CLA-2 CO:R:C:V 555246 GRV
TARIFF NO: 9802.00.50, HTSUS (formerly 806.20, TSUS)
District Director of Customs
300 South Ferry Street
Terminal Island
San Pedro, CA 90731
RE: Internal Advice 47/88 - Applicability of HTSUS subheading
9802.00.50 to, and the country of origin of, cracked raw
green pistachio nuts imported from Hong Kong
Dear Sir:
This is in response to your memorandum of September 12,
1988, requesting advice concerning the applicability of HTSUS
subheading 9802.00.50, Harmonized Tariff Schedule of the United
States (HTSUS), to, and the country of origin of, cracked raw
green pistachio nuts imported from Hong Kong.
FACTS:
You state that raw pistachio nuts of U.S. origin are
exported to Hong Kong for cracking and then returned to the U.S.
The importer enters these raw pistachio nuts under both TSUS
items 145.26 and 806.20 and claims Hong Kong as the country of
origin; the cracking substantially transforming the exported U.S.
merchandise for country of origin purposes. You claim that the
country of origin remains the U.S., as cracking does not sub-
stantially transform the raw pistachio nuts, and that because the
exported article is an unfinished product, it is ineligible for
TSUS item 806.20 tariff treatment when returned to the U.S.
ISSUES:
I. Whether the returned article is eligible for the partial
duty exemption under HTSUS subheading 9802.00.50.
II. Whether the foreign cracking operation constitutes a
substantial transformation of the article (raw pistachio nuts)
for country of origin purposes.
LAW & ANALYSIS:
I. HTSUS Subheading 9802.00.50 eligibility
Effective January 1, 1989, the HTSUS superseded and re-
placed the TSUS. TSUS item 806.20 was carried over into the
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HTSUS as subheadings 9802.00.40 (repairs or alterations made
pursuant to a warranty) and 9802.00.50 (other repairs or altera-
tions). These tariff provisions provide a partial duty exemption
for articles returned to the U.S. after having been exported to
be advanced in value or improved in condition by means of repairs
or alterations. Under these tariff provisions, there is a duty
only upon the value of the foreign repairs or alterations, pro-
vided the documentation requirements of section 10.8, Customs
Regulations (19 CFR 10.8), are met.
In Dolliff & Company, Inc., v. United States, 66 CCPA 77,
C.A.D. 1225, 599 F.2d 1015, 1019 (1979), the court stated that:
... repairs and alterations are made to completed articles
and do not include intermediate processing operations which
are performed as a matter of course in the preparation or
the manufacture of finished articles. (Court's emphasis).
Thus, "the focus is upon whether the exported article is
'incomplete' or 'unsuitable for its intended use' prior to the
foreign processing." Guardian Industries Corp. v. United States,
3 CIT 9 (1982), at page 13.
In Headquarters Ruling Letter 554834 (May 25, 1988), U.S.
grown pecan pieces were exported to Mexico for removal of the nut
meat from the shell. In that case we determined that the foreign
shelling process was not a repair or alteration operation, as the
pecan pieces that were shipped to Mexico were incomplete for
their intended use and required a further step in the preparation
of the finished nut meat product. Accordingly, we denied the
partial duty exemption available under TSUS item 806.20 to the
returned pecan nut meat. See also, Headquarters Ruling Letter
071174 (February 22, 1983), wherein the foreign shelling of
domestic pecan nuts was found to exceed an alteration.
II. Country of Origin
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304) provides, in general, that all articles of foreign origin
imported into the U.S. shall be legibly and conspicuously marked
to indicate the country of origin to an ultimate purchaser in the
U.S. U.S. products exported and returned are specifically
excepted from country of origin marking requirements under
section 134.32(m), Customs Regulations (19 CFR 134.32(m)). In
applying this section, Customs has ruled that products of the
U.S. which are exported for further processing and subsequently
returned, are generally not subject to country of origin marking
upon importation into the U.S., unless the further processing in
the foreign country constituted a substantial transformation of
the product. See, e.g., C.S.D. 80-15; C.S.D. 79-443.
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In defining what constitutes a substantial transformation,
Customs has held that a new and different article of commerce
having a new name, character and use must emerge from the
processing. See, United States v. Gibson-Thomsen Co., Inc., 27
CCPA 267, C.A.D. 98 (1940).
In T.D. 85-158, 19 Cust. Bull. 360 (October 15, 1985),
Customs determined that roasting, salting and coloring pistachio
nuts, without more, does not result in a substantial
transformation. Customs reasoned that the roasting, salting and
coloring processes were simple operations which did not change
the character or identity of the pistachio nuts. Customs further
found that since no commercial use exists for green pistachio
nuts, these steps constituted necessary processing to which all
pistachio nuts are subjected and that it did not alter or limit
the intended or potential commercial use of the nuts. Similarly,
in the case at hand, we find that the cracking process, like the
roasting and coloring processes, does not change the fundamental
character of the nut or result in a new and different article of
commerce. In fact, like the roasting and coloring, it is a
necessary step to which all pistachio nuts, intended for any
commercial use, are subjected. Therefore, the nuts remain
products of the U.S. and are not subject to the requirements of
the marking statute, 19 U.S.C. 1304.
HOLDING:
On the basis of the information presented, raw green in-
shell pistachio nuts exported for cracking operations are
incomplete for their intended use as exported and, therefore,
are ineligible for the partial duty exemption available under
HTSUS subheading 9802.00.50 upon their return to the U.S.
However, the foreign cracking operation does not result in the
substantial transformation of the pistachio nuts for country of
origin marking purposes.
Sincerely,
John Durant, Director
Commercial Rulings Division