HQ 559863
Feb. 10, 1997
CLA-2 RR:TC:SM 559863 JML
TARIFF NO: 9802.00.50
Mr. Robert W. Cowie
Geo H. Young & Co. Ltd.
809-167 Lombard Avenue, Suite 809
Winnipeg, Manitoba
Canada R3B 3H8
RE: Applicability of partial duty exemptions pursuant to
9802.00.50, HTSUS, to carrots exported from the U.S. and
processed in Canada by segmenting them into pieces,
washing, peeling, bagging and boxing them; alterations;
marking; NAFTA rules of origin, 19 CFR Part 102.
Dear Mr. Cowie:
This is in response to your letter of May 23, 1996, on
behalf of Supreme Produce Inc., in which you requested a binding
ruling with respect to the applicability of subheading
9802.00.50, Harmonized Tariff Schedule of the United States
("HTSUS"), to United States("U.S.") origin carrots exported to
Canada for processing and subsequent return to the U.S. In
addition, you requested a determination regarding the applicable
country of origin marking requirements.
FACTS:
The information you provided indicates that Dakota Fresh
Company will export fresh, U.S. grown 6"-8" carrots to Canada,
where your client, Supreme Products Inc., will process them. The
processing operations performed in Canada will consist of
segmenting the carrots into 2" pieces, washing, peeling, bagging
and boxing them. Upon completion of the processing operations in
Canada, the carrots will be returned to the U.S. for sale.
ISSUES:
I. Whether the carrots, when returned to the U.S., will be
eligible for the partial duty exemption provided for in
subheading 9802.00.50, HTSUS.
II. Whether the returned carrots are exempt from country of
origin marking requirements.
LAW AND ANALYSIS:
I. 9802.00.50, HTSUS.
U.S. Note 2(a), subchapter II, Chapter 98, HTSUS, provides
that any product of the U.S. which is returned after having been
advanced in value or improved in condition abroad by any process
of manufacture or other means shall be treated as a foreign
article for duty purposes and shall be dutiable, unless exempt
therefrom under a specific HTSUS provision.
Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles exported to Canada and returned to the
U.S. after having been advanced in value or improved in condition
by means of repairs or alterations, provided that the documentary
requirements of Customs Regulations 181.64 (19 CFR 181.64) are
met. For qualifying articles, duty is assessed only upon the
value of the foreign repairs or alterations. However, in
circumstances where the operations abroad destroy the identity of
the exported article or create a new or commercially different
article, entitlement to 9802.00.50, HTSUS, treatment is
precluded. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D.
631 (1956), aff'd C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian
Industries Corporation v. United States, 3 CIT 9 (1982), Slip OP.
82-4 (January 5, 1982).
Customs Regulations 181.64 (19 CFR181.64), defines
"repairs or alterations " as:
"..restoration, addition, renovation, redyeing, cleaning,
resterilization, or other treatment which does not destroy the
essential characteristics of, or create a new or commercially
different good from, the good exported from the United States."
Articles incomplete for their intended use that require the
foreign processing as a necessary step in their preparation or
manufacture are also precluded from treatment under subheading
9802.00.50, HTSUS. Dolliff and Company, Inc. v. United States, 66
CCPA 77, CAD 1225, 599 F.2d 1015 (1975).
To the extent you describe the operations to be performed in
Canada as washing, bagging and boxing the carrots, Customs
generally considers such activities "alterations" for purposes of
subheading 9802.00.50, HTSUS. (See Headquarters Ruling Letter
("HRL") 554645, dated July 6, 1987, (carrots merely cleaned,
graded and packaged abroad); HRL 555180, dated December 26, 1989,
(carrots exported to Mexico for washing, cooling, sorting by
size, and packaging for retail sale)).
However, Customs has consistently ruled that certain types
of cutting or slicing operations performed abroad do not
constitute "alterations" under 9802.00.50, HTSUS. In HRL
554654, dated July 28, 1987, Customs held that the slicing of
exported whole peaches, including removing the skin, not only
destroys the identity of the exported peaches, but results in new
articles of commerce. As such, Customs ruled that those
operations exceeded the scope of the term "alteration" under item
806.20, TSUS, the precursor to 9802.00.50, HTSUS. Similarly,
Customs held in HRL 555462, dated September 11, 1989, that dicing
and quick-freezing apples abroad do not constitute acceptable
"alterations" for purposes of subheading 9802.00.50, HTSUS.
Customs determined that the dicing of the apples resulted in new
and different commercial articles having uses different from
those of whole apples.
In two cases involving the cutting and shredding of cheese
abroad, Customs held that such operations do not constitute
"alterations" for purposes of subheading 9802.00.50, HTSUS. In
HRL 557633, dated February 10, 1994, and HRL 554654, dated May
19, 1994, blocks of U.S.-origin cheese were exported to Canada,
where they were shredded, repackaged and returned to the U.S. In
both cases, Customs concluded that shredding and cutting the
cheese abroad constituted a necessary finishing step in the
manufacture of the finished article (i.e. cut/shredded cheese),
which resulted in a commercially different article than that
exported from the U.S.--blocks of cheese.
Customs believes that the above-referenced rulings are
dispositive of the cutting issue presented here. Customs finds
that processing U.S.-origin carrots abroad by segmenting them
into 2" pieces constitutes a necessary finishing step in the
manufacture of the finished article and results in new and
commercially different articles from whole carrots. Therefore,
the operations to be performed in Canada cannot be considered
"alterations," and the returned, segmented carrots will not be
eligible for the partial duty exemption available under
subheading 9802.00.50, HTSUS, when returned to the U.S.
II. Country of origin marking.
304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin (or its container) 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.
Customs Regulations Part 134 (19 CFR Part 134), implements the
country of origin requirements and exceptions as provided for in
19 U.S.C. 1304.
Customs Regulations 134.1(b) (19 CFR 134.1(b)), defines
"country of origin" as:
The country of manufacture, production, or growth of
any article of foreign origin entering the United
States. 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).
Customs Regulations 134.1(j) (19 CFR 134.1(j)), provides
that the "NAFTA Marking Rules" are the rules promulgated for the
purposes of determining whether a good is a good of a NAFTA
country. 134.1(g), Customs 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 set out at 19 CFR Part 102. See 19 CFR 134.1(g). Customs
Regulations 102.11 articulates the relevant test for determining
whether a good is a good of a NAFTA country for marking purposes.
Accordingly, 102.11(a), Customs Regulations, states that the
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 102.20 and satisfies any other applicable
requirements of that section, and all other applicable
requirements of these rules are satisfied.
Since the finished carrot products are produced in Canada
with U.S.-origin carrots, these goods are neither wholly obtained
or produced, nor produced exclusively from domestic materials.
Paragraph (a)(3) of 102.11 is the applicable rule that must be
applied to determine the country of origin of the finished carrot
product. Customs notes that carrots 6"-8" in length, as those
exported to Canada, are generally classifiable under chapter
0706, HTSUS. Specifically, the finished carrots 2" in length are
classifiable under subheading 0706.10.10, HTSUS, as carrots under
10 cm in length (based upon standard metric conversion rate of 1
inch = 2.54cm; 2 inches = 5.08cm). The applicable change in
tariff classification set out in Customs Regulations 102.20(b)
(19 CFR 102.20(b)), Section II, Chapters 6 through 14 provides:
0701-0709...A change to heading 0701 through 0709 from any
other chapter.
Therefore, the requisite tariff classification change
to any heading in 0701-0709, HTSUS from any other chapter cannot
be met in this case. In these circumstances, Customs
Regulations 102.11(b) (19 CFR 102.11(b)) must be applied.
102.11(b) provides that:
Except for a good that is specifically described
in the Harmonized System as a set, or is classified as
a set pursuant to General Rule of Interpretation 3,
where the country of origin cannot be determined under
paragraph (a), the country of origin of the good:
(1) Is the country or countries of origin of the single
material that imparts the essential character of the
good....
As the goods in question are carrots segmented in 2" pieces,
peeled, washed, bagged and boxed, Customs is of the opinion that
the material that imparts their essential character is clearly
the U.S.-origin carrots. Customs therefore determines that the
country of origin of the finished carrot products, for purposes
of the marking requirements under 19 U.S.C. 1304, is the U.S.
Accordingly, the carrots are not subject to the provisions of 19
U.S.C. 1304 because they are not "article(s) of foreign origin."
Thus, the finished carrot products do not require country of
origin marking upon importation into the U.S.
HOLDING:
Based upon the information provided, the proposed Canadian
processing of U.S.-origin carrots by washing, peeling, segmenting
them into 2" pieces, bagging and boxing does not constitute an
"alteration" as that term is defined under Customs Regulations
181.64 (19 CFR 181.64). It is Customs' opinion that the
Canadian processing would create new and commercially different
articles from those carrots originally exported, precluding
their eligibility for the 9802.00.50, HTSUS, partial duty
exemption. Therefore, the carrots will be dutiable on their full
value when returned to the U.S.
Customs also concludes that, for purposes of country of
origin marking, the country of origin of the Canadian processed
carrots is the U.S. Upon importation they are not subject to the
marking requirements of 19 U.S.C. 1304 as they are not foreign
articles.
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 Customs officer handling the
transaction.
Sincerely,
John Durant, Director
Tariff Classification
Appeals Division