CLA-2 OT:RR:CTF:TCM H183474 TNA
Shirley A. Coffield
Attorney at Law
Coffield Law
1050 17th St., NW, Suite 520
Washington, DC 20036
RE: Tariff Classification of Iced Tea Mix; NAFTA; Generalized System of Preferences
Dear Ms. Coffield:
This is in reference to your request of March 7, 2011, on behalf of your client, Arbor Foods, Inc. (“Arbor Foods”) for a binding ruling on the tariff classification and quota status of Iced Tea Mix, as well as the status of this mix under the North American Free Trade Agreement (“NAFTA”) and Generalized System of Preferences (“GSP”).
FACTS:
The subject merchandise consists of an iced tea mix that is approximately 97% white refined sugar, 2% citric acid, and 1% tea premix. The premix consists of concentrated instant tea, coloring and flavoring. The citric acid and tea premix are of United States (“U.S.”) origin, but there are two different alternative sources for the sugar. In the first scenario, the sugar is imported from Mexico; in the second scenario, it is imported from Brazil. The formula and manufacturing process for the subject iced tea mixes is the same no matter where the sugar originates.
Arbor Foods operates in a foreign trade zone (“FTZ”) in Toledo, Ohio. The sugar enters the FTZ subject to a special quota for sugar entering the FTZ. It enters with nonprivileged status. Inside the FTZ, Arbor Foods blends the sugar and the tea premix into the iced tea mix that is for consumption. The mix is intended to enter the U.S. from the FTZ in one-ton totes, where it will be repackaged into retail packages for sale in the U.S. market. Once it is sold at retail, water is added to the mix to produce a tea beverage.
ISSUES:
What is the tariff classification and duty rate for the subject iced tea mix?
What is the quota status of each of the tea mixes as they enter the U.S. from the FTZ? Is either mix subject to tariff rate quotas?
Does the North American Free Trade Agreement (“NAFTA”) or any other preference program apply to the subject tea mixes?
LAW AND ANALYSIS:
I. Classification and Tariff Rate Quotas
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that the classification of goods 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 GRIs 2 through 6 may then be applied in order.
The HTSUS headings under consideration are the following:
1701 Cane or beet sugar and chemically pure sucrose, in solid form:
* * *
2101 Extracts, essences and concentrates, of coffee, tea or maté and preparations with a basis of these products or with a basis of coffee, tea or maté; roasted chicory and other roasted coffee substitutes, and extracts, essences and concentrates thereof:
Additional U.S. Note 3 to Chapter 17, HTSUS, provides, in pertinent part, the following:
For the purposes of this schedule, the term “articles containing over 10 percent by dry weight of sugar described in additional U.S. note 3 to chapter 17” means articles containing over 10 percent by dry weight of sugars derived from sugar cane or sugar beets, whether or not mixed with other ingredients, except (a) articles not principally of crystalline structure or not in dry amorphous form, the foregoing that are prepared for marketing to the ultimate consumer in the identical form and package in which imported; (b) blended syrups containing sugars derived from sugar cane or sugar beets, capable of being further processed or mixed with similar or other ingredients, and not prepared for marketing to the ultimate consumer in the identical form and package in which imported; (c) articles containing over 65 percent by dry weight of sugars derived from sugar
cane or sugar beets, whether or not mixed with other ingredients, capable of being further processed or mixed with similar or other ingredients, and not prepared for marketing to the ultimate consumer in the identical form and package in which imported; or (d) cake decorations and similar products to be used in the same condition as imported without any further processing other than the direct application to individual pastries or confections, finely ground or masticated coconut meat or juice thereof mixed with those sugars, and sauces and preparations therefor.
Additional U.S. Note 8 to Chapter 17, HTSUS, provides, in pertinent part, the following:
The aggregate quantity of articles containing over 10 percent by dry weight of sugars described in additional U.S. note 3 to chapter 17, entered under subheadings 1701.91.54, 1704.90.74, 1806.20.75, 1806.20.95, 1806.90.55, 1901.90.56, 2101.12.54, 2101.20.54, 2106.90.78 and 2106.90.95 during the 12-month period from October 1 in any year to the following September 30, inclusive, shall not exceed 64,709 metric tons (articles the product of Mexico shall not be permitted or included under this quantitative limitation and no such articles shall be classifiable therein).
In understanding the language of the HTSUS, the Explanatory Notes (ENs) of the Harmonized Commodity Description and Coding System, which constitute the official interpretation of the Harmonized System at the international level, 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 EN for heading 17.01 states, in pertinent part, the following:
Refined cane or beet sugars are produced by the further processing of raw sugar. They are generally produced as a white crystalline substance which is marketed in various degrees of fineness or in the form of small cubes, loaves, slabs, or sticks or regularly moulded, sawn or cut pieces…
It should be noted that cane and beet sugar fall in this heading only when in the solid form (including powders); such sugar may contain added flavouring or colouring matter.
Sugar syrups of cane or beet sugar, consisting of aqueous solutions of sugars, are classified in heading 17.02 when not containing added flavouring or colouring matter and otherwise in heading 21.06.
The EN for heading 21.01 states, in pertinent part, the following:
The heading covers:
(1) Coffee extracts, essences and concentrates. These may be made from real coffee (whether or not caffeine has been removed) or from a mixture of real coffee and coffee substitutes in any proportion. They may be in liquid or powder form, usually highly concentrated. This group includes products known as instant coffee. This is coffee which has been brewed and dehydrated or brewed and then frozen and dried by vacuum.
(2) Tea or maté extracts, essences and concentrates. These products correspond, mutatis mutandis, to those referred to in paragraph (1).
(3) Preparations with a basis of the coffee, tea or maté extracts, essences or concentrates of paragraphs (1) and (2) above. These are preparations based on extracts, essences or concentrates of coffee, tea or maté (and not on coffee, tea or maté themselves), and include extracts, etc., with added starches or other carbohydrates.
(4) Preparations with a basis of coffee, tea or maté. These preparations include, inter alia:
(a) “coffee pastes ” consisting of mixtures of ground, roasted coffee with vegetable fats and sometimes other ingredients, and
(b) tea preparations consisting of a mixture of tea, milk powder and sugar…
These products may be presented in lump, granular or powder form, or as liquid or solid extracts. They may also be mixed either with one another or with other ingredients (e.g., salt or alkaline carbonates), and may be put up in various types of containers.
The subject merchandise is imported and consumed as a beverage- i.e., as an iced tea. Furthermore, it is the concentrated instant tea in the tea mix that allows the product to be consumed this way. Thus, while the subject tea mixes contain 97% refined sugar, they do not have the character of pure sugar. The products that are classified in heading 1701, HTSUS, consist of pure sugar without more than added flavoring or coloring. See EN 17.01. In addition, given that the subject mixes contain more than just sugar, we find that heading 1701, HTSUS, does not completely describe them.
Heading 2101, HTSUS, provides for extracts and essences of teas. These products may be made from real tea and may be in liquid or powder form, usually highly concentrated. Heading 2101, HTSUS, also encompasses preparations with a basis of tea, such as tea preparations consisting of a mixture of tea, milk powder and sugar. See EN 21.01. The subject tea mixes are described by these exemplars. As a result, we find that they are classified in heading 2101, HTSUS. This classification is consistent with prior CBP rulings. See, e.g., NY L87652, dated October 11, 2005; NY J84869, dated June 5, 2003; NY E82329, dated June 9, 1999; NY E82184, dated June 7, 1999; NY D83346, dated October 30, 1998; among others.
If imported in quantities that fall within the limits described in additional U.S. note 8 to chapter 17, they will be classified in subheading 2101.20.54, HTSUS, which provides for “Extracts, essences and concentrates, of coffee, tea or maté and preparations with a basis of these products or with a basis of coffee, tea or maté; roasted chicory and other roasted coffee substitutes, and extracts, essences and concentrates thereof: Extracts, essences and concentrates, of tea or maté, and preparations with a basis of these extracts, essences or concentrates or with a basis of tea or mate: Other: Other: Articles containing over 10 percent by dry weight of sugar described in additional U.S. note 3 to chapter 17: Described in additional U.S. note 8 to chapter 17 and entered pursuant to its provisions.” If the quantitative limits of additional U.S. Note 8 to Chapter 17, HTSUS, have been reached, the subject tea mixes will be classified in subheading 2101.20.58, HTSUS. Furthermore, if classified in subheading 2101.20.58, HTSUS, the instant iced tea mixes will also be subject to the additional duty rates specified in subheadings 9904.17.49 through 9904.17.65, HTSUS, as applicable.
As is evident from the terms of these subheadings, a tariff rate quota applies to the subject tea mixes. This quota is specified in Additional U.S. Note 8 to Chapter 17, HTSUS. This quota applies to articles containing over 10 percent by dry weight of sugars as defined in additional U.S. note 3 to chapter 17, and allows for 64,709 metric tons of this product to be imported. Once the quota is filled, the merchandise is classified elsewhere at a different duty rate. We note that merchandise that is a product of Mexico is not subject to this quota; thus, if it were determined that the subject mixes whose sugar originated in Mexico were products of Mexico, they would not be subject to this quota.
II. NAFTA
General Note 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. General Note 12(b) provides, in pertinent part, that:
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
(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, 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
(B) the goods otherwise satisfy the applicable requirements of subdivisions
(r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
General Note 12(q) provides, in pertinent part, that:
For purposes of this note, the term “territory” means—
…
(iii) with respect to the United States,
(A) the customs territory of the United States, as set forth in general note 2 to this schedule,
(B) the foreign trade zones located in the United States and Puerto Rico, and
(C) any areas beyond the territorial seas of the United States within which, in accordance with international law and its domestic law, the United States may exercise rights with respect to the seabed and subsoil and their natural resources.
19 U.S.C. 3332 states, in pertinent part, the following:
(a) Originating goods.
(1) In general. For purposes of implementing the tariff treatment and quantitative restrictions provided for under the Agreement, except as otherwise provided in this section, a good originates in the territory of a NAFTA country if— (A) the good is wholly obtained or produced entirely in the territory of one or more of the NAFTA countries; (B) (i) each nonoriginating material used in the production of the good— (I) undergoes an applicable change in tariff classification set out in Annex 401 of the Agreement as a result of production occurring entirely in the territory of one or more of the NAFTA countries; or (II) where no change in tariff classification is required, the good otherwise satisfies the applicable requirements of such Annex; and (ii) the good satisfies all other applicable requirements of this section; (C) the good is produced entirely in the territory of one or more of the NAFTA countries exclusively from originating materials…
(2) Special rules. (A) Foreign-trade zones. Subparagraph (B) of paragraph (1) shall not apply to a good produced in a foreign-trade zone or subzone (established pursuant to the Act of June 18, 1934, commonly known as the Foreign Trade Zones Act [19 USCS §§ 81a et seq.]) that is entered for consumption in the customs territory of the United States.
In the present case, in one scenario of importation, the subject iced tea mixes are produced with sugar that originated in Brazil and other ingredients of U.S. origin. The processing occurs in an FTZ located in the United States, which is part of U.S. territory for NAFTA purposes. See GN 12(q). Pursuant to 19 U.S.C. § 3332(a)(2), however, the
NAFTA tariff shift rules do not apply to a good produced in a foreign trade zone. As a result, the subject iced tea mixes made with Brazilian sugar do not qualify for NAFTA preference. This conclusion is consistent with prior CBP rulings. See HQ W967896, dated February 5, 2008; HQ 967222, dated September 3, 2004.
In the other scenario for which you request guidance, the sugar in the subject tea mixes is from Mexico, while the citric acid and tea premix are U.S. goods. In addition, they are combined in an FTZ in the United States. This analysis is also dependent on whether the foreign merchandise imported into the FTZ has privileged or nonprivileged status. See 19 U.S.C. § 3332(a)(1)(B); 19 C.F.R. §146.65. In the present case, the subject merchandise is entered as nonprivileged.
The statute governing the creation and operation of FTZs is the Foreign Trade Zones Act of 1934, as amended (48 Stat. 998; 19 U.S.C. §81a through §81u). Under 19 U.S.C. §81c(a), foreign and domestic merchandise of every description (except prohibited merchandise) may be brought into an FTZ without being subject to the United States customs laws and may there be, among other things, stored, mixed with foreign or domestic merchandise, or otherwise manipulated and be exported, destroyed, or sent into the United States customs territory. When foreign merchandise is so sent from a FTZ into United States customs territory, it is subject to the U.S. laws and regulations affecting imported merchandise. Articles of the United States and articles previously imported on which duty and/or tax has been paid, or which have been admitted free of duty and tax, may be taken into an FTZ from U.S. customs territory, placed under the supervision of the appropriate CBP officer, and, whether or not they have been combined with or made part of other articles while in the FTZ, be brought back thereto free of quotas, duty, or tax. If the identity of such articles (i.e., the “domestic status” articles described in the preceding sentence) has been lost, articles not entitled to free entry by reason of noncompliance with the requirements under the authority of this provision are treated as foreign merchandise if they reenter the customs territory.
This allows an enterprise operating within the FTZ to take advantage of favorable differentials in the tariff schedules between the rates of duty for foreign materials used in the manufacturing process in the FTZ and the duty rates for the finished articles. See HQ 556976 (June 9, 1994) (citing Armco Steel Corp. v. Stans, 431 F.2d 779 (2nd Cir. 1970)). CBP has held that when a nonprivileged good is substantially transformed in an FTZ, it becomes a product of the United States. See HQ 735399, dated December 22, 1993; HQ W967896, dated February 8, 2008; and C.S.D. 81-44, dated August 4, 1980. Further, that product upon withdrawal from the FTZ for consumption in the United States is subject to the rate of duty of the finished product. See HQ 560102, dated June 17, 1997; HQ 967222, dated September 3, 2004; HQ W967896, dated February 5, 2008.
The case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98)(1940), provides that an article used in manufacture that results in an article having a name, character, or use differing from that of the constituent article will be considered substantially transformed and, as a result, the manufacturer or processor will be considered the ultimate purchaser of the constituent materials.
In the instant situation, the Mexican sugar is admitted into a FTZ where it is blended with citric acid and tea premix of U.S. origin. Once so mixed, the entire product, as discussed above in Section I of this ruling, no longer has the character of pure sugar of heading 1701, HTSUS. To the contrary, it is now used as a beverage, and as such, is classified as an extract or essence of tea of heading 2101, HTSUS. As a result, it undergoes a substantial transformation. It is thus a product of the United States. This conclusion is consistent with prior CBP rulings. See HQ W967896; NY L82489, dated February 23, 2005; NY L83843, dated April 29, 2005. As a product of the U.S., the subject iced tea mix made with Mexican sugar is not eligible for NAFTA preference.
III. GSP
Title V of the Trade Act of 1974, as amended (19 U.S.C.A. §2461-65), authorizes the President to establish a Generalized System of Preferences to provide duty-free treatment for eligible articles from beneficiary developing countries (“BDCs”). Articles produced in a BDC may qualify for duty-free treatment under the GSP if the goods are imported directly into the customs territory of the United States from the BDC; and the sum or value of materials produced in the BDC plus the direct costs of the processing operations performed in the BDC is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the United States. See 19 U.S.C. §2463(a)(2) and (3).
Furthermore, GN 4, HTSUS, provides, in pertinent part:
(c) Articles provided for in a provision for which a rate of duty of “Free” appears in the “Special” subcolumn followed by the symbols “A” or “A*” in parentheses are those designated by the President to be eligible articles for purposes of the GSP pursuant to section 503 of the Trade Act of 1974. The following articles may not be designated as an eligible article for purposes of the GSP:
…
(vii) any agricultural product of chapters 2 through 52, inclusive, that is subject to a tariff-rate quota, if entered in a quantity in excess of the in-quota quantity for such product
We note that we consider extracts or essences of teas of heading 2101, HTSUS, to be “agricultural products” within the meaning of GN 4(c)(vii).
Mexico has not been designated as a BDC for purposes of the GSP. See GN 4(a), HTSUS. Thus, the subject iced tea mixes produced from Mexican sugar would not be eligible for GSP. By contrast, Brazil has been designated as a BDC for purposes of the GSP. See GN 4(a), HTSUS. As discussed above, the iced tea mixes are classified either under subheading 2101.20.54, HTSUS, or under subheading 2101.20.58, HTSUS, depending on whether the quantities of the applicable tariff rate quotas have been met. Subheading 2101.20.58, HTSUS, is not a GSP-eligible provision. Neither the word “Free” nor the symbols “A” or “A*” appear in the “Special” subcolumn of the HTSUS. Furthermore, if the subject tea mixes are classified in subheading 2101.20.58, HTSUS, it is because they have been entered in a quantity in excess of the tariff rate quota for this product. Thus, if classified in subheading 2101.20.58, HTSUS, the subject tea mixes would not be eligible for GSP. See GN4(c)(vii).
However, subheading 2101.20.54, HTSUS, is a GSP-eligible provision. The word “Free,” followed by the symbol “A,” appears in the “Special” subcolumn. Furthermore, according to the information you provided, the ingredients of the subject mixes are imported directly into the United States because importation into a Free Trade Zone constitutes importation into the country. Accordingly, the subject merchandise, if classified in subheading 2101.20.54, HTSUS, may be eligible for duty-free treatment under the GSP, if they are considered to be “products of” Brazil, and if the 35% value-content minimum is met.
The “product of” requirement means that to receive duty-free treatment, an article either must be made of materials “wholly the growth, product or manufacture of” the BDC, or if made of materials imported into the BDC, those materials must be substantially transformed in the BDC into a new and different article of commerce. See 19 CFR §10.176(a). A substantial transformation occurs “when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.” Torrington, Co. v. United States, 764 F.2d 1563, 1568 (Fed.Cir. 1985), citing Texas Instruments Inc. v. United States, 681 F.2d 778 (1982). The importance of each characteristic is determined in each case, with a change in name generally being the weakest indicator of a substantial transformation. Sassy, Inc. v. United States, 24 C.I.T 700, 704 (CIT 2000), citing SDI Technologies, Inc. v. United States, 21 C.I.T. 895, 977 F.Supp. 1235, 1239 (CIT 1997).
In HQ 061352, dated January 16, 1980, published as C.S.D. 80-188, chrome plated tops and glass bottles were entered as nonprivileged foreign merchandise into a U.S. FTZ. Prior to the removal of the merchandise from a U.S. FTZ, the bottles and tops were repackaged and subsequently entered for consumption in the United States. In HQ 061352, CBP cited Executive Order 11888, dated November 24, 1975, which implemented the GSP. Under Executive Order 11888, the merchandise in question must be both imported and entered for consumption in order to be eligible for duty-free treatment under the GSP. As a result, in C.S.D. 80-188, we ruled that the tops and bottles were “imported” for purposes of the GSP, but that the articles that were entered for consumption were unassembled salt and pepper dispensers rather than completed articles. Thus, the merchandise that was entered for consumption from the FTZ were not the articles imported from a BDC, but rather consisted of components imported into a FTZ from a BDC. Thus, we found that merchandise at issue was ineligible for GSP.
Likewise, in the present case, the various components of the subject iced tea mixes are entered into the FTZ. The merchandise that is then entered from the FTZ into U.S. customs territory is a finished drink mix, one of whose components is from a BDC. Thus, the components of the subject iced tea mixes are imported but not entered for consumption; furthermore, the components undergo a substantial transformation such that the end products are not articles imported from a BDC. In keeping with the analysis of C.S.D. 80-188, the subject iced tea mixes are not eligible for GSP.
Furthermore, in determining whether the subject iced tea mixes are “products of” Brazil, we note that 97% of the iced tea mix is Brazilian sugar. The remaining three percent of the mixes are of U.S. origin, however, and these ingredients are combined to produce the subject mixes in an FTZ in Ohio. As a result, these mixes are not made of materials “wholly the growth, product or manufacture of” the BDC as required by 19 CFR §10.176(a). As a result, the subject iced tea mixes, when made using Brazilian sugar, are not a “product of” a BDC and are not eligible for GSP.
HOLDING:
On the basis of the information provided, the subject iced tea mixes, if imported in quantities that fall within the limits described in additional U.S. note 8 to chapter 17, will be classified in subheading 2101.20.54, HTSUS, which provides for “Extracts, essences and concentrates, of coffee, tea or maté and preparations with a basis of these products or with a basis of coffee, tea or maté; roasted chicory and other roasted coffee substitutes, and extracts, essences and concentrates thereof: Extracts, essences and concentrates, of tea or maté, and preparations with a basis of these extracts, essences or concentrates or with a basis of tea or mate: Other: Other: Articles containing over 10 percent by dry weight of sugar described in additional U.S. note 3 to chapter 17: Described in additional U.S. note 8 to chapter 17 and entered pursuant to its provisions.” The 2011 rate of duty applicable to this subheading is 10% ad valorem. If the quantitative limits of Additional U.S. Note 8 to Chapter 17, HTSUS, have been reached, the subject tea mixes will be classified in subheading 2101.20.58, HTSUS, and dutiable at the rate of 30.5 cents per kilogram plus 8.5% ad valorem. Furthermore, if classified in subheading 2101.20.58, HTSUS, the instant iced tea mixes will also be subject to the additional duty rates specified in subheadings 9904.17.49- 9904.17.65, HTSUS, as applicable. They are also subject to the specified tariff rate quotas.
The subject iced tea mixes, whether produced with Mexican or Bazilian sugar, are not eligible for NAFTA preference. They are not eligible for GSP preference.
Duty rates are provided for your convenience and subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at www.usitc.gov.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch