CLA-2 CO:R:C:S 557633 WAS
Mr. Robert A. Barton
Jolina Foods USA, Inc.
P.O. Box 242
Richmond, VT 05477
RE: Reconsideration of HRL 557395; concerning the applicability
of the partial duty exemption available under subheading
9802.00.50, HTSUS, to mozzarella cheese from Canada; shredding; slicing; dicing; cutting; 554654; 555462; 555174;
554736; T.D. 70-49(1)
Dear Mr. Barton:
This is in response to your request for reconsideration of
Headquarters Ruling Letter (HRL) 557395 dated September 17, 1993,
concerning the applicability of the partial duty exemption
available under subheading 9802.00.50, Harmonized Tariff Schedule
of the United States (HTSUS), to mozzarella cheese which is sent
to Canada for processing. In HRL 557395, we found that shredding
the cheese in block form is a process which exceeds the scope of
the term "alteration" for purposes of subheading 9802.00.50,
HTSUS, and therefore, the cheese was not entitled to a partial
duty exemption upon return to the U.S.
FACTS:
You state that you intend to ship mozzarella cheese which is
produced in Richmond, Vermont from 100 percent U.S.-origin milk
to Quebec, Canada, where it will be shredded and repackaged. You
state that the cheese will be sent to Quebec in blocks weighing
approximately 5.2 pounds. The blocks will be either wrapped
singularly or four to a package. The film used to package the
cheese labels the product "mozzarella cheese." You state that
the cheese will be sent to Saputo Cheese, St. Leonard, Quebec.
You also state that in Canada there will be no sale of the
product; Saputo Cheese will charge Richmond Cheese approximately
$0.10 per pound for labor and packaging. In Canada, the
processing operations consist of: (1) removing the plastic film
and putting the blocks of cheese directly into a shredding
machine; (2) adding a small amount of anti-caking agent to the
cheese to prevent clumping; (3) packaging the cheese in plastic
film, and shipping it to the U.S.
In support of your position that the returned cheese is
eligible for the partial duty exemption under subheading
9802.00.50, you state the following:
There will be absolutely no chemical change to the cheese
due to the shredding and packaging in Canada. There will be
no need to clean, trim or do anything else to the cheese to
make it suitable for use as a pizza topping. The only thing
added to the cheese will be the anti-caking agent which does
not alter the characteristics of the cheese in any way.
Essentially, only the size of the cheese is changed. It
will leave the United States in 5.2 pound blocks and come
back into the United States in smaller shredded pieces. The
use of the cheese does not change. The block cheese
exported to Canada is used as a pizza topping as is the
shredded cheese brought back to the United States. The
purchaser of the shredded cheese is the same type of
customer to whom we sell block mozzarella cheese; a pizza
shop or a distributor who sells mozzarella cheese to pizza
shops.
ISSUE:
Whether cheese exported to Canada where it is shredded and
repackaged is entitled to a partial duty exemption under
subheading 9802.00.50, HTSUS, when returned to the U.S.
LAW AND ANALYSIS:
Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles returned to the United States after having
been exported to be advanced in value or improved in condition by
means of repairs or alterations. Such articles are dutiable only
upon the value of the foreign repairs or alterations, provided
the documentary requirements of section 10.8, Customs Regulations
(19 CFR 10.8), are satisfied. However, entitlement to this
tariff treatment is precluded in circumstances where the
operations performed abroad destroy the identity of the articles
or create new or commercially different articles. See A.F.
Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956);
Guardian Industries Corp. v. United States, 3 CIT 9 (1982).
Tariff treatment under subheading 9802.00.50, HTSUS, is also
precluded where the exported articles are incomplete for their
intended use prior to the foreign processing. Guardian; Dolliff
& Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455
F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 82, 599 F.2d
1015, 119 (1979).
We have previously held that certain types of cutting or
slicing operations abroad preclude application of item 806.20,
Tariff Schedules of the United States (TSUS) (the precursor to
subheading 9802.00.50, HTSUS). For instance, in HRL 071399 dated
July 19, 1983, we found that frozen fish fillets which have been
caught by U.S. flag fishing boats and sent to Korea and China,
where they are cut into three pieces, wrapped in plastic, and
boxed, before being returned to the U.S., constitutes "more than
an alteration." In using the factors set forth by the court in
A.F. Burstrom v. United States, C.A.D. 631 (1956), we stated in
that case that the fish slices created overseas differed in name,
value, appearance, size, and shape, and therefore, were not
within the purview of the provision for alterations. In another
case, T.D. 66-144(2), we held that fruits and vegetables
exported, and while abroad, washed, grated, and in some instances
cut and packaged, were not classifiable under either item 800.00,
TSUS, or item 806.20, TSUS. T.D. 70-49(1) involved U.S.-origin
mushrooms which were exported in bulk to Canada where they were
cleaned, treated with an anti-oxidant solution, rinsed, frozen,
and packaged in bulk boxes or bags. We held that they were
entitled to entry under item 806.20, TSUS. However, we stated
that mushrooms which were cut during the same process, or
packaged in retail containers were precluded from item 806.20,
TSUS.
In a case involving slicing of fruit abroad, we held that
the slicing of peaches exceeds the scope of the term "alteration"
under item 806.20, TSUS. See HRL 554654 dated July 28, 1987. In
HRL 554654, we stated that the slicing of exported whole peaches,
including removal of the pits and skins, not only destroys the
identity of the exported peaches but results in new articles of
commerce, more suitable and better adapted not only for ice cream
but other industries as well. In addition, we held in HRL 555462
dated September 11, 1989, that dicing and individually quick-freezing apples abroad does not constitute an acceptable
alteration for purposes of subheading 9802.00.50, HTSUS. In that
case, we stated that the dicing of apples resulted in new and
different commercial articles having uses different from those of
whole apples. See also HRL 555174 dated April 25, 1989 (where
continuous rolls of decorative banner material, measuring
approximately 140 feet in length, were exported to Mexico and cut
there to shorter lengths of approximately 32 inches for retail
sale, the cutting operation was found to exceed an alteration
within the meaning of subheading 9802.00.50, HTSUS, because it
constituted a finishing step in the manufacture of the completed
decorative banners); HRL 554736 dated February 16, 1988 (where
facial tissue paper was to be exported to Mexico in rolls for
cutting to length, folding, and packaging for retail sale, the
cutting operation constituted a finishing step in the manufacture
of a usable facial tissue product and was, therefore, not an
alteration within the meaning of item 806.20, TSUS.)
Based on the reasoning set forth in the above-referenced
cases, we find that the mozzarella cheese exported to Canada is
not a completed article as it is not in a condition suitable for
its intended use prior to the foreign processing operations. The
shredding operation performed in this case is similar to those
cases in which we found that cutting operations performed abroad
(e.g.., cutting frozen fillets, mushrooms, peaches, etc.) exceeds
the scope of the term "alterations" under subheading 9802.00.50,
HTSUS. The foreign operations which entail shredding the cheese,
adding an anti-oxidant ingredient and repackaging, are more than
simple packaging operations. Instead, these operations
constitute necessary finishing steps in the total manufacturing
process of the finished article (i.e., shredded mozzarella
cheese), which is begun in the U.S. Even though you state that
the block cheese may be sold to the same customers as the
shredded cheese, the cheese in block form must still undergo a
shredding operation before it is suitable for its intended use as
a pizza topping. Therefore, the operations performed in Canada
cannot be considered proper "alterations" and the returned
shredded mozzarella cheese will not be eligible for the partial
duty exemption available under subheading 9802.00.50, HTSUS, when
returned to the U.S.
In support of your position, you argue that since the
mozzarella cheese which is exported to Canada is classified under
the same subheading as the mozzarella cheese which is returned to
the U.S., the cheese undergoes an acceptable alteration and
should be eligible for a partial duty exemption under subheading
9802.00.50, HTSUS. However, this argument was specifically
rejected by the court of appeals in Dolliff, which noted the
"irrelevance" to its determination of whether the foreign
processing in that case was an alteration, the fact that both the
greige goods and finished fabrics were classifiable under the
same tariff item.
HOLDING:
Based on the information submitted, it is our opinion that
the foreign processing operations comprise further processing
steps which are performed on an unfinished article and which lead
to a completed article. Accordingly, the shredded mozzarella cheese imported from Canada is not eligible for the partial duty
exemption available under subheading 9802.00.50, HTSUS, but is
dutiable upon its full value, when returned to the U.S.
HRL 557395 is affirmed.
Sincerely,
John Durant, Director
Commercial Rulings Director