CLA 2 CO:RR:CR:SM 561231 MFC
Scott E. Rosenow, Esq.
S. Richard Shostak, Esq.
Stein, Shostak, Shostak & O’Hara
Suite 807
1620 L Street, N.W.
Washington, D.C. 20036-5605
RE: Applicability of HTSUS subheading 9801.00.10 to Dole packaged cut-up fruit to be imported from the Philippines; 9802.00.50
Dear Messrs. Rosenow and Shostak:
This is in response to your letter of December 1, 1998, on behalf of Dole Packaged Food Company (“Dole”), requesting a ruling on the applicability of subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), to cut-up fruit to be imported from the Philippines. On June 23, 1999, Customs attorneys from this office met with you to discuss the ruling request.
FACTS:
The subject merchandise consists of U.S. cut-up fruit (peaches and pears) in medium-syrup which is exported in bulk containers to the Philippines where Dole drains the medium syrup, removing small fruit particles that separate during the shipment from the U.S. to the Philippines. In the Philippines, new syrup is added, and, in some cases, other cut-up fruit (Philippine-origin pineapple) is added to the U.S. fruit. The fruit and syrup are packed in retail cans for shipment to the U.S.
ISSUE:
Whether the returned U.S.-origin cut-up fruit in syrup will qualify for duty-free treatment pursuant to subheading 9801.00.10, HTSUS, or for partial duty-free treatment under subheading 9802.00.50, HTSUS.
LAW & ANALYSIS:
A. Applicability of subheading 9801.00.10, HTSUS
Subheading 9801.00.10, HTSUS, provides for the duty-free entry of products of the United States which are returned after having been exported, 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.
While some change in the condition of the product while it is abroad is permissible, 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 U.S. See Border Brokerage Company Inc. v. United States, 314 F.Supp. 788, 65 Cust.Ct. 50, C.D. 4052 (1970), appeal dismissed, 58 CCPA 165 (1970). According to the Court, whether the product is advanced in value or improved in condition is a question of fact. The Court found in that case that U.S.-origin tomatoes which were shipped to Canada in 40-pound cartons where they were unloaded, unpacked, sorted, graded by color and size, repacked into 18-pound cartons, and imported into the U.S., qualified for duty-free treatment under item 800.00, Tariff Schedules of the United States (TSUS) (the predecessor to subheading 9801.00.10, HTSUS).
In support of your claim for treatment under subheading 9801.00.90, HTSUS, you cite United States v. John V. Carr & Sons, Inc., 69 Cust. Ct. 78, C.D. 4377 (1972), in which the Court considered the repackaging of fish hooks and stated that absent some alteration or change in the item itself, the mere repackaging of the item, even for the purpose of resale to the ultimate consumer, is not sufficient to preclude the merchandise from being classified under item 800.00, TSUS. You also cite Headquarters Ruling Letter (“HRL”) 555428 (April 17, 1990), where Customs allowed the application of this subheading to assorted, individually wrapped U.S.-origin candy that was packaged in Mexico with various foreign candy and/or plastic toys and other non-candy items. This ruling distinguished another Customs ruling, HRL 555519 (March 12, 1990), in which Customs found that subheading 9801.00.10, HTSUS, did not apply to premeasured amounts of long grain white and wild rice which were combined with vegetables and seasonings to create a new and different commercial article than the original components. Customs found in HRL 555428, that the candy products were merely repacked and that the rationale of Border Brokerage dictated a finding that the candy was not advanced in value or improved in condition abroad.
In your ruling request and at the June 23, 1999 meeting, you emphasized the impact of Superscope, Inc. v. United States, 727 F. Supp. 629 (CIT 1989), on this issue. In Superscope, the Court of International Trade found that U.S.-origin glass panels which were repackaged in New Zealand with foreign components to form unassembled audio cabinents were eligible for item 800.00, TSUS, treatment. You state that “[l]ike the glass in Superscope, the U.S. cut-up fruit can be physically separated from the remainder of the product, even though it is classified as a single entity.”
We disagree with your characterization of the syrup as “packaging” material for purposes of determining whether the returned product is eligible for subheading 9801.00.10, HTSUS, treatment. The Carr and Border Brokerage decisions specifically focus on the operations performed to the article itself, and in this case, we consider the article to include both the cut-up fruit and the medium syrup. Not only is at least a portion of the syrup usually consumed with the fruit, but the type of syrup (e.g. heavy, medium, or light) sold with the fruit may affect a consumer’s purchasing choice. In our opinion, draining the U.S. origin syrup in the Philippines to remove small fruit particles and adding new syrup of foreign origin clearly improves the condition of the product by eliminating undesirable, excess fruit particles from the retail product. Accordingly, we find that the article is ineligible for duty-free treatment under subheading 9801.00.10, HTSUS.
B. Applicability of subheading 9802.00.50, HTSUS
Articles returned to the United States after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, provided the foreign operation does not destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'd, C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations when returned to the United States, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR §10.8), are satisfied.
Customs has ruled that certain cleaning operations constitute alterations. See HRL 555180 (December 26, 1989) (carrots exported to Mexico for washing, cooling, sorting by size, grading for quality, and packaging for retail sale were entitled to the partial duty exemption provided for under subheading 9802.00.50, HTSUS). In addition, the Court of Customs and Patent Appeals concluded that certain operations performed in Canada to U.S. origin apples, including cleaning, grading, wrapping, and packing, were deemed to be alterations. Wilbur G. Hallauer v. United States, 40 CCPA 197, C.A.D. 518 (1953).
In HRL 559611 (May 7, 1996), Customs determined that the trimming of the stems of herbs in order to make the herbs more uniform in size, simplify packaging in fresh bunches, and to remove excess soil did not disqualify the herbs from the partial duty exemption under subheading 9802.00.50, HTSUS. Since the herbs were not chopped, ground, or sliced, they were deemed to be eligible for a partial duty exemption under subheading 9802.00.50, HTSUS.
In this case, the syrup is drained in order to remove broken pieces of fruit and is replaced with new syrup and sometimes foreign fruit is added. We find that the act of draining the syrup, which serves to remove any broken pieces of fruit, adding new syrup and in some instances, adding foreign fruit, constitutes an alteration that improves the condition of the article. The foreign processing does not destroy the identity of the exported fruit or create a new or different commercial article. Essentially the same commercial article is returned, except in an “altered” condition.
Accordingly, we find that the subject merchandise is eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, assuming compliance with the documentary requirements of 19 CFR §10.8. Section 10.8(d) requires a deposit of estimated duties based upon the full cost or value of the repairs or alterations at the time of entry. In our opinion, the cost or value of the alterations performed abroad in this case would include, among other costs, the cost of the new syrup added to the fruit as well as the cost of any foreign fruit added to the U.S. fruit.
HOLDING:
On the basis of the information provided, we find that the foreign operations improve the condition of the exported fruit, thereby precluding duty-free entry under subheading 9801.00.10, HTSUS. However, because the exported U.S. fruit product is improved in condition as a result of alteration, the subject merchandise qualifies for a partial duty exemption under subheading 9802.00.50, HTSUS.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division