CLA-2 RR:CR:GC 967288 AM
Port Director
U.S. Customs and Border Protection
610 S. Canal Street Room 306 Chicago, IL 60607
Re: Protest 3901-04-100929; Deodorizer Distillate
Dear Port Director:
This is in response to Protest 3901-04-100929, dated July 6, 2004, filed by counsel, on behalf of Archer Daniels Midland Co., in response to your classification of deodorizer distillate, under the Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
Deodorizer distillate is a “by-product attained during the deodorization process of edible vegetable oils, which removes unwanted constituents during refining.” Cargill, Incorporated v. United States, Slip Op. 04-25, 3, CIT, March 18, 2004. “The pricing of deodorizer distillate is determined based on the content of tocopherol and stigmasterol, depending on the market demand for each ingredient.” Id. at 26.
Deodorizer distillate is assigned the CAS number 68476-80-2. Deodorizer distillate is listed on the 1994 High Production Company/Chemical List-1998 Data, maintained by the Environmental Protection Agency (EPA) at wwwepa.gov/opptintr/chemrtk/hpvchmlt.htm. A high production volume (HPV) chemical is manufactured in or imported into the Unites States in amounts equal to or greater than one million pounds per year. However, none of the 8 basic tests to identify chemical hazards have been conducted on this chemical, or they are not publicly available according to US EPA’s 1998 hazard data availability study. http://www.scorecard.org/chemical-profiles /summary/tcl?edf-substance-id=68476-80-2.
“The Phytosterol Story,” by John Spizzirri, published in the November 2000 issue of Food Product Design, a Functional Foods Annual, stated:
“The oil manufacturers, when they make their oil, remove free fatty acids because obviously they want the oil to be palatable and light-colored,” says one raw materials supplier. “Fortunately for us, when they do that they also remove quite a bit of the sterols and vitamin E from the vegetable oil. That’s our source of raw material, called deodorizer distillate.”
Deodorization is the last step in the processing of vegetable oil. Employing a type of high-temperature distillation, the distillate is stripped from the oil and fractionation recovers the sterols and stanols, the saturated form of the sterol.
"Manufacturers like Archer Daniels Midland (ADM), Cargill and Central Soya, all edible oil suppliers, have been altering their deodorization conditions to maximize their yield of sterols and alpha-tocopherol — which can be used as vitamin E," says an industry source from a major U.S. food manufacturer. (emphasis added)
http://www.foodproductdesign.com/archive/2000/0900ffa_07.html
Before 2002, a chemical preparation, by-product, or residual product other than those specifically listed, was classified in heading 3824, HTSUS, and further classified in subheading 3824.90, HTSUS, as to whether it was a mixture of inorganic, organic, or certain percentages of aromatic chemicals. In other words, there was no need, prior to 2002, to distinguish between a chemical product and a residual product of heading 3824, HTSUS. Due to the structure of this heading, CBP rulings did not reliably differentiate between these terms (See HQs 959798 and 960311, dated July 29, 1999.)
However, Heading 3825, HTSUS, was created by Presidential Proclamation 7515 of December 18, 2001 (66 FR 66549) pursuant to Section 1205(a) of the Omnibus Trade and Competitiveness Act of 1988 (19 U.S.C. 3005(a)) which directs the United States International Trade Commission (USITC) to keep the HTSUS under continuous review and periodically to recommend to the President such modifications in the HTSUS as the USITC considers necessary. Accordingly, the phrase “Residual products of the chemical or allied industries, not elsewhere specified or included” was moved from heading 3824, HTSUS, to a new heading 3825, HTSUS. The EN regarding “residual products” was also moved, verbatim, from EN 38.24 to EN 38.25.
The entry, dated July 23, 02, covered by this protest was liquidated on June 4, 2004, under subheading 3824.90.28, HTSUS, the provision for chemical products. The protestant claims classification of deodorizer distillate under 3825.90.00, HTSUS, the provision for residual products of the chemical or allied industries.
ISSUE:
Is Deodorizer distillate a chemical preparation of heading 3824 or a residual product of heading 3825?
LAW AND ANALYSIS:
Merchandise imported into the United States is classified under the HTSUS. Tariff classification is governed by the principles set forth in the General Rules of Interpretation (GRIs) and, in the absence of special language or context, which requires otherwise, by the Additional U.S. Rules of Interpretation. The GRIs and the Additional U.S. Rules of Interpretation are part of the HTSUS and are to be considered statutory provisions of law for all purposes.
GRI 1 requires that classification be determined first according to the terms of the headings of the tariff schedule and any relative section or chapter notes and, unless otherwise required, according to the remaining GRIs taken in their appropriate order. GRI 6 requires that the classification of goods in the subheadings of headings shall be determined according to the terms of those subheadings, any related subheading notes and, mutatis mutandis, to the GRIs.
In understanding the language of the HTSUS, the Explanatory Notes (ENs) of the Harmonized Commodity Description and Coding System may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the HTSUS. See T.D. 89-80, 54 Fed. Reg. 35127 (August 23, 1989).
The HTSUS provisions at issue with respect to the claims about deodorizer distillate are:
3824 Prepared binders for foundry molds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included:
Other:
Other:
Mixtures containing 5 percent or more by weight of one or more aromatic or modified aromatic substances:
3824.90.28 Other:
* * * * *
3825 Residual products of the chemical or allied industries, not elsewhere specified or included; municipal waste; sewage sludge; other wastes specified in note 6 to this chapter:
3825.90.00 Other
The ENs to heading 3824 state, in pertinent part, the following:
The chemical products classified here are therefore products whose composition is not chemically defined, whether they are obtained as by-products of the manufacture of other substances (this applies, for example, to naphthenic acids) or prepared directly.
* * * * *
Subject to the above conditions, the preparations and chemical products falling here include:
(1) Naphthenic acids (by-products of the refining of certain petroleum oils and of certain oils obtained from bituminous minerals), and their salts, other than the water-soluble naphthenates of heading 34.02, and salts of headings 28.43 to 28.46. The heading covers, for example, calcium, barium, zinc, manganese, aluminium, cobalt, chromium, lead, etc., naphthenates, some of which are used for the preparation of driers or additives for mineral oils, and copper naphthenate used for the preparation of fungicides.
* * * * *
EN 38.25(A) lists the following four specific “residual products of the chemical or allied industries, not elsewhere specified or included”: alkaline iron oxide, residues from the manufacture of antibiotics, ammoniacal gas liquors, and spent oxide.
In Cargill, Inc. v. United States, slip-op 04-25, dated March 18, 2004, the court found that deodorizer distillate, entered in 1996, was properly classified under subheading 3824.90.28, HTSUS, the provision for “Prepared binders for foundry molds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included; Residual products of the chemical or allied industries, not elsewhere specified or included: Other: Other: Mixtures containing 5 percent or more by weight of one or more aromatic or modified aromatic substances: Other.” In that case, the plaintiff was arguing for classification in heading 3823, HTSUS, the provision for industrial monocarboxylic fatty acids. The court found that the merchandise is not like the other goods encompassed by heading 3823, HTSUS, because it is not “employed, required or used in industry.” Id. at 21-22. In so doing, the court held that:
. . . classification under this provision [subheading 3824.90.28, HTSUS] is proper because the deodorizer distillate is undisputedly a by-product of a chemical or allied industry. Furthermore, the deodorizer distillate is similar to the examples contained in the Explanatory Notes to heading 3824, of the by-products or residual products of chemical or allied industries used in the manufacture of other products. Explanatory Notes. Deodorizer distillate fits into this category, as after importation, various substances are extracted from it and used in the manufacture of other products.” Id. at 25 (emphasis added).
Protestant claims that although the Cargill court found classification in subheading 3824.90.28, HTSUS, to be correct, the question as to whether the merchandise, which is undisputedly a “by-product” of vegetable oil manufacture, is more aptly described as a “chemical preparation” of heading 3824, HTSUS, or a “residual product” of heading 3825, HTSUS, was never considered in the Cargill case. Because of the changes in the law brought about by Presidential Proclamation 7515, we must consider the issue here as a matter of first impression.
In Cargill, the court stated the well founded law thus:
If a tariff term is not statutorily defined in the HTSUS and its intended meaning cannot be discerned from legislative history, then the definition is determined by ascertaining its common and commercial meaning. . . . . the Court, in determining the definition of tariff terms, may also use the Explanatory Notes, which provide guidance in interpreting the language of the HTSUS (citations). Id. at 19.
Here, the terms “chemical preparation” and “residual product” are not statutorily defined in the HTSUS. However, the draft amendment for heading 3825, HTS, was proposed at the 12th session of the Harmonized System Review Sub-committee to the Committee (Annex III, 39.512, July 1995) and subsequently adopted by Presidential Proclamation pursuant to the powers legislated by congress in 19 USC 3005(a). That document provides the following pertinent legislative history as to the meaning of “residual products of the chemical or allied industries, not elsewhere specified or included”:
II. Secretariat Action and Comments
****
C. Chapter 38
* * *
(vi) Laboratory waste and waste from the chemical or allied industries (EC Proposal)
The Sub-Committtee (11th Session) noted that laboratory waste was not easily distinguishable from other chemical wastes and the residual products of the chemical or allied industries. There was support for Secretariat’s suggestion that efforts be made to identify specific categories of wastes in this area based on nature or source (see paragraph 18 of Annex I to Doc. 39.200.)
Annex I to Doc. 39.200 (RSC/11/Mar. 95), states, in pertinent part, the following:
OBSERVATIONS OF THE REVIEW SUB-COMMITTEE (O. Eng.)
* * * * *
3. The Sub-Committee also agreed that, as a general principle, separate HS subheadings should be created only for such waste products (1) which were environmentally sensitive and whose transfrontier movement had to be monitored, and (2) which were important in international trade (emphasis added).
* * * * *
Laboratory waste and waste from the chemical or allied industries
18. There was general agreement that these types of wastes needed separate identification in Chapter 38 of the HS in view of the large volume of trade as well as their hazardous nature. The Sub-Committee noted that laboratory waste was not easily distinguishable from other chemical wastes and the residual products of the chemical or allied industries (emphasis added). . . .
Possible new heading(s) in Chapter 38 for wastes
The Sub-Committee generally endorsed the United States Suggestion (see paragraph 25 of the working document) that one or more new headings be created in Chapter 38 for separately identifying waste materials appropriate to that Chapter. These headings could include municipal waste, sewage sludge, laboratory waste and the residual products of wastes of the chemical or allied industries (emphasis added).
In summary, the creation of a separate heading for waste in Chapter 38 was suggested by the U.S. to track certain environmentally sensitive substances important to international trade. The committee decided that the “residual products of the chemical or allied industries” were in fact so nearly similar to other wastes that they should be classified in this new heading. Hence, we can determine the meaning of the term “residual products” from the legislative history. It does not appear to encompass every product from which substances can be extracted and further developed. Rather, the term “residual products” in heading 3825, HTSUS, means those products that are environmentally sensitive wastes but can be remediated into a useful product.
Furthermore, the definition of deodorizer distillate we have culled from the legislative history fits with the guidance given by the examples listed in the ENs to heading 3825, HTSUS. The four examples of “residual products,” now listed in EN 38.25, are not easily distinguishable from hazardous laboratory wastes. For instance, alkaline iron oxide, also known as “Red Mud”, is a waste product containing iron, titanium, sodium, silica and other impurities and is usually discarded. It is highly caustic and consequently gives rise to storage problems and is an on-going environmental liability. See Dealing with Red Mud – By – Product of the Bayer Process for Refining Aluminium, Materials World, Vol. 11, no. 6 pp. 22-24, June 2003, on the internet at www.azom.com/ details.asp? ArticleID=2071. Ammoniacle gas liquors and spent oxide are both toxic waste products from coal processing. See Sub-sectoral Environmental Guidelines COAL PROCESSING at www.ebrd.com/about/policies/enviro /sectoral/mining /coalproc.pdf. Lastly, “filter cakes from fermentation processes are usually disposed of in landfills.” www.epa.gov/compliance/resources/publications/ assistance/sectors/notebooks/pharmapt2.pdf. However, “Mycelium presscake and other by-products of the production of antibiotic drugs by fermentation of penicillium and streptomyces, as well as other mold fermentation products, are widely sold in this country for use as ingredients in animal feed.” The Use of Antibiotic Drug Residue By-Products in Animal Feed (CPG 7126.31) at http://www.fda.gov/ora/compliance-ref/cpg/cpgvet/cpg682-200.html.
Additionally, not all by-products were meant to be moved from heading 3824, HTSUS, to heading 3825, HTSUS. For instance, EN 38.24 still states that the chemical products of that heading includes those obtained as byproducts. The EN goes on to list the by-product naphthenic acid as the first example of a by-product which remains in heading 3824, HTSUS. The internet has the following pertinent descriptions of this commodity:
Naphthenic acid is a complex of carboxylic acids (various low-molecular-weight fatty acids believed to have cyclopentane ring mainly) obtained as a by-product of petroleum refining; . . . Its industrial applications include the production of metallic naphthenates, synthetic detergents and as solvents, as a lubricant, Corrosion inhibitor and fuel additive.
http://www.chemicalland21.com/arokorhi/petrochemical/NAPHTHENIC% 20ACID.htm
Naphthenic acids are customized in different grades for various applications. See http://www.merichem.com/NAPHACID/Main.htm.
The instant product, deodorizer distillate, undisputedly a “by-product” of vegetable oil manufacture, is clearly classifiable in heading 3824, HTSUS, as a chemical preparation. The applicable definition for the term “preparation” in Webster’s II New College Dictionary (Houghton, Mifflin Company,1986) is “a substance, such as a medicine, prepared for a specific purpose.” Deodorizer distillate is a carefully prepared chemical mixture. Although deodorization is a necessary step of vegetable oil manufacture, the deodorization process in this case, is carefully calibrated to maximize the yield of sterols and alpha-tocopherol (Food Product Design, supra). The value of the Deodorizer distillate is determined by the amount of certain substances it contains and the market demand for those ingredients (See Cargill, supra). In fact, Deodorizer distillate is to vegetable oil what the naphthenic acids of heading 3824 are to petroleum: a product engineered along with another, carefully calibrated and graded. Hence, it is a prepared chemical mixture.
On the other hand, Deodorizer distillate cannot be considered a “residual product of the chemical and allied industries” of heading 3825, HTSUS. First, these “residual products” are tantamount to waste products. As described above, Deodorizer distillate is not the unadulterated “left-overs” of a manufacturing process. While protestant claims that the merchandise was historically discarded as waste from the manufacture of vegetable oil, producers have now created a far more valuable product by engineering higher levels of tocpherols and sterols. In its present state of manufacture, Deodorizer distillate is so valuable that it is not just as easily discarded, like the red mud or filter cakes listed in EN 38.25. Second, heading 3825, HTSUS, was created to cover “environmentally sensitive” and “hazardous” waste products. Deodorizer distillate has not been shown to be hazardous to the environment. Hence, the very definition of “residual products,” as gleaned from the careful work of the HSC and subsequently adopted in the creation of heading 3825, HTSUS, is disregarded if the instant product is placed among its constituents.
HOLDING:
Deodorizer distillate is classified in subheading 3824.90.2800, HTSUSA (annotated), the provision for “Prepared binders for foundry molds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included: Other: Other: Mixtures containing 5 percent or more by weight of one or more aromatic or modified aromatic substances: Other.” Since the rate of duty under the classification indicated above is the same as the liquidated rate, you are instructed to DENY the protest in full.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this letter 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 in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of this letter, the Office of Regulations and Rulings will make these letters available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B Harmon, Director
Commercial Rulings Division