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HQ 224786


October 5, 1993

FOR-2-03/CLA-2-CO:R:C:E 224786 JRS

CATEGORY: CLASSIFICATION FOREIGN TRADE ZONE

Mr. John B. Pellegrini, Esquire
Ross & Hardies
Park Avenue Tower
65 East 55th Street
New York, New York 10022-3219

RE: Ruling request on the dutiability of imported packagingmaterials upon its removal from a foreign trade zone as part of a completed gift set of bottled spirits and glassware; packaging operation in a foreign trade zone; 19 U.S.C. 81c(a); 19 CFR 146.42(a) and 146.65

Dear Mr. Pellegrini:

This is in response to your letter dated May 24, 1992, requesting a ruling on behalf of your client, Joseph E. Seagram's & Sons, Inc.

FACTS:

You state that the your client plans to establish a packaging operation in a foreign trade zone in Kentucky. Under the proposed operation, domestic, tax-paid retail-sized bottled spirits or imported retail-sized bottled spirits, such as rum, will be admitted into a zone along with domestic or imported packaging materials and imported glassware. Once in a zone, the bottled spirits would be packaged in a gift box with two drinking glasses. You orally stated that the packaging material consists of nonreusable and inexpensive cardboard boxes, cellophane and other minimal value packaging material for use inside the cardboard gift boxes. Your client will not seek privileged foreign status for the imported glassware, imported bottled spirits or imported packaging materials, and will claim domestic status for the spirits and packaging material of U.S. origin. The completed gift packages would be withdrawn from the zone and entered for consumption at the Port of Cincinnati, Ohio.

It is your position that if drinking glasses are part of a set, where the spirits impart the essential character, the glassware is not dutiable. Please note this question will be answered separately by the Food & Chemicals Classification Branch. It is also your opinion that the packaging materials are not dutiable since they are usual containers for specific rate merchandise.

ISSUES:

Whether the proposed packaging operation described in the FACTS section is permissible in a foreign trade zone.

Whether imported packaging material in nonprivileged foreign status is dutiable when it is removed from a foreign-trade zone for consumption as part of a gift set of bottled spirits.

LAW AND ANALYSIS:

Pursuant to the provisions of section 3 of the Foreign- Trade Zones Act, as amended (19 U.S.C. 81c), foreign and domestic merchandise of every description, except such as is prohibited by law, may be brought into a zone without being subject to the customs laws of the United States for the purposes set forth in the statute. Such merchandise may "be brought into a zone and may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured ... and be exported, destroyed, or sent into customs territory of the United States therefrom, in the original package or otherwise;". 19 U.S.C. 81c(a)(1993). It is our opinion from reading the plain language of the above-cited statute that the packaging operation of combining previously manufactured, retail- sized bottled spirits (750ml) which are both domestic and foreign with two drinking glasses (also domestic and foreign) in an inexpensive cardboard gift box (also domestic and foreign) is a permissible operation that can be accomplished in a zone.

The foreign trade zones statute further provides that, "... when foreign merchandise is so sent from a zone into the customs territory of the United States it shall be subject to the laws and regulations of the United States affecting imported merchandise...". 19 U.S.C. 81c(a)(1993) (emphasis added). Under section 146.65(a)(2) of the Customs Regulations (19 CFR 146.65(a)(2)), nonprivileged foreign status merchandise (see 19 CFR 146.42(a)) is subject to tariff classification in accordance with its character, condition and quantity as constructively transferred to Customs territory at the time the entry or entry summary is filed with Customs. Under this provision, the importer chooses to have the merchandise treated, for tariff purposes, in its condition as removed from the zone rather than in its condition upon its admittance into the zone.

The General Rules of Interpretation (GRI) 5(b), Harmonized Tariff Schedule of the United States, states, in pertinent part:

..., packing 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 material or packing containers are clearly suitable for repetitive use.

At the time of withdrawal from the foreign trade zone and entry for consumption, the foreign packaging material is classified with the bottled spirits, which are subject to a specific rate of duty. The imported packaging material itself is not considered to be a separate article for tariff classification purposes as it is the usual container for specific rate merchandise and, as such, the imported packaging material is not separately dutiable in accordance with GRI 5(b), HTSUS, upon removal from the zone. Please note, however, that the merchandise processing fee is applicable in this case and is not affected by the exemption found in 19 U.S.C. 58c(b)(8)(D)(v). See 19 U.S.C. 58c(b)(8)(D)(v)(an exemption from application of the merchandise processing fee on agricultural products of the United States that are processed and packed in a foreign trade zone).

HOLDING:

The packaging operation, as described in the FACTS section of this ruling, is a permissible operation that may be accomplished in a foreign trade zone.

Upon its removal from a foreign trade zone in nonprivileged foreign status, imported packaging material (as described in the FACTS section) combined as part of a gift set of bottled spirits is not separately dutiable upon its entry for consumption into the Customs territory under GRI 5(b), HTSUS.

Sincerely,

John Durant, Director

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