MAR 2-10 RR:TC:SM 559769 KBR
Alan I. Kojima, V.P.
American Customs Brokerage Co., Inc.
P.O. Box 261
Honolulu, Hawaii 96809
RE: Marking of Tropical Fruit Salad, Foreign Trade Zone, NAFTA
Dear Mr. Kojima:
This is in response to your letter dated February 28, 1996,
to U.S. Customs Service, in New York, which was subsequently
forwarded to this office and received on April 2, 1996, on behalf
of the Maui Pineapple Company, Ltd., concerning the country of
origin and proper duty rate of tropical fruit salad which is
canned with both domestic and imported fruit in a foreign trade
zone.
FACTS:
You state that the product involved in this matter is a
"tropical fruit salad." The product is to be manufactured in a
foreign trade zone (FTZ) in Hawaii. You state that the tropical
fruit salad will be a canned product, and will consist of chunks
of three different tropical fruits and the juice of one tropical
fruit. You list the ingredients by weight (in percentages),
along with the original country of origin as follows:
Ingredient % Original C. of Origin
Pineapple 46 United States
Frozen Papaya 13 Mexico
Frozen Guava 9 Mexico
Passion Fruit (juice concentrate) 1 Colombia
Sugar 7 United States
Water 24 United States
You state that a breakdown of the cost of the product is as
follows:
Pineapple 18.5%
Papaya 13.8%
Guava 9.7%
Passion Fruit (juice concentrate) 4.8%
Sugar 2.3%
Can 7.1%
Production 11.5%
Warehousing 1.8%
Fiber 1.2%
Raw Material Handling 0.6%
Shipping 3.2%
Overhead 18.7%
Margin 6.8%
In a telephone conference on August 6, 1996, with a
representative of the Maui Pineapple Company, Ltd., Customs was
informed that the pineapple is grown in the U.S. taken to the FTZ
where it is peeled, trimmed and cut into chunks and then combined
with the other ingredients. The papaya and the guava are
imported in chunks and simply combined with the other ingredients
in the FTZ. The passion fruit is imported as a juice concentrate
and combined with the other ingredients in the FTZ.
You state that the foreign ingredients, papaya, guava, and
passion fruit will be sold to your client on a duty-paid basis
from various companies located in the United States and will be
entered into the FTZ under privileged domestic status.
The cans for the product will be manufactured in the FTZ
using tin-plate imported from Japan. The tin-plate will be
entered into the FTZ under non-privileged foreign status.
ISSUES:
(1) Will the product qualify for designation as a "made in
the U.S.A./Hawaii" product? If it does not qualify as a United
States-made product, what will be the proper country of origin,
tariff classification, and duty rate?
(2) If the product qualifies as a United States-made
product, will duty be assessed on the value of the tin can
manufactured in the FTZ from the imported tin-plate. If duty
will be assessed, what will be the tariff classification and duty
rate?
(3) Will duty be assessed on the value of the Mexican and
Colombian fruits that are entered into the FTZ under privileged
domestic status? If duty will be assessed, what will be the
tariff classification and will duty be assessed at the Column 1
or the Mexican NAFTA duty rate?
(4) If the Mexican and Colombian fruits are entered into
the FTZ under non-privileged foreign status, how will the answers
to issues (1) and (3) be affected?
LAW AND ANALYSIS:
1. Duty
The statute governing the creation and operation of FTZ's 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 a 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 United States 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
a FTZ from the United States customs territory, placed under the
supervision of the appropriate Customs 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. The Customs Regulations issued under the
authority of this statute are found in 19 CFR Part 146.
In this case, the merchandise brought into the FTZ would
consist of domestic status merchandise (the fruit, sugar, and
water) and non-privileged foreign status merchandise (the tin-plate imported from Japan). As stated above, domestic status
merchandise may be combined with or made part of other articles
in the FTZ and be removed from the FTZ into the Customs territory
without being subject to quotas, duty, or tax, provided that the
identity of such articles has not been lost. Non-privileged
foreign merchandise is subject to tariff classification in
accordance with its character, condition and quantity as
transferred to the Customs territory at the time entry or entry
summary is filed with Customs (19 CFR 146.65(a)(2)). However,
under General Rule of Interpretation (GRI) 5(b):
Subject to the provision of rule 5(a)
[concerning camera cases and similar containers
not applicable in this case], packing materials
and packing containers entered with the goods
therein shall be classified with the goods if
they are of a kind normally used for packing
such goods. However, this provision is not
binding when such packing materials or packing
containers are clearly suitable for repetitive
use.
In interpreting the foregoing, we have held that canned
fruit produced in a FTZ with the use of domestic status
ingredients and non-privileged foreign status canning materials
may be entered for consumption from the FTZ free of duty (see,
e.g., rulings 073879, February 29, 1984, and memorandum 220707,
October 3, 1988, affirmed by ruling 221259, October 15, 1991).
Thus, in the case under consideration, in which ingredients (all
having domestic status) are packed in a FTZ in cans produced from
Japanese origin tin-plate, when the canned "Tropical Fruit Salad"
product is entered for consumption from the FTZ, neither the
domestic status ingredients nor the canning materials would be
subject to duty. This is so regardless of whether the product
qualifies for designation as a "made in the U.S.A./Hawaii"
product.
If, instead of using all domestic status ingredients, the
papaya, guava, and passion fruit used were non-privileged foreign
status, those non-privileged foreign ingredients would be
classifiable and dutiable in accordance with the character,
condition and quantity of the canned tropical fruit salad as
transferred to the Customs territory at the time entry or entry
summary is filed with Customs. Since, under GRI 5(b), the
canning materials are classifiable with the goods contained
therein, the canning materials would be classifiable and dutiable
under the same terms. This also is so regardless of whether the
product qualifies for designation as a "made in the
U.S.A./Hawaii" product.
You should be aware that, under 19 U.S.C. 58c(a)(10), a
merchandise processing fee is collected by Customs for the
processing of merchandise formally entered for consumption (upon
transfer from a FTZ to the Customs territory, such entry is
required for all merchandise in foreign status or composed in
part of merchandise in foreign status (see 19 U.S.C. 81c(a), 19
CFR 141.4, and 19 CFR 146.63)). The fee is based on the value of
the merchandise and, in the case of merchandise entered for
consumption from a FTZ, is based upon the appraised value of both
the domestic and foreign merchandise. Thus, in the case under
consideration, this fee would be collected on the total value of
the canned tropical fruit salad (see 19 CFR 146.65(b)(1), 19 CFR
24.23, and ruling 221259, referred to above). (The exception in
19 U.S.C. 58c(b)(8)(D)(v) for agricultural products of the United
States processed and packed in a FTZ, limiting this fee to only
the value of material used to make the container of such
products, is inapplicable in this case because the agricultural
products in this case are not "agricultural products of the
United States" (see Senate Report (Finance Committee) No. 101-252, 101st Cong., 2d Sess., printed at 1990 U.S.C.C.A.N. 928,
980-981, in which the intent of this provision is described as
being to correct a problem arising from Customs application of
the fee to "entries of canned pineapple (consisting of non-dutiable foreign-origin cans and U.S.-origin pineapple)"
(emphasis added)).)
2. MARKING
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 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 a manner as to
indicate to the ultimate purchaser in the U.S. the English name
of the country of origin of the article. Congressional intent in
enacting 19 U.S.C. 1304 was "that the ultimate purchaser should
be able to know by an inspection of the marking on the imported
goods the country of which the goods is the product. The evident
purpose is to mark the goods so that at the time of purchase the
ultimate purchaser may, by knowing where the goods were produced,
be able to buy or refuse to buy them, if such marking should
influence his will." United States v. Friedlander & Co., 27
C.C.P.A. 297 at 302; C.A.D. 104 (1940). Part 134, Customs
Regulations (19 CFR Part 134), implements the country of origin
marking requirements and the exceptions of 19 U.S.C. 1304.
Section 134.1(b) of the 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 this part; however, for a good
of a NAFTA country, the NAFTA marking rules
will determine the country of origin.
(Emphasis added).
Section 134.1(j), of the regulations, provides that the
"NAFTA marking rules" are the rules promulgated for purposes of
determining whether a good is a good of a NAFTA country. Section
134.1(g) of the regulations, defines a "good of a NAFTA country"
as an article for which the country of origin is Canada, Mexico,
or the U.S. as determined under the NAFTA marking rules.
Section 134.35(b), provides that:
A good of a NAFTA country which is to be
processed in a manner that would result in the
good becoming a good of the United States under
the NAFTA Marking Rules is excepted from
marking. Unless the good is processed by the
importer or on its behalf, the outermost
container of the good shall be marked in accord
with this part.
Part 102 of the regulations sets forth the "NAFTA Marking
Rules" for purposes of determining whether a good is a good of a
NAFTA country for marking purposes. Section 102.11 of the
regulations, sets forth the required hierarchy for determining
country of origin for marking purposes. Section 102.11(a) of the
regulations states that "[t]he country of origin of a good is the
country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic
materials; or
(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 requirements of these rules are satisfied."
Since the tropical fruit salad is neither wholly obtained or
produced in a single country nor produced exclusively from
domestic materials, 102.11(a)(1) and (2) are not applicable for
purposes of determining whether the fruit salad is a good of the
U.S. Therefore, it must be determined whether pursuant to
102.11(a)(3), the foreign materials incorporated into the
tropical fruit salad meets the specific tariff rule of 102.20.
The tropical fruit salad has six components; pineapple, papaya,
guava, passion fruit juice, sugar and water. The pineapple,
sugar and water are products of the U.S.; the frozen, chunk
papaya and frozen, chunk guava are from Mexico, and the passion
fruit juice concentrate is from Columbia. After canning, the
tropical fruit salad is classified in subheading 2008.90.10,
HTSUS. Thus, the specific tariff rule for these goods is set out
in section 102.20(d) (Section IV: Chapters 16 through 24) of the
regulations, which states: "A change to subheading 2008.19
through 2008.99 from any other chapter, provided the change is
not the result of mere blanching of nuts."
The foreign components must undergo the above change in
tariff to satisfy 19 CFR 102.11(a)(3). The components from
Mexico undergo the necessary change in tariff classification.
The frozen, chunk papaya is classified in subheading 0811.90.40,
HTSUS, and the frozen, chunk guava is classified in subheading
0811.90.80, HTSUS.
However, the component from Columbia, the passion fruit
juice concentrate, classified in subheading 2009.80.60, HTSUS,
does not undergo the necessary tariff shift. Although the value
of the passion fruit juice concentrate is less than 7 percent of
the value of the tropical fruit salad, and therefore might be
considered de minimis and be disregarded, section 102.13(b)
specifically eliminates goods within Chapter 20 from
consideration as de minimis.
Further, in the "Note" to Chapter 20 it states:
"Notwithstanding the specific rules of this chapter, fruit, nut
and vegetable preparations of Chapter 20 that have been prepared
or preserved merely by freezing, by packing (including canning)
in water, brine or natural juices, or by roasting, either dry or
in oil (including processing incidental to freezing, packing or
roasting), shall be treated as a good of the country in which the
fresh good was produced." However, the pineapple in this case is
grown in the U.S. and peeled, trimmed and cut into chunks prior
to being combined with the other ingredients. Therefore, the
pineapple alone is not classifiable in a provision from which a
change in classification was not allowed.
Further, 19 CFR 102.17 states that:
A foreign material shall not be considered to
have undergone the applicable change in tariff
classification set out in 102.20, or satisfy
the other applicable requirements of that
Section by reason of:
(a) A change in end-use;
(b) Dismantling or disassembly;
(c) Simple packing, repacking or retail
packaging without more than
minor processing;
(d) Mere dilution with water or another
substance that does not
materially alter the characteristics of the
material; or
(e) Collecting parts that, as collected, are
classifiable in the same
tariff provision as an assembled good
pursuant to General rule
of Interpretation 2(a),
without any additional operation other than
minor processing.
In this case, 19 CFR 102.17(c), is applicable. Although
the pineapple is cut from a fresh fruit into chunks, only the
foreign fruit is considered in determining whether there was more
than minor processing as defined in 19 CFR 102.1(m). The
foreign ingredients in this instance do not undergo more than
minor processing. Therefore, the foreign components are not
deemed to undergo the necessary tariff shift and 19 CFR
102.11(a)(3) will not apply.
The next step in the hierarchy, 19 CFR 102.11(b), states
that, where 102.11(a) is not applicable, the country of origin
will be the country or countries of origin of the single material
that imparts the essential character to the good. Section
102.18(b), states that the only materials to be considered for
purposes of identifying the material that imparts the essential
character to a good are those domestic or foreign materials that
are classified in a provision from which a change in tariff
classification is not allowed under the specific rule or other
requirements. In this case, the U.S. components of the tropical
fruit salad all are classified in a provision from which a change
in classification is allowed under 19 CFR 102.20. The pineapple
is classified in subheading 0804.30 HTSUS, the sugar is
classified in headings 1701-1702, HTSUS, and the water is
classified in heading 2201, HTSUS. Therefore, pursuant to 19 CFR
102.18(b), the papaya, guava, and passion fruit juice
concentrate is considered in determining whether there is a
single material that imparts the essential character to the of
the tropical fruit salad. In this situation, there is no single
material which establishes the essential character of the good.
The papaya, guava and passion fruit juice concentrate are equally
important components of the tropical fruit salad. Therefore, 19
CFR 102.11(b), does not apply.
Where the country of origin cannot be determined under 19
CFR 102.11(a) or (b), and the article is specifically described
in the Harmonized System as a set or mixture, or classified as a
set, mixture or composite good pursuant to General Rule of
Interpretation 3, 19 CFR 102.11(c) applies and states that the
country of origin is the country or countries of origin of all
materials that merit equal consideration for determining the
essential character of the good. In this instance, the tropical
fruit salad is a mixture pursuant to GRI 3(c). When Section
102.11(c) is applicable, all the components, foreign and
domestic, which merit equal consideration must be considered. In
this case, the pineapple, papaya, guava, passion fruit juice
concentrate, sugar and water merit equal consideration in
determining the essential character of the tropical fruit salad.
Therefore, the country of origin of the tropical fruit salad is
the countries of origin of these components; the U.S., Mexico,
and Columbia. However, since the components from the U.S. are
excepted from marking, the U.S. is not required to appear on the
country of origin marking of the tropical fruit salad.
This ruling does not address whether the tropical fruit
salad may be marked with the U.S.A. symbol. Although Customs has
determined that the product is, in part, a product of the U.S.,
the determination of marking an item as "Made in USA" or "Made in
Hawaii" is under the primary jurisdiction of the Federal Trade
Commission and not this Service. See HQ 559366 (August 29,
1995). We therefore recommend that you contact the Federal Trade
Commission, Division of Enforcement, located at 6th and
Pennsylvania Avenue, N.W., Washington, D.C. 20580, for any views
concerning marking the tropical fruit salad with the "USA" or
"Hawaii" symbol.
HOLDING:
Based on the information submitted, after processing, the
tropical fruit salad is a product of the U.S., Mexico and
Columbia, and must be marked t indicate that its origin is Mexico
and Columbia. The U.S. components are excepted from country of
origin marking and are not required to be listed on the country
of origin marking. The Federal Trade Commission should be
contacted concerning whether the "U.S.A." symbol or "Made in
Hawaii" may be used.
Therefore, the canned tropical fruit salad produced in a FTZ
from ingredients all of which are domestic status and canned in
the FTZ with the use of non-privileged foreign status tin-plate,
may be entered for consumption from the FTZ free of duty; since
that the identity of the domestic status merchandise is not lost;
and subject to the requirement for entry for consumption and
assessment of the merchandise processing fee (on the total value
of the product) provided for in 19 U.S.C. 58c(a)(1).
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