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HQ 545970




August 30, 1995

VAL R:C:V 545970 LPF

CATEGORY: VALUATION CLASSIFICATION

Mr. Edward L. Hart, Jr.
Import Manager
V. Alexander & Co., Inc.
P.O. Box 30250
Memphis, TN 38130-0250

RE: Dutiability of U.S.-origin labels and hang tags; Assists under 19 U.S.C. ?1401a(b)(1)(C); Subheadings 9801.00.10 and 9802.00.80, HTSUS; HRLs 543086, 544667, 557685

Dear Mr. Hart:

This is in response to your letter dated April 14, 1995, requesting a ruling concerning the valuation and classification of U.S.-origin vinyl labels and paper hang tags. You submitted samples of the labels and tags for our examination.

FACTS:

Labels and hang tags manufactured in the U.S., which contain a company's marketing logos, are shipped to various countries where they are affixed to the imported merchandise. The labels are made of vinyl with a self-stick backing, while the hang tags are made of paper which is attached to the items with a string. The importer bears all expenses for the transportation of the labels and hang tags to the foreign countries. It is our understanding that in its condition as imported the labels are stuck, and tags hung, onto the merchandise.

ISSUE:

Whether the value of U.S.-origin labels and tags exported to foreign countries where they are affixed to non-originating merchandise are included in the appraised value of the imported merchandise and whether the labels and tags are entitled to duty-free treatment under subheading 9801.00.10, HTSUS, or to the partial duty exemption under subheading 9802.00.80, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus enumerated statutory additions, including the value of any assist (section 402(b)(1)(C)). For purposes of this decision we will assume that transaction value is the appropriate method of appraisement.

1. Labels

Section 402(h)(1)(A) of the TAA provides, in pertinent part, that:

The term "assist" means any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise:

(i) Materials, components, parts, and similar items incorporated in the imported merchandise.

In the present matter, it is apparent that the buyer of the imported merchandise supplies the labels in connection with the production of the instant merchandise. Furthermore, because these labels, when stuck onto the goods, may be considered components incorporated in the imported merchandise, we find the labels to constitute assists pursuant to section 402(h)(1)(A). Consequently, the value of the labels would be included as part of the transaction value of the imported merchandise, in accordance with section 402(b)(1)(C). See Headquarters Ruling Letter (HRL) 543086, issued October 19, 1983, where fabric labels were found to constitute assists since they were permanently incorporated into the imported merchandise.

However, subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), provides a partial duty exemption for:

[a]rticles . . . assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24). See also sections 10.14(a) and 10.16(a), Customs Regulations (19 CFR 10.14(a) and 10.16(a)) explaining that components must be ready for assembly at the time of exportation and distinguishing between acceptable, minor or incidental operations, as opposed to significant operations or treatments which will preclude entitlement to the 9802.00.80, HTSUS, duty exemption.

In this case, in accordance with HRLs 557685, issued March 28, 1994, and HRL 543086, supra, affixing the U.S.-origin labels to the imported merchandise is considered an acceptable assembly operation. Consequently, the labels, while part of the appraised value of the imported merchandise, will be entitled to the 9802.00.80, HTSUS, partial duty exemption. See Note 2 to Chapter 98, Subchapter II.

2.Hang Tags

Subheading 9801.00.10, HTSUS, provides for the free entry of products of the United States that have been 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. Some change in the condition of the product while it is abroad is permissible. However, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the United States. Border Brokerage Company, Inc. v. United States, 314 F.Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).

In prior decisions, Customs has considered hang tags as packing material which, since returned to the U.S. without having been advanced in value or improved in condition while abroad, was classifiable under subheading 9801.00.10. HRL 543086, supra. Specifically, it has been Customs position that:

[w]ith regard to determining appraised value, the principle that imported merchandise be appraised in accordance with its classification applies. Thus, where American packaging is classified under subheading 9801.00.10, HTSUSA, and the merchandise packed in the American packaging is classified in a subheading within the nomenclature between Chapters 1 and 97, no authority exists to combine the respective appraised values. Because the packaging and merchandise are treated as separately classifiable entities, their appraised values are separate . . . .

HRL 544667, issued July 30, 1991. Accordingly, the instant hang tags are not part of the appraised value of the imported merchandise and, furthermore, are eligible for duty-free treatment under subheading 9801.00.10.

HOLDING:

Based on the information and samples submitted, the U.S.-origin labels, while included as part of the appraised value of the imported merchandise, are eligible for the partial duty exemption under subheading 9802.00.80, HTSUS, and the U.S.-origin hang tags are eligible for duty-free treatment under subheading 9801.00.10, HTSUS, when returned to the U.S. provided the documentary requirements of 19 CFR 10.24 and 19 CFR 10.1, respectively, are satisfied.

In addition, insofar as this binding ruling request was made in accordance with section 177.1, Customs Regulations (19 CFR 177.1) concerning a prospective transaction, the incoming request shall not be treated as a prior disclosure pursuant to section 162.74, Customs Regulations (19 CFR 162.74).

Sincerely,

John Durant, Director
Commercial Rulings Division

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