are placed in lined and corrugated boxes preprinted with the product number and description. These boxes are made of a material which is capable of withstanding the moisture and heat of sterilization. Palletization. The master boxes are loaded onto pallets which are labeled "non-sterile." When the pallets of sponges are returned to the U.S., they undergo sterilization, followed by testing of the spored samples. The sponges are then sold to hospital groups and distributors of hospital and surgical supplies. The importer, Anago, Inc., contends that the sponges are eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, because they are advanced in value by means of the operations performed in Mexico. Anago, Inc. states that these operations, which serve the various purposes described above, are considered "alterations" and more than mere packaging operations. Anago, Inc. further states that because there is no use for unsterile laparotomy sponges, the ''alterations" performed in Mexico do not create a new article, nor do they give the product new commercial properties. The sponges are said to achieve their commercial identity only after being sterilized in the U.S. Anago claims that the remaining materials of U.S. origin, consisting of sterile packaging and case packaging, are entitled to duty-free treatment under subheading 9801.00.10, HTSUS. ISSUES: Whether the laparotomy sponges exported to Mexico for inspection, removal of loose threads, folding, wrapping, and packaging, and returned to the U.S. for sterilization, are entitled to the partial duty exemption under subheading 9802.00.50, HTSUS. Whether the remaining U.S. components are entitled to duty-free entry under subheading 9801.00.10, HTSUS, upon their return to the U.S.  4 LAW AND ANALYSIS: Eligibility of laparotomy sponges under subheading 9802.00.50. HTSUS Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Such articles are dutiable only upon the value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, customs Regulations (19 CFR 10.8) are satisfied. However, entitlement to this tariff treatment is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing. Guardian. As stated in Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, 82, C.A.D. 1225, 599 F.2d 1015, 1019 (1979), "repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or the manufacture of finished articles." In Guardian, the Court of International Trade held that glass pieces produced in annealed form in the U.S., sent to Canada for a heat treatment known as tempering, and then returned to the U.S., were not eligible for entry under item 806.20, Tariff Schedules of the United States (TSUS) (the precursor of subheading 9802.00.50, HTSUS), because the tempering process was not considered an alteration within the meaning of that provision. One of the reasons for the court's decision was its conclusion that the exported articles of raw annealed glass were not "completed articles" since they were entirely unsuitable for their intended use in the U.S. as sliding glass patio doors. In making this finding, the court considered as relevant federal regulations which require that glass used in patio doors undergo tempering or other safety processing. Moreover, tempering of glass for use in patio doors was the standard practice in the glass industry even before the issuance of the federal regulation. We focus our discussion on one of the requirements for eligibility for duty treatment under subheading 9802.00.50, HTSUS, which was relied upon in Dolliff and Guardian, i.e., that the exported article be complete for its intended use prior to the foreign processing. Applying this criterion, we conclude, as more fully discussed below, that the exported unsterilized  laparotomy sponges are not completed articles. Since the "completed article" criterion under subheading 9802.00.50, HTSUS, is not satisfied, we need not address the other requirement of the statute, i.e., that the foreign processing cannot result in a new article of commerce. The failure to meet one of the requirements of an "alteration" under subheading 9802.00.50, HTSUS, is sufficient to preclude entitlement to the partial duty exemption under this statute. Anago, Inc. has specifically stated that there is no use for unsterile laparotomy sponges and that the sponges achieve their commercial identity only after being sterilized in the U.S. Thus, the sponges in their unsterile condition as exported, are not "completed articles," for purposes of subheading 9802.00.50, HTSUS, because they are entirely unsuitable for their intended use in the U.S. to absorb fluids and wall off body organs during abdominal surgery. As in Guardian, this unsuitability of the exported unsterile sponges for their intended use is demonstrated by the existence of federal policy governing such products. These sponges are regulated as "Class II" medical devices by the U.S. Food and Drug Administration (FDA). See 21 CFR 878.4450 (1991). During the agency's regulatory review process, specific device characteristics, including device sterilization procedures, are reviewed. Pursuant to FDA policy, devices of this nature must meet certain sterility requirements to be labeled as "sterile." In addition, the American National Standards Institute has approved guidelines which provide the essential elements of good operating practice for ethylene oxide sterilization of medical devices. We find that since the unsterilized sponges are incomplete articles when exported from the U.S., the processes performed in Mexico, consisting of inspection, removal of loose threads, folding, wrapping, and packaging, are "intermediate processing operations which are performed as a matter of course in the preparation or the manufacture of the finished articles." Dolliff, 66 CCPA at 82, 599 F.2d at 1019. All of these steps are necessarily undertaken in the production of the finished article, i.e., sterilized laparotomy sponges. The article does not actually become a complete or finished article, for purposes of subheading 9802.00.50, HTSUS, until after it is returned to the U.S. and sterilized and further tested here. See Headquarters Ruling Letter (HRL) 555143 dated May 19, 1989 (cotton grey fabric which was shipped from the U.S. to Canada to be treated with fire retardant chemicals, and returned to the U.S. for further processing into finished fabric, was not entitled to treatment under subheading 9802.00.50, HTSUS, since the fabric as exported was unfinished for its intended use and the foreign processing was merely an intermediate processing of such goods to prepare them for manufacture into finished fabric). Anago, Inc. has relied upon HRL 067862 dated August 4, 1982,  in support of its position that the operations performed in Mexico with respect to the sponges constitute alterations within the meaning of subheading 9802.00.50, HTSUS. In that ruling, unsterilized latex surgical gloves were exported in bulk to Mexico where the following operations were performed: inspection, sorting, trimming the cuffs to even the edge, folding the cuffs back to form a cuff area, pairing, machine wrapping, counting, and placing in cartons. The gloves were returned to the U.S. where they were sterilized. We stated that the operations performed abroad appeared to constitute repairs or alterations within the meaning of item 806.20, TSUS. See also HRL 063187 dated September 21, 1979 (surgical gloves sent abroad for various operations and returned to the U.S. for sterilization were accorded tariff treatment under item 806.20, TSUS). In HRL 052972, 052973, dated October 20, 1977, and HRL 044080 dated February 27, 1976, we also suggested that sterilization performed abroad on surgical items constituted alterations for purposes of item 806.20, TSUS. For the same reasons that we find the instant laparotomy sponges to be incomplete articles for purposes of subheading 9802.00.50, HTSUS, we also find it necessary to modify the rulings cited in the above paragraph to the extent that they allowed a partial duty exemption under item 806.20, TSUS, for either (1) unsterile surgical items exported abroad for various processes and returned to the U.S. for sterilization before they could be sold and used as sterile articles, or (2) unsterile surgical items exported abroad for various processes, including sterilization, and returned to the U.S. before they could be sold and used as sterile articles. Eligibility of remaining components under subheading 9801.00.10, HTSUS Subheading 9801.00.10, HTSUS, provides for the free entry of products of the U.S. that are exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1) are met. While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. See Border Brokerage Co. v. United States, 65 Cust. Ct. 50, c.o. 4052, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970). With respect to the packaging and other materials consisting of paper bands, "CSR" wrap, perforated closure tapes, ethylene oxide indicators, "Kwikbreath" pouches, plastic case liners, and corrugated boxes, we find that they are entitled to duty-free entry under subheading 9801.00.10, HTSUS, since they are U.S.  products which are returned without having been advanced in value or improved in condition while abroad. See HRL 555559 dated April 20, 1990, and HRL 731806 dated November 18, 1988 (duty- free treatment provided by subheading 9801.00.10, HTSUS, extends to an American-made container which is exported and then reimported with its contents, provided that it meets all of the criteria for classification within that subheading). We do not believe that the folding of the "CSR" wrap around the stacked sponges results in an advancement in value or improvement in condition of the wrap material itself. As to the heat sealing of the "Kwikbreath" pouch, we held in HRL 555144 dated April 9, 1990, that heat sealing a polyethylene bag of U.S. origin does not preclude its entitlement to duty-free treatment under subheading 9801.00.10, HTSUS, because it is not considered to advance its value or improve its condition. With respect to the process of inking and embossing the FDA lot number on the pouches in the seal area for purposes of identification, we have held that printing a model number or lot number on packaging material which merely serves to identify the product enclosed in the packaging is not an advancement in value or improvement in condition within the meaning of item 800.00, TSUS (the precursor provision to subheading 9801.00.10, HTSUS). See HRL 071449 dated October 17, 1983; HRL 054141 dated March 7, 1978. In the latter ruling, we found that the printing of an identifying lot number and expiration date on paper labels used on the packaging material for bacterial culturettes did not advance the packaged articles in value or condition even to the extent that the markings were mandated by law. For all of the above reasons, we find that the "CSR" wrap and "Kwikbreath" pouch are entitled to duty-free treatment under subheading 9801.00.10, HTSUS. HOLDING: For the reasons stated above, the laparotomy sponges themselves are not entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, upon their return to the U.S. To the extent that this ruling conflicts with earlier rulings, including HRL 067862, 063187, 052972, 052973, and 044080, which addressed the same or a similar issue involving the sterilization of surgical items, those rulings are modified in accordance with the holding herein. The packaging and other materials of U.S. origin exported to Mexico and returned to the U.S. are entitled to duty-free entry  under subheading 9801.00.10, HTSUS, since they have not been advanced in value or improved in condition as a result of the operations performed abroad. Sincerely, John Durant, Director Commercial Rulings Division