CLA-2 RR:CR:GC 965322ptl
Ms. Mollie R. Coyne
Mr. John M. Peterson
Neville Peterson, LLP
80 Broad Street
New York, New York 10004
RE: Reconsideration of NY H84904, Pharmaceutical Grade Gelatin.
Dear Ms. Coyne and Mr. Peterson:
This letter is in response to your letter of November 14, 2001, on behalf of Vyse Gelatin Company, in which you request reconsideration and modification of the classification, under the Harmonized Tariff Schedule of the United States (HTSUS), that was provided by New York Ruling Letter (NY) H84904, dated September 5, 2001, and issued to you on behalf of the Vyse Company, concerning a commodity which you refer to as finished, worked, pharmaceutical grade gelatin.
FACTS:
You describe the merchandise under consideration as being "worked, unhardened 'pharmaceutical grade' gelatin, to be manufactured in a country which is a party to the NAFTA." You further state that the gelatin will be manufactured with the use of raw edible gelatin manufactured in non-NAFTA countries. You agree that the raw gelatin is classified as edible gelatin in subheading 3503.00, HTSUS.
The actions you term "manufacturing processes" which are to be performed in the NAFTA party are as follows. The raw edible gelatin will be screened to remove any foreign materials, and magnets will be used to remove any metal or metallic particles in the gelatin. You state that the gelatin is then subjected to "working," by being ground to the particle size specified for pharmaceutical grade gelatin, and blended to customer specifications. After blending, the ground pharmaceutical gelatin is screened again with rare earth magnets to ensure the removal of any metal particles therefrom.
Prior to packaging, samples of the gelatin are tested to assure that the product conforms to the standards set by the United States Pharmacopoeia for pharmaceutical grade gelatin. The product is packaged in drums or bags and shipped to customers who use it to make gelatin products, most notably soft gel caps, hard capsules and tablets.
In NY H84904, Customs classified the finished product in subheading 3503.00.5510, HTSUS, which provides for: Gelatin (including gelatin in rectangular (including square) sheets, whether or not surface-worked or colored) and gelatin derivatives; isinglass; other glues of animal origin, excluding casein glues of heading 3501; other edible gelatin. You argue that while this classification is correct for the raw materials, it is incorrect for the finished product.
You argue that, because of the processing the product undergoes in the NAFTA country, the finished product should be classified in subheading 9602.00.10, HTSUS, which provides for: Worked vegetable or mineral carving material and articles of these materials; molded or carved articles of wax, of stearin, of natural gums or natural resins, of modeling pastes, and other molded or carved articles, not elsewhere specified or included; worked, unhardened gelatin (except gelatin of heading 3503) and articles of unhardened gelatin; worked unhardened gelatin and articles thereof. This classification of the product in heading 9602 would make the product eligible for preferential treatment under the NAFTA because it would have undergone the change in tariff classification required by General Note 12(t)/35.4, HTSUS.
ISSUE:
What is the classification of pharmaceutical grade gelatin; is the product eligible for preferential tariff treatment under the 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 headings under consideration are as follows:
3503.00 Gelatin (including gelatin in rectangular (including square) sheets, whether or not surface-worked or colored) and gelatin derivatives; isinglass; other glues of animal origin, excluding casein glues of heading 3501:
* * *
Inedible gelatin and animal glue:
* * *
3503.00.55 Other
35033.00.5510 Edible gelatin
9602.00 Worked vegetable or mineral carving material and articles of these materials; molded or carved articles of wax, of stearin, of natural gums or natural resins, of modeling pastes, and other molded or carved articles, not elsewhere specified or included; worked, unhardened gelatin (except gelatin of heading 3503) and articles of unhardened gelatin:
9602.00.10 Worked unhardened gelatin and articles thereof
9602.00.40 Unfilled gelatin capsules
9602.00.80 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:
You argue that the operations performed on the raw gelatin in the NAFTA party country to produce pharmaceutical grade gelatin creates a new and different product which should be classified in heading 9602, HTSUS.
In support of this position, you refer to the ENs. The ENs to heading 96.02 refer us to the ENs to heading 96.01. "For the definition of the term 'worked', the second paragraph of the Explanatory Note to heading 96.01 applies, mutatis mutandis, to this heading …" That EN provides, in relevant part, as follows:
"For the purposes of this heading, the expression “worked” refers to materials which have undergone processes extending beyond the simple preparations permitted in the heading for the raw material in question (see the Explanatory Notes to headings 05.05 to 05.08). The heading therefore covers pieces of ivory, bone, tortoise-shell, horn, antlers, coral, mother-of-pearl, etc., in the form of sheets, plates, rods, etc., cut to shape (including square or rectangular) or polished or otherwise worked by grinding, drilling, milling, turning, etc. However, pieces which are identifiable as parts of articles are excluded from this heading if such parts are covered by another heading of the Nomenclature."
You state that the additional grinding, blending and magnetic screenings the gelatin undergoes in the NAFTA country are processes which satisfy and are comparable to the description of "worked" provided for in the EN. You state that the mere grinding of the raw gelatin would be sufficient to qualify the product for classification in heading 9602.
Customs has reviewed the arguments you have made and does not find them persuasive for the following reasons.
Gelatin is provided for eo nomine in heading 3503, HTSUS, and edible gelatin is provided for eo nomine in subheading 3503.00.55, HTSUS. The ENs to heading 35.03 provide, in relevant part, as follows:
"Gelatin is usually in the form of thin, transparent, almost colourless and odourless sheets still bearing the impressions of the nets on which it was dried, but it is also marketed in slabs, plates, sheets, flakes, powders, etc." (Emphasis added)
The ENs also provide guidance for processes which will cause gelatin to be classified in headings other than 3503. They provide that "Sheets of gelatin are classified in this heading provided they are in the form of rectangles (including squares), and whether or not they are surface-worked or coloured (e.g., embossed, metallised, printed - other than gelatin postcards and other products printed as described in Chapter 49). If cut otherwise than in rectangles or squares (e.g., discs) they are classified in heading 96.02. Moulded or carved unhardened gelatin is also classified in heading 96.02. (Emphasis in original)
The production of gelatin is a long process. The Merck Index, Eleventh Edition, 1989, at page 685, defines Gelatin as "[a] heterogeneous mixture of water-soluble proteins of a high average mol. wt. Gelatin is not found in nature but derived from collagen, q.v. by hydrolytic action." The description continues, "Colorless or slightly yellow, transparent, brittle, practically odorless, tasteless sheets, flakes, or coarse powder."
The Wiley Encyclopedia of Food Science and Technology, Vol. 2, describes two processes by which collagen is processed to become gelatin: an acid process and an alkali process. Both involve soaking the raw ingredients (usually hides and bones) and then heating, filtering and drying the gel. Both processes are said to have as their final steps, grinding and blending to consumer requirements and packaging.
Clearly, the powdered edible gelatin of subheading 3503.00.5510, HTSUS, has been "worked" to become a powdered substance. The critical question here is whether grinding the raw gelatin so that it meets the specifications for pharmaceutical grade gelatin, is a processing beyond the "simple preparations permitted in the heading for the raw material in question."
To support your contention that the operations which take place in the NAFTA country are sufficient to change the raw gelatin into a new product, you cite NY 895087, dated March 24, 1994, which concerned USA-origin gelatin that was to be exported to France for blending with French-origin gelatin. The resultant blend would then be imported into the USA. That ruling determined that instead of being eligible for classification under a "repair or alteration" provision, the blending of the two types of gelatin created a new product with a new and different characteristic and use. Thus, the resultant product was not eligible for treatment as a "repaired or altered" product. In response, we note that the considerations involved in "repair or alteration" provisions of Chapter 98 are not comparable to the "worked" provisions of headings 9601 and 9602. We further note that even after the blending process the product at issue in NY 895087 was classified in subheading 3502.00.5510, HTSUS.
Other rulings you cite, NY D89279, dated November 16, 1999, NY 811937, dated June 29, 1995, and NY D80818, dated November 24, 1998, all addressed classification of gelatin capsules in heading 9602, HTSUS. You state that because that heading refers to worked unhardened gelatin in addition to "articles of gelatin" your client's granular gelatin should be considered to have been "worked" and should thus be classified therein.
The processes you have indicated that have been taken to change the raw gelatin into pharmaceutical gelatin are: grinding, screening, magnetic examination, blending and packaging. Customs does not believe that these actions constitute steps which would exceed those necessary for preparation of the raw material. The operations undertaken in the NAFTA country do not transform the raw gelatin into a new and different class of article. The raw gelatin has already been subjected to grinding. Pharmaceutical grade gelatin is simply ground finer. The screening, blending and passing over a magnet cannot be considered to be "working" the product.
The Customs Laboratory examined samples of both the "raw Brazilian gelatin" and the "worked, unhardened pharmaceutical grade gelatin" you provided. The Laboratory did not find any evidence of surface working on either sample. Neither sample was found to be an "article of gelatin" as described in EN 96.02. However, both samples were found suitable for being made or formed into articles or shapes for special uses such as capsules. Neither sample was found to be so processed that it exceeded the scope of preparation contemplated by heading 3503, HTSUS. (Lab Report #NY 20020271)
Based upon the above analysis, Customs believes both the raw gelatin and the pharmaceutical grade gelatin are classified in subheading 3503.00.5510, HTSUS.
NAFTA Preference:
The rules for determining whether the pharmaceutical grade gelatin is an "originating good" of a NAFTA party 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.
GN 12(t)/35.4 requires that one or more of the non-originating materials used in the production of the subject good undergo "[a] change to headings 3503 through 3504 from any other heading, including another heading within that group."
Because the non-originating gelatin is classified in the same heading as the subject pharmaceutical grade gelatin, the required change in classification does not occur. Therefore, the pharmaceutical grade gelatin does not qualify for preferential treatment under the NAFTA.
HOLDING:
Pharmaceutical grade unhardened gelatin is classified in subheading 3503.00.5510, HTSUS, which provides for: Gelatin (including gelatin in rectangular (including square) sheets, whether or not surface-worked or colored) and gelatin derivatives; isinglass; other glues of animal origin, excluding casein glues of heading 3501: other; edible gelatin.
The pharmaceutical grade unhardened gelatin which is the subject of this ruling is not an "originating good" of a NAFTA party, and therefore is not eligible for preferential tariff treatment under the NAFTA.
NY H84904, dated September 5, 2001, is affirmed.
Sincerely,
Myles B. Harmon, Acting Director
Commercial Rulings Division