CLA-2 RR:CR:GC 964804ptl
Port Director
U.S. Customs Service
P.O. Box 610
Pembina, ND 58271
RE: Protest 3304-00-100018; Fish Oil Capsules; Flax Oil Capsules
Dear Port Director:
The following is our decision on Protest 3004-00-100018, against your classification of products described as Encapsulated Fish Oil and Encapsulated Flax Oil under the Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
One good under protest is described as bulk shipments of Encapsulated Fish Oil (Cap-Fish) The Cap-Fish is referred to by protestant as Cap-Fish 18:12 1000 mg 10 iu DAT with vitamin E. The fish oil that is blended and encapsulated in Canada is a single fish oil – anchovy oil - imported into Canada from Norway under Harmonized System heading 1504. Once in Canada, the fish oil is processed, vitamin E is added and the product is encapsulated.
The protestant states that the encapsulation and processing of the fish oil transforms the product from a raw article into a new finished product which no longer retains the unpleasant fishy smell and taste of the original oils. Protestant argues that the encapsulation and the alteration of the product's appearance, smell and taste transforms the article from a fish oil into a fatty acid encapsulated dietary supplement. Protestant further argues that because the product contains a vitamin, it should be considered a dietary supplement and be classified in heading 2106, because the provisions of the Dietary Supplement Health Education Act of 1994.
The other good under protest is described as bulk shipments of Encapsulated Flax Oil. This product is described by protestant as Cap-Flax 1000 mg. (Cap-Flax) This product is said to be made from oils which have been produced from plants which have been grown in Canada and entirely manufactured and encapsulated in Canada. Protestant argues that the encapsulation and the alteration of the product's appearance, smell and taste transforms the article from a crude oil into a fatty acid encapsulated dietary supplement. Protestant further argues that because the product contains a vitamin, it should be considered a dietary supplement and be classified in heading 2106, because the provisions of the Dietary Supplement Health Education Act of 1994.
The protest covers entry 112-NNNN591-6, dated December 17 1999.
The Cap-Fish was entered under subheading 1504.20,6040, HTSUS, which provides for fats and oils and their fractions, of fish or marine mammals, whether or not refined, but not chemically modified: fats and oils and their fractions, of fish, other than liver oils: other, other "following instructions [protestant] had received from Customs." At entry, protestant claimed Norwegian origin and the product did not seek or receive NAFTA benefits. The Cap-Flax was entered under subheading 1515.19.0000, HTSUS, which provides for: other fixed vegetable fats and oils (including jojoba oil) and their fractions, whether or not refined, but not chemically modified: Linseed oil and its fractions: other "based on previous indications from Customs …" Protestant claimed Canadian origin and benefits under the NAFTA at the time of entry.
The entries were liquidated as entered on April 14, 2000. A timely protest was filed on July 12, 2000.
In responding to this protest, we have also considered matters presented by counsel at a meeting in Customs Headquarters on September 21, 2001, as well as supplemental materials submitted on October 19, 2001.
ISSUE:
What is the classification of encapsulated fish oil and encapsulated flax oil and are the products eligible for preferential treatment under NAFTA?
LAW AND ANALYSIS:
Merchandise is classifiable under the Harmonized Tariff Schedule of the United States (HTSUS) in accordance with the General Rules of Interpretation (GRIs). The systematic detail of the HTSUS is such that virtually all goods are classified by application of GRI 1, that is, according to the terms of the headings of the tariff schedule 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 in order.
In understanding the language of the HTSUS, the Harmonized Commodity Description and Coding System Explanatory Notes may be utilized. The Explanatory Notes (ENs), although not dispositive or legally binding, provide a commentary on the scope of each heading of the HTSUS, and are the official interpretation of the Harmonized System at the international level. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
The HTSUS provisions under consideration are as follows:
1504 Fats and oils and their fractions, of fish or marine mammals, whether or not refined, but not chemically modified:
1504.20 Fats and oils and their fractions, of fish, other than liver oils:
* * *
1504.20.60 Other
* * *
1504.20.6090 Other.
1515 Other fixed vegetable fats and oils (including jojoba oil) and their fractions, whether or not refined, but not chemically modified:
Linseed oil and its fractions:
* * *
1515.19.0000 Other
2106 Food preparations not elsewhere specified or included:
* * *
2106.90 Other:
Other:
Other:
Other:
Other:
2106.90.99 Other:
2106.90.9998 Other
Before we ascertain whether the article is eligible for preferential treatment under the NAFTA, we must first determine its classification under the HTSUS.
Classification:
One of the protestant's arguments that the products are not classified in chapter 15 is based on GRI 1, which requires Customs to base classification on any relevant section and chapter notes. In support of this, protestant identifies chapter Note 1(e) to chapter 15 which states, in relevant part, that:
1. This chapter does not cover:
(e) Fatty acids, prepared waxes, medicaments, paints, varnishes, soap, … .
Protestant claims that the encapsulated fish oil and flax oil is considered an essential fatty acid (EFA) and is marketed as such. Accordingly, protestant argues, because of chapter Note 1(e), the fish oil is excluded from classification in chapter 15.
However, protestant has misinterpreted the Chapter note. The entire text of Chapter note 1(e) reads as follows: "This chapter does not cover: …(e) Fatty acids (Chapter 38), prepared waxes (Chapter 34), medicaments (Chapter 30), paints (Chapter 32), varnishes (Chapter 32), perfumery Chapter 33), cosmetic or toilet preparations (Chapter 33), sulphonated oils and other goods of Section VI; … ."[Chapter references added] It is clear that the note is referring to goods which are classified in Section IV of the Tariff Schedule. Protestant's goods are not the type of highly manufactured industrial fatty acids which are classified in Chapter 38, HTSUS, and thus, the note's exclusion does not apply.
Next, protestant refers to GRI 2 and 3(b) which refer to the classification of mixtures. Protestant states that the encapsulated fish oil and flax oil have been encapsulated, thus losing their original identity. Protestant claims that the encapsulation and addition of vitamin E removes the product from the class of oils and transforms it into a food or dietary supplement.
The protestant argues that the merchandise should be classified in heading 2106, HTSUS, as food supplements for human consumption, because of the ENs to that heading which provide, in part,
"The heading includes, inter alia :
(16) Preparations, often referred to as food supplements, based on extracts from plants, fruit concentrates, honey, fructose, etc. and containing added vitamins and sometimes minute quantities of iron compounds. These preparations are often put up in packagings with indications that they maintain general health or well-being. Similar preparations, however, intended for the prevention or treatment of diseases or ailments are excluded (heading 30.03 or 30.04)."
However, the introductory language of EN 21.06 states: "Provided that they are not covered by any other heading of the Nomenclature, this heading covers: [a list of exemplars follows]" [Emphasis in original]. Therefore, before classifying the articles in Chapter 21, we must first determine whether they can be classified in any other heading.
Customs has classified several encapsulated food products, described as food supplements, in heading 2106, HTSUS, the heading claimed by protestant as correct for the encapsulated fish oil and flax oil. However, inasmuch as heading 2106 only covers food preparations not elsewhere specified or included (emphasis added), whenever heading 2106 was selected, it was chosen because no other competing heading specified or included the food preparations.
In HQ 953679, dated February 3, 1994, ginseng root and various extracts were classified in heading 2106, HTSUS, because the competing headings 1302 and 1211, which cover raw vegetable materials to be further processed, were determined inappropriate.
HQ 960607, dated July 31, 1998, classified encapsulated ginseng extract as a food supplement in heading 2106, HTSUS. In that case, the competing provision was heading 1302, HTSUS. That heading was rejected because the product had not retained its character as a raw material. Customs had classified such finished products used as food supplements in heading 2106, HTSUS.
HQ 085492, dated October 20, 1989, classified encapsulated herbal products in heading 2106, HTSUS. In rejecting the competing provision, 1211, HTSUS, Customs stated: "Heading 1211, HTSUSA, provides for plants and parts of plants, of a kind used primarily in [perfumery, in pharmacy or for insecticidal, fungicidal or similar purposes. The Explanatory Notes to this section state that products which are more specifically described in other headings of the nomenclature are excluded from this heading. Based upon the use of the herbal supplements, they would fit more specifically in the category of food supplements, than as an item that would fall under heading 1211, HTSUSA."
While these rulings show that encapsulated products can be classified in heading 2106, HTSUS, they should not be read as indicating that all encapsulated products or all products used as food supplements are to be classified in Chapter 21. The cited rulings are useful to indicate that Chapter 21 will be used only when classification in other chapters is precluded.
It has been Customs practice to classify encapsulated oil in Chapter 15, HTSUS, provided the processing, composition or added ingredients do not exclude it from the chapter. As the ENs indicate, products of Chapter 15 are not limited to raw materials without added ingredients. The General ENs to Chapter 15, page 107, state, in part,
(A) This Chapter covers:
(1) Animal or vegetable fats and oils, whether crude, purified or refined or treated in certain ways (e.g., boiled, sulphurised or hydrogenated).
The ENs to Chapter 15, on page 108, define the term animal or vegetable fats and oils as "esters of glycerol with fatty acids (such as palmitic, stearic and oleic acids)." They continue to provide that, "Subject to the exclusions in Note 1 to this Chapter, vegetable or animal fats and oils and their fractions are classified in this Chapter whether used as foodstuffs or for technical or industrial purposes (e.g., the manufacture of soap, candles, lubricants, varnishes or paints)."
Fractionated oils are obtained from the whole oil by processes such as chilling, pressing and solvent fractionation. These processes separate the whole oil into two or more fractions. Each fraction is composed of the components of the original oil, but in selected proportions. As noted in the ENs, fractionation does not cause any changes in the chemical structure of the fats or oils.
The ENs also provide, on page 109, that fats and oils of Chapter 15 may also be subjected to the refining processes: "These headings cover crude fats and oils and their fractions, as well as those which have been refined or purified, e.g., by clarifying, washing, filtering, decolorizing, deacidifying or deodorizing."
T.J. Weiss, Food Oils and Their Uses, 2d ed., (AVI Publishing Company, Inc., 1983), 72 – 84 discusses the basic processing of fats and oils:
"Refining usually refers to the removal of nonglyceride fatty materials by washing the oils with strongly alkaline water solutions… ."
"Bleaching is the process used for the removal of pigments from the oil although some color bodies are removed during other processes as well. … The process of bleaching is relatively simple…."
"As the term implies, deodorization is the process whereby the odors and flavors of fats and oils are removed, resulting in a bland finished product."
The ENs to Chapter 15, on page 112 state that "Cod liver and halibut and other fish liver yield oils with a high content of vitamins and other organic substances. They are, therefore, chiefly used in medicine. These oils remain in this heading whether or not their vitamin content has been increased by irradiation or other wise, but they fall in Chapter 30 when put up as medicaments, or emulsified or containing other substances with a view to therapeutic use." If the fish oils are not classified as medicaments in chapter 30, they remain in chapter 15, even if their vitamin content has been increased. There is no reference to food supplements in chapter 21 of the HTSUS. The products remain in chapter 15 if they are not considered to be medicaments of chapter 30.
Therefore, it is clear that processing, stabilizing and encapsulating should not remove the subject fish oil and flax oil from classification in Chapter 15.
Heading 1517 provides for Margarine; edible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter, other than edible fats or oils of heading 1516. In describing the types of products classified in this heading, the ENs to the chapter state on page 121: "They are generally liquid or solid mixtures or preparations of:
(1) Different animal fats or oils or their fractions; (2) Different vegetable fats or oils or their fractions; or (3) Both animal and vegetable fats or oils or their fractions. The ENs then discuss the types of processing which may be performed on these products and ingredients which may be added: "The products of this heading, the fats or oils of which may previously have been hydrogenated, may be worked by emulsification (e.g., with skimmed milk), churning, texturation (modification of the texture or crystalline structure), etc., and may contain small quantities of added lecithin, starch, colouring, flavouring, vitamins, butter or other milkfat (subject to the restrictions in Note 1 (c) to this Chapter)." (emphasis added) Clearly, the ENs indicate that the mixtures may be processed, and may contain added ingredients. However, it is also clear that the mixtures are not required to be processed, or have added ingredients to be classified in heading 1517.
Products of Chapter 15 are not limited to raw materials without added ingredients. As noted above, the provisions also cover products when they are fractionated, refined, mixed with each other, when vitamins have been added, when they are mixed with certain added ingredients, and when they are subjected to certain additional processing. As stated, the ENs, on page 108, observe: "Subject to the exclusions in Note 1 to this Chapter, vegetable or animal fats and oils and their fractions are classified in this Chapter whether used as foodstuffs or for technical or industrial purposes (e.g., the manufacture of soap, candles, lubricants, varnishes or paints)." If the product is an oil or fat which can be classified in Chapter 15, which provides for oils and fats, there is no reason to consider Heading 2106 which provides for "Food preparations not elsewhere specified or included."
While they are not treated as dispositive, decisions of the Harmonized System Committee of the World Customs Organization, when published in the Compendium of Classification Opinions, constitute the official interpretation of the Harmonized System, and should receive the same weight of the ENs in ascertaining the classification of merchandise. At its 13th session, the HSC examined the classification of a product, "Dr. Dunner Evening Primrose Oil," put up in capsules. In Document 38.827E, dated August 5, 1995, the product was described as "… consisting of gelatin capsules reportedly containing 500 mg of evening primrose oil and 10 mg tocopherol (vitamin E). The capsule shell comprised gelatin, glycerol, and milkfat (although it was not clear with respect to the milkfat). This product was put up for retail sale (4 blister packs each containing 30 capsules, packed together in a cardboard box) with information sheet indicating that the product was designed to be taken on a daily basis (one or two capsules daily) to supplement the normal diet with the essential fatty acids contained in the oil (in particular gamma-linolenic acid (8%), which was important to body metabolism)." The decision of the HSC states: The Secretariat remains of the opinion that the addition of vitamin E and encapsulation are not sufficient to exclude the product from Chapter 15. Furthermore, products should be classified in the residual heading 21.06 only if they are not covered by any other headings in the Nomenclature. For these reasons, the Secretariat feels that the product should be classified in Chapter 15 rather than in heading 21.06."
This decision of the HSC reinforces the analysis that Customs has been following in classifying products such as the subject encapsulated fish oil in Chapter 15. See NY 803222, dated October 27, 1994, which classified bulk evening primrose oil to which natural alpha-tacopherol had been added as an anti-oxidant in subheading 1515.90.40, HTSUS.
Because we have been able to classify the products by virtue of GRI 1, it is not necessary to address protestant's arguments regarding the application of GRIs 2 and 3(b).
NAFTA Preference:
The rules for determining whether the encapsulated fish oil and flax oil is an "originating good" of Canada and thus eligible for preferential tariff treatment under the provisions of the North American Free Trade Act are provided for in General Note 12 of the HTSUS, which provides, in relevant part, as follows:
(a) Goods in the territory of a party to the North American Free Trade Agreement (NAFTA) are subject to duty as provided therein. For the purposes of this note –
(a)(i) Goods that originate in the territory of a NAFTA party under subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (whether or not the goods are marked), when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn followed by the symbol “CA” in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Implementation Act.
* * *
(b) For purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA party” only if:
(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
(ii) they have been transformed in the territory of Canada, Mexico, and/or the United States so that --
(A) except as provided in subdivision (f) of this note [de minimis provision], each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or....
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials....
Thus, by operation of GN 12, the eligibility of an article for NAFTA preferential treatment is predicated upon a finding that the goods are originating in the territory of a NAFTA party under GN 12(b) and that they are goods of Canada or Mexico under the NAFTA Marking Rules.
The subject encapsulated fish oil does not qualify for preferential treatment under the NAFTA because the non-originating oil does not undergo the change in tariff classification required by General Note 12 (t)/15, HTSUS. This General Note requires: "A change to headings 1501 through 1518 from any other chapter, except heading 3823." Since the anchovy fish oil was imported into Canada under subheading 1504, the required tariff shift has not been met.
Part 102 of the Customs Regulations (19 CFR 102), sets forth the NAFTA Marking Rules for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.20(c) requires: "A change to heading 1501 through 1516 from any other chapter."
According to information filed in support of the protest, the fish oil is imported into Canada from Norway in heading 1504. Since all the oil ingredients are of foreign origin, the tariff shift requirement is rendered meaningless. Because of the composition and source of the oil in the CAP-Fish 18-12 1000mg 10 iu DAT, the product would be a product of Norway
According to information filed in support of the protest, the flax oil is produced from plants grown in Canada and is entirely manufactured and encapsulated in Canada. Therefore, that product is considered an originating product and is eligible for preferential treatment under the NAFTA, upon compliance with all applicable laws, regulations and agreements.
HOLDING:
Encapsulated fish oil, CAP-Fish 18-12 1000mg 10 iu DAT, is classified in subheading 1504.20.6040, HTSUS, which provides for: Fats and oils and their fractions, of fish or marine mammals, whether or not refined, but not chemically modified: fats and oils and their fractions, of fish, other than liver oils: other: other.
Because of this classification, the encapsulated fish oil does not satisfy the applicable NAFTA preference tariff shift set forth in General Note 12(t), HTSUS. Therefore, the CAP-Fish 18-12 1000mg 10 iu DAT is not eligible for NAFTA preferential treatment.
Encapsulated flax oil, Cap-Flax 1000 mg. is classified in subheading 1515.19.0000, HTSUS, which provides for: Other fixed vegetable fats and oils (including jojoba oil) and their fractions, whether or not refined, but not chemically modified: linseed oil and its fractions: other. Because of its ingredients, the Cap-Flax 1000 mg. is eligible for preferential treatment under the NAFTA, upon compliance with all applicable laws, regulations and agreements.
The protest should be DENIED insofar as the classification question is concerned. As far as the question of NAFTA eligibility is concerned, the protest should be either DENIED or GRANTED as discussed above.. In accordance with Section 3A(11)(b) of Customs Directive 099 3550 065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.
Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
John Durant, Director
Commercial Rulings Division