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HQ 556520


November 20, 1992

CLA-2 CO:R:C:S 556520 RAH

CATEGORY: CLASSIFICATION

TARIFF NO. 9802.00.50

Mr. E. Thomas Honey
Barnes, Richardson & Colburn
475 Park Avenue South
New York, N.Y. 10016

RE: Applicability of duty exemption under HTSUS subheading 9802.00.50 to medical devices and pharmaceutical products exported to Canada for sterilization

Dear Mr. Honey:

This is in response to your letter of January 20, 1992, in which you request a ruling on the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to medical devices and pharmaceutical products exported to Canada for sterilization. A meeting was held with Peter Martin, Esquire, of your firm on November 17, 1992.

FACTS:

You state that your client is a "Custom Contract Sterilizer" of medical devices and pharmaceutical supplies with production facilities located in Toronto, Ontario and Montreal, Quebec. Your client plans to have a manufacturer located in the United States ship their products to the facilities in Toronto and Montreal to be sterilized by treatment with a "Vacugas Process." The medical devices or pharmaceutical supplies will be received by your client in their final packaged form. The products are not opened, repacked or repalletized during the "Vacugas Process." The products are placed into retort chambers where they are treated by the "Vacugas Process." Upon completion of the process, the product is removed from the retort chamber and placed into storage awaiting shipment back to the United Sates.

You further state that packaged products or components which are used for medical or pharmaceutical applications are manufactured, labelled and sold as a sterile device or product under the legal definition of "sterile." A sterile device or product must be free of all microbiological contamination as evident by a prescribed sterility test method (United States Pharamacoepia, Edition XXII, methodology for sterility testing of a sterile device or a pharmaceutical product). You further state that sterilization of these products is not an optional quality control assurance activity but is required by the Food and Drug Administration (FDA).

The purpose of sterilization is to ensure the end-user (patient) does not develop post-operative or post-treatment infection from bacteria, micro-plasms or viruses. Infections can be responsible for post-operative and post-treatment complication. Virulent Bacteria can also introduce disease, and many forms of bacteria have a toxic effect. Infection often adds several weeks to the patient's stay in the hospital, and may even result in the patient's death.

The "Vacugas Process" method of sterilization utilized by your client subjects the products to ethylene oxide gas in a vacuum chamber where ideal conditions of temperature, relative humidity and gas concentration are used. All pre-processed products contain bacteria which can be qualified and quantified. Post-sterilized material is free of bacteriological growth which is evidenced microbiologically. You contend that the only change to the medical device or pharmaceutical product is its microbiological content.

The actual cost of the service to the manufacturer is typically 2 percent of the cost of the final product. You contend that the sterilization process in Canada results in an alteration of the medical devices and pharmaceutical supplies under subheading 9802.00.50, HTSUS.

ISSUE:

Whether sterilization of medical devices and pharmaceutical products in Canada constitutes an alteration within the purview of subheading 9802.00.50, HTSUS.

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 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).

You contend that the articles exported to Canada will be completed products fully packaged and that they will be the same completed articles when returned to the United States. You further claim that the name, character, use and tariff classification will not change. In support of your position you cite Headquarters Ruling Letter 044410 dated June 1, 1976. That ruling provides in part that "... foreign sterilization constitutes an advance in value or at least an improvement in condition ... within the alteration provision of item 806.20, TSUS."

As you know, effective November 9, 1992, Customs modified its position regarding sterilization of surgical items under subheading 9802.00.50, HTSUS, to reflect that such articles, unsterilized, are entirely unsuitable for their intended use in the United States and are therefore not entitled to a partial duty exemption under subheading 9802.00.50, HTSUS. See, C.S.D. 92-35, Customs Bulletin and Decisions Vol 26, No. 42 (October 14, 1992). We note that you submitted comments to our proposed change in position, which our office considered before issuing the change. In your comments, you contend that merely because an article is unsuitable for its intended use does not mean it is therefore not a completed article. You maintain that our interpretation would cause the relevant tariff provision to be virtually meaningless since "[a]ny article that requires a repair or an alteration is, by the very fact that it requires such repair or alteration, unsuitable for its intended use" (your emphasis). Moreover, you state that a sponge or other article is not changed by sterilization but is free of microbiological and bacteriological contaminants after sterilization.

In the instant case, we find that the unsterilized medical devices and pharmaceutical supplies exported to Canada for sterilization and returned to the United States are not entitled to a partial duty exemption under subheading 9802.00.50, HTSUS. It is our opinion that exported, unsterilized medical devices and pharmaceutical supplies are not completed articles when exported because they are entirely unsuitable for their intended use in the United States. This is evident by your submission that the FDA prohibits the use of the articles in question without sterilization. In addition, you state that the purpose of sterilization is to ensure the end-user (patient) does not develop post-operative or post-treatment infection from bacteria, micro-plasms or viruses which may add several weeks to the patient's stay in the hospital, and may even result in the patient's death.

Additionally, it logically follows that an article must be completed before it is repaired or altered under subheading 9802.00.50, HTSUS. That is, the initial manufacturing process must be completed. In your case, the sterilization is part of the initial preparation of the article for sale, and the articles are not suitable for the purpose for which they will be sold without such sterilization. Therefore, we find that the operations performed in Canada will be intermediate processing operations performed, as a matter of course, in the production of the finished articles, i.e., sterilized medical devices and pharmaceutical products.

HOLDING:

Medical devices and pharmaceutical supplies exported to Canada for sterilization are not entitled to a partial duty allowance under subheading 9802.00.50, HTSUS, when returned to the United States because they are not completed articles when exported to Canada.

Sincerely,

John Durant, Director
Commercial Rulings Division

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