CLA-2 RR:CR:SM 562176 TJM
Ms. Teresa Gleason, Esq.
Baker and McKenzie
815 Connecticut Ave, NW
Washington DC 20006-4078
RE: Revocation of NYRL C86085, dated April 14, 1998; Classification of unmanufactured tobacco; Country of origin marking for unmanufactured tobacco; substantial transformation; cigarettes; tariff rate quota; Brown & Williamson Tobacco Corp.; 19 CFR 134.35(a).
Dear Ms. Gleason:
This letter is to inform you that Customs has reconsidered New York Ruling Letter (“NYRL”) C86085, dated April 14, 1998, addressed to you on behalf of Brown & Williamson Tobacco Corp., concerning the classification and country of origin marking of tobacco from Italy. After review of that ruling, we have determined that the country of origin for the “ABC Blend” is not Italy because the tobacco is not substantially transformed in Italy. Additionally, the correct classification of the unmanufactured blended tobacco is in subheading 2401.20, HTSUS, rather than in 2403.99, HTSUS, as stated in NYRL C86085. For the reasons that follow, this ruling revokes NYRL C86085.
FACTS:
In NYRL C86085, dated April 14, 1998, Customs ruled that the production process of “ABC Blend” in Italy from tobacco imported from various countries constituted a substantial transformation and therefore qualified as a product of Italy. It also ruled that the “ABC Blend” is classifiable in subheading 2403.99.30, HTSUS.
According to the facts of NYRL C86085, the merchandise, which is called, “ABC Blend,” is a blend of various types and grades of unmanufactured, stemmed, threshed burley and flue-cured tobacco, and unmanufactured, unstemmed, unthreshed oriental tobacco. The tobacco is imported into Italy from a variety of countries. The tobacco is blended in Italy and imported into the United States for your client’s (Brown & Williamson Tobacco Corp.) use in the production of Bugler/Kite “Roll Your-Own” tobacco.
The types of tobacco imported into Italy and used to produce “ABC Blend” include predominantly flue-cured and burley tobacco, and a small percentage of oriental tobacco. “ABC Blend” is comprised of three different types of tobacco from nine different countries including Italy.
In Italy, the threshed tobacco is placed on a flue-cured line and burley line according to specific blend percentages. These tobaccos proceed through a vertical slicer that cuts the tobacco to facilitate ordering later in the manufacturing process. A small percentage of oriental tobacco is fed into the blend in whole leaf form. During this stage, both the flue-cured and burley lines undergo the same processes. Steam and/or water are applied to the tobacco to make it more pliable and to minimize breakage. Then the tobacco proceeds through a system which removes string from the product. The tobacco is then reordered to insure that it has the proper moisture level before it enters the next stage of manufacture. An air-leg removes naked stem and foreign matter. The tobacco is then conveyed to the silos where it is distributed horizontally to maximize the blending of the different types and grades. Once filled, the silo is discharged vertically to maximize further blending. Once the blending process is complete, the tobacco passes over a shaker that removes scrap on its way to the final dryer. The final dryer brings the blended tobacco to a predetermined moisture level for packing.
The blend is imported into the U.S. where your client processes it further for use in producing the final product. In the United States, the imported tobacco blend is preconditioned to a specific moisture level, cased, cut, dried, cooled, flavored, and packaged for sale as Bugler/Kite Roll-Your-Own tobaccos.
ISSUE:
What is the proper classification and country of origin marking for the unmanufactured blended tobacco processed in Italy and imported into the United States as described above?
LAW AND ANALYSIS:
Classification
The classification of goods under the Harmonized Tariff Schedule of the United States (HTSUS) is governed by the General Rules of Interpretation (GRIs), 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. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied, taken in order.
Additionally, the Explanatory Notes to the Harmonized Commodity Description and Coding system (EN), although not legally binding, are the official interpretation of the Harmonized System at the international level. While not treated as dispositive, the Explanatory Notes are to be given considerable weight in Customs’ interpretation of the HTSUS. See Guidance for Interpretation of Harmonized System, T.D. 89-30, 54 F.R. 35127 (1989). In Headquarters Rulings Letter (“HRL”) 087511, dated January 14, 1991, we stated that “[i]n the absence of clear and unambiguous statutory language to the contrary it has been the practice of the Customs Service to follow, whenever possible, the terms of the Explanatory Notes when interpreting the HTSUSA.” Furthermore, we noted in the Guidance for Interpretation of Harmonized System, T.D. 89-30, 54 F.R. 35127 (1989) that “the ENs are a dynamic instrument reflecting the intent of the Contracting Parties to the application and interpretation of the HS. They will be amended from time to time and may thus reflect a change in interpretation. . . .When a decision of the HSC is published. . .it should receive the same weight as ENs. . . .”
Unmanufactured tobacco is classifiable in heading 2401, HTS. Heading 24.01 EN, states that this heading covers:
Unmanufactured tobacco in the form of whole plants or leaves in the natural state or as cured or fermented leaves, whole or stemmed/stripped, trimmed or untrimmed, broken or cut (including pieces cut to shape, but not tobacco ready for smoking).
Tobacco leaves, blended, stemmed/stripped and “cased” (“sauced” or “liquored”) with a liquid of appropriate composition mainly in order to prevent mould and drying and also to preserve the flavour are also covered in this heading.
(2) Tobacco refuse, e.g., waste resulting from the manipulation of tobacco leaves, or from the manufacture of tobacco products (stalks, stems, midribs, trimmings, dust, etc.).
On the other hand, manufactured tobacco is classifiable in heading 2403, HTS. Heading 24.03, note 1, EN, states that this heading covers “smoking tobacco, whether or not containing tobacco substitutes in any proportion, for example, manufactured tobacco for use in pipes or for making cigarettes.”
In HSC 25 in March 2000 (Doc. NC0288E1), the Harmonized System Committee (“HSC”) of the World Customs Organization (“WCO”) classified basic blended strip tobacco (“BBS”) in heading 2401. BBS was a tobacco mixture consisting of 75 percent by weight of uncut stemmed leaves (i.e., “strips”) and 25 percent reconstituted tobacco. The processing steps that the product underwent prior to export from the country of origin were described as including stemming, mixing, moistening, and casing. In its imported condition, BBS is not ready for smoking. It must be further cased, cut and blended with other ingredients to form the processed tobacco “cut filler” that is used in cigarettes. Subsequently, in the country of importation, the product is subjected to the following processes including slicing (horizontal or vertical) of a batch of the BBS and other types of tobacco, moistening in a conditioning cylinder, casing before cutting, blending, cutting, drying, and flavoring. The Harmonized System Committee (HSC) classified BBS as a mixture of products classifiable in two or more headings. By application of GRIs 2(b), 3(b), and 6, the product was classified in heading 2401.
The product at issue (which is a blend of: 1) unmanufactured, stemmed, threshed burley and flue-cured tobacco; and 2) unmanufactured, unstemmed, unthreshed oriental tobacco), in its imported condition, having some similarities to the BBS before the HSC, is not ready for smoking. Your client imports the blend and further processes it (e.g. preconditioning, casing, cutting, and flavoring,) in the U.S. before using it to manufacture the final product. More importantly, the EN for heading 2401 includes “unmanufactured tobacco. . .or cut. . .but not. . .ready for smoking. . . .”
As a distinguishing example, in Headquarters Ruling Letter (“HRL”) 560102, dated June 17, 1997, Customs classified imported blended tobacco in heading 2403. In that case, the cut-filler tobacco was processed in Argentina. In contrast to the instant case, in HRL 560102 all the blending, cutting, conditioning, casing, flavoring, drying, et cetera were completed in Argentina prior to importation into the United States. In other words, the imported product was ready for use by the final user of the tobacco to make cigarettes. In the instant case, the imported ABC blend is not ready for smoking because they must be further preconditioned, cased, cut, and flavored with other ingredients in the U.S. in order to produce the final product – Bugler/Kite Roll-Your-Own tobaccos. Therefore, the imported article (a blend of unmanufactured blended tobacco in heading 2401, HTSUS) in the instant case is properly classifiable in heading 2401, HTS.
Accordingly, if entered under quota, the product at issue will be classifiable under subheading 2401.20.8590, HTSUS, which provides for unmanufactured tobacco (whether or not threshed or similarly processed); tobacco refuse, tobacco, partly or wholly stemmed/stripped, threshed or similarly processed, other, other, other, described in additional U.S. note 5 to Chapter 24 and entered pursuant to its provisions, other. If entered outside the quota, the applicable subheading will be 2401.20.8790, HTSUS, which provides for unmanufactured tobacco (whether or not threshed or similarly processed); tobacco refuse, tobacco, partly or wholly stemmed/stripped, threshed or similarly processed, other, other, other, other, other.
Marking Requirements
As you are aware, 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 United States 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. 19 C.F.R. part 134 implements the country of origin marking requirements of 19 U.S.C. § 1304.
Section 134.1(d), Customs Regulations (19 CFR § 134.1(d)), provides that the “ultimate purchaser” is generally the last person in the United States who will receive the article in the form in which it was imported. 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 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 the 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. Friedlander & Co., 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940).
The ultimate purchaser in the instant case is the manufacturer in the United States who receives the ABC blend and substantially transforms it to produce the Bugler/Kite “Roll-Your-Own” tobacco. Pursuant to 19 C.F.R. § 134.32(d), the outermost container of the imported blended strip tobacco should be marked with the countries of origin applicable to the specific contents.
Country of Origin
An article that consists in whole or in part of materials from more than one country is a product of the last country in which it has been substantially transformed into a new and different article of commerce with a name, character, and use distinct from that of the article or articles from which it was so transformed. See 19 C.F.R. § 134.1(b); United States v. Gibson-Thomsen, 27 C.C.P.A. 267 (1940); Uniroyal Inc. v. United States, 542 F. Supp. 1026 (Ct. Int’l Trade 1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983); Koru North America v. U.S., 701 F. Supp. 229 (Ct. Int’l Trade 1988); National Juice Products Ass’n v. United States, 628 F. Supp 978 (Ct. Int’l Trade 1986); Coastal States Marketing Inc. v. United States, 646 F. Supp 255 (Ct. Int’l Trade 1986), aff’d, 818 F.2d 860 (Fed. Cir. 1987); Ferrostaal Metals Corp. v. United States, 664 F. Supp 535 (Ct. Int’l Trade 1987).
In National Juice Products Association v. United States, 628 F. Supp. 978 (CIT 1986), the Court considered whether foreign manufacturing concentrate processed into frozen concentrated orange juice and reconstituted orange juice in the U.S. was considered substantially transformed. The U.S. processing involved blending the manufacturing concentrate with other ingredients to create the end product. The manufacturing concentrate was mixed with purified and dechlorinated water, orange essences, orange oil, and in some cases, fresh juice. The foreign manufacturing concentrate was blended with domestic concentrate, with ratios of 50/50 or 30/70 (foreign/ domestic).
The court considered that the U.S. processing added relatively minor value to the product and that the manufacturing orange concentrate imparts the essential character to the juice and makes it orange juice. The court concluded that the foreign manufacturing juice concentrate was not substantially transformed in the U.S. when it was blended with other ingredients.
In Coastal States Marketing, Inc. v. United States, 646 F. Supp. 255 (Ct. Int’l Trade 1986), aff’d, 818 F.2d 860 (Fed. Cir. 1987), the Court held that the blending of No. 2 gas oil from then the Soviet Union with Italian No. 5 fuel oil in Italy did not substantially transform the Soviet oil into a product of Italy. In that case, an oil tanker loaded No. 2 gas oil in the U.S.S.R. The vessel then proceeded to Italy where No. 5 fuel oil was added to the same storage tanks holding the Soviet gas oil. The oils were mechanically mixed. The mixing created an oil with different gravity, sulfur content, flashpoint, pourpoint, and kinematic viscosity than the two oils separately. Regardless, the court opined and affirmed Customs’ view that the oils had not been substantially transformed. Although the grade of the mixed oil had changed, the Court opined that the essential character of the Soviet oil, being oil, remained unchanged. The Court also noted that the lack of a tariff shift although not determinative was indicative that the oils had not changed in essential character.
Previous Customs rulings have held that in general mere blending of materials does not constitute a “substantial transformation.” In HRL 088799, dated November 20, 1991, Customs ruled that cocoa from various countries blended in Canada with sugar did not constitute a substantial transformation. In HRL 561208, dated March 8, 1999, Customs held that blending foreign crab meat with domestic meat did not constitute a substantial transformation. In HRL 734479, dated January 29, 1993, Customs held that spray dried coffee of Central and South American origin was not substantially transformed in the European Community by blending and agglomeration.
In HRL 560102, dated June 17, 1997, unmanufactured tobaccos from various countries (classified under heading 2401, HTSUS) were imported into Argentina. There, the tobaccos were processed into manufactured cut-filler tobacco, classified in heading 2403, HTSUS. All the processing, including the final delamination, cleaning, conditioning, and top dressing, were conducted in Argentina. The resulting cut filler tobacco imported into the United States was ready to be used to produce cigarettes. Customs held that the tobacco was substantially transformed in Argentina. In determining whether a substantial transformation of an article has occurred, each case must be decided on its own particular set of facts. See Uniroyal Inc. v. United States, 542 F. Supp 1026, 1029 (1982); Grafton Spools, Ltd. v. United States, 45 Cust. Ct. 16, 23, C.D. 2190 (1960); United States v. Murray, 621 F.2d 1163 (1st Cir. 1980); Texas Instruments, Inc. v. United States, 69 CCPA, (1982), 681 F.2d 778 (1982).
This case is distinguishable from the facts in HRL 560102. In the instant case, unmanufactured tobacco (classifiable in heading 2401, HTS) is imported into Italy. The primary operations in Italy will be cutting, blending and controlling the humidity of the tobacco. Upon importation into the United States, the blended tobacco is further processed as described above. As the Court stated in Coastal States Marketing Inc. v. U.S., a tariff shift although not dispositive, is indicative of a substantial transformation. In the instant case, as discussed above, the product does not undergo a shift in its tariff classification in Italy. Furthermore, unlike the tobacco in HRL 560102 which underwent a tariff shift, the imported tobacco in the instant case is not ready for use upon importation. It requires further processing in the United States, including casing, blending, and flavoring, to obtain its final specific use. Therefore, the imported tobacco does not undergo a substantial transformation in Italy and thereby does not qualify as a product of Italy.
HOLDING:
Unmanufactured tobacco, including a blend of unmanufactured, stemmed, threshed burley and flue-cured tobacco, and unmanufactured, unstemmed, unthreshed oriental tobacco that requires further processing in the country of importation is properly classifiable in heading 2401, HTS. In this case, the applicable subheading for the “ABC Blend” if entered under quota, will be 2401.20.8590, HTSUS. If entered outside the quota, the applicable subheading will be 2401.20.8790, HTSUS.
For reasons stated above, the product at issue is not substantially transformed in Italy and therefore does not qualify as a product of Italy. Therefore, upon importation, the container holding the product must be marked with the appropriate countries of origin of the tobacco for the ultimate purchaser - the U.S. manufacturer.
EFFECT ON OTHER RULINGS:
NYRL C86085, Dated April 14, 1998, is hereby revoked. In accordance with 19 U.S.C. §1625(c), this ruling will become effective 60 days after publication in the Customs Bulletin.
Sincerely,
Myles B. Harmon, Acting Director
Commercial Rulings Division