HQ 544301: Decision on Application for Further Review of Protest No. 2904-7-000195

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 544301

                          March 8, 1990

VAL CO:R:C:V   544301 VLB

CATEGORY:  Valuation

District Director of Customs
511 N.W. Broadway
Room 198
Portland, Oregon  97209

RE:  Decision on Application for Further Review of
     Protest No. 2904-7-000195

Dear Sir:

     This protest was filed against your decision in the
liquidation of various entries involving merchandise that was
imported by ------------------------- (hereinafter referred to
as the "importer").  The merchandise is packaging material for
powdered drink mix known as "Kool-Aid".  A sample of the
packaging material was submitted for examination.


FACTS:

     The importer exported the material from the U.S. to Canada
for use in packaging the Kool-Aid.  The exported material
consisted of rolls of plastic film, overprinted with label
information, ingredients and instructions.  The material was
manufactured and printed in the U.S.

     At the Canadian factory, the rolls were cut into individual
packages, folded, heat sealed on two sides to form a pouch and
filled with Kool-Aid of Canadian origin.  After the Kool-Aid had
been inserted, the top of the pouch was heat sealed closed.

     At the time of entry, the importer claimed that the
packaging material was entitled to duty free treatment under item
800.00, Tariff Schedules of the United States (TSUS).  You
determined that the packaging was not entitled to duty free
treatment because it had been advanced in value in Canada.

     The importer filed the above-referenced protest against your
denial of duty free treatment under item 800.00, TSUS.  In its
"Memorandum in Support of Protest and Application for Further
Review", the importer stated that although "it had taken a
deduction based on a claim of duty free treatment of the
packaging material under item 800.00, TSUS, a duty free claim
under General Headnote 6(b)(i), TSUS, is more appropriate."

1                             - 2 -

ISSUE:

     Whether the Kool-Aid packaging material is entitled to duty
free treatment under item 800.00, TSUS, or whether the value of
the material is deductible from the dutiable value of the
merchandise under General Headnote 6(b)(i) of the TSUS.


LAW AND ANALYSIS:

     Customs rulings under the TSUS have not been entirely
consistent in their rationale for according duty free treatment
to American packing containers.  While most rulings have relied
upon General Headnote 6(b)(i), TSUS, others have cited item
800.00, TSUS, as the source of duty free treatment.

     Item 800.00, TSUS, provides that products of the U.S.
returned after having been exported, without having been advanced
in value or improved in condition by any process of manufacturer
or other means while abroad, may be entered free of duty.

     Customs has held in several rulings that cutting to length
is regarded as an advance in value or improvement in condition
for purposes of item 800.00, TSUS.  See, Headquarters Letter
Ruling (HRL) 544736, dated February 16, 1988; HRL 554899, dated
March 4, 1988.  In this case the packaging material is exported
to Canada in rolls where it is subsequently cut, folded, and heat
sealed.  As a result, the material is advanced in value or
improved in condition.  Therefore, the material is not eligible
for duty free treatment under item 800.00, TSUS.

     General Headnote 6(b)(i), TSUS, contains similar language.
General Headnote 6(b)(i), TSUS provides as follows:

          The usual or ordinary types of shipping or
          transportation containers or holder, if not
          designed for, or capable of, reuse, and
          containers of usual types ordinarily sold at
          retail with their contents, are not subject
          to treatment as imported articles.  Their
          cost, however, is, under section 402 of the
          tariff act, a part of the value of their
          contents and if their contents are subject to
          an ad valorem rate of duty such containers or
          holders are, in effect, dutiable at the same
          rate as their contents, except that their
          cost is deductible from dutiable value upon
          submission of satisfactory proof that they
          are product of the United States which are
          being returned without having been advanced
          in value or improved in condition by any
          means while abroad.  (emphasis added)

                              - 3 -

     The importer cites Van Camp Seafood Company v. U.S., 73
Cust. Ct. 36, C.D. 4551 (1974) to support its argument that the
U.S. origin packaging material was not advanced in value in
Canada for purposes of General Headnote 6(b)(i).  In Van Camp,
the plaintiff was alleging that the cost or value of cans
containing imported tuna should be deducted from the full value
of the imported article.  The cans were assembled in Ecuador from
can segments made in the U.S.  The can segments consisted of ends
and cylinders exported in collapsed form for the purpose of
reducing shipping volume and cost.

     The following assembly took place in Ecuador:

     . . . cylinder segment was opened by spinning on rubber
     rollers.  Lips called flanges were formed on the
     cylinder by the discs of a flanging machine which
     forced the open edges of the cylinder in an outward
     direction.  On another machine the ends were joined to
     the cylinder by compressing the flanges and the ends
     together.  Between the joining of the first and second
     end, of course, a piece of prepared tuna fish was
     packed into the can.  Labels were then glued to the
     cans, and they were packed six in a case for shipment
     to the United States.

Van Camp, supra, at 38.

     The Customs Court held that the value of the cans could not
be deducted from the dutiable value of the imported article.  The
court's rationale was that the imported containers had been
advanced in value or improved in condition by means of assembly.
Specifically, Judge Watson stated, "I see the imported container
as being improved in a significant degree from its original
unassembled condition by an assembly process which is more than
simple or casual."

     Moreover, the judge concluded that for purposes of 6(b)(i)
the imported containers had been advanced in value or improved in
conditions by means of assembly because 6(b)(i) contains the
words "by any means" when discussing the advanced value or
improved conditions.

     The importer contends that the assembly procedure in Van
Camp was complex and went beyond any processes contemplated by
the language in 6(b)(i).  However, the importer alleges that the
operation performed on the Kool-Aid packaging material is "simple
and casual."  The importer argues that the packaging material "as

                              - 4 -


it is imported into Canada is ready to receive the Kool-Aid and
essentially the only procedure involved is one which closed the
pouch."

     There is no indication that the court, by use of the
language "simple and casual" in Van Camp, intended to create a
new test for determining whether U.S. packaging materials were
advanced in value or improved in condition.  Nevertheless, we
disagree with the importer's contention that the Kool-Aid
procedures were "simple and casual".  The material was sent to
Canada in rolls.  When the material arrived in Canada, it was not
in a condition to receive the Kool-Aid.  Rather, in Canada the
material was cut to size and shape, folded, and heat sealed on
two sides prior to the Kool-Aid being inserted.  The operation of
cutting and heat sealing the material improved the condition and
advanced the value of the material from its original condition
when exported from the U.S.  The process did not merely fill the
pouches.  To the contrary, it completely formed the pouches from
flat rolls of plastic film.

     The importer also cites HRL 058345, dated April 19, 1979, to
support its contention that the packaging material was entitled
to duty free treatment under General Headnote 6(b)(i), TSUS. HRL
058345 involved materials that were exported to Mexico for
processing into containers for antiseptic applicators, and
returned to the U.S.  The exported materials consisted of a
coated plastic transparent film and coated paper, both of which,
the film and the paper, were exported in roll lengths.

     In Mexico, the film passed through a packing machine that,
together with heat, formed "blisters" that were evenly spaced in
the film as it is unwound form the roll.  The blisters were
shaped and contoured in the film to accommodate the ampoule-like
applicators.  After the blisters were formed, the applicators
were machine-fed into the blister cavities and paper backing was
sealed to the film, enclosing the applicators within the
cavities.  Perforations were then added by the machine.

     In HRL 058345, Customs held that the applicators were
eligible for return to the U.S. under item 807.00, TSUS.  That
is, the applicators would be subject to duty on their total
value, including the cost of assembly, less the cost or value of
the qualifying components of U.S. origin, including the blister
packaging materials.  Thus, the packaging materials were treated
as 807.00 eligible components.

     The only statement in the ruling addressing General Headnote
6(b)(i), TSUS, was the following "in view of General Headnote
6(b)(i), TSUS, pertaining to certain containers and holders not
imported empty, we agree that there shall be no assessment of
duty on the cost of non-reusable containers holding duty-free
                              - 5 -


merchandise, or on the cost of getting such merchandise or
containers into the condition in which it is imported."
(emphasis supplied).

     In the present case, no item 807.00, TSUS, assembly
operation exists.  Moreover, the Kool-Aid packages do not hold
duty free merchandise.  Therefore, the holding in HRL 058345 is
not applicable to this case.


HOLDING:

     The packaging materials that were exported from the U.S. to
Canada were improved in condition and advanced in value by the
processing operations performed in Canada.  Therefore, the
materials are not entitled to duty free treatment under item
800.00, TSUS.  Similarly, the value of the packaging materials
cannot be deducted from the dutiable value of the imported
merchandise pursuant to General Headnote 6(b)(i) of the TSUS.

     You are directed to deny the protest.  A copy of this
decision should be attached to Form 19, Notice of Action, to be
sent to the protestant.


                              Sincerely,



                              John Durant, Director
                              Commercial Rulings Division