MAR-02 OT:RR:CTF:VS H262945 RSD
Aaron Marx, Esq.
Crowell Moring
1001 Pennsylvania Avenue
Washington, D.C. 20004-2595
RE: Country of Origin Marking Requirements for Packages of Organic Sprouted Mung Beans Processed in the United States; NAFTA Preference for Mung Beans Sprouted in Mexico
Dear Mr. Marx:
This letter is in response to the email of February 6, 2015, sent to the National Commodity Specialist Division, requesting a ruling regarding the country of origin marking requirements for organic sprouted mung beans, which are sourced from mung beans grown in Asia. The request was forwarded by the Director, National Commodity Specialist Division to our office for a response. You made an additional submission by email on July 22, 2015.
FACTS:
According to your submissions, J.M. Smucker Company’s (Smucker) subsidiary, Enray, is planning to import organic mung beans (Vigna radiate). The organic mung beans are sourced from a processor in Asia, where the beans are grown, harvested, cleansed and dried. After importation into the U.S., the mung beans will be processed by sprouting the beans, drying the sprouts and packaging the sprouted beans into 10 oz. plastic pouches for retail sale. Once the mung beans undergo this processing in the U.S., they are considered “sprouted mung beans.” The sprouting process takes 24-48 hours and involves the soaking, sprouting and dehydrating the whole beans to turn them into sprouted beans. The process causes the beans to grow a physically visible sprout and/or split. The cooking time for the product is significantly reduced. The length of the sprout is less than 3 mm. The product consists of 100 percent sprouted mung beans without any added ingredients. This further processing may take place in a United States facility, after importation of the mung beans. The sprouted mung beans allegedly have some additional nutritional benefits, but you do not specifically describe what those nutritional benefits are. In your submission of July 22, 2015, you further indicate that in some instances the sprouting process may also take place at a Mexican facility before the mung beans are imported into the United States.
ISSUE:
What are the country of origin marking requirements for the sprouted mung beans described above that will be processed in the United States from organic mung beans imported from Asian countries?
Are the mung beans processed in Mexico entitled to the duty preference under NAFTA?
LAW AND ANALYSIS:
COUNTRY OF ORGIN MARKING
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 United States the English name of the country of origin of the article. By enacting 19 U.S.C. §1304, Congress intended to ensure “that the ultimate purchaser would be able to know by inspecting the marking on the imported goods the country of which the goods are the product. The evident purpose is to mark the goods so that at the time of 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. Friedlaender & Co., 27 C.C.P.A. 297, 302 (1940).
Section 134.1 (b), Customs Border Protection (CBP) Regulations (19 C.F.R. §134.1(b)), defines “country of origin” as the country of manufacture, production or growth of any article of foreign origin entering the U.S. 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 the marking laws and regulations.
Section 134.35(a), CBP Regulations (19 C.F.R. §134.35(a)), states:
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 containers of the imported articles shall be marked in accord with this part.
In some instances, the mung beans will be imported from Asian countries into the United States where they will undergo a sprout process. As a result of the sprouting process, the mung beans will sprout and grow from a dormant bean form into a germinated live plant. When they sprout and split, the sprouted beans will have a different appearance in that they are sprouts, which resemble live plants and not just beans. They will then be referred to as bean sprouts rather than just beans. The way the sprouted mung beans can be used also differs from the beans because the cooking time to prepare the product is significantly reduced and the mung bean sprouts have a different nutritional value from the unsprouted mung beans.
Therefore, we find that the sprouting process of the imported mung beans in the United States results in their substantial transformation, which makes them a product of the United States. Accordingly, we find that the country of origin of the sprouted mung beans is the United States. Smucker or its subsidiary, Enray, will be considered the ultimate purchaser of the imported mung beans that will undergo sprouting in the United States. In accordance with 19 C.F.R. 134.35(a), the sprouted mung beans are excepted from the country of origin marking requirements of 19 U.S.C. 1304, meaning that the retail packages in which they will be sold to consumers are not required to be marked to indicate the country of origin of either the mung bean sprouts or the unsprouted beans. Under 19 C.F.R. 134.35(a), only the outermost containers in which the unsprouted mung beans are imported are required to be marked to indicate the country of origin of the imported mung beans pursuant to 19 U.S.C. 1304(a)(3)(D).
However, you should be aware that the Federal Trade Commission ("FTC") has jurisdiction concerning the use of the phrase "Made in the U.S.A.", or similar words denoting U.S. origin. Consequently, any inquiries regarding the use of such phrases reflecting U.S. origin should be directed to the FTC, at the following address: Federal Trade Commission, Division of Enforcement, 6th & Pennsylvania Avenue, N.W., Washington, D.C. 20508.
NAFTA TARIFF PREFERENCE
In your most recent submission dated July 22, 2015, you indicate that the sprouting process may also take place at a facility located in Mexico before importation to the United States. You further contend that the sprouted mung beans from imported from Mexico after being processed there, should be entitled to the duty preference under the North American Free Trade Agreement (NAFTA).
General Note 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. General Note 12 (a)(ii), HTSUS, provides, in pertinent part, that:
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 Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether 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 "MX" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
Accordingly, the sprouted mung beans imported from Mexico will be eligible for the “Special” “MX” rate of duty provided: (1) they are deemed to be NAFTA originating under the provisions of General Note 12(b), HTSUS; and, (2) qualify to be marked as products of Mexico under the NAFTA Marking Rules that are set forth in Part 102 of the Code of Federal Regulations (19 CFR 102). In order to determine whether the sprouted mung beans are NAFTA-originating, we must consult General Note 12(b), HTSUS, which provides, in pertinent part, as follows:
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 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, 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
(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Because the sprouted mung beans are sprouted from non-originating beans produced in Asian countries, General Note 12(b)(i), HTSUS, does not apply. Therefore, we must determine whether the non-originating materials undergo the requisite tariff shift (or other applicable requirement) prescribed under General Note 12(b)(ii), HTSUS. The National Commodity Division has advised that the dried mung beans are classified in Heading 0713, in the Harmonized Tariff Schedule of the United States (HTSUS) and the dried sprouted mung beans are classified in Heading 0712, HTSUS. The applicable rule regarding the requisite change of tariff classification for goods classified in Heading 0713, HTSUS would be found in General Note 12(t)/(7), HTSUS which provides:
A change to subheadings 0712.20 through 0712.39 from any other chapter.
3. (A) A change to savory, crushed or ground, of subheading 0712.90 from savory, neither crushed nor ground, of subheading
0712.90 or any other chapter; or
(B) A change to any other good of subheading 0712.90 from any other chapter.
Accordingly, the applicable tariff shift rule for goods classified in Heading 0712, HTSUS, requires a chapter change. Based on the classification information provided by the National Commodity Division, the mung beans do not change HTSUS chapter, as a result of the sprouting process occurring in Mexico. Therefore the applicable tariff shift rule of GN 12(t)/(7) is not satisfied by the processing performed in Mexico.
However, General Note 12(s), HTSUS, provides for an exception to the tariff shift rules for agricultural products grown in the territory of a NAFTA party. It states:
(s) Exceptions to Change in Tariff Classification Rules.
(i) Agricultural and horticultural goods grown in the territory of a NAFTA party shall be treated as originating in the territory of that party even if grown from seed, bulbs, rootstock, cuttings, slips or other live parts of plants imported from a non-party to the NAFTA, except that goods which are exported from the territory of Mexico and are provided for in--….
Accordingly even if the applicable tariff shift rule has not been met, an agricultural product will still be an NAFTA originating good for the NAFTA tariff preference, if it is grown within the territory of a NAFTA party. In HQ H262294 dated May 1, 2015, we considered the country of origin of lentils sprouted in the United States from laird lentils imported from Canada. In the ruling, we indicated that that the sprouting of the laird lentils in the United States resulted in their germination into the early stages of a plant. We referred to the website Dictionary.com, which defined the word sprout as: “to begin to grow; shoot forth as a plant from a seed.” (emphasis added). Thus, in accordance with this definition, we found that the sprouting of the laird lentils would constitute a growing of an agricultural good in the United States. Therefore, although the specific tariff shift rule for products classified in Heading 0712, HTSUS, were not be met, in accordance with the applicable note, the sprouted lentils will become a good of the country where the sprouting process occurs, which in this case is the United States. Therefore, the country of origin of the sprouted lentils is the United States.
Likewise, in this case a very similar process is occurring when the mung beans are sprouted in Mexico. Consequently, we also find that the sprouting or germination of the mung beans constitutes a growing of an agricultural or horticultural product. Therefore, athough when the mung beans are sprouted in Mexico the specific tariff shift rule in General Note 12(t) would not be satisfied, nevertheless because they are considered grown in the territory of Mexico, under the exception in General Note 12(s), they would be considered originating in Mexico for the NAFTA tariff preference.
As previously noted, in order to be eligible for NAFTA tariff preference treatment, General Note 12(a)(i), HTSUS, provides that NAFTA-originating goods must also qualify to be marked as products of Mexico or Canada under the NAFTA Marking Rules. In this regard, 19 C.F.R. § 134.1(j) provides that "[t]he “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country.” 19 C.F.R. § 134.1(j) defines a “good of a NAFTA country” as “an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules.” Therefore, in order for the sprouted mung beans at issue to qualify for preferential treatment under the NAFTA, they must not only originate in the territory of Mexico under the provisions of General Note 12, but they must also qualify to be marked as goods of Mexico. Consequently, we must apply the NAFTA Marking Rules contained in 19 C.F.R. Part 102 of the CBP Regulations.
Section 102.11 sets forth the general rules for determining the country of origin of imported merchandise, with the exception of textile goods which are subject to the provisions of § 102.21. In this case, § 102.11(a)(3) is applicable and provides that the country of origin of a good is the country in which:
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.
The previously referred earlier, the sprouted mung beans are classified in Heading 0712, HTSUS, and the unsprouted mung beans are classified in Heading 0713. The applicable rule for products classified in heading 0712, HTSUS, under 19 C.F.R. 102.20(d), Section II: Chapters 6 through 14, is as follows:
0712 A change to heading 0712 from any other chapter; or
A change to powdered vegetable of heading 0712 from any other product of Chapter 7, if put up for retail sale.
Because both the unsprouted mung beans and the sprouted mung beans are both classified in chapter 7 of the HTSUS, the requisite tariff shift rule specified above will not be satisfied as a result of the sprouting process that will occur in the Mexico. However, there is a note which precedes the applicable change in tariff classifications for 19 C.F.R. 102.20(b) Section II Chapters 6 through 14, which provides that:
Notwithstanding the specific rules of this section, an agricultural or horticultural good grown in the territory of a county shall be treated as a good of that country even if grown from seed or bulbs, root stock, cuttings, slips or other live parts or plants imported from a foreign country.
As explained previously, we find that the sprouting of the mung beans constitutes a growing of an agricultural good. Therefore, although the specific tariff shift rule under the NAFTA marking rules for products classified in heading 0712, HTSUS, would not be met, in accordance with the applicable note, the sprouted mung beans will become goods of the country where the sprouting process occurs, which in this case is Mexico. Therefore, the mung beans sprouted in Mexico qualify to be marked as goods of Mexico and are eligible the NAFTA tariff preference.
HOLDING:
The mung beans imported from Asian countries are substantially transformed as a result of the sprouting process that takes place in the United States. The importer, who performs the sprouting process is the ultimate purchaser of the mung beans, and the mung beans sprouts and their retail packages are excepted from the country of origin marking requirements of 19 U.S.C. 1304. At importation, only the outermost containers must be marked in accordance with 19 C.F.R. 134.35(a).
Based upon the information presented, the mung beans sprouted in Mexico will be considered as originating in Mexico for the NAFTA preferential tariff treatment pursuant to General Note 12(b).
U.S. Customs and Border Protection NAFTA Regulations, 19 CFR 181.100 (a)(2), provide that each NAFTA ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of an advance ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the advance ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the advance ruling was based. If any of the facts are materially different or a condition has not been satisfied, the treatment specified in the advance ruling will not be applied to the actual transaction.
A copy of this 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,
Ieva K. O’Rourke
Chief, Tariff Classification and Marking Branch