Applicability of duty exemption under subheading 9802.00.50, HTSUS, to certain blank magnetic tapes exported to Mexico for repackaging

HQ 556555 April 15, 1992 CLA-2 CO:R:C:S 556555 RAH CATEGORY: Classification TARIFF NO.: 9802.00.50 Richard Haroian Senior Counsel Sony Corporation of America Sony Drive Park Ridge, New Jersey 07656 RE: Applicability of duty exemption under subheading 9802.00.50, HTSUS, to certain blank magnetic tapes exported to Mexico for repackaging Dear Mr. Haroian: This is in response to your letter of February 28, 1992, requesting a ruling under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), concerning certain blank magnetic tapes which are exported to Mexico for repackaging. FACTS: You state that your client imports certain blank audio and video tapes as well as other blank recording media (e.g. floppy disks or data cartridges) from Japan or France. At the time of importation into the United States, the tapes and other media are completed articles and individually shrink wrapped. The articles are classified under subheading 8523.90.00, HTSUS. After importation into the United States, some of the imported tapes are sent to your client's maquiladora plant in Mexico for repackaging. The tapes are placed in plastic bags, plastic sleeves and cardboard trays, etc. The number of tapes or other media placed in these packages varies from one to six or more. Samples of the plastic bag, plastic sleeve, and cardboard tray were submitted for our review. - 2 - ISSUE: Whether blank magnetic tapes imported into the United States and then exported to Mexico for repackaging are entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, when reimported into the United States. LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides a 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. 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; 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). You cite C.S.D. 90-58 (HRL 555213, dated February 21, 1990) to support your position that the tapes which are exported to Mexico solely for repackaging are entitled to 9802.00.50, HTSUS, treatment. In that case, we found that greeting cards which were exported to Mexico to be folded and packaged are entitled to a partial duty exemption under subheading 9802.00.50. The folding operation resulted in a change or alteration which advanced the value or improved the condition of the cards. Id. For that reason the cards were denied duty free treatment under subheading 9801.00.00, HTSUS (a provision which provides for free entry of articles of U.S. origin which are returned without having been - 3 - advanced in value or improved in condition while abroad). Unlike the cards in C.S.D. 90-58, the blank magnetic tapes in question are exported to Mexico solely for repackaging. The individual tapes will not be advanced in value or improved in condition in Mexico. Accordingly, the tapes will be dutiable under subheading 8523.90.00, HTSUS, when reimported into the United States. The applicable duty rate will be 4.2 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 tapes. 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. HOLDING: Blank magnetic tapes which are imported into the United States and then exported to Mexico solely for repackaging are not themselves advanced in value or improved in condition, as required by subheading 9802.00.50, HTSUS. Accordingly, the packaged tapes will be dutiable on their full value under subheading 8523.90.00, HTSUS, at the rate of 4.2 percent ad valorem. Sincerely, John Durant, Director Commercial Rulings Division