CLA-2 OT:RR.CTF:VS H183724 RSD
William C. Sjoberg, Esq.
Munford Page Hall, Esq.
Adduci, Mastriani & Schaumberg, LLP.
1200 Seventeenth Street, N.W.
Washington, D.C. 20036
RE: Request for a Ruling on Wine Making Kits from Canada; NAFTA Tariff Preference; Yeast; Non-Originating Materials; De Minimis, General Note 12(f)(i), HTSUS
Dear Messrs. Sjoberg and Hall:
This is in response to your letter dated August 19, 2011, on behalf of Spagnol’s Wine & Beer Making Supplies Ltd. (Spagnol’s). Your letter concerns a request on the eligibility of wine making kits imported from Canada for preferential tariff treatment under the North American Free Trade Agreement (NAFTA). In an email received on November 16, 2011, you state that Spagnol’s requests that Customs Border Protection (CBP) issue a prospective ruling concerning future importations of the wine making kits rather than issuing an internal advice decision that concerns previous importations of the product. You have also sent a series of emails with attachments that show pictures of the product and the applicable ingredients.
FACTS:
Spagnol’s is a Canadian producer of wine making kits and an exporter of those kits to the United States. It acts as the U.S. importer of record for some of its wine making kits; however, most of the wine making kits under consideration that Spagnol’s produces and exports to the United States will be imported by unrelated U.S. customers. The wine making kits consist of a sealed retail cardboard box containing the following packaged components: a juice and/or
concentrate mixture in a plastic bag; a separate plastic bag containing instructions; a packet of yeast; packets of clarifying and stabilizing ingredients; and separate packages of flavor, oak and grape skins. The Canadian-origin packaged yeast is shipped to the United Kingdom. The yeast, along with five other minor pre-packaged components (bentonite, kieselsol, potassium sorbate, sulphite and chitosan, etc.) of the wine making kits, is packaged into a “kit component package” before being returned to Canada for retail packaging with the other components of the wine making kits. The completed kits are shipped to the United States.
In the past, the wine making kits were classified in subheading 2009.69.00, of the Harmonized Tariff Schedule of United States (HTSUS). On April 8, 2010, CBP Headquarters issued a ruling, Headquarters Ruling (“HQ”) H036155, concerning the proper classification of the wine making kits, and determined that the merchandise is properly classified in subheading 2106.90.99, HTSUS, if the kit contains diammonium phosphate.
An important component of the wine making kits is Canadian-origin yeast. In HQ H157455 dated August 2, 2011, CBP considered whether the wine making kits were eligible for preferential tariff treatment under the North American Free Trade Agreement (NAFTA). The Canadian-origin yeast, along with the five other minor pre-packaged components of the wine making kits, were shipped from Canada to the United Kingdom to be packaged together into a kit component package. The kit component package was returned to Canada and packaged into a wine making kit. The completed wine making kits were then shipped to the United States. Nothing other than packaging was done to the yeast while it was in the United Kingdom. Because all of the other materials in the wine making kit except for the yeast met the applicable tariff shift rule, the issue was whether the yeast along with the minor pre-packaged components of the wine making kits lost their Canadian origin status when they were repackaged into a package for the kit in the United Kingdom. CBP ruled that in accordance with General Note 12(l), HTSUS, the yeast component of the imported wine making kit lost its NAFTA originating status as a result of the transshipment and the repackaging operation performed in the United Kingdom. Therefore, we held that the wine making kits were not eligible for preferential tariff treatment under NAFTA.
In your current submission, you indicate that the five other minor components of the kit component package meet the relevant tariff shift requirements for the wine making kits. Only the yeast component does not meet the tariff shift once it is returned to Canada and packaged into the wine making kit. However, you claim that the yeast component should be considered as de minimis, and you have provided us additional information regarding the cost of the yeast and value of the wine making kit. According to your submission, the present maximum value of the packaged yeast component that is put into the wine making kit is US$0.227, while the current minimum transaction value (invoice price) of the wine making kits that Spagnol's exports to the United States is US$35.50. You further claim that given the current relative values of the wine making kits and their yeast component, it is highly unlikely that the yeast component will ever exceed a de minimis percentage of the transaction value of the wine making kits adjusted to a F.O.B. basis.
ISSUE:
Whether the wine making kits produced by Spagnol’s and exported to the United States are eligible for preferential tariff treatment under NAFTA because their disqualifying yeast component is considered de minimis.
LAW AND ANALYSIS:
Under the NAFTA, goods produced in Canada or Mexico are eligible for tariff preference if they satisfy certain rules. For goods imported into the United States, the statutory requirements are set out in General Note 12 HTSUS. The corresponding regulations are set out in Part 181 of the CBP Regulations (19 CFR Part 181).
General Note 12, HTSUS, provides, in pertinent part:
Goods originating in the territory of a party to the [NAFTA] are subject to duty as provided herein. For the purposes of this note –
Goods that originate in the territory of a NAFTA party under the terms of 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 Treasury (whether or not the goods are marked), and goods enumerated in subdivision (u) of this note, 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 Agreement Implementation Act.
. . . .
For the 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 -- . . . .
they have been transformed in the territory of Canada, Mexico and/or the United States so that –
except as provided in subsection (f) of this note, 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[.]
. . . .
As already noted, in HQ H157455 CBP ruled that in accordance with General Note 12(l), HTSUS the yeast component of the imported wine making kit lost its NAFTA originating status as a result of the transshipment and repackaging operation performed in the United Kingdom. Therefore, because the wine making kits contained non-originating materials, the kits were not eligible for the preferential tariff treatment under NAFTA. The de minimis rule for the NAFTA tariff preference is as follows:
(f) De Minimis.
(i) Except as provided in subdivisions (f)(iii) through (vi), inclusive, a good shall be considered to be an originating good if the value of all non-originating materials used in the production of the good that do not undergo an applicable change in tariff classification set out in subdivision (t) of this note is not more than 7 percent of the transaction value of the good, adjusted to a F.O.B. basis, or, if the transaction value is unacceptable under section 402(b) of the Tariff Act of 1930, as amended, the value of all such non-originating materials is not more than 7 percent of the total cost of the good, provided that --
. . . .
(B) the good satisfies all other applicable requirements of this note.
. . . .
Therefore, we look to see if the de minimis rule based on the cost of the yeast component as a percentage of the total value of the wine making kits is applicable to this case. In this instance, you indicate that the value of the yeast is $0.227. Consequently, you indicate the maximum percentage of the transaction value of the wine making kits attributable to the yeast component is about 0.64 percent. Although in the future, the cost of the yeast component could vary slightly, it is unlikely that it will approach 7 percent of the value of the wine making kits. Therefore, because the cost of the non-qualifying packaged yeast component is below 7 percent of the value of the wine making kits, the de minimis rule set forth in GN 12(f)(i), HTSUS will be satisfied. Assuming that the value and the cost information you have provided regarding the wine making kits and the yeast component is satisfied at the time of entry, the imported wine making kits in this case would be considered as originating, and would be eligible for NAFTA tariff preference.
HOLDING:
Assuming the value information concerning the wine making kits and yeast is satisfied at the time of entry, the yeast component of the wine making kits will meet the de minimis requirement of General Note 12(f)(i). Therefore, the wine making kits will be eligible for treatment as a good of a NAFTA country (Canada) and would be eligible for NAFTA tariff preference.
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 CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Value and Special Programs Branch