CLA-2 OT: RR:CTF:VS H157455
Assistant Port Director, Trade Operations
U.S. Customs and Border Protection 477 Michigan Avenue
Detroit, Michigan 48226
7 99 9th St NW
Washington, DC 20229
U.S. Customs and Border Protection
RE: Request for Internal Advice, Wine Making Kits, NAFTA Tariff Preference, Yeast, Transshipment to a Non-NAFTA Country, Repackaging, HTSUS General Note 12(1)
Dear Assistant Port Director:
This is in response to your memorandum dated March 22, 2011, forwarding a letter from Adduci Mastriani & Schaumberg dated February 10, 2011, on behalf of Spagnol's Wine & Beer Making Supplies Ltd. (Spagnol's). The letter concerns an internal advice request on the eligibility of wine making kits imported from Canada for preferential tariff treatment under the North American Free Trade Agreement (NAFTA). We have received a supplemental letter dated June 15, 2011, from counsel.
FACTS:
Spagnol's is a Canadian producer of wine making kits and an exporter of those kits to the United States. It acts as the U.S. importer of record for some of its wine making kits; however, most of the wine making kits under consideration that Spagnol's produced and exported to the United States are imported by unrelated U.S. customers. The wine making kits consist of a sealed retail cardboard box containing the following packaged components : a juice and/or concentrate mixture in a plastic bag; a separate plastic bag containing instructions ; a packet of yeast ; packets of clarifying and stabilizing ingredients; and separate packages of flavor, oak and grape skins.
In the past, the wine making kits were classified in subheading
0, of the Harmonized Tariff Schedule of United States (HTSUS). The Port of Champlain conducted a NAFTA verification on the products in question and concluded that the wine making kits did not qualify for preferential tariff treatment under NAFTA. Spagnol's was notified via a Notice of Action dated March 24, 2010 of the Port of Champlain's findings. In the meantime, Customs and Border Protection (CBP) Headquarters reviewed the classification of the
wine making kits. On April 8, 2010, CBP Headquarters issued a ruling, H036155 , concerning the proper classification of the wine making kits, and determined that the merchandise is properly classified in subheading 2106 .90.99, HTSUS. Because of the denial of NAFTA benefits and its misclassification, 16 entry summaries filed at the port of Detroit concerning the subject merchandise were retrieved, unset from liquidation and rate advanced. A Notice of Action to this effect was issued on September 16, 2010.
An important component of the wine making kits is Canadian-origin yeast.
The Canadian-origin yeast, along with a few other minor pre-packaged components of the wine making kits, were shipped from Canada to the United Kingdom to be packaged together into a kit component package. The kit component package is returned to Canada and packaged into a wine making kit. The complete wine making kits are then shipped to the United States. Nothing other than packaging was done to the yeast while it was in the United Kingdom. Due to the change in classification, Spagnol's now contends that their wine making kits do in fact qualify for preferential tariff treatment under the NAFTA.
ISSUE:
Whether the above described wine making kits are eligible for the preferential tariff treatment under NAFTA.
LAW AND ANALYS IS:
Under the NAFTA, goods produced in Canada or Mexico are eligible for tariff preference if they satisfy certain rules. For goods imported into the United States, the statutory requirements are set out in General Note 12 HTSUS. The corresponding regulations are set out in Part 181 of the CBP Regulations (19 CFR Part 181).
General Note ("GN") 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. GN 12(a)(i), HTSUS, provides:
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 wine making kits will be eligible for the "Special" "CA" rate of duty provided that they are NAFTA originating under GN 12(b), HTSUS, and qualify to be marked as a product of Canada under the NAFTA Marking Rules that are set forth in 19 CFR Part 102.
In HQ H036155, dated April 8, 2010, CBP determined that wine making kits were classified in subheading 2106.90 .99, HTSUS, if the kit contains diammonium phosphate . Counsel indicates that the juice component of each of Spagnol's wine making kits contains diammmonium phosphate, and thus the wine making kits are properly classified in subheading 2106.90.99, HTSUS. The classification of the kits is not in dispute. The applicable NAFTA rule of origin for items classified in subheading 2106 .90.99, HTSUS is:
"A change to heading 2106 from any other chapter."
Therefore, if all of the non-originating components/ingredients of the wine making kits are classified in a chapter outside of Chapter 21 of the HTSUS, the complete wine making kits will be eligible for the NAFTA duty preference.
Counsel indicates that all of the components in the wine making kit are classified in chapters outside of Chapter 21, HTSUS, with the exception of the yeast. Although the yeast is classified in subheading 2102 .10.10, HTSUS, counsel states that it originated from Canada. Counsel further indicates, however, that before the wine making kits are exported to the United States, the yeast was shipped from Canada to the United Kingdom. This processing in the United Kingdom consisted of packaging the yeast into a new kit and packaged with some other minor pre-packaged components into a "kit component package." Other than the repackaging, it is claimed that no other further processing was performed to the yeast. After the yeast was repackaged in the United Kingdom, it was shipped back to Canada, where it was combined with the other components of the wine making kit into a retail package. The wine making kit was then exported to the United States for retail sale. Therefore, it is claimed that because all of the other materials in the wine making kit met the applicable tariff shift rule, the issue is whether the yeast along with the minor pre-packaged components of the wine making kits lost their Canadian origin status when they were repackaged into a package for the kit in the United Kingdom. No information was provided on the origin of the other minor components or how
they are classified once they are imported into Canada from the United Kingdom. For purposes of this decision , we will assume that the yeast classified in heading
2102 , HTSUS, is at issue (whether individually as yeast or as imparting the essential character to the "kit component package.")
General Note (I) of the HTSUS states that "[a] good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of this note if, subsequent to that production, the good undergoes further production or any other operation outside the territories of the NAFTA parties, other than unloading , reloading or any other operation necessary to preserve it in good condition or to transport the good to the territory of Canada, Mexico and/or the United States." See also 19 U.S.C. 3332(k) .
Rule 12(1) is interpreted by the NAFTA Rules of Origin Regulations which appear in the Appendix to Part 181 of Title 19, Code of Federal Regulations (19 CFR 181). Paragraph (1)(a) of PART VI, SECTION 16 states in relevant part Transshipment: Effect of Subsequent Processing Outside the Territory of a NAFTA Country; Loss of Originating Good Status:
A good is not an originating good by reason of having undergone production that occurs entirely in the territory of one or more of the NAFTA countries that would enable the good to qualify as an originating good if subsequent to that production (a) the good is withdrawn from customs control outside the territories of the NAFTA countries; or (b) the good undergoes further production or any other operation outside the territories of the NAFTA countries, other than unloading, reloading or any other operation necessary to
preserve the good in good condition, such as inspection, removal of dust that accumulates during shipment, ventilation, spreading out or drying, chilling, replacing salt, sulphur dioxide or other aqueous solutions , replacing damaged packing materials and containers and removal of units of the good that are spoiled or damaged and present a danger to the remaining units of the good, or to transport the good to the territory of a NAFTA country.
Here, the yeast is shipped to the United Kingdom for packaging. The packaging does not constitute a loading or unloading operation necessary to preserve the yeast in good condition or to transport it to the territory of Canada , Mexico and/or the United States. The packaging was done to make the yeast suitable for sale as part of the wine making kit, not to preserve it in good condition. Thus, in accordance with General Note 12(1) and 19 CFR 181 Appendix Section 16, it lost its status as an NAFTA originating good of Canada, as result of the repackaging performed outside a NAFTA country.
Counsel contends that General Note 12(1) only pertains to "goods" and not to "materials" used in making other products. According to counsel, the yeast is an originating material used as a component in the wine making kit, and not a finished good; thus it would not be affected by General Note 12(1) even though it
was processed by packaging in a non-NAFTA country. Counsel notes that according to 19 CFR Part 181, Appendix a "material" means a good that is used in the production of a good and includes a part or ingredient. Thus , under this definition a "material" is considered a good . Therefore , unless there is some specific language in a particular section of the NAFTA which distinguishes goods from materials, anything that applies to the term "goods" should also apply to the term "materials". With respect to transshipment from a NAFTA territory , there is no indication that materials are to be treated differently from goods.
In HQ 563274 , dated August 3, 2005 , CBP considered the NAFTA status of rebuilt transmissions , and reviewed and ruled on the origin of transmission cases that were used in remanufacturing transmissions . We stated the following
It is noted that originating materials, such as these transmissions cases will retain their originating status while in use within the territories of the NAFTA Parties. However NAFTA provisions regarding transshipment specify that subsequent processing in non-Party territory must take place under customs control in such territory and must be limited to: operations related to loading or unloading; operations related to preserving to goods in good conditions; or transport operations. See 19 CFR 181 App.
Section 16. A good that is withdrawn from customs custody during transshipment through non-Party territory will be considered entirely non-originating. The Mascot transmission cases must, therefore, have been used only within NAFTA territory in order to retain their NAFTA originating status.
In another case, HQ 560950, dated September 22, 1999, we again applied the transshipment rules to crude iodine of U.S. origin which was shipped to Germany and stored in a transit warehouse before it was shipped to Canada. The crude iodine was found to maintain its originating status for purposes of the NAFTA as proof was submitted that it remained under Customs control in Hamburg's free port or "freihafen" while it was warehoused in Germany .
Therefore, we found that the crude iodine did not lose its originating material status under General Note 12(1). and could be counted towards the Regional Value Content.
By contrast, in HQ 563191 , dated May 4, 2005 , U.S. origin fabric was sent in greige form to a European Union (EU) member country where certain finishing operations took place. The fabric was dyed, fire retardant and softening finishes were applied, and sanforized . After these finishing operations were completed, the fabric was re-imported into the U.S. and then, exported to Mexico. We indicated that since the fabrics were withdrawn from customs control outside the territories of the NAFTA countries for finishing operations that were done in an EU member country, then re-imported into the U.S. and exported to Mexico,
under 19 CFR 181, Appendix , Part VI, Section 16(1). the fabric would not be eligible for NAFTA preferential duty treatment upon exportation to Mexico.
Here, the applicable processing operations performed in the United Kingdom on the yeast consist of repackaging. Although the packaging does not fundamentally change the yeast, the processing performed in the United Kingdom is still nevertheless more than loading or unloading operations related to preserving the product in good condition. Further, the yeast exported may be considered a good, that is then returned to Canada. Consequently, in accordance with 19 CFR 181, Appendix , Part VI, Section 16(1) we find that the yeast loses its NAFTA originating status as a result of the packaging operation performed outside a NAFTA territory .
We do not believe that we need to address counsel's contention that the requirement in 19 CFR 181 Appendix SECTION 16 that the subsequent processing in a non-Party territory must take place under CBP control in such territory is unlawful. As noted, the requirement is set forth by statute in General Note 12(1) HTSUS. Moreover, the NAFTA Rules of Origin Regulations were duly promulgated, on a uniform basis, by the U.S., Canada and Mexico. The regulations thus represent the authoritative interpretation of the NAFTA by the Parties to the Agreement. See HQ 560950 , supra.
Therefore, we find because the yeast loses its NAFTA originating status by the packaging done in the United Kingdom, the wine making kits will only be eligible if the tariff shift rule for heading 2106 is met. As that is not the case, the wine making kits are not eligible for preferential tariff treatment under NAFTA.
HOLDING:
The yeast component of the imported wine making kit loses its NAFTA originating status as a result of the transshipment and the repackaging operation performed in the United Kingdom. Therefore, the wine making kits are not eligible for preferential tariff treatment under NAFTA.
You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to Customs 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.
Sincer.ely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch