CLA–2 OT:RR:CTF:TCM H061739 AMM
Mr. Stephen Leahy
Law Office of Stephen Leahy
175 Derby St., Suite 9
Hingham, MA 02043
RE: Modification of New York Ruling Letter N054636; Classification of CoCo Peat; NAFTA Eligibility and Country of Origin of CoCo Peat
Dear Mr. Leahy,
This is in response to your letter, dated May 14, 2009, in which you requested a reconsideration of New York Ruling Letter (NY) N054636, dated March 19, 2009, which was issued to your client, Envirotex Products, Inc. (Envirotex), for the classification, North American Free Trade Agreement (NAFTA) eligibility, and country of origin determination of the product identified as “CoCo Peat,” under the Harmonized Tariff Schedule of the United States (HTSUS). In that ruling, Customs and Border Protection (CBP) classified the CoCo Peat under heading 1404, HTSUS, which provides for “Vegetable products not elsewhere specified or included”. Furthermore, CBP determined that the product was not eligible for NAFTA preferential treatment, and that the country of origin was Sri Lanka. We have reviewed NY N054636 and found it to be incorrect with respect to the NAFTA eligibility determination and country of origin. For the reasons set forth below, we are modifying that ruling.
Pursuant to section 625(c), Tariff Act of 1930, (19 U.S.C. §1625(c)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed modification of treatment relating to the NAFTA eligibility and country of origin of CoCo Peat was published on January 4, 2012, in the Customs Bulletin, Volume 46, Number 2. No comments were received in connection with this proposal.
FACTS:
The merchandise in question, identified as “CoCo Peat,” is comprised of used coconut shell coir pith. “Coir” is the outside layer of husk that surrounds the outside shell of the coconut. “Coir pith” is the cork-like substance between the fibers. It has been widely recognized as a superior growing medium for tomatoes, roses, and other crops.
The coir pith is originally imported into Canada from Sri Lanka in plastic bags, where it is used for the hydroponic growing of vegetables in Canada. You state that the coir pith degrades (converts to smaller granules) during the single season crop cycle, such that poor performance would be expected if the grow bag was used for more than one season. You further state that, after one season of use, the coir pith is no longer suitable for use in the hydroponic growing of vegetables, and is normally discarded by the greenhouses.
As a service to the growers, Envirotex collects the used coir pith directly from the greenhouses and ships it to their Canadian facility. At this location, the used coir pith is transformed into the product identified as CoCo Peat. The used coir pith is subjected to a process which removes the plastic growing bags, other bits of plastic, and plant residue. It is then run through a number of screens to break the product down to a fine medium. The CoCo Peat is then imported to the United States, where it is sold to The Scott Company. It is blended with other raw materials such as peat moss and compost, and used as an ingredient in the The Scott Company’s “Miracle Gro® Potting Soil Mix” product.
In NY N054636, CBP classified the CoCo Peat under heading 1404, HTSUS, specifically under subheading 1404.90.90, HTSUS, which provides for “Vegetable products not elsewhere specified or included: Other: Other: Other”. CBP also determined that the CoCo Peat did not qualify for NAFTA preferential treatment, because it did not meet the requirements of GN 12(b) and GN 12(t)/14. Finally, CBP found, in accordance with 19 C.F.R. §134.1(b), that the country of origin for the CoCo Peat was Sri Lanka, because there was no change in classification or substantial transformation.
ISSUES:
I. What is the correct classification of “CoCo Peat” product under the HTSUS?
II. Is “CoCo Peat” eligible for NAFTA preferential treatment?
III. What is the country of origin of “CoCo Peat”?
LAW AND ANALYSIS:
I. Classification
Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRI). GRI 1 provides that classification shall be determined 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 GRI may then be applied.
The 2012 HTSUS provision at issue is as follows:
1404 Vegetable products not elsewhere specified or included:
1404.90 Other:
1404.90.90 Other
In NY N054636, CBP classified the instant merchandise under heading 1404, HTSUS, specifically under subheading 1404.90.90, HTSUS, which provides for “Vegetable products not elsewhere specified or included: Other: Other”. You do not dispute this classification.
CBP notes that this ruling is consistent with NY G87468, dated March 1, 2001, and NY 814194, dated September 18, 1995, both of which classified bricks of coir pith under heading 1404, HTSUS.
II. NAFTA Eligibility
General Note (GN) 12, HTSUS, incorporates Article 401 of the North American Free Trade Agreement (NAFTA) into the HTSUS. GN 12(a)(i), HTSUS, provides, in pertinent part, that:
Goods that originate in the territory of a NAFTA party under the terms of 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 (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, 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 Agreement Implementation Act.
Accordingly, the Coco Peat product will be eligible for the “Special” “CA” rate of duty provided: (1) it is deemed to be NAFTA originating under the provisions of GN 12(b), HTSUS; and, (2) it qualifies to be marked as a product of Canada under the NAFTA Marking Rules that are set forth in Part 102 of the Code of Federal Regulations (19 C.F.R. §102).
In order to determine whether the Coco Peat is NAFTA-originating, we must consult GN 12(b), HTSUS, which provides, in pertinent part, as follows:
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
* * *
You argue in your submission, dated May 14, 2009, that the instant product is a “good wholly obtained or produced entirely in the territory of Canada” under GN 12(b)(i), HTSUS. Specifically, you argue that the instant product consists of “waste and scrap derived from … used goods collected in the territory of one or more of the NAFTA parties, provided such goods are fit only for the recovery of raw materials.” See GN 12(n)(ix)(B), HTSUS. In the alternative, you argue that the instant product should be considered a product of Canada due to the Theory of Divestiture, even if the terms of GN 12(b), HTSUS, are not met.
A. “Waste or Scrap”
GN 12(n), HTSUS, states, in pertinent part:
As used in [GN 12(b)(i)], the phrase “goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States” means—
* * *
(ix) waste and scrap derived from—
* * *
(B) used goods collected in the territory of one or more of the NAFTA parties, provided such goods are fit only for the recovery of raw materials;
* * *
If the instant merchandise meets the terms of GN 12(n)(ix)(B), HTSUS, it may be considered a good wholly obtained or produced entirely in Canada in accordance with GN 12(b)(i), HTSUS.
In HQ H044166, dated January 23, 2009, CBP considered the importation of certain defective parts from Mexico. Sony Electronics, Inc. (Sony) operated a repair facility in Mexico, to which they would send damaged or defective electronics equipment for repair. The repaired equipment would then be shipped back to the original consumer, and any damaged or broken parts removed from that equipment would be discarded. Several states enacted laws that required Sony to ship the damaged or broken parts back to the original consumer, instead of discarding them. CBP considered whether these damaged or broken parts would be considered “waste or scrap” under GN 12(n)(ix)(B), HTSUS. CBP found that, in this situation, the defective parts removed by Sony could not be used in any rebuilding or remanufacturing operation. Furthermore, CBP found that the parts were damaged beyond repair, and were only being returned to comply with state requirements. Therefore, CBP concluded that the parts could not be used for their original purposes, and were considered NAFTA originating under GN 12(n)(ix)(B), HTSUS, as waste or scrap.
In HQ 558823, dated February 6, 1995, CBP considered the importation of certain rebuilt air brake system assemblies. Allied Signal exported used vehicle air brake systems (such as compressors, filters, and valves) to Mexico, where they were disassembled, cleaned, inspected, and tested. The reusable parts were repaired if necessary, but unusable parts were scrapped. CBP considered whether these reusable and repaired parts would be considered “waste or scrap” under GN 12(n)(ix)(B), HTSUS. CBP found that, because the air brake system parts could be repaired and used for their original purpose, they were not fit only for the recovery of their raw materials. Therefore, the rebuilt air brake system assemblies under consideration were not considered NAFTA originating under GN 12(n)(ix)(B), HTSUS, as waste or scrap.
The original purpose of the coir pith, when it is imported from Sri Lanka to Canada, is for growing hydroponic vegetables. Specifically, it is packaged in plastic bags and used in hydroponic greenhouse operations. Over the course of one growing season, the coir pith deteriorates to the point that poor performance would be expected if it were used for a second season. This coir pith is typically discarded to landfills, as its useful life has ended. It is CBP's position that the used coir pith constitutes used goods collected within the territory of a NAFTA party, and that the used coir pith is fit only for the recovery of its raw materials.
However, Envirotex recycles the used coir pith. They collect it from the growers in Canada, filter the plastic bag material, and remove impurities such as roots left behind at the end of the growing season. Once the used coir pith has been cleaned and filtered, it is further broken down to finer sized granules. By this process, Envirotex creates the instant merchandise, CoCo Peat. This product is sold to The Scott Company, as an ingredient for the “Miracle Gro® Potting Soil Mix” product. The CoCo peat is derived from the used coir pith, and
it cannot be used for growing hydroponic vegetables. Therefore, it is now CBP's position that CoCo Peat is “waste and scrap” within the meaning of GN 12(n)(ix)(B), HTSUS, and that it is a NAFTA originating good under GN 12(b)(i), HTSUS.
B. Theory of Divestiture
You argue that the instant product should be considered a product of Canada due to the Theory of Divestiture, even if the terms of GN 12(b), HTSUS, are not met. The Theory of Divestiture has, in the past, been applied to NAFTA country of origin determinations. See, e.g., HQ 562597, dated March 7, 2003; HQ H561642, dated January 9, 2002. However, because CBP has found the instant product meets the terms of GN 12(b)(i), HTSUS, it is not necessary to consider whether the Theory of Divestiture applies.
III. Country of Origin
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), requires that, unless excepted, every article of foreign origin (or its container) 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 manner as to indicate to the ultimate purchaser the English name of the country of origin of the article. The regulations implementing the requirements and exceptions to 19 U.S.C. §1304 are set forth in Part 134, CBP Regulations (19 C.F.R. Part 134).
Section 134.1(b), CBP Regulations (19 C.F.R. §134.1(b)), defines “country of origin” as:
The country of manufacture, production, or growth of any article of foreign origin entering the United States. 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” within this part …
Part 102, CBP Regulations (19 C.F.R. Part 102), sets forth the NAFTA Marking Rules. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes. Applied in sequential order, the required hierarchy establishes that the country of origin of a good is the country in which:
(a)(1) The good is wholly obtained or produced;
(a)(2) The good is produced exclusively from domestic materials; or
(a)(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.
See 19 C.F.R. §102.11(a)(1) to (a)(3).
In NY N054636, CBP determined that the country of origin of the used coir pith was Sri Lanka. You argue instead that the used coir pith is a good wholly obtained or produced in Canada under 19 C.F.R. §102.11(a)(1). In your request for reconsideration, dated May 14, 2009, you first argue that the goods are “waste and scrap” under 19 C.F.R. §102.1(g)(9)(ii). You also argue that the used coir pith has become disassociated with Sri Lanka through the Theory of Divestiture.
A. Waste or Scrap
Section 102.1(g)(9)(ii) states, in pertinent part: “(g) … A good ‘wholly obtained or produced’ in a country means: … (9) Waste and scrap derived from: … (ii) Used goods collected in that country provided such goods are fit only for the recovery of raw materials; …”.
The language cited above is nearly identical to that of GN 12(n)(ix)(B). Thus, for the reasons discussed above in regard to that argument, CBP finds that the used coir pith constitutes used goods collected within Canada, that CoCo peat is derived from used coir pith, and CoCo Peat cannot be used for growing hydroponic vegetables. Therefore, it is now CBP's position that CoCo Peat is “waste and scrap” within the meaning of 19 C.F.R. §102.1(g)(9)(ii), and that it may be marked as a product of Canada under 19 C.F.R. §102.11(a)(i).
B. Theory of Divestiture
In the alternative, you argue that the used coir pith has become disassociated with Sri Lanka through the Theory of Divestiture. However, because CBP has found the instant product may be marked as a product of Canada under 19 C.F.R. §102.11(a)(i), it is not necessary to consider whether the Theory of Divestiture applies.
IV. Conclusion
The instant CoCo Peat product is a NAFTA originating good under the provisions of GN 12(b), HTSUS, and it qualifies to be marked as a product of Canada under the NAFTA Marking Rules set forth in 19 C.F.R. §102. Therefore, it is eligible for the “Special” “CA” rate of duty.
These goods may be subject to regulations or restrictions administered by the U.S. Department of Agriculture, Animal and Plant Health Division, and Agricultural Marketing Service. You may contact these agencies at:
U.S. Department of Agriculture
APHIS Plant Protection and Quarantine Permit Unit
4700 River Road, Unit 136
Riverdale Park, MD 20737-1236
Telephone: (877) 770-5990
Marketing Order Administration Branch
Fruit and Vegetable Programs, Agricultural Marketing Service
U.S. Department of Agriculture
4700 River Road, Unit 155, Suite 5D03
Riverdale Park, MD 20737-1227
Telephone: (301) 734-5246
FAX: (301) 734-5275
HOLDING:
The instant CoCo Peat product is classified under heading 1404, HTSUS, specifically under subheading 1404.90.90, HTSUS, which provides for “Vegetable products not elsewhere specified or included: Other: Other”. The general, column one rate of duty is free.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the internet at .
The instant CoCo Peat product is a NAFTA originating good under the provisions of GN 12(b), HTSUS, and it qualifies to be marked as a product of Canada under the NAFTA Marking Rules set forth in 19 C.F.R. §102. Therefore, it is eligible for the “Special” “CA” rate of duty.
EFFECT ON OTHER RULINGS:
New York Ruling Letter N054636 is hereby MODIFIED in accordance with the above analysis. In accordance with 19 U.S.C. §1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division