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HQ 557104


July 19, 1993

CLA-2 CO:R:C:S 557104 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.8040

District Director of Customs
P.O. Box 2112
San Juan, Puerto Rico 00903

RE: Merchandising processing fee; U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; subheading 9802.00.8040; Headquarters telex 1259071;

Dear Sir:

This is in reference to a letter dated January 22, 1993, from Katten Muchin & Zavis, on behalf of Baxter Healthcare Corporation ("Baxter"), requesting a ruling with respect to the application of the merchandise processing fee ("MPF"), to certain medical devices entered through your port under subheading 9802.00.8040, Harmonized Tariff Schedule of the United States ("HTSUS").

FACTS:

The products involved are medical devices used in hospitals and clinics to facilitate the extraction, separation, storage, or administration of human blood. They include blood bags, transfer packs, blood warmers, and solution sets.

Each product is assembled in the Dominican Republic from parts and components of U.S. origin. The parts are shipped directly to the Dominican Republic from Puerto Rico, where they are assembled by hand and machine into finished articles. The finished articles are packed for retail (i.e., hospital or clinic) distribution, returned to Baxter's Puerto Rico sterilization facility, sterilized in the retail cartons (unopened), and shipped to distribution points throughout the U.S.

The merchandise is currently being entered under subheading 9802.00.8040, HTSUS, and duty-free treatment is being claimed under U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS ("Note 2(b)"). Customs has applied the MPF to the difference between the full value of the merchandise and the value of the U.S. components, in accordance with Headquarters telex 1259071, dated September 16, 1991, transmitted to Customs field offices.

ISSUE:

Whether the imported medical devices, assembled wholly from U.S. components in the Dominican Republic, and entered under subheading 9802.00.8040, HTSUS, are subject to assessment of the MPF.

LAW AND ANALYSIS:

Note 2(b) provides, in pertinent part, that no article may be treated as a foreign article, or as subject to duty, if (1) the article is assembled or processed in whole of fabricated components or ingredients that are a product of the U.S. in a Caribbean Basin Initiative country ("BC"), and (2) neither the fabricated components, materials, or ingredients, after exportation from the U.S., nor the article itself, before exportation into the U.S., enters the commerce of any foreign country other than the BC. The Dominican Republic is a BC. (See General Note 3(c)(v)(A), HTSUS.)

Articles assembled or processed in a BC, and which otherwise comply with Note 2(b), shall be reported, for statistical purposes, under subheading 9802.00.8040 (articles assembled in a BC), or 9802.00.5010 (articles processed other than by an assembly in a BC), HTSUS. (See Statistical Note 2, Subchapter II, Chapter 98, HTSUS.)

According to 19 U.S.C. 58c(b)(8)(B)(i), the MPF may not be charged for the processing of any article "provided for under any item in chapter 98 of the Harmonized Tariff Schedule of the United States, except subheading 9802.00.60 or 9802.00.80,...." (Emphasis added.) 19 U.S.C. 58c(b)(8)(D)(iv) provides that "in the case of merchandise classified under heading 9802.00.80, "the MPF shall "be applied to the full value of the merchandise, less the cost or value of the component United States products." (Emphasis added.)

In Headquarters telex 1259071, Customs stated that merchandise qualifying for duty-free treatment under Note 2(b) would not be subject to the MPF if substantially transformed in the BC. If not substantially transformed in the BC but entered under subheading 9802.00.5010, HTSUS, the merchandise also would not be subject to the MPF. However, the telex stated that, if the merchandise is not substantially transformed in the BC and it is entered under subheading 9802.00.8040, HTSUS, then the MPF would be assessed on the full value of the article less the value of the U.S. components.

After further consideration of this issue, it is now our opinion that all articles qualifying for duty-free treatment under Note 2(b) are fully exempt from the MPF, even those entered under
subheading 9802.00.8040, HTSUS. First, we find that articles entitled to Note 2(b) treatment are "provided for" in an item of Chapter 98, HTSUS, within the meaning of the MPF exclusion found at 19 U.S.C 58c(b)(8)(B)(i). By using the words "provided for in an item of chapter 98", rather than "classified under chapter 98," it appears that Congress did not intend to limit the exclusion only to articles described in Chapter 98 classification provisions. Note 2(b) is not a classification provision but it does "provide for" a class of articles which are duty free.

Second, we find that articles qualifying for Note 2(b) treatment are neither "provided for" nor classified under subheading 9802.00.80, HTSUS. This subheading provides a partial duty exemption for articles assembled abroad in whole or in part of U.S. fabricated components, provided certain conditions (not relevant to Note 2(b) articles) are satisfied. Although articles qualifying for Note 2(b) treatment are entered under subheading 9802.00.80, HTSUS (if merely assembled in a BC), this is for statistical purposes only. The statistical breakout created under this subheading (and subheading 9802.00.50, HTSUS) for articles qualifying for Note 2(b) treatment was made necessary because section 222 of the Customs and Trade Act of 1990 -- the statute which created Note 2(b) -- failed to also create a classification provision for Note 2(b) articles.

As a result of our determination that articles qualifying for duty-free treatment under Note 2(b) and entered under subheading 9802.00.8040 are not subject to the MPF, an additional telex, reflecting our revised position on this issue, will be issued.

HOLDING:

Medical devices assembled in the Dominican Republic from U.S. fabricated components, entered under subheading 9802.00.8040, HTSUS, and otherwise qualifying for duty-free treatment under U.S. Note 2(b), are not subject to imposition of the MPF.

Sincerely,

John Durant, Director
Commercial Rulings Division

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