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HQ 554838

October 31, 1988

CLA-2 CO:R:C:V 554838 DBI


TARIFF NO.: 9801.00.10, HTSUS

Mr. John D. X. Corcoran
Arthur Andersen & Co.
10 South LaSalle Street
Chicago, Illinois 60603

RE: Applicability of duty exemption of subheading 9801.00.10, HTSUS, to latex prophylactics (condoms)

Dear Mr. Corcoran:

This is in response to your letter dated September 20, 1988, and that of your client, Merle Margelofsky, General Manager of Ansell Incorporated, dated April 20, 1988, requesting a ruling concerning the applicability of item 800.00, Tariff Schedules of the United States (TSUS), to latex prophylactics (condoms) to be tested, foil wrapped with lubricant or spermicide, or with neither, and packaged in retail packages and cartons in Mexico.


You advise that the condoms will be shipped to Mexico where they will be electronically tested. The nature of the testing is that the condom will be rolled over a form, covered with a metallic sheet and electronically analyzed. The condom will then be re-rolled and placed in line for packaging with lubricant or spermicide. A small number of condoms, previously subject to electronic testing, will be removed from the line and inflated with air until they burst. Any condoms that do not pass the electronic testing process will be discarded.

The condoms, some of which will be foil wrapped with lubricant or spermicide and some with neither, will be placed in retail packages of three or a dozen or in bulk foil wrap. The retail packages will then be placed in small boxes which will later be placed in large cartons and returned to the U.S. The condoms, lubricant, spermicide, foil wraps, retail packages and cartons will all be of U.S. manufacture.


Whether the described latex condoms, when returned to the U.S., will be eligible for the exemption from duty in subheading 9801.00.10, Harmonized Tariff Schedule of the United States, HTSUS (800.00, TSUS).


As you are probably aware, the HTSUS will replace the TSUS, effective January 1, 1989. Item 800.00, TSUS, will be carried over into the HTSUS without change as subheading 9801.00.10. Subheading 9801.00.10, HTSUS, provides for the free entry of articles of U.S. origin which are exported and returned without having been advanced in value or improved in condition while abroad.

You point out in your letter that we have previously held in a ruling dated August 9, 1983 (HQ 721856), that the testing, rolling, lubricating, foiling and packaging of latex condoms does not constitute a substantial transformation. However, you concede that the test for substantial transformation is much "broader" than the language in subheading 9801.00.10, HTSUS, which prohibits any advancement in value or improvement in condition. You also cite United States v. Oakville Company, 402 F.2d 1016, 56 CCPA 1, C.A.D. 943, to support your position that where two American-made articles are combined in such a way that the combination is identifiable as having been made from the exported items, the combination is within the contemplation of the American goods returned provision.

With regard to the Oakville case, it should be noted that this case was decided under paragraph 1615(a), of the Dutiable List (19 U.S.C. 1001, 1960 Ed.), which subsequently evolved into sections 800.00 and 807.00, TSUS. The combination of American- made articles abroad is now subject to a duty allowance solely under item 807.00, TSUS, which provides that the value of American-made components assembled abroad may be exempt from duty, upon the return of the assembled article, provided certain requirements are met. Item 807.00, TSUS, would not apply to the processing of the instant condoms in Mexico since no assembly takes place (only solids can be assembled and packaging is not an assembly).

Under subheading 9801.00.10, HTSUS, the test is whether the articles which are exported have been returned without having been advanced in value or improved in condition while abroad. Articles may be advanced in value or improved in condition without a substantial transformation having occurred.

In the present case, it is our opinion that the addition of spermicide or lubricant in the foil wrap advances the value and improves the condition of the condoms. A condom without a spermicide or lubricant is a different article of commerce than a condom which contains these enhancements. The spermicide improves the contraceptive quality of the condom while the lubricant gives it a smoother surface. In doing so, the addition of a spermicide or lubricant serves a different consumer market than the condom without these features. While these two enhancements may serve different purposes, they both advance the value and improve the condition of the condoms.

It is our further opinion that the testing of these condoms, whether or not a spermicide or lubricant is added, would also preclude them from treatment under subheading 9801.00.10, HTSUS. Under subheading 9801.00.10, HTSUS, the words "improved in condition" must be taken in a commercial sense and the actual nature of the commercial entity, (here, the condoms) must be considered. Amity Fabrics, Inc. v. United States, 43 Cust. Ct. 64, C.D. 2104 (1959). You state that all of the condoms will be electronically tested, and, some will be subjected to destructive testing. Since an untested condom, if not unsaleable, is at least commercially distinguishable from one that is tested, it is our opinion that the testing performed abroad clearly advances the value and improves the condition of the condoms.


Based on the information submitted, we are of the opinion that latex condoms which are foil wrapped both with or without the addition of lubricant or spermicide are advanced in value and improved in condition and, therefore, are not entitled to free entry as American goods returned under subheading 9801.00.10, HTSUS.


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