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HQ 555597

May 24, 1990

CLA-2 CO:R:C:V 555597 LS


TARIFF NO.: 9801.00.10

Lynn S. Baker, Esq.
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60606-3693

RE: Applicability of duty exemption under subheading 9801.00.10, HTSUS, to packaged contraceptive tablets

Dear Ms. Baker:

This is in response to your letter of February 16, 1990, on behalf of G.D. Searle & Co., requesting a ruling on the applicability of subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), to packaged contraceptive tablets to be imported from Costa Rica. No samples were submitted.


G.D. Searle & Co.'s subsidiary in Puerto Rico, Searle & Co. ("Searle"), manufactures two oral contraceptive products which are sold as prescription drugs under the brand names Norethin and Demulen. The drug's active ingredients, Norethindrone USP, Ethinyl Estradiol and Mestronol USP, are purchased by Searle in bulk form from a U.S. distributor who imports them from the Netherlands. The non-active ingredients are products of the U.S. The manufacturing process in Puerto Rico consists of the following steps:

1. Sample and inspect each lot of active ingredients and non-active ingredients to ensure that they meet speci- fications;

2. Measure and dispense each ingredient in the proper quantity and sequence;

3. Mix the ingredients, moisten them with a suitable liquid, and then dry the mixture in order to form a granular intermediate;

4. Mill the granular intermediate and mix it with substances which aid in tablet formulation by acting as lubricants and disintegrators;

5. Compress the product into tablet form;

6. Perform quality control tests and examinations to ensure proper size, weight, assay, hardness, and other properties in accordance with company and FDA specifi- cations; and

7. Pack the tablets in blister or other primary forms of packaging.

Searle intends to ship the packaged tablets in bulk cartons to Costa Rica for final packaging operations to be performed by another subsidiary, Searle Costa Rica, Inc. Unfilled retail packages and printed literature inserts for these packages, both products of the U.S., are also shipped to Costa Rica from Puerto Rico. The packaging operation consists of the following steps:

1. Place a finished blister package in a plastic tablet dispenser (Compack);

2. Insert the directions for use in the Compack and close the Compack;

3. Put the dispensers (multiple packs) into a holding tray;

4. Place the tray filler in the holding tray to support the dispensers;

5. Place the complete tray with the dispensers in a Compack dispenser carton.

6. Insert over-the-counter reference insert (description, clinical pharmacology, indications and usage, etc.) in the carton.

7. Fold the top flap of the carton, add patient inserts (one per each tablet dispenser), and close the carton;

8. Place the dispenser cartons in a corrugated box (shipping box) and seal it;

9. Place the boxes (pre-labelled) on a pallet and transfer the complete pallet to the warehouse; and

10. Ship finished products back to Searle in Puerto Rico or to G.D. Searle & Co. in the U.S. for release.


Whether the contraceptive products in retail packages will qualify for the duty exemption available under subheading 9801.00.10, HTSUS, when returned to the U.S.


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.

The first step in our analysis is to determine whether the two oral contraceptive products in retail packages are products of the U.S. when exported from Puerto Rico to Costa Rica. You advise that the non-active ingredients of these products are of U.S. origin. Since the active ingredients are imported from the Netherlands in bulk form and combined with the inactive ingredients in Puerto Rico to produce a prescription drug in tablet form, we must determine whether these active ingredients of foreign origin are rendered "products of the U.S." by virtue of the operations performed in Puerto Rico, which is within the customs territory of the U.S. To become products of the U.S., the foreign-made active ingredients must undergo a process of manufacture in the U.S. which results in their substantial transformation.

"[A] substantial transformation occurs when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." Torrington Co. v. United States, 764 F.2d 1563, 1568, 3 CAFC 158, 163 (Fed. Cir. 1985). This definition has been adopted as the basic standard for determining whether a substantial transformation has occurred under the various provisions of Customs law.

In Headquarters Ruling Letter (HRL) 554308 dated November 24, 1986, clarified in HRL 543895 dated April 20, 1987, we held that the processing of two bulk pharmaceutical chemicals, naproxen and naproxen sodium, into final doses of the prescription drugs, Naprosyn and Anaprox, constitutes a substantial transformation into a new and different article with a new name, character, and use. This decision was made in the
context of determining the eligibility of the pharmaceuticals for duty-free treatment pursuant to the Caribbean Basin Economic Recovery Act (the "CBI"). The processing steps involved in HRL 554308 are similar to those in the instant case. The bulk naproxen and naproxen sodium were separately mixed with non- active ingredients, starch and lactose. This mixture was combined with a solution of water, alcohol, and povidone, and then dried to produce a processed blend. The blend was then milled and screened, and tested for quality control. After testing, the granulation was sent to rotary tablet presses and tabletted in a prescription drug dosage.

Applying HRL 554308 to the instant case, we find that the above-described manufacturing processes performed in Puerto Rico result in the substantial transformation of the active ingredients, Norethindrone USP, Ethinyl Estradiol, and Mestranol USP, into new and different articles, i.e., the prescription drugs, Norethin and Demulen, which have new names, characters, and uses. The three active chemical ingredients are raw materials in bulk form which you state are unsuitable for medical use. The final prescription drugs, which are in tablet and individual dosage form, are ready for immediate medical application. Thus, we conclude that the two oral contraceptive products in tablet form are products of the U.S. for purposes of subheading 9801.00.10, HTSUS.

We must next determine whether the packaging operations performed in Costa Rica result in an advancement in value or improvement in condition of the contraceptive tablets. In United States v. John V. Carr & Sons, Inc., 69 Cust. Ct. 78, C.D. 4377, 347 F. Supp. 1390 (1972), 61 CCPA 52, C.A.D. 1118, 496 F.2d 1225 (1974), the court stated that absent some alteration or change in the item itself, the mere repackaging of the item, even for the purpose of resale to the ultimate consumer, is not sufficient to preclude the merchandise from being classified under item 800.00, Tariff Schedules of the United States (TSUS) (the precursor to subheading 9801.00.10, HTSUS).

We find that the operations performed in Costa Rica are simple packaging operations that do not result in an advancement in value or improvement in condition of the two contraceptive products. See HRL 555559 dated April 20, 1990 (subheading 9801.00.10, HTSUS, determined to be applicable where U.S. blister-packaged contraceptive tablets were shipped to the Dominican Republic where they were inserted into compacts, various quantities of which were then placed into printed cartons, which, in turn, were placed into carton packers and shipping cartons for shipment to the U.S.). Accordingly, the two brands of contraceptive tablets will be eligible for the duty exemption under subheading 9801.00.10, HTSUS.

With respect to the packaging materials, we find that they are also entitled to 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).


The two oral contraceptive products, Norethin and Demulen, are products of the U.S., within the meaning of subheading 9801.00.10. HTSUS, because the active ingredients of foreign origin are substantially transformed in the U.S. into new and different articles with new names, characters, and uses. Because the contraceptive tablets, along with the U.S. origin packaging materials and literature inserts, will not be advanced in value or improved in condition as a result of the packaging operations performed in Costa Rica, they will be eligible for the duty exemption under subheading 9801.00.10, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.1.


Acting Director
Commercial Rulings Division

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