MAR-2-05 RR:TC:SM 559259 DEC
Mr. Robert H. Schor
Barnes, Richardson & Colburn
475 Park Avenue South
New York, New York 10016
RE: Country of origin marking for dry gelatin/sugar mix; HRL 735559;
NAFTA; Article 509; 19 U.S.C. 1304; Part 102, Interim Regulations;
19 CFR 102.11-General Rules; 19 CFR 102.18 - Rules of Interpretation;
19 CFR 102.19 - NAFTA Preference Override; Essential Character
Dear Mr. Schor:
This is in response to your letter dated June 8, 1995, in which you seek "reconsideration" of Headquarters Ruling Letter (HRL) 735559, dated September 1, 1994. In response to your letter dated February 25, 1994, Customs issued HRL 735559 pursuant to the North American Free Trade Agreement (NAFTA) Marking Rules. In that ruling, Customs addressed the appropriate country of origin marking requirements for a dry gelatin/sugar mix which your client, Hormel Foods Corporation ("Hormel"), intends to import into the United States to be further processed and put up for retail sale in the United States. You now seek a new ruling based upon additional facts that were not directly addressed in HRL 735559, and you request Customs to address the effect on the country of origin marking requirements of a slightly different manufacturing process than the process described in the February 25, 1994, ruling request.
FACTS:
In your letter dated February 25, 1994, you stated that Hormel plans to manufacture a dry gelatin powder in the United States. Gelatin is classified under heading 3503, Harmonized Tariff Schedule of the United States ("HTSUS"). The dry
gelatin will be shipped to Canada to be mixed with powdered sugar (from sugar cane or
sugar beets) to form a dry gelatin/sugar combination. The sugar is from an unspecified, non-NAFTA country and is classified under heading 1701, HTSUS. This dry gelatin/sugar blend, which will contain approximately ninety (90%) sugar and ten (10%) gelatin, will be imported into the United States where Hormel will combine it with United States-made powder flavorings, coloring, preservatives, other additives, and sugar/dextrose to form a powder mix which will be packaged for retail sale as a gelatin dessert mix.
You have received New York Ruling 895327, dated March 22, 1994, in which Customs classified the gelatin and sugar blend to be imported from Canada under subheading 2106.90.2070, HTSUS. The New York ruling also states that the imported sugar, after being blended with the gelatin, will satisfy the change in tariff classification required under HTSUS General Note 12(t)/21. Consequently, the sugar and gelatin blend will be entitled to the 2.4 percent ad valorem preferential rate of duty under the NAFTA.
You contend that the imported merchandise is excepted from country of origin marking because the gelatin/sugar blend becomes a product of the United States due to the substantial additions to the blend once it is imported into the United States. Various chemicals are added to lower the ph, to preserve the product, and to give the product an anti-foaming agent. In addition, a "core mix" is added which includes flavoring and coloring. Additional sugar or dextrose is added to the blend in the United States as well.
In this request for reconsideration, you ask Customs to consider two distinct processing operations. The first scenario involves the blending together of the three United States materials (the U.S. chemicals, the core mix, and the sugar/dextrose) prior to the blending with the imported gelatin/sugar component. The second scenario involves the addition of the three U.S.-made materials individually to the imported gelatin/sugar blend rather than blending the three materials together first. You provided the following figures with respect to the materials and their weight and value in relation to the finished gelatin dessert mix.
Product % weight % value value of blend
Sugar 77% 46% $ 578.75
Gelatin 8.5% 35% 446.25
Chemicals 4% 6.35% 80.00
Core Mix 1% 6.35% 80.00
Sugar/Dextrose 9.5% 5.95% 75.00
3000 lb 100% @100% $ 1260.00
ISSUE:
Whether the processing performed in the United States in the above-described scenarios results in the finished gelatin dessert mix becoming a good of the United States pursuant to the NAFTA Marking Rules?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the United States 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 a manner as to indicate to the ultimate purchaser in the United States the name of the country of origin of the article. Part 134 of the Customs Regulations implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.45(a)(2) of the interim regulations provides that a "good of a NAFTA country may be marked with the name of the country of origin in English, French, or Spanish."
The country of origin marking requirements for a "good of a NAFTA country" are also determined in accordance with Annex 311 of the NAFTA and the interim amendments to the Customs Regulations published as T.D. 94-4 with corrections and T.D. 94-1.
Section 134.1(b) of the interim regulations defines "country of origin" as
the country of manufacture, production, or growth
of any article of foreign origin entering the U.S.
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 the meaning of this part; however, for a good of
a NAFTA country, the NAFTA Marking Rules will determine
the country of origin. (emphasis added).
In HRL 735559, Customs determined that pursuant to the NAFTA Marking Rules, and particularly the NAFTA Preference Override (19 CFR 102.19), the imported sugar/gelatin blend component that is to be imported from Canada should appropriately be marked as a product of Canada. Since the gelatin/sugar blend is a good of a NAFTA country (Canada) when imported into the United States, the country of origin marking requirements applicable to the finished gelatin dessert mix depends upon whether the processing in the United States would cause the final product to be a good
of the United States pursuant to the NAFTA Marking Rules. See 19 CFR 134.35(b) which addresses the country of origin marking requirements for NAFTA goods that are processed in the United States. To make this determination, the hierarchical analysis detailed in section 102.11 (19 CFR 102.11) must be undertaken. In this case, the items to be analyzed include the gelatin/sugar blend of Canadian origin and the addition of the various chemicals, colorings, and the sugar/dextrose mixture in the United States.
In this ruling letter, you have asked Customs to address the country of origin marking ramifications under two distinct scenarios. The first scenario involves the blending together of the three United States materials (the U.S. chemicals, the core mix, and the sugar/dextrose) prior to the blending with the imported gelatin/sugar combination. The second scenario involves the addition of the three U.S.-made materials sequentially to the imported gelatin/sugar blend rather than blending them together first.
Applying the NAFTA Marking Rules to the Canadian gelatin/sugar blend and the processing to be performed in the United States, no country of origin determination with respect to either of the two processing scenarios can be made under section 102.11(a) of the interim regulations. The finished product, a gelatin dessert mix, is neither wholly obtained or produced in a single country as is required under section 102.11(a)(1) nor is the finished product produced exclusively from domestic materials (i.e. U.S.) as required under section 102.11(a)(2). Since an analysis of sections 102.11(a)(1) and 102.11(a)(2) have not yielded a country of origin determination, we look to section 102.11(a)(3). Section 102.11(a)(3) provides that the country of origin is the country in which "[e]ach foreign material incorporated in that good undergoes an applicable change in tariff classification in 102.20. . .." (Emphasis added).
The finished gelatin dessert mix is classified under subheading 2106.90, HTSUS. The applicable tariff shift rule found in section 102.20 provides, in relevant part, as follows:
HTSUS Tariff Shift and/or other requirements
2106.90 ....... A change to subheading 2106.90 from any
other subheading except from Chapter 4,
Chapter 17, heading 2009, subheading 1901.90
or subheading 2202.90; or
A change to subheading 2106.90 from Chapter 4
or subheading 1901.90 provided that the good
contains no more than 50 percent of milk
solids by weight; or
A change to subheading 2106.90 from Chapter 17
provided that the good contains less than 65
percent by dry weight of sugar; or . . ..
The gelatin/sugar blend that is imported from Canada is also classified under subheading 2106.90, HTSUS. Consequently, the gelatin/sugar blend does not meet the applicable tariff shift rule because the gelatin/sugar blend is classified under the same subheading as the finished gelatin dessert mix. Therefore, section 102.11(a)(3) does not provide a country of origin determination.
Since an analysis of section 102.11(a) has not produced a country of origin determination, we turn to section 102.11(b) of the interim regulations. Section 102.11(b) provides that where the country of origin cannot be determined under section 102.11(a), and the good is not specifically designated as a set pursuant to the Harmonized System nor classified as a set under General Rule of Interpretation 3, the country of origin of the article is "the country or countries of origin of the single material that imparts the essential character of the good. . .."
Section 102.18(b)(2) of the interim regulations states as follows:
For purposes of applying § 102.11, only domestic
and foreign materials (including self-produced
materials) that are classified in a tariff provision
from which a change in tariff classification is not
allowed in the rule for the good set out in § 102.20
shall be taken into consideration in determining the
essential character of the good (emphasis added).
In this case, the gelatin/sugar blend is the foreign material that does not undergo the applicable tariff shift. Consequently, the Canadian-origin gelatin/sugar blend may be considered in determining the essential character of the finished gelatin dessert mix under the NAFTA Marking Rules. In addition, an essential character
determination under section 102.18 must also address the domestic materials that do not meet the applicable change in tariff classification set out in section 102.20. For purposes of Part 102, "material" includes parts, ingredients, subassemblies, and components. See 19 CFR 102.1(l).
With respect to the first processing scenario, you contend that the blend containing the various chemicals, the "core mix" (flavors and colorings), and the additional sugar/dextrose is either classified under 1704.90.64, HTSUS, or under 2106.90.92, HTSUS. Regardless of whether this material is classified in either of these
two subheadings, it does not undergo the applicable tariff shift. Accordingly, if these U.S.-origin materials are classified in one of the above subheadings, then they may be considered in determining the essential character of the finished article pursuant to 19 CFR 102.18.
With respect to the second processing scenario, you state that the U.S.-made chemical mixture to be added in the United States would be classified as chemicals (to lower the ph, preservatives, anti-foaming agent (presumably heading 3823, HTSUS). Consequently, these materials will undergo the applicable change in tariff classification so that they may not be considered in determining the essential character of the finished product. You also state that it is your opinion that the U.S.-made artificial color and flavoring mix is classifiable as a food preparation under subheading 2106.90.99, HTSUS. You further state your opinion that the sugar/dextrose ingredient is classifiable under subheading 1702.90.40, HTSUS. Assuming these classifications are accurate, the artificial coloring and flavoring as well as the sugar/dextrose ingredient do not meet the applicable change in tariff classification. Accordingly, these U.S.-origin materials may be considered in determining the essential character of the finished article pursuant to 19 CFR 102.18. All of the U.S. ingredients are mixed together prior to being added to the Canadian gelatin/sugar blend, they will consist of a sugar/dextrose, color and flavoring mix also classifiable under subheading 2106.90, HTSUS.
After considering arguments you have made and assuming your classifications of the various components are accurate, Customs agrees that there are materials other than the Canadian sugar/gelatin sugar blend which properly merit consideration in determining the finished good's essential character. We, however, disagree with your conclusion that the ingredients, coloring - flavoring - sugar mixture, made in the U.S. either collectively or individually impart the essential character to the finished product.
Section 102.18(b)(1) states that Customs may examine various factors in determining the essential character of a good including one or more of the following: (1) nature of the material or component, (2) bulk, (3) quantity, (4) weight, (5) value, (6) role of a constituent material in relation to the use of the goods, or (7) other relevant factors. The gelatin component of the imported gelatin/sugar blend accounts for 8.5 percent by weight of the finished product and 35 percent of its value. In addition, the sugar in the gelatin/sugar blend accounts for 77 percent by weight of the finished product and 46 percent of its value. Therefore, the Canadian origin gelatin/sugar blend accounts for 88.5 percent by weight and 81 percent of the finished product's value. A consideration of the weight and value criteria enumerated in section 102.18 supports the conclusion that the gelatin/sugar blend imparts the essential character to the finished gelatin dessert mix. In addition, a consideration of the role of the gelatin/sugar mixture in relation to the use of the good, a gelatin dessert mix, also supports the determination that the gelatin/sugar blend imparts the essential character to the
finished product, since this blend, unlike the blend of U.S. ingredients, enables the product to function as a gelatin dessert. While we do not contest your assertion that no one markets a gelatin dessert mix that lacks color and taste, Customs is not persuaded that this argument leads to a conclusion that the color and flavoring (1 percent by weight and approximately 6 percent by value of the finished good) impart the essential character to the finished gelatin dessert mix. The fact that varying colors and flavors are subsequently added does not change the essence of the product. Whether the finished good is raspberry, grape, or cherry flavored, the fact remains that it is still a gelatin dessert mix.
Therefore, irrespective of whether the U.S. ingredients are added separately to the Canadian origin gelatin/sugar blend or are blended with one another prior to mixing with the Canadian origin gelatin/sugar, it is our opinion that the essential character of the finished gelatin dessert mix is imparted by the Canadian origin gelatin/sugar blend. Accordingly, pursuant to section 102.11(b), the country of origin of the finished product is Canada, and the retail packaging thereof must be marked to indicate the Canadian origin of its contents.
HOLDING:
Based upon the information submitted, we find that in the two scenarios described above, the essential character of the finished gelatin dessert mix is imparted by the gelatin/sugar blend that is imported from Canada and the country of origin of the finished gelatin dessert is Canada. Therefore, the retail packaging in which the gelatin dessert mix will reach the ultimate purchaser in the United States must be marked to reflect the product's Canadian origin.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely,
John Durant
Director
Tariff Classification Appeals Division