CLA-2-29:OT:RR:NC:2:240
Mr. Aaron Marx
Crowell and Moring, LLP
1001 Pennsylvania Ave., NW
Washington, D.C. 20004
RE: The tariff classification and status under the United States-Israel Free Trade Agreement (IFTA), of Tri Potassium Citrate from Israel.
Dear Mr. Marx:
In your letter dated March 27, 2015, you requested a ruling on the classification of Tri-potassium Citrate (CAS # 866-84-2) and its status under the IFTA, on behalf of Gadot America, Inc.
The subject product is produced via a chemical reaction of inorganic and organic reactants through mixing, a chemical reaction and physical purification processes. You describe it as a salt of citric acid, which contains three carboxylate groups, and an alcohol group. The chemical documentation that you submitted was reviewed by our Laboratory and Scientific Services Department. That review is now complete and your requested ruling follows. We apologize for the delay.
The applicable subheading for the Tri-potassium Citrate will be 2918.15.5000, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Carboxylic acids with additional oxygen function and their anhydrides, halides, peroxides and peroxyacids; their halogenated, sulfonated, nitrated or nitrosated derivatives: Carboxylic acids with alcohol function but without other oxygen function, their anhydrides, halides, peroxides, peroxyacids and their derivatives: Salts and esters of citric acid: Other.” The rate of duty will be 3.7% ad valorem.
In determining whether a substantial transformation occurs in the manufacture of products from chemicals, CBP has consistently examined whether a chemical reaction occurs when two chemicals are mixed in the production of the final article. See Headquarter Ruling Letter (HRL) 555248, dated April 9, 1990; HRL 556064, dated March 29, 1990; and HRL 555403, dated June 6, 1990. When chemical compounds are mixed together to form a different substance and the individual properties of each ingredient are no longer discernable, they have undergone a substantial transformation.
We find that the totality of the operations performed in Israel to produce the TPC results in a substantial transformation of the chemical inputs imported into Israel. The production of TPC involves a single chemical reaction resulting from the initial mixing step. Several purification processes are also performed in the processing (filtering etc.). As a result of the mixing and chemical reaction, the chemical inputs lose their separate identities and become a new and different article with a new name, character and use. As such, the Tri Potassium Citrate may be considered a “product of” Israel.
With regards to your query on if the instant product may be eligible for the benefits pertaining to the Israel Free Trade Agreement (IFTA), we note the following.
Under the U.S.-Israel FTA, articles which are the growth, product, or manufacture of Israel may qualify for duty-free treatment if the goods are imported directly into the customs territory of the United States and the sum of the cost or value of materials produced in Israel, plus the direct costs of the processing operations performed in Israel, is equal to, or greater than, 35 percent of the appraised value of the article at the time of entry into the United States. See General Note 8, Harmonized Tariff Schedule of the United States (“HTSUS
If an article is produced or assembled from materials which are imported into Israel, the cost or value of those materials may be counted toward the 35% value-content minimum as “materials produced in Israel” only if they are subjected to a double substantial transformation in Israel.
General Note 8(b), HTSUS, sets forth the criteria for determining whether goods are eligible for treatment as “products of Israel” under the IFTA. General Note 8(b), HTSUS, (19 U.S.C. § 1202) states, in pertinent part, that:
For purposes of this note, goods imported into the customs territory of the United States are eligible for treatment as “products of Israel” only if--
(i) each article is the growth, product or manufacture of Israel or is a new or different article of commerce that has been grown, produced or manufactured in Israel;
(ii) each article is imported directly from Israel (or directly from the West Bank, the Gaza Strip or a qualifying industrial zone as defined in general note 3(a)(v)(G) to the tariff schedule) into the customs territory of the United States; and
(iii) the sum of--
(A) the cost or value of the materials produced in Israel, and including the cost or value of materials produced in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, plus
(B) the direct costs of processing operations performed in Israel, and including the direct costs of processing operations performed in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, is not less than 35 percent of the appraised value of each article at the time it is entered.
If the cost or value of materials produced in the customs territory of the United States is included with respect to an article to which this note applies, an amount not to exceed 15 percent of the appraised value of the article at the time it is entered that is attributable to such United States cost or value may be applied toward determining the percentage referred to in subdivision (b)(iii) of this note.
You indicate in your ruling request (in part) that:
As discussed above, the instant TPC is manufactured by reacting … a reaction which produces a new and different article of commerce. As such, GN 8(b)(i), HTSUS, is satisfied. Furthermore, the instant TPC will be imported directly from Israel to the United States. As such, GN 8(b)(ii), HTSUS, is satisfied.
You additionally propose that:
With regard to GN 8(b)(iii), …. When an article is produced from materials that are imported into Israel, the cost or value of those imported materials may be included in satisfying the 35% value-content requirement only if they undergo a double substantial transformation in Israel. In order to achieve a double substantial transformation, the non-Israeli inputs must be substantially transformed in Israel into new and different intermediate articles of commerce, which are then used in Israel in the production of the final imported product. The intermediate material itself must be an article of commerce, which must be readily susceptible of trade, and be an item that persons might well wish to buy and acquire for their own purposes of consumption or production.” See HQ H249770, dated November 7, 2014 (citing Torrington Co., v. United States, 764 F.2d 1563, 1570 (Fed. Cir. 1985)).
In HQ H249770 it was stated that:
The intermediate material itself must be an article of commerce, which must be "readily susceptible of trade, and be an item that persons might well wish to buy and acquire for their own purposes of consumption or production." Torrington Co., v. United States, 764 F.2d 1563, 1570 (Fed. Cir. 1985).
In HQ H192144, although in reference to a different trade program, it was stated that the second transformation must be more than simply a “pass through” operation.
We find that mixing and the chemical reaction produces a change in name, character and use of the starting chemical products. Based on the facts provided, the goods will meet the requirements of HTSUS General Note 8(b)(i) and (ii).
The issue remaining is whether the 35% value-content requirement is satisfied in this case.
In order to be eligible for the “special” duty rate if, upon importation, any non-Israeli inputs must meet the rules and requirements subject to the IFTA. That is they must be subject to a double substantial transformation in order to be allowable in the target costs. We find that the mixing operations and chemical reaction that occurs are insufficient production processes for the purposes of meeting eligibility for the IFTA. The mixing process is performed to initiate the single chemical reaction that occurs during the production of the TPC. The subsequent filtering and purification of the TPC is insufficient for purposes of the double substantial transformation required. It is our opinion therefore that those costs cannot be included in the value needed for the IFTA requirements.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at http://www.usitc.gov/tata/hts/.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Paul Hodgkiss at (646) 733-3268 or via email at [email protected]
Sincerely,
Gwenn Klein Kirschner
Director
National Commodity Specialist Division