CLA-2 RR:CR:GC 964014ptl
Port Director
U.S. Customs Service
9901 Pacific Highway
Blaine, WA 98230
RE: Protest 3004-00-100047; Fish Oil Capsules and Primrose Oil Capsules
Dear Port Director:
The following is our decision on Protest 3004-00-100047, against your classification of products described as encapsulated Fish Oil and encapsulated Primrose Oil under the Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
The merchandise under protest is described as bulk shipments of Encapsulated Fish Oil (EFO) and Encapsulated Primrose Oil (EPO).
The EFO is referred to by protestant as Cap-Fish 18:12 100 mg 10 iu DAT with vitamin E. The fish oil that is blended and encapsulated in Canada is a mixture of anchovy and pilchard fish oils imported into Canada from Iceland under Harmonized System heading 1504. Once in Canada, the fish oils are mixed, vitamin E is added and the product is encapsulated.
The EPO is referred to by protestant as Cap-Primrose 500(50) is produced from material which originates in China and is imported into Canada in the form of either crude primrose oil under heading 1515.90.9190, refined primrose oil under heading 1515 90.9920, or as primrose seeds in heading 1207.99.0000. In Canada, the crude oil is refined and bleached and the seeds are pressed to obtain crude oil which is then refined and bleached. All the refined oil is then encapsulated for human consumption. Each capsule contains 500mg EPO and 15 IU Vitamin E. The Vitamin E is present as a stabilizer to prolong shelf life.
Both products were entered into the U.S. as products of Canada, eligible for preferential North American Free Trade Agreement (NAFTA) treatment, classified under subheading 2106.90.9998, HTSUS, which provides for food preparations, not elsewhere specified or included, other, …, other. The entries were liquidated on January 3, 2000. The EFO was classified under subheading 1517.90.2080, HTSUS, which provides for: Artificial mixtures of two or more of the products provided for in headings 1501 to 1515 inclusive … other … other. The EPO was classified under subheading 1515.90.40, HTSUS, which provides for: Other fixed vegetable fats and oils (including jojoba oil) and their fractions, …, but not chemically modified: other, other. The claim for NAFTA preference was denied. Marking duties were also assessed on the merchandise pursuant to 19 U.S.C. 1304(h) and 19 CFR 134.25(e). A timely protest was filed on
March 9, 2000.
The protestant states that the encapsulation and processing of the oils transforms the products from raw materials into new finished products which no longer retain the unpleasant smell and taste of the original oils. Protestant argues that the encapsulation and the alteration of the product's appearance, smell and taste transforms the articles from a crude oil into fatty acid encapsulated dietary supplements. Protestant also claims that both products should be accorded preferential treatment under the NAFTA.
In responding to this protest, we have also considered matters presented by counsel at a meeting in Customs Headquarters on September 21, 2001, as well as supplemental materials submitted on October 19, 2001.
ISSUE:
What is the classification of encapsulated Evening Primrose Oil (EPO) and encapsulated Fish Oil (EFO), and are the products eligible for preferential treatment under the NAFTA?
LAW AND ANALYSIS:
Merchandise is classifiable under the Harmonized Tariff Schedule of the United States (HTSUS) in accordance with the General Rules of Interpretation (GRIs). The systematic detail of the HTSUS is such that virtually all goods are classified by application of GRI 1, that is, according to the terms of the headings of the tariff schedule 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 in order.
In understanding the language of the HTSUS, the Harmonized Commodity Description and Coding System Explanatory Notes may be utilized. The Explanatory Notes (ENs), although not dispositive or legally binding, provide a commentary on the scope of each heading of the HTSUS, and are the official interpretation of the Harmonized System at the international level. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
The HTSUS provisions under consideration are as follows:
1515 Other fixed vegetable fats and oils (including jojoba oil) and their fractions, whether or not refined, but not chemically modified:
* * *
1515.90 Other:
* * *
1515.90.40 Other
1517 Margarine; edible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter, other than edible fats or oils or their fractions of heading 1516:
* * *
1517.90 Other:
* * *
1517.90.20 Other
* * *
1517.90.2080 Other
2106 Food preparations not elsewhere specified or included:
* * *
2106.90 Other:
Other:
Other:
Other:
Other:
2106.90.99 Other:
2106.90.9998 Other
Before we ascertain whether the articles are eligible for preferential treatment under the NAFTA, we must first determine their classification under the HTSUS.
Classification:
One of the protestant's arguments that the products are not classified in chapter 15, HTSUS, is based on GRI 1, which requires that classification be based on any relevant section and chapter notes. In support of this, protestant identifies Chapter Note 1(e) to Chapter 15 which, in relevant part, provides as follows:
1. This chapter does not cover:
(e) Fatty acids, prepared waxes, medicaments, paints, varnishes, soap, … .
Protestant claims that the encapsulated oils are considered an essential fatty acid (EFA) and is marketed as such. Accordingly, protestant argues, because of Chapter Note 1(e), the oils are excluded from classification in Chapter 15.
However, protestant has misinterpreted the Chapter note. The entire text of Chapter note 1(e) reads as follows: "This chapter does not cover: …(e) Fatty acids (Chapter 38), prepared waxes (Chapter 34), medicaments (Chapter 30), paints (Chapter 32), varnishes (Chapter 32), perfumery Chapter 33), cosmetic or toilet preparations (Chapter 33), sulphonated oils and other goods of Section VI; … ."[Chapter references added] It is clear that the note is referring to goods which are classified in Section IV of the Tariff Schedule. Protestant's goods are not the type of highly manufactured industrial fatty acids which are classified in Chapter 38, HTSUS, and thus, the note's exclusion does not apply.
The protestant next argues that the merchandise should be classified in heading 2106, HTSUS, as food supplements for human consumption, relying on the ENs to that heading which provide, in part,
"The heading includes, inter alia :
(16) Preparations, often referred to as food supplements, based on extracts from plants, fruit concentrates, honey, fructose, etc. and containing added vitamins and sometimes minute quantities of iron compounds. These preparations are often put up in packagings with indications that they maintain general health or well-being. Similar preparations, however, intended for the prevention or treatment of diseases or ailments are excluded (heading 30.03 or 30.04)."
However, the introductory language of EN 21.06 states: "Provided that they are not covered by any other heading of the Nomenclature, this heading covers: [a list of exemplars follows]" [Emphasis in original]. Therefore, before classifying the articles in Chapter 21, we must first determine whether they can be classified in any other heading.
Customs has classified several encapsulated food products, described as food supplements, in heading 2106, HTSUS, the heading claimed by protestant as correct for the EPO. However, inasmuch as heading 2106 only covers food preparations not elsewhere specified or included (emphasis added), whenever heading 2106 was selected, it was chosen because no other competing heading specified or included the food preparations. In
HQ 953679, dated February 3, 1994, ginseng root and various extracts were classified in heading 2106, HTSUS, because the competing headings 1302 and 1211, which cover raw vegetable materials to be further processed, were determined inappropriate.
HQ 960607, dated July 31, 1998, classified encapsulated ginseng extract as a food supplement in heading 2106, HTSUS. In that case, the competing provision was heading 1302, HTSUS. That heading was rejected because the product had not retained its character as a raw material. Customs had classified such finished products used as food supplements in heading 2106, HTSUS.
HQ 085492, dated October 20, 1989, classified encapsulated herbal products in heading 2106, HTSUS. In rejecting the competing provision, 1211, HTSUS, Customs stated: "Heading 1211, HTSUSA, provides for plants and parts of plants, of a kind used primarily in [perfumery, in pharmacy or for insecticidal, fungicidal or similar purposes. The Explanatory Notes to this section state that products which are more specifically described in other headings of the nomenclature are excluded from this heading. Based upon the use of the herbal supplements, they would fit more specifically in the category of food supplements, than as an item that would fall under heading 1211, HTSUSA."
While these rulings show that encapsulated products can be classified in heading 2106, HTSUS, they should not be read as indicating that all encapsulated products or all products used as food supplements are to be classified in Chapter 21. The cited rulings are useful to indicate that Chapter 21 will be used only when classification in other chapters is precluded.
It has been Customs practice to classify encapsulated oil in Chapter 15, HTSUS, provided the processing, composition or added ingredients do not exclude it from the chapter. As the ENs indicate, products of Chapter 15 are not limited to raw materials without added ingredients. The General ENs to Chapter 15, page 107, state, in part,
(A) This Chapter covers:
(1) Animal or vegetable fats and oils, whether crude, purified or refined or treated in certain ways (e.g., boiled, sulphurised or hydrogenated).
The ENs, on page 108, define the term animal or vegetable fats and oils as "esters of glycerol with fatty acids (such as palmitic, stearic and oleic acids)." They continue to provide that, "Subject to the exclusions in Note 1 to this Chapter, vegetable or animal fats and oils and their fractions are classified in this Chapter whether used as foodstuffs or for technical or industrial purposes (e.g., the manufacture of soap, candles, lubricants, varnishes or paints)."
Fractionated oils are obtained from the whole oil by processes such as chilling, pressing and solvent fractionation. These processes separate the whole oil into two or more fractions. Each fraction is composed of the components of the original oil, but in selected proportions. As noted in the ENs, fractionation does not cause any changes in the chemical structure of the fats or oils.
The ENs also provide, on page 109, that fats and oils of Chapter 15 may also be subjected to the refining processes: "These headings cover crude fats and oils and their fractions, as well as those which have been refined or purified, e.g., by clarifying, washing, filtering, decolorizing, deacidifying or deodorizing."
Therefore, it is clear that processing, stabilizing and encapsulating should not remove the EPO or the EFO from classification in Chapter 15, HTSUS.
While they are not treated as dispositive, decisions of the Harmonized System Committee of the World Customs Organization, when published in the Compendium of Classification Opinions, constitute the official interpretation of the Harmonized System, and should receive the same weight of the ENs in ascertaining the classification of merchandise. At its 13th session, the HSC examined the classification of a product, "Dr. Dunner Evening Primrose Oil," put up in capsules. In Document 38.827E, dated August 5, 1995, the product was described as "… consisting of gelatin capsules reportedly containing 500 mg of evening primrose oil and 10 mg tocopherol (vitamin E). The capsule shell comprised gelatin, glycerol, and milkfat (although it was not clear with respect to the milkfat). This product was put up for retail sale (4 blister packs each containing 30 capsules, packed together in a cardboard box) with information sheet indicating that the product was designed to be taken on a daily basis (one or two capsules daily) to supplement the normal diet with the essential fatty acids contained in the oil (in particular gamma-linolenic acid (8%), which was important to body metabolism)." The decision of the HSC states: The Secretariat remains of the opinion that the addition of vitamin E and encapsulation are not sufficient to exclude the product from Chapter 15. Furthermore, products should be classified in the residual heading 21.06 only if they are not covered by any other headings in the Nomenclature. For these reasons, the Secretariat feels that the product should be classified in Chapter 15 rather than in heading 21.06."
This decision of the HSC reinforces the analysis that Customs has been following in classifying products such as the subject encapsulated oils in Chapter 15. See NY 803222, dated October 27, 1994, which classified bulk evening primrose oil to which natural alpha-tacopherol had been added as an anti-oxidant in subheading 1515.90.40, HTSUS.
Because we have been able to classify the products by virtue of
GRI 1, it is not necessary to address protestant's arguments regarding the application of GRIs 2 and 3(b).
Accordingly, we reject the protestant's claim and sustain your classification of the EPO in subheading 1515.90.4090, HTSUS, which provides for: Other fixed vegetable fats and oils (including jojoba oil) and their fractions, …, but not chemically modified: other, other. We also sustain your classification of the EFO in subheading 1517.90.2080, HTSUS, which provides for: Artificial mixtures of two or more of the products provided for in headings 1501 to 1515 inclusive … other … other.
NAFTA Preference:
The rules for determining whether the encapsulated EPO and EFO are to be considered an "originating good" of Canada and thus eligible for preferential tariff treatment under the provisions of the North American Free Trade Act are provided for in General Note 12 of the HTSUS, which provides, in relevant part, as follows:
(a) Goods in the territory of a party to the North American Free Trade Agreement (NAFTA) are subject to duty as provided therein. For the purposes of this note –
(a)(i) Goods that originate in the territory of a NAFTA party under subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (whether or not the goods are marked), when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn followed by the symbol “CA” in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Implementation Act.
* * *
(b) For 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 [de minimis provision], 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....
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials....
Thus, by operation of GN 12, the eligibility of an article for NAFTA preferential treatment is predicated upon a finding that the goods are originating in the territory of a NAFTA party under GN 12(b) and that they are goods of Canada or Mexico under the NAFTA Marking Rules.
The subject EFO does not qualify for preferential treatment under the NAFTA because the non-originating oils do not undergo the change in tariff classification required by General Note 12 (t)/15, HTSUS. This General Note requires: "A change to headings 1501 through 1518 from any other chapter, except heading 3823." Since the merchandise was imported into Canada under heading 1504, the required tariff shift has not been met.
Where the subject EPO is produced from crude primrose oil (or refined primrose oil) from China, the product does not qualify for preferential treatment under the NAFTA because the non-originating oils do not undergo the change in tariff classification required by General Note 12 (t)/15, HTSUS. This General Note requires: "A change to headings 1501 through 1518 from any other chapter, except heading 3823." Since the primrose oil was imported into Canada under subheading 1515, the required tariff shift has not been met.
In the case where the EPO is produced in Canada from primrose seeds from China (imported in subheading 1207.99), which have been processed into primrose oil in Canada (subheading 1515.90.40), the oil has become an originating material of Canada. Thus, the resulting EPO would be entitled to preferential treatment under the NAFTA, upon compliance with all applicable laws, regulations and agreements.
Part 102 of the Customs Regulations (19 CFR 102), 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 sets forth a hierarchy for determining the country of origin of imported goods. Paragraph (a) of this section states that the 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 applicable requirements of these rules are satisfied.
Sections 102.11(a)(1) and 102.11(a)(2) do not apply when the product has been made with Chinese primrose oil because the good is not wholly the product of one country, it is a good produced in different countries, and the primrose oil is of Chinese, not domestic, origin.
Section 102.11(a)(3) provides that the country of origin is the country in which "each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 …" Section 102.20(c) requires: "A change to subheading 1517.90 from any other chapter, except from heading 3823; or a change to subheading 1517.90 from any other heading, provided that no single ingredient of foreign origin constitutes more than 60 percent by weight of the good."
According to information filed in support of the protest, the primrose oils are imported into Canada from China in heading 1515. In Canada, the imported primrose oil is processed and encapsulated. Other primrose oils are produced in Canada from seeds which have been imported from China in heading 1207.99.
Based on the above, the EPO, classified in subheading 1515.90.4000, HTSUS, which has been produced from primrose oil (either crude or refined) that was imported into Canada from China does not undergo the applicable change in tariff classification, and the resulting good cannot be marked as a "Product of Canada." However, the EPO which has been produced from oil processed from primrose seeds in Canada is eligible for marking as a "Product of Canada."
HOLDING:
The Cap-Primrose 500(50) (EPO) is classified in subheading 1515.90.4090, HTSUS, which provides for Other fixed vegetable fats and oils (including jojoba oil) and their fractions, …, but not chemically modified: other, other.
The Cap-Fish 18:12 100 mg 10 iu DAT with vitamin E (EFO) is classified under subheading 1517.90.2080, HTSUS, which provides for: Artificial mixtures of two or more of the products provided for in headings 1501 to 1515 inclusive … other … other.
The protest should be DENIED with respect to the classification. The NAFTA claims should be either GRANTED or DENIED in accordance with the above holding. In accordance with Section 3A(11)(b) of Customs Directive 099 3550 065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision
Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
John Durant, Director
Commercial Rulings Division