MAR-2-05 CO:R:C:S 558656 WAS
U.S. Customs Service
District Director
880 Front Street
San Diego, CA 92188
RE: Internal Advice Request 19/94 concerning the tariff classification, GSP, applicability
of CVD and ADD and country of origin marking requirements for flower bouquets from
Mexico; Article 509
Dear Mr. Camacho:
This is in reference to the above-reference Internal Advice Request, dated October 27,
1993, submitted by Richard E. Stringham and Co., on behalf of California Floral Distributors,
concerning the proper tariff classification, applicability of the Generalized System of Preferences
(GSP) (19 U.S.C. 2461-2465) and country of origin marking requirements applicable to flower
bouquets from Mexico. In regard to the antidumping and countervailing duty issues that the
importer has raised, we are forwarding a copy of our ruling to the Department of Commerce and
we will notify you when we have received a decision.
FACTS:
California Floral Distributors ships flowers that are grown in the U.S., Colombia, and
Bolivia to Mexico where they are cleaned, cut to length, trimmed, and arranged together with
certain Mexican flowers to form two kinds of products: a floral basket arrangement and a mixed
bouquet without a basket. The production of the bouquet involves inserting the flowers and
foliage into a green, absorbent, sponge-like material. A typical floral basket arrangement was said
to consist of carnation stems, pom pom stems, statice stems, oregonia stems, and oasis block.
After the processing is complete, the bouquets are placed in containers and shipped to the U.S.
ISSUES:
(1) What is the proper tariff classification of the cut flowers and bouquets from Mexico?
(2) Are the flower bouquets imported prior to January 1, 1994, eligible for duty-free
treatment under the GSP?
(3) Are the flower bouquets eligible for the duty preference under the NAFTA?
(4) What are the country of origin marking requirements applicable to the flower bouquets
from Mexico?
LAW AND ANALYSIS:
I. Tariff Classification of the flower bouquets
Classification of merchandise under the HTSUSA is in accordance with the General Rules
of Interpretation (GRI), taken in order. GRI 1 provides that classification shall be determined
according to the terms of the headings and any relative section or chapter notes.
Heading 0603, HTSUS, covers cut flowers and flower buds of a kind suitable for
bouquets or ornamental purposes, fresh, dried, dyed, bleached, impregnated or otherwise
prepared. The Explanatory Notes to Heading 0603 state that the provision not only covers cut
flowers and buds as such, but also bouquets, wreaths, floral baskets and similar articles
incorporating flowers or flower buds. Provided that such bouquets have the essential character of
florists' wares, they remain in the heading even though they contain accessories of other materials.
Therefore, we are of the opinion that the cut flower bouquets are properly classifiable in
subheading 0603.10.80, HTSUS.
II. Applicability of GSP
We note that Mexico's designation as a BDC for purposes of the GSP expired on the date
that the North American Free Trade Agreement (NAFTA) became effective (January 1, 1994).
Articles imported on or after January 1, 1994, will receive duty-free treatment only if they qualify
as "originating goods" under the NAFTA.
For those entries of flower bouquets which have been imported prior to January 1, 1994,
they may be eligible for GSP provided that all of the requirements have been satisfied. Under the
GSP, eligible articles the growth, product or manufacture of a designated beneficiary developing
country (BDC) which are imported directly into the customs territory of the U.S. from a BDC
may receive duty-free treatment if the sum of (1) the cost or value of materials produced in the
BDC, plus (2) the direct costs of the processing operation in the BDC, is equivalent to at least
35% of the appraised value of the article at the time of entry. See 19 U.S.C. 2463(b).
The 35% value-content and "imported directly" requirements of 19 U.S.C. 2463(b) were
conceived as separate and distinct country of origin tests designed to ensure that the benefits of
the duty-free program actually accrue to the countries for which they were intended. See The
Trade Act of 1973: Hearings on H.R. 10710 Before the Senate Committee on Finance, 93rd
Cong., 2nd Sess. 326 (1974) (statement of William D. Eberle, U.S. Special Representative for
Trade Negotiations). This goal is accomplished by limiting the opportunities during which non-eligible goods may be commingled with eligible goods. The importer must satisfy both
requirements in order to receive duty-free treatment of its merchandise.
Based on the information provided, the flower bouquets are classified in subheading
0603.10.80, HTSUS, which provides for Cut flowers and flower buds of a kind suitable for
bouquets or for ornamental purposes, fresh, dried, dyed, bleached, impreganated or otherwise
prepared: Fresh: Other, which is a GSP-eligible provision. Accordingly, the flower bouquets
which are imported prior to January 1, 1994, are entitled to duty-free treatment if they are
considered to be a "product of" Mexico, the GSP 35% value-content minimum is met, and they
were "imported directly" into the U.S.
The first question presented in determining whether the flower bouquets are "products of"
Mexico, is whether the combination of cleaning, cutting, trimming and arranging the cut flowers
in a bouquet in Mexico constitutes a substantial transformation. Based on prior court decisions, a
substantial transformation occurs "when an article emerges from a manufacturing process with a
name, character, or use which differs from those of the original material subjected to the process."
Texas Instruments Inc. v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982).
With regard to the question of whether or not the individual cut flowers are substantially
transformed in Mexico, we find relevant, the case of Uniroyal. Inc. v. United States, 3 CIT 220,
542 F. Supp. 1026 (1982), a country of origin marking case involving imported shoe uppers. In
Uniroyal, the court considered whether the addition of an outsole in the U.S. to imported uppers
lasted in Indonesia effected a substantial transformation of the uppers. The court described the
imported upper, which resembled a moccasin, and the process of attaching the outsole to the
upper. The court concluded that a substantial transformation of the upper had not occurred since
the attachment of the outsole to the upper was a minor manufacturing or combining process
which left the identity of the upper intact. The upper was described as a substantially complete
shoe and the manufacturing process taking place in the U.S. required only a small fraction of the
time and cost involved in producing the upper. Furthermore, in Uniroyal, the court examined the
facts presented and determined that the completed upper was the very essence of the completed
shoe.
The concept of the "very essence" of a product was applied in National Juice Products v.
United States, 628 F. Supp. 978, 10 CIT 48 (CIT 1986), where the court determined that
imported frozen concentrated orange juice was not substantially transformed in the U.S. when it
was domestically processed into retail orange juice products by the addition of water, orange
essences, orange oil, and, in some instances, fresh juice. In National Juice Products, the court
addressed each of the factors -- name, character and use -- in finding that no substantial
transformation occurred in the production of retail orange juice products from manufacturing
concentrate. The court found that the change in name from "concentrated orange juice for
manufacturing" to "frozen concentrated orange juice" and "orange juice from concentrate" is not
significant to a finding of substantial transformation. Instead, the court stated that these names
"merely refer to the same product, orange juice, at different stages of production." Id. at 989.
The court agreed with Customs that the imported manufacturing concentrate "imparts the
essential character to the juice and makes it orange juice. . . [and thus], as in Uniroyal, the
imported product is the very essence of the retail product." The court found that the retail
product in this case was essentially the juice concentrate derived in substantial part from foreign
grown, harvested, and processed oranges. Although the addition of water, orange essences, and
oils to the orange juice concentrate made it suitable for retail sale, according to the court, this did
not change the fundamental character or use of the product; it was still essentially the product of
the juice of oranges.
In HRL 557312 dated November 17, 1994, we held that the process of snapping together
pre-assembled artificial flower components did not result in a substantial transformation. In HRL
557312, imported fabric was die cut in Macau into petals and leaves and plastic pellets were
injection molded in Macau into stems. These components were then shipped to the People's
Republic of China where they were assembled into finished artificial flowers. We held in HRL
557312 that this type of assembly operation was far too minor a procedure to constitute a
substantial transformation of the components into "products of" the PRC. We found that the
petals, stems and leaves were clearly recognizable as completed components prior to importation
into the PRC and already possessed the essential character of flowers as a result of the
manufacturing processes in Macau. Thus, we held that the simple assembly process which
occurred in the PRC did not change the flower components into new and different articles of
commerce.
In the instant case, it is our opinion that the processing of the cut flowers in Mexico to
create flower bouquets, does not constitute a substantial transformation of the imported flowers.
Consistent with Uniroyal and HRL 557312, it is our determination that the very essence of the
final product in the instant case is imparted by the imported cut flowers, prior to any additional
operations performed in Mexico. The processing which involves cutting, trimming and arranging
the flowers into a bouquet, does not change the fundamental character of the imported flowers.
Before the flowers undergo the processing in Mexico they are dedicated to a singular use and
already possess the essential character of the finished flower bouquets. The cutting, trimming and
arranging operations do not alter the essential character of the individual flowers. We view the
processing in Mexico as a finishing operation which does not substantially transform the cut
flowers into new and different articles with a new name, character or use. Therefore, as the
processing operations performed in Mexico do not result in a substantial transformation of the
imported cut flowers into a "product of" Mexico, the flower bouquets will not be eligible for
duty-free treatment under the GSP when imported into the U.S.
III. Eligibility for duty preference under NAFTA
General Note 12, HTSUS, provides in pertinent part:
(B)For the purposes of this note, goods imported into the customs territory of the
United States are eligible for the tariff treatment and quantitative limitations set
forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if--
(I) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
(ii) they have been transformed in the territory of Canada, Mexico and/or
the United States so that--
(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r),(s) and (t) of this note or the rules set forth therein, or,
(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other
requirements of this note; or
(iii) they are goods produced entirely in the territory of Canada, Mexico
and/or the United States exclusively from originating materials. . .
In the instant case, in order for the flowers imported on or after January 1, 1994, to
become "originating goods", they must satisfy the tariff shift provision applicable to the finished
flower bouquets which are classified under heading 0603. The applicable General Note 12(t) rule
for the flower bouquets provides as follows:
A change to headings 0601 through 0604 from any other chapter
Since all of the non-originating materials (individual flowers from Colombia and Bolivia) and the
finished good (flower bouquet) are classified in the same chapter, the General Note 12(t) rule for
the good will not be satisfied. Therefore, the flower bouquets are not considered "originating" for
purposes of receiving preferential tariff treatment under NAFTA when imported into the U.S.
and are fully dutiable.
IV. Country of Origin Marking of Flower Bouquets
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless
excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous
place as legibly, indelibly, and permanently as the nature of the article (or its container) will
permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of
the country of origin of the article. Congressional intent in enacting 19 U.S.C. 1304 was "that the
ultimate purchaser should be able to know by an inspection of the marking on the imported goods
the country of which the goods is the product. The evident purpose is to mark the goods so that
at the time of purchase the ultimate purchaser may, by knowing where the goods were produced,
be able to buy or refuse to buy them, if such marking should influence his will." United States v.
Friedlaender & Co., 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940). Part 134, Customs Regulations
(19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19
U.S.C. 1304.
The country of origin marking requirements for a "good of a NAFTA country" are also
determined in accordance with Annex 311 of the North American Free Trade Agreement
("NAFTA"), as implemented by section 207 of the North American Free Trade Agreement
Implementation Act (Pub. L. 103-182, 107 Stat. 2057) (December 8, 1993) and the interim
amendments to the Customs Regulations published as T.D. 94-4 (59 Fed. Reg. 109, January 3,
1994) with
Section 134.1(b) of the interim regulations, defines "country of origin" as:
the country of manufacture, production, or growth of any article of foreign origin entering
the U.S. Further work or material added to an article in another country must effect a
substantial transformation in order to render such other country the "country of origin";
however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the
country of origin (emphasis added).
Section 134.1(j) of the interim regulations, provides that the "NAFTA Marking Rules" are
the rules promulgated for purposes of determining whether a good is a good of a NAFTA
country. Section 134.1(g) of the interim regulations, defines a "good of a NAFTA country" as an
article for which the country of origin is Canada, Mexico or the United States as determined
under the NAFTA Marking Rules. Section 134.45(a)(2) of the interim regulations, provides that
"a good of a NAFTA country may be marked with the name of the country of origin in English,
French, or Spanish."
Part 102 of the interim regulations, sets forth the "NAFTA Marking Rules" for purposes
of determining whether a good is a good of a NAFTA country for marking purposes. Section
102.11 of the interim regulations, sets forth the required hierarchy for determining country of
origin for marking purposes. Section 102.11(a) of the interim regulations states that "[t]he
country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in
tariff classification set out in section 102.20 and satisfies any other applicable
requirements of that section, and all other requirements of these rules are
satisfied."
In this case, the applicable rule is section 102.11(a)(3) of the interim regulations. "Foreign
Material" is defined in section 102.1(e) of the interim regulations as "a material whose country of
origin as determined under these rules is not the same country as the country in which the good is
produced." In order to determine whether Mexico is the country of origin, we must look at those
materials whose country of origin is other than the Mexico.
In the instant case, as the flower bouquets are classified in heading 0603, HTSUS, the
change in tariff classification must be made in accordance with section 102.20(d), Section II:
Chapters 6 through 14 of the interim regulations, which states in part that:
A change to heading 0603 through 0604 from any other heading, including another
heading within that group, except from heading 0602.
Therefore, each foreign material incorporated in the flower bouquets must come from
another heading, except from heading 0602, HTSUS. In the instant case, the flower bouquets are
classified in subheading 0603.10, HTSUS, and the cut flower stems are classified in subheading
0603.10, HTSUS. As the individual flowers are not classified in a different heading than the
assembled flower bouquet, the change in tariff classification requirement under section
102.11(a)(3) of the interim marking rules is not satisfied.
Since the country of origin is not determined by section 102.11(a) (incorporating section
102.20) of the interim regulations, the next step in the country of origin interim regulations
hierarchy is section 102.11(b). Section 102.11(b) of the interim regulations states as follows:
Except for a good that is specifically described in the Harmonized Tariff Schedule as a set,
or is classified as a set pursuant to General Rule of Interpretation 2, where the country of
origin cannot be determined under paragraph (a), the country of origin of the good:
(1) Is the country or countries of origin of the single material that imparts the essential
character of the good. . .
"Material" is defined in section 102.1(1) of the interim regulations as "a good that is incorporated
into another good as a result of production with respect to that other good, and includes parts,
ingredients, subassemblies, and components."
Pursuant to section 102.18(b)(2), "for purposes of applying section 102.11, only domestic
and foreign materials (including self-produced materials) that are classified in a tariff provision
from which a change in tariff classification is not allowed in the rule for the good set out in section
102.20 shall be taken into consideration in determining the parts or materials that determine the
essential character of the good."
Therefore, taking into consideration only those domestic and foreign materials that are
classified in a tariff provision for which a change in tariff classification is not allowed in the rule
for the good under section 102.20, we find that the flower stems which make up the bouquet
impart the essential character of the finished good. Therefore, pursuant to section 102.11(b)(1),
the countries of origin of the bouquet is the U.S., Colombia, Bolivia and Mexico, the countries of
origin of the cut flower stems (classified in subheading 0603.10, HTSUS) which we find
constitutes the single material imparting the essential character to the bouquet. Accordingly, the
bouquet when imported into the U.S. must be marked to indicate that it is a product of Colombia,
Bolivia, and Mexico. We, however, have no objection if the U.S. is also specified as one of the
countries of origin.
HOLDING:
Based on the information provided, the proper tariff classification of the flower bouquets
which are assembled in Mexico from flowers from the U.S., Colombia and Bolivia, is subheading
0603.10.80 HTSUS.
For those flower bouquets which have been imported before January 1, 1994, as the
"product of" requirement is not satisfied, they are not eligible for duty-free treatment under the
GSP.
Furthermore, for those flower bouquets which have been imported on or after January 1,
1994, they are not considered "originating" for purposes of receiving a preferential rate of duty
under NAFTA.
Finally, the flower bouquets must be marked to indicate that they are a product of
Colombia, Bolivia and Mexico.
Sincerely,
John Durant, Director
Commercial Rulings Division