DRA-4; DRA-2-01; RR:CR:DR 230166 MK
Leroy F. Berven
Director, Regulatory Compliance
Veritrade International
222 112th Avenue NE, #L 103
Bellevue, Washington 98004
Re: Ruling Request; dried fruit and dried vegetables; drawback; manufacture or
production; unused merchandise; NAFTA same condition; 19 U.S.C. 1313(j)(1); 19 U.S.C. § 1313(j)(3); 19 U.S.C. §3333(s); 19 CFR 181.45(b)(1).
Dear Mr. Berven:
This is in response to your letter of October 21, 2003, and your email of January 20, 2004, on behalf of FDP USA, Inc. of Santa Rosa, California, regarding unused merchandise drawback and NAFTA same condition drawback.
FACTS:
In your submission you state that FDP USA, Inc. (“FDP”) imports dried fruits and dried vegetables in industrial sized packages. The following merchandise is re-packed, unchanged, into smaller packages and sold. You note that the Harmonized Tariff Schedule United States, (“HTSUS”), subheading remains unchanged.
Classification
Specific Types of Merchandise Included
(all are dried)
0712.20.20
Onions, powder or flour
0712.20.40
Onions, not powder or flour
0712.31.10
Mushrooms, of genus Agaricus, air or sun dried
0712.31.20
Mushrooms, of genus Agaricus, other
0712.39.10
Mushrooms, other, air or sun dried
0712.90.10
Carrots
0712.90.65
Parsley
0712.90.70
Fennel, marjoram, savory, tarragon
0712.90.74
Tomatoes, in powder
0712.90.78
Tomatoes, other
0712.90.8510
Broccoli
0712.90.8520
Celery (stalks)
0712.90.8530
Leeks
0712.90.8540
Spinach
0712.90.8580
Other vegetables; mixtures of vegetables
0713.10.20
Split peas
0713.10.40
Peas, not split
0713.31.20
Beans, green, entered 5-1 to 8-31
0713.31.40
Beans, green, other
0714.20.20
Sweet potatoes, not frozen
0714.90.48
Water chestnuts, Chinese type
0803.00.20
Bananas
0804.30.60
Pineapples, reduced in size
0804.50.80
Mangoes
0813.10.00
Apricots
0813.30.00
Apples
0813.40.10
Papayas
0813.40.20
Other berries, including blueberries
0813.40.30
Cherries
0813.40.40
Peaches
0813.50.00
Mixtures of dried fruits
0814.00.10
Orange peel
0814.00.40
Lime peel
0814.00.80
Peel of other citrus fruit, including lemon and grapefruit
0904.11.00
Pepper, black, neither crushed nor ground
0904.11.12
Pepper, crushed or ground
0904.20.60
Bell peppers, not ground
0904.20.60
Jalapeno peppers, not ground
0904.20.76
Other peppers, ground
0910.40.30
Thyme
0910.99.40
Oregano
0910.99.60
Other spices, including Basil
The following merchandise is reduced in size by cutting, slicing, chipping, dicing, flaking, or grinding, which may change the HTSUS subheading, and is then re-packed. You state that the particular cut of the good would be based on the market demand of that season.
Classification
Specific Types of Merchandise Included
(all are dried)
0712.20.40
Onions, not powder or flour
0712.31.10
Mushrooms, of genus Agaricus, air or sun dried
0712.90.10
Carrots
0712.90.78
Tomatoes, other
0712.90.8520
Celery (stalks)
0712.90.8530
Leeks
0712.90.8580
Other vegetables; mixtures of vegetables
0904.20.60
Bell peppers, not ground
FDP’s product list shows that carrots, for example, are offered for sale in different sizes, shapes, and forms: puffed instant carrots are offered in 3/8” flakes and ¼” cubes; floating instant carrots are offered in 3/8” flakes; carrots that have just been air dried are offered in ¼” or 3/8” cubes, 3/8” flakes, shoestrings and cross cuts, -8+40 and –6+18 granules,
-40 and –60 powders, and coins. The product list also indicates that there are different applications based on the shapes, sizes, and forms. The floating and puffed instant carrots are for use in instant soups, snack mix, side dishes, and quick rehydration uses. The carrots that have just been air dried but not floating or puffed are for use in carrot cake, pot pies, salad toppings, soups, stews, natural colorant, rice and pasta dishes.
The case of the tomatoes illustrates the difference in tariff classification as a result of the reduction in size. Generally, tomatoes are said to be classified in subheading 0712.90.78, HTSUS. Some of the reduction in size processing is said to result in the tomatoes being classified in subheading 0712.90.74, HTSUS.
Finally, silicon dioxide, an anti-caking agent, is added to following merchandise, which may change the HTSUS subheading, and is then re-packed.
0712.90.8580
Only Beets within this subheading
0904.20.60
Bell peppers, not ground
ISSUES:
Whether re-packing dried fruits and vegetables is a use of merchandise for unused merchandise drawback under 19 U.S.C. §1313(j)(1)?
Whether reducing the size of the dried fruits and vegetables by cutting, slicing, chipping, dicing, flaking, and grinding is a use of merchandise for unused merchandise drawback under 19 U.S.C. §1313(j)(1)?
Whether adding an anti-caking agent is a use that rises to the level of manufacture or production of merchandise for unused merchandise drawback under 19 U.S.C. § 1313(j)(1)?
Are the re-packed goods exported in the same condition that they were imported and thus eligible for NAFTA same condition drawback under 19 U.S.C. §1333(a)?
Are the cut, sliced, chipped, diced, flaked, and ground goods exported in the same condition that they were imported and thus eligible for NAFTA same condition drawback under 19 U.S.C. §1333(a)?
Are the goods to which an anti-caking agent was added exported in the same condition that they were imported and thus eligible for NAFTA same condition drawback under 19 U.S.C. §1333(a)?
LAW & ANALYSIS:
Issue 1:
Under 19 U.S.C. §1313(j)(1), drawback is authorized if imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation is, within 3 years of the date of importation, exported or destroyed under Customs supervision and was not used in the United States before such exportation or destruction.
Regarding the use of articles under section 1313(j)(1), 19 U.S.C. §1313(j)(3) provides as follows:
The performing of any operation or combination of operations (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking), not amounting to manufacture or production for drawback purposes under the preceding provisions of this section on
(A) the imported merchandise itself in cases to which paragraph (1) applies...
shall not be treated as a use of that merchandise for purposes of applying paragraph (1)(B).
In HQ 225985, dated November 30, 1995, Customs concluded that the listed operations in 1313(j)(3), do not impose a limitation on the qualifying operations, but are illustrative of operations that, may, but do not always, result in a new article being manufactured for drawback purposes.
A "manufacture or production" is defined in Anheuser Busch v. United States, 207 U.S. 556, 562 (1907):
Manufacture implies change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor and manipulation. But something more is necessary as set forth and illustrated in Hartranft v. Wiegmann (121 U.S. 609)(1887). There must be a transformation; a new and different article must emerge, 'having a different name, character, or use.'
Although the holdings of many Customs decisions on this issue are phrased in language that is fact specific to the given case in question, it is in fact the new and different article test of Anheuser Busch that is determinative. Regardless of the facts involved the merchandise used, the procedure involved, and the finished product if a new and different article has not emerged (from the process), there has not been a manufacture or production for drawback purposes.
The parenthetical phrase of 19 U.S.C. 1313(j)(3), which describes operations which, if they do not amount to a manufacture or production for drawback purposes, shall not be treated as a use for purposes of 19 U.S.C. 1313, includes, but is not limited to, “re-packing”. In HQ 225874, dated March 22, 1996, we found that when machine parts are imported in bulk and separated to be repackaged or put in a “kit” for individual sale it is essentially the same as “re-packing” as listed in 19 U.S.C. §1313(j)(3). In this case, we find the re-packing alone of dried fruits and vegetables from industrial size packages to individual use packages is not a use as defined by 19 U.S.C. 1313(j)(3).
Issue 2:
With regard to the second type of entered goods, the cutting of imported merchandise has been considered by this office in previous decisions. In C.S.D. 81-235, issued on June 26, 1981, Customs addressed whether the shearing of 1 and 2-pound chunks of mischmetal into 2 or 4-ounce chunks so that they could be used in steel production is a manufacture or production for drawback purposes. In that case, Customs determined that although the sheared mischmetal pieces remain unchanged in name from the larger unsheared chunks, the bagged smaller pieces could be used in steel production by melting and distributing evenly throughout the steel; the larger unsheared chunks had no such use. Based on the foregoing, Customs held that process constituted a manufacture or production for drawback purposes.
Customs however in HQ 228580, issued on August 20, 2002, distinguished the above described case with one where although the importer’s customers could use larger slabs of hydroxypivalic acid neopentyl glycol ester in its processing, they order it in nugget form for convenience. In this second case, the purchasers of the slabs could use them in either form, but prefer them in the smaller size because they would not have to break them down in order to fit them into their reactor. Therefore, both sizes can be used for the same purpose, changing the size of the goods does not constitute a manufacture or production for drawback purposes.
The applicant states that based on the demands of the market for each year the different merchandise is cut, sliced, chipped, diced, flaked, or ground. The applicant believes that a piece of dried carrot, for example, remains a piece of dried carrot regardless of its size: ½ inch cube, ¼ inch cube, 3/8 inch flake, ¼ inch thick coin cross-section, “shoestring” type shred, granules of –8 to +40 piece diameter range, or powder of –40 or even –60 diameter. FDP’s product list shows that although still dried carrot, the powdered and cut carrots, and other fruits and vegetables, are offered for sale as distinct items of commerce. The different sizes and shapes indicate a dedication for different purposes such as ingredients for pot pies, salad toppings, or natural colorants. Therefore the reduction of product size of the dried carrots does constitute a manufacture or production for drawback purposes, based on the information provided.
Issue 3:
With regard to the third type of entered goods, the applicant states that up to two percent silicon dioxide is added to the powders. According to our Laboratory Services, silicon dioxide is an anti-caking agent. It absorbs moisture and prevents powders or granules from sticking together or clumping. This powder is a desiccant that changes the pourability of the powder. Courts have held that if an operation renders a commodity or articles fit for a use which it was otherwise unfit, the operation falls within the “letter and spirit” of “manufacture.” United States v. International Paint Co., Inc., 35 CCPA 87 (1948). In International Paint, imported paint contained impurities which rendered it unfit for use as an anti-fouling paint. Id. at 90. It was subjected to certain processes which removed the impurities and made it capable of use as an anti-fouling paint. Id. The character of the paint was changed with the removal of the impurities conferring upon it “a use, as a merchantable and usable anti-fouling paint, which it did not possess upon arrival in this country… [p]roof that there was a change in character was found in the fact that the exported product was fitted for a distinctive use for which the imported product was wholly unfit -- the painting of the steel bottoms of ships.” Id. at 94. The current process allows the ground up vegetables to be used as a powder. Without the anti-caking agent, the powder would be clumpy and less easily pourable. Therefore, the addition of the silicone dioxide changes the use of the merchandise.
Issue 4:
Regarding exportations to Canada and Mexico, section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act (Public law 103-182; 107 Stat. 2057, 2086; 19 U.S.C. §3333), provides for the treatment of goods subject to NAFTA drawback. Under 19 U.S.C. §3333(a) (Section 203(a) of the NAFTA), such goods mean any good other than, among other things--
(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph
(A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good[.] ...
Furthermore, this section provides that “[a] good exported to a NAFTA country in the same condition as when imported into the United States” is not a good subject to the NAFTA drawback limitation.
Under 19 C.F.R. §181.45(b), which follows The Uniform Regulations of the Parties (60 F.R. 46469), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition is eligible for drawback under 19 U.S.C. §1313(j)(1) without regard to the limitation on drawback provided for in 19 C.F.R. §181.44 (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Subparagraph (b)(1) of section 181.45 provides that:
For purposes of this subpart, a reference to a good in the “same condition” includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good:
(i) Mere dilution with water or another substance;
(ii) Cleaning, including removal of rust, grease, paint or other coatings;
(iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint;
(iv) Trimming, filing, slitting, or cutting;
(v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or
(vi) Testing, marking, labeling, sorting or grading.
As stated, 19 CFR 181.45(b)(1)(v) includes “packing, repacking, packaging, or repackaging.” We find that the repackaging of merchandise from bulk packages to smaller packages within the scope of 19 CFR 181.45(b)(1)(v) such that merchandise repackages are in the same condition provided that the repackaging operation does not materially alter the characteristics of the parts. No evidence has been submitted which would indicate that the characteristics of the goods would be materially altered by the repackaging.
Issue 5:
We find that the merchandise that was cut, sliced, chipped, diced, flaked, or ground is not in the same condition as when imported within the meaning of 19 CFR 181.45(b)(1), and therefore does not fall within the scope of 19 U.S.C. 3333(a) as provided for by 19 CFR 181.45(b).
Issue 6:
We also find that the merchandise to which silicon dioxide was added is also not in the same condition as when imported within the meaning of 19 CFR 181.45(b)(1). As previously stated, according to our Laboratory Services, silicon dioxide absorbs moisture and prevents the powders or granules from sticking together or clumping. This more pourable powder is not in the same condition as the clumpy powder that was imported. Therefore the adding of a desiccant does not fall within the scope of 19 CFR 181.45(b).
HOLDING:
Re-packing dried fruits and vegetables is not a use of merchandise for unused merchandise drawback under 19 U.S.C. §1313(j)(1).
Reducing the size of dried fruits and vegetables by cutting, slicing, chipping, dicing, flaking, and grinding is a use of merchandise which precludes drawback eligibility under 19 U.S.C. §1313(j)(1).
Adding an anti-caking agent to a vegetable powder is a use of merchandise which precludes drawback eligibility under 19 U.S.C. § 1313(j)(1).
The dried fruits and vegetables that are only re-packed before being exported are exempt from the NAFTA drawback limitation by virtue of 19 U.S.C. §1333(a)(2).
The dried fruits and vegetables that are cut, sliced, chipped, diced, flaked, and ground are not in the same condition that they were imported and are goods subject to NAFTA drawback by virtue of 19 U.S.C. §1333(a).
A vegetable powder to which an anti-caking agent is added is not in the same condition that it was imported and is a good subject to NAFTA drawback by virtue of 19 U.S.C. §1333(a).
Sincerely,
Myles Harmon, Director
Commercial Rulings Division