Applicability of subheading 9802.00.50, HTSUS, to surgical kits; sterilization; Guardian; HRL 556007; GSP;,sets

HQ W556818 March 22, 1993 CLA-2 CO:R:C:S W556818 BLS CATEGORY: Classification Carl R. Soller, Esq. Soller, Shayne & Horn 46 Trinity Place New York, New York 10006 RE: Applicability of subheading 9802.00.50, HTSUS, to surgical kits; sterilization; Guardian; HRL 556007; GSP; , sets Dear Mr. Soller: This is in reference to your request of July 16, 1992, for a ruling, on behalf of Tri-state Hospital Supply Corporation, concerning the eligibility of sterile surgical kits for the partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). In the alternative, if Customs holds that subheading 9802.00.50 is inapplicable, you believe the items in the kit should be classified separately when imported, and receive duty-free treatment under the Generalized System of Preferences (GSP}. FACTS: The kits come with a different variety of items and are customized for the particular hospital that is purchasing them. A kit may be designed for a particular preparatory, surgical or post-surgical procedure, or may be of general surgical use. Representative sample kits include a tracheostomy care tray and a suturing set. The tracheostomy care tray consists of a tray, gauze, sponges, pipe cleaners, cotton-tipped applicators, a tracheotomy dressing, twill tape, hydrogen peroxide, a CSR wrap, a trach brush and sterile water. The suturing set contains a CSR wrap, a fenestrated drape, a towel, gauze sponges, iodine prep solution, needles, a scalpel, a hemostat, scissors, Adson forcep, a needle holder and a tray. Some of the items are of U.S. manufacture and some are of foreign manufacture. The disposable instruments, such as scissors and scalpels are made in Pakistan and are imported into the U.S. free of duty under the GSP (subheading 9012.90.8000, HTSUS). Tri-State proposes to import the foreign components into the  U.S. The foreign components may be inspected after importation, and then will be repacked with U.S.-manufactured components for shipment by truck to Mexico. In Mexico, the various items that constitute a particular kit will be put together and wrapped in plastic. Then they will be labeled, sealed and placed in the shipping carton. Depending on whether the sterilization process affects the classification of the imported product, the sterilization will occur at the factory in Mexico or after importation into the U.S. The sterilization process will not differ significantly regardless of where it is performed. Sterilization is accomplished by placing the packaged tray, inside of sealed shipping cases, into a pressure chamber. Ethylene oxide gas is introduced into the chamber for a specified period of time to kill any microorganisms, and the kit is sterile upon removal from the chamber. The tray and its components do not undergo any physical changes. After sterilization, the , sterile kits would be distributed to hospitals throughout the U.S. ISSUES: Whether the surgical items exported into Mexico for packaging into kits and sterilization, and items exported to Mexico for packaging into kits and returned to the U.S. for sterilization, are entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, as finished products exported for repairs or alterations. If the surgical kits do not qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, whether the kits in an unsterilized condition would be treated upon importation as "goods put up in sets for retail sale'', or whether the items constituting a particular kit would be classified separately in their own appropriate headings. Whether the Generalized System of Preferences (GSP) may be applicable if the individual items in a kit are classified separately. LAW AND ANALYSIS: Eligibility 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 manufactur,e of finished articles." In Guardian, raw annealed glass was sent to Canada for a heat treatment known as "tempering". Federal regulations required that glass in patio doors undergo tempering or other safety processing. "Tempering" was also a standard practice in the glass industry even before the issuance of the Federal regulation. The Court of International Trade held that the glass parts as exported were not completed articles as they were unsuitable for their intended use as sliding glass patio doors without the "tempering". Accordingly, the articles did not qualify for duty-free treatment under Item 806.20, TSUS (the precursor of subheading 9802.00.50, HTSUS). In Headquarters Ruling Letter (HRL} 556007, dated September 9, 1992, delinted laparotomy sponges were imported from China in an unfolded condition. In the U.S., the sponges were laundered, dried, and bulk stacked into plastic bags. The sponges were then exported to Mexico where they underwent various operations including visual inspection, removal of loose threads, folding, wrapping, and packaging, rendering the sponges "sterilization ready". The wrapped sponges were then inserted in a "Kwikbreath" pack. Upon return to the U.S., the sponges underwent a sterilization process, followed by testing of samples. The sponges were then sold to hospital groups and distributors of hospital and surgical supplies. The importer specifically stated that there was no use for unsterile laparotomy sponges and that the sponges achieve their commercial identity only after being sterilized. Following the court's reasoning in Guardian, we held that, when exported from the U.S., the sponges were not completed articles for purposes of subheading 9802.00.50, HTSUS, because they were not suitable for their intended use, i.e., to absorb  fluids and wall off body organs during abdominal surgery. The operations in Mexico were not considered alterations, but rather "intermediate processing operations which are performed as a matter of course in the preparation or the manufacture of the finished articles." Dolliff. The principle derived from Guardian, and more specifically from the factual background of HRL 556007, is applicable to the facts in the instant case. Prior to the sterilization operation, whether it be performed in Mexico upon exportation or the U.S. upon return, the surgical kit composed of various components would not be complete for its intended use. It will not be a finished article of commerce and therefore lacks identity as a surgical kit without the final step of sterilization. The processing operations to be performed in Mexico and/or the U.S. are necessary intermediate steps in the preparation of the kit for its ultimate use. Therefore, the surgical kits will not qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, since upon exportation from the U.S., the kits are not complete articles of commerce. The operations to be performed abroad constitute intermediate processing operations and not alterations or repairs. Classification of Kits Classification of merchandise under the HTSUSA is in accordance with the General Rules of Interpretation (GRI), taken in order. GRI 1 provides that the classification shall be determined according to the terms of the headings and any relevant section or chapter notes. Where goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRis may be applied, in order. GRI 3 states, in pertinent part: 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: 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 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. An examination of the sample surgical kit discloses that it consists of at least one paper, metal, and plastic article, items which are separately provided for in the Nomenclature. Assuming, for purposes of this discussion only, that all of the kits are comprised of at least several items separately provided for, GRI 3(b) applies as follows: ...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. Explanatory Note X to GRI 3(b) of the HTSUSA, which constitutes the official interpretation of the tariff at the international level, provides, in part: For the purposes of this Rule, the term "goods put up in sets for retail sale" shall be taken to mean goods which: consist of at least two different articles which are, prima facie, classifiable in different headings; consist of products or articles put up together to meet a particular need or carry out a specific activity; and are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or in cases or on boards). In HRL 086700, dated June 19, 1990, we held that an unsterilized surgical pack consisting of at least two different articles classifiable in different headings qualified as a set within the meaning of GRI 3. While the packs as imported were not "suitable for sale directly to users'', due to the fact that they were unsterilized, sterilization of goods while still in the packages was not considered "constructive unpacking and repacking" so as to disqualify the merchandise as a set. (See, also, HRL 083137, dated October 31, 1989). These rulings are applicable to the surgical kits in the instant case, and the kits are classifiable as sets, unless the rulings are inconsistent with our holding in regards to Issue I, and therefore require modification. We find that while unsterilized surgical kits are not  eligible for the partial duty exemption under subheading 9802.00.50, since they are incomplete for their intended use upon exportation, nevertheless such kits meet the criteria set forth for "goods put up as sets for retail sale", under Explanatory Note X to GRI 3 (b), supra. Accordingly, the unsterilized surgical kits, which consist of items which are classifiable under two or more headings, are classifiable as sets within the meaning of GRI 3, HTSUSA. Classification of the particular set imported must be determined in accordance with its essential character, in accordance with GRI 3(b). Since various types of surgical sets are to be imported, comprised of unspecified items, additional detailed information regarding the items in each set would be required in order to make a determination as to the essential character of each set. GSP Eligibility Since the surgical kits are classifiable as sets, in accordance with the above, GSP eligibility of the individual items in the set is not in issue. (See, T.D. 91-7, 25 Cust. Bull. 14, dated January 8, 1991, for GSP eligibility of sets, mixtures, and composite goods.) HOLDING: The surgical kits will not qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, whether the sterilization process takes place in Mexico or in the U.S. upon importation, since upon exportation from the U.S., the kits composed of various items are not complete articles of commerce. The operations to be performed abroad constitute intermediate processing operations and are not considered alterations or repairs. Based on the information provided, the unsterilized surgical kits, consisting of items which are classifiable under two or more headings, are classifiable as sets within the meaning of GRI 3, HTSUSA. Classification of the particular set imported must be determined in accordance with its essential character, in accordance with GRI 3(b). Since various types of surgical sets are to be imported, comprised of unspecified items, additional detailed information regarding the items in each set would be required in order to make a determination as to the essential character of each set.  since the kits are classifiable as sets upon importation, GSP eligibility of the individual items in the set is not in issue. Any additional request for a ruling based on supplemental or different facts should be submitted in writing, and will be treated as a new ruling request. Sincerely, John Durant, Director Commercial Rulings Division