MAR-05 RR:CR:SM 562118 TJM
Munford Page Hall, II
Dorsey & Whitney, LLP
1001 Pennsylvania Ave, NW
Suite 400 South
Washington, DC 20004-2533
RE: Classification of blended strip tobacco; Country of origin marking for blended strip tobacco; substantial transformation; cigarettes; tariff rate quota; 19 CFR 134.35(a); 2401.20.8590; 2401.20.8790; BBS; HQ 562176; NY C86085; JT International Manufacturing America, Inc.
Dear Mr. Hall:
This is in response to your client’s letter dated June 15, 2000, requesting from the National Commodity Specialist Division a ruling on the classification and country of origin for blended strip tobacco. The National Commodity Specialist Division forwarded your request to this office. On March 23, 2001, July 25, 2001, and December 12, 2001, you submitted additional information to this office. Our response follows.
FACTS:
In Italy or in Japan, JT International receives various types and grades of tobacco from different countries either in cases or in bales. The tobacco includes burley, flue-cured, and oriental tobaccos. Upon receipt, certain percentages of different grades of threshed tobaccos are placed on either a flue-cured line or a burley line according to the specific blend recipes. Certain quantities of oriental tobacco are introduced into the blend in whole leaf form. These tobaccos proceed through a slicer that cuts the tobacco to facilitate ordering later in the manufacturing process. During this stage, both the flue-cured and burley tobaccos undergo the same processes.
Initially, steam and/or water is injected into the tobacco to make it more pliable and to minimize breakage. Then, the tobacco undergoes an initial delamination, initial cleaning and initial conditioning, as it proceeds through a conditioning cylinder, pneumatic separators, and a pre-blend bulker. Subsequently, the tobacco undergoes group blending where the various types of tobacco (flue-cured, burley, and oriental) are blended together in designated percentages according to the particular recipes. Then, casing is applied to the tobacco, it is dried, and then subjected to blending. After the blending process has been completed, the tobacco, on its way to the final dryer, passes over a shaker that removes scrap. The final dryer brings the tobacco to a predetermined moisture level for packing. The tobacco is then exported to the United States, where it is used to make cigarettes.
You stated in your supplement, dated March 23, 2001, that upon importation into the United States, the blend is sliced and moisturized. Usually, the blend is cased before importation into the United States, but in some cases, the total casing will be added after it arrives in the United States.
In all cases, a small amount of cut-rolled-expanded stem (“CRES”) tobaccos are added to the blend in the United States to form the final cigarette tobacco mixture. Usually, specific cigarette brand flavoring will be added to the blend. The tobacco is then passed through a dryer to remove moisture before it is wrapped in paper to produce the cigarettes.
The types, quantities, and countries of origin of the unmanufactured strip tobacco that will be used to make the blended strip will vary, but there will always be a blend of different types of tobacco (flue-cured, burley, and oriental) from several different countries.
The sample of tobacco as exported from Japan or Italy, which you submitted to this office on July 25, 2001, contains whole leaves. It appears that the tobacco is not in a form ready for use in manufacturing cigarettes. It would require further cutting and processing in the United States before being used to make cigarettes.
On August 10, 2001, members of this office met with counsel and representatives of JT International to discuss issues addressed in this ruling. Subsequently, on December 12, 2001, counsel submitted additional information.
On July 10, 2002, a Notice of Proposed Revocation of New York Ruling Letter (NYRL) C86085, dated April 14, 1998, was published in the Customs Bulletin. On September 11, 2002, the Final Notice of Revocation of NYRL C86085 was published in the Customs Bulletin. See Headquarters Ruling Letter (HRL) 562176, published in the September 11, 2002, issue of the Customs Bulletin.
ISSUE:
What is the proper classification and country of origin marking for the blended strip tobacco processed in Italy or in Japan and imported into the United States as described above?
LAW AND ANALYSIS:
Classification
The National Commodity Specialist Division provided to this office an opinion on the proper classification of the blended strip tobacco, which is incorporated herein.
The classification of goods under the Harmonized Tariff Schedule of the United States (“HTSUS”) is governed by the General Rules of Interpretation (“GRIs”), taken in order. GRI 1 provides that classification shall be determined according to the terms of the headings 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 may then be applied, taken in order.
Additionally, the Explanatory Notes to the Harmonized Commodity Description and Coding system (EN), although not legally binding, are the official interpretation of the Harmonized System at the international level. While not treated as dispositive, the Explanatory Notes are to be given considerable weight in Customs’ interpretation of the HTSUS. See Guidance for Interpretation of Harmonized System, T.D. 89-30, 54 F.R. 35127 (1989). In Headquarters Ruling Letter (“HRL”) 087511, dated January 14, 1991, we stated that “[i]n the absence of clear and unambiguous statutory language to the contrary it has been the practice of the Customs Service to follow, whenever possible, the terms of the Explanatory Notes when interpreting the HTSUSA.” Furthermore, we noted in the Guidance for Interpretation of Harmonized System, T.D. 89-30, 54 F.R. 35127 (1989) that “the ENs are a dynamic instrument reflecting the intent of the Contracting Parties to the application and interpretation of the HS. They will be amended from time to time and may thus reflect a change in interpretation. . . .When a decision of the HSC is published. . .it should receive the same weight as ENs. . . .”
Unmanufactured tobacco is classifiable in heading 2401, HTS. Heading 24.01 EN, states that this heading covers:
Unmanufactured tobacco in the form of whole plants or leaves in the natural state or as cured or fermented leaves, whole or stemmed/stripped, trimmed or untrimmed, broken or cut (including pieces cut to shape, but not tobacco ready for smoking).
Tobacco leaves, blended, stemmed/stripped and “cased” (“sauced” or “liquored”) with a liquid of appropriate composition mainly in order to prevent mould and drying and also to preserve the flavour are also covered in this heading.
(2) Tobacco refuse, e.g., waste resulting from the manipulation of tobacco leaves, or from the manufacture of tobacco products (stalks, stems, midribs, trimmings, dust, etc.).
On the other hand, manufactured tobacco is classifiable in heading 2403, HTS. Heading 24.03, note 1, EN, states that this heading covers “smoking tobacco, whether or not containing tobacco substitutes in any proportion, for example, manufactured tobacco for use in pipes or for making cigarettes.”
In HSC 25 in March 2000 (Doc. NC0288E1), the Harmonized System Committee (“HSC”) of the World Customs Organization (“WCO”) classified basic blended strip tobacco (“BBS”) in heading 2401. BBS was a tobacco mixture consisting of 75 percent by weight of uncut stemmed leaves (i.e., “strips”) and 25 percent reconstituted tobacco. The processing steps that the product underwent prior to export from the country of origin were described as including stemming, mixing, moistening, and casing. In its imported condition, BBS is not ready for smoking. It must be further cased, cut and blended with other ingredients to form the processed tobacco “cut filler” that is used in cigarettes. Subsequently, in the country of importation, the product is subjected to the following processes including slicing (horizontal or vertical) of a batch of the BBS and other types of tobacco, moistening in a conditioning cylinder, casing before cutting, blending, cutting, drying, and flavoring. The Harmonized System Committee (HSC) classified BBS as a mixture of products classifiable in two or more headings. By application of GRIs 2(b), 3(b), and 6, the product was classified in heading 2401.
The product at issue here, in its imported condition, like the BBS before the HSC, is not ready for smoking. The facts indicate that your client must further process the imported tobacco, including slicing and casing, before using the imported tobacco blend to manufacture the final product. As discussed above, although HSC’s decision is not binding, it is illustrative in this case.
As a distinguishing example, in Headquarters Ruling Letter (“HRL”) 560102, dated June 17, 1997, Customs classified imported blended tobacco in heading 2403. In that case, the cut-filler tobacco was processed in Argentina. In contrast to the instant case, in HRL 560102, all the blending, cutting, conditioning, casing, flavoring, drying, et cetera were completed in Argentina prior to importation into the United States. In other words, the imported product was ready for use by the final user of the tobacco to make cigarettes. In the instant case, the blended strips are not ready for smoking because they must further be cased, cut, and blended with other ingredients to form the processed tobacco “cut filler” that is used in making cigarettes. Therefore, the imported article in the instant case is properly classifiable in heading 2401, HTS.
Accordingly, if entered under quota, the product at issue will be classifiable under 2401.20.8590, HTSUS, which provides for “unmanufactured tobacco (whether or not threshed or similarly processed); tobacco refuse, tobacco, partly or wholly stemmed/stripped, threshed or similarly processed, other, other, other, described in additional U.S. note 5 to chapter 24 and entered pursuant to its provisions, other.” If entered outside the quota, the applicable subheading will be 2401.20.8790, HTSUS, which provides for “unmanufactured tobacco (whether or not threshed or similarly processed); tobacco refuse, tobacco, partly or wholly stemmed/stripped, threshed or similarly processed, other, other, other, other, other.”
Country of Origin
The non-preferential rules of origin, as in this case, employ the “substantial transformation” criterion for goods that consist in whole or in part of materials from more than one country. An article that consists in whole or in part of materials from more than one country is a product of the last country in which it has been substantially transformed into a new and different article of commerce with a name, character, and use distinct from that of the article or articles from which it was so transformed. See United States v. Gibson-Thomsen, 27 C.C.P.A. 267 (1940); Uniroyal Inc. v. United States, 542 F. Supp. 1026 (Ct. Int’l Trade 1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983); Koru North America v. U.S., 701 F. Supp. 229 (Ct. Int’l Trade 1988); National Juice Products Ass’n v. United States, 628 F. Supp 978 (Ct. Int’l Trade 1986); Coastal States Marketing Inc. v. United States, 646 F. Supp 255 (Ct. Int’l Trade 1986), aff’d, 818 F.2d 860 (Fed. Cir. 1987); Ferrostaal Metals Corp. v. United States, 664 F. Supp 535 (Ct. Int’l Trade 1987).
In National Juice Products Association v. United States, 628 F. Supp. 978 (CIT 1986), the court considered whether foreign manufacturing concentrate processed into frozen concentrated orange juice and reconstituted orange juice in the U.S. was considered substantially transformed. The U.S. processing involved blending the manufacturing concentrate with other ingredients to create the end product. The manufacturing concentrate was mixed with purified and dechlorinated water, orange essences, orange oil, and in some cases, fresh juice. The foreign manufacturing concentrate was blended with domestic concentrate, with ratios of 50/50 or 30/70 (foreign/ domestic).
The court considered that the U.S. processing added relatively minor value to the product and that the manufacturing orange concentrate imparts the essential character to the juice and makes it orange juice. The court concluded that the foreign manufacturing juice concentrate was not substantially transformed in the U.S. when it was processed into retail orange juice products.
In Coastal States Marketing, Inc. v. United States, 646 F. Supp. 255 (Ct. Int’l Trade 1986), aff’d, 818 F.2d 860 (Fed. Cir. 1987), the court held that the blending of No. 2 gas oil from then the Soviet Union with Italian No. 5 fuel oil in Italy did not substantially transform the Soviet oil into a product of Italy. In that case, an oil tanker loaded No. 2 gas oil in the U.S.S.R. The vessel then proceeded to Italy where No. 5 fuel oil was added to the same storage tanks holding the Soviet gas oil. The oils were mechanically mixed. The mixing created an oil with different gravity, sulfur content, flashpoint, pourpoint, and kinematic viscosity than the two oils separately. Regardless, the court opined and affirmed Customs view that the oils had not been substantially transformed. Although the grade of the mixed oil had changed, the Court opined that the essential character of the Soviet oil, being oil, remained unchanged. The Court also noted that the lack of a tariff shift although not determinative, was indicative that the oils had not changed in their essential character.
Previous Customs rulings have held that in general mere blending of articles does not constitute a “substantial transformation.” In HRL 088799, dated November 20, 1991, Customs ruled that cocoa from various countries blended in Canada with sugar did not constitute a substantial transformation. In HRL 561208, dated March 8, 1999, Customs held that blending foreign crab meat with domestic meat did not constitute a substantial transformation. In HRL 734479, dated January 29, 1993, Customs held that spray dried coffee of Central and South American origin was not substantially transformed in the European Community by blending and agglomeration.
In HRL 560102, dated June 17, 1997, unmanufactured tobaccos from various countries (classified under heading 2401, HTSUS) were imported into Argentina. There they were processed into manufactured cut-filler tobacco, classified in heading 2403, HTSUS. All the processes including the final delamination, cleaning, conditioning, and top dressing were conducted in Argentina. The imported cut filler tobacco was ready to be used to produce cigarettes. Customs held that the tobacco was substantially transformed in Argentina. Although the facts appear similar to the instant case, to determine whether a substantial transformation of an article has occurred, each case must be decided on its own particular set of facts. See Uniroyal Inc. v. United States, 542 F. Supp 1026, 1029 (1982); Grafton Spools, Ltd. v. United States, 45 Cust. Ct. 16, 23, C.D. 2190 (1960); United States v. Murray, 621 F.2d 1163 (1st Cir. 1980); Texas Instruments, Inc. v. United States, 69 CCPA, (1982), 681 F.2d 778 (1982).
In the instant case, unmanufactured tobacco (classifiable in heading 2401, HTS) will be imported into Italy or Japan. The primary operations in Italy or Japan include cutting, blending and controlling the humidity of the tobacco. Upon importation into the United States, the blended tobacco is presumably further processed. As the Court stated in Coastal States Marketing Inc. v. U.S., a tariff shift although not determinative, is indicative of substantial transformation. In the instant case, the materials do not undergo a change in their tariff classifications. Furthermore, unlike the tobacco in HRL 560102 which underwent a tariff shift and obtained a new use, the tobacco in the instant case in its condition as imported is not ready for use. It requires further processing in the United States to obtain its final specific use. Therefore, it is our opinion that the blended strip tobacco from Italy or Japan has not been substantially transformed and thereby does not qualify as a product of Italy or Japan.
Marking Requirements
As you are aware, 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 U.S. the English name of the country of origin of the article. 19 CFR part 134 implements the country of origin marking requirements of 19 U.S.C. § 1304.
Section 134.1(d), Customs Regulations (19 CFR § 134.1(d)), provides that the “ultimate purchaser” is generally the last person in the United States who will receive the article in the form in which it was imported. 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 origin of which the goods is the product. The evident purpose is to mark the goods so that at the time of the 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).
Additionally, section 134.35(a), Customs Regulations (19 CFR § 134.35(a)), states in pertinent part, that:
(a) Articles other than goods of a NAFTA country. An article used in the United States in manufacture which results in an article having a name, character, or use differing from that of the imported article, will be within the principle of the decision in the case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98). Under this principle, the manufacturer or processor in the United States who converts or combines the imported article into the different article will be considered the “ultimate purchaser” of the imported article within the contemplation of section 304(a), Tariff Act of 1930, as amended (19 U.S.C. 1304(a)), and the article shall be excepted from marking. The outermost container of the imported articles shall be marked in accord with this part. (Emphasis added)
The ultimate purchaser in the instant case is the U.S. manufacturer who purchases your client’s blend and substantially transforms it to produce the final product. Pursuant to 19 C.F.R. § 134.32(d), the outermost container of the imported blended strip tobacco should be marked with the appropriate countries of origin.
HOLDING:
Unmanufactured tobacco, including blended strip tobacco that requires further processing in the country of importation and which has not been cut to size of a “cut filler” tobacco, is properly classifiable in heading 2401, HTS. In this case, the applicable subheading for the blended strip tobacco, if entered under quota, will be 2401.20.8590, HTSUS. If entered outside the quota, the applicable subheading will be 2401.20.8790, HTSUS.
For reasons stated above, the product at issue is not substantially transformed in Italy or in Japan. Therefore, upon importation, the container holding the product must be marked with the appropriate countries of origin of the tobacco.
In accordance with Headquarters Ruling Letter 562176, published in the Customs Bulletin on September 11, 2002, this ruling letter is effective 60 days from such date of publication.
A copy of this ruling letter should be attached to the entry documents file at the time the 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,
Myles B. Harmon, Acting Director
Commercial Rulings Division