Applicability of duty exemption under HTSUS subheadings 9801.00.10 and 9802.00.50 to foreign kites exported to Mexico for packaging

HQ 556406 March 16, 1992 CLA-2-CO:R:C:S 556406 RAH CATEGORY: Classification Tariff No.: 9801.00.10; 9802.00.50 Mr. Mario S. Jauregui Branch Manager Bill Polkinhorn, Inc. Post Office Box 159 San Luis, Arizona 85349 RE: Applicability of duty exemption under HTSUS subheadings 9801.00.10 and 9802.00.50 to foreign kites exported to Mexico for packaging Dear Mr. Jauregui: This is in response to your letter of August 30, 1991, requesting a ruling on the tariff classification of kites exported to Mexico for packaging and reimported into the United States. FACTS: You state that your client imports kites which are assembled in Mexico of U.S. components. The kites are imported into the United States and warehoused in Yuma, Arizona. Duty is paid on the "labor part of the assembly" pursuant to subchapter 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS). Your client contemplates exporting the kites back to Mexico for custom packaging. The kites will not go through any transformation in Mexico. The proposed operation will be strictly limited to sorting, sizing and packaging, according to the U.S.-buyer's purchase orders. You specifically ask whether the packaged kites can be re- imported duty free under chapter 98, HTSUS. You also inquire about the reimportation of packaged kites which were previously assembled in Mexico of foreign components. - 2 - ISSUES: (1) Whether kites assembled in Mexico of U.S. components and imported into the United States and then exported to Mexico for packaging are entitled to free entry under subheading 9801.00.10, HTSUS, when reimported into the United States. (2) Whether kites assembled in Mexico of foreign components and imported into the United States and then exported to Mexico for packaging are entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, when reimported into the United States. LAW AND ANALYSIS: Chapter 98, subchapter II, Note 2(a), HTSUS, provides in part that any product of the United States which is returned after having been advanced in value or improved in condition abroad, or assembled abroad, shall be a foreign article for purposes of the Tariff Act of 1930, as amended. Thus, the kites which are assembled in Mexico of U.S. components and imported into the United States are treated as foreign articles for purposes of Chapter 98, subchapter II, HTSUS. Subheading 9801.00.10, HTSUS, provides for the free entry of U.S.-made products 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. Accordingly, because the kites in question are foreign articles, they are not entitled to duty free treatment under that subheading. The next question presented is whether kites (assembled of U.S. or foreign components) exported to Mexico for packaging are eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States. Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the United States after having been exported to be advanced 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 - 3 - 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing. Guardian; Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 82, 599 F.2d 1015, 119 (1979). We have held that foreign repacking of merchandise for retail sale will not, in and of itself, preclude tariff treatment under subheading 9802.00.50, HTSUS. Headquarters Ruling Letter (HRL) 555180 dated December 26, 1989. However, to qualify for a partial duty exemption under that subheading, the article itself must be advanced in value or improved in condition. In that regard, we have held that the mere repacking of an article does not advance its value or improve its condition. See, HRL 555806 dated January 14, 1991 (thin gauge plastic bags used as an alternative to paper stuffing often used in imported sport and handbags, are not advanced in value or improved in condition abroad as a result of the packing operation). Under the facts presented, the kites are exported to Mexico solely for packaging. The individual kites will not be advanced in value or improved in condition. Accordingly, we conclude that the kites, whether previously assembled abroad of U.S. or foreign components, are dutiable under subheading 9503.90.2000, HTSUS, when returned to the United States. The applicable duty rate will be 6.8 percent ad valorem. With respect to the dutiability of the packing materials, General Rule of Interpretation 5(b), HTSUS, provides that: [p]acking 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 does not apply when such packing materials or packing containers are clearly suitable for repetitive use. Therefore, the value of non-reusable packing materials or containers 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. However, we have held that U.S.-origin packaging materials which are not advanced in value or improved in condition while abroad are separately entitled to duty-free treatment under subheading 9801.00.10, HTSUS. The act of being filled with their contents is not considered to be an advancement in the condition of the container or materials. See, Headquarters Ruling Letter 731806 dated November 18, 1988. Thus, the packaging materials in the instant case, if of foreign origin, will be dutiable at the same rate as the kites. If of U.S. origin, the packaging materials will be entitled to duty- free treatment under subheading 9801.00.10, HTSUS, upon compliance with the documentation requirements of 19 CFR 10.1. - 4 - HOLDING: Kites assembled in Mexico of U.S. components and imported into the United States and then exported to Mexico for packaging are not entitled to free entry under subheading 9801.00.10 (HTSUS), when reimported into the United States as they are considered foreign articles pursuant to Note 2(a), subchapter II, chapter 98, HTSUS. In addition, kites assembled in Mexico of U.S. or foreign components and imported into the United States and then exported to Mexico solely for repackaging are not advanced in value or improved in condition, as the kites themselves are not advanced in value or improved in condition. Accordingly, the packaged kites are dutiable on their full value under subheading 9503.90.20000, HTSUS, at the rate of 6.8 percent ad valorem. Sincerely, John Durant, Director Commercial Rulings Division