CLA-2-18:OT:RR:NC:N2:N232
Mr. Graeme Honeyfield Glinso Foods LLC 3800 SW Cedar Hills Blvd
Beaverton, OR 97005
RE: The classification, country of origin, marking and eligibility of the United States-
Mexico-Canada Trade Agreement (USMCA) for a “Sucrose, Lactose and Cocoa Powder Blend” (“SLCB”) from Mexico
Dear Mr. Honeyfield:
This is in response to your letter dated February 3, 2023, requesting a ruling on classification,
country of origin and the eligibility of the USMCA on a “Sucrose, Lactose and Cocoa Powder Blend.” An ingredients breakdown, a cost breakdown, a manufacturing flowchart, and descriptive literature were included with your inquiry.
The subject merchandise is a “Sucrose, Lactose and Cocoa Powder Blend” (“SLCB”) which is described as a dry blend of 94.9 percent refined cane sugar, 4.1 percent lactose and 1 percent cocoa powder. The sugar in the blend is grown and refined in Mexico and is said to have a stated polarity of 99.7 degrees. The lactose is a product of the United States. The cocoa powder is produced in the United States from cocoa beans sourced from non-USMCA countries. The ingredients are processed, blended and packed in Mexico. The “SLCB” will be imported in railcars or in 1000-1500 kg supersacks. The finished product will used in making chocolate and confectionery products.
Classification:
The applicable subheading for the “SLCB” will be 1806.10.4500, Harmonized Tariff Schedule of the United States (HTSUS), which provides for Chocolate and other food preparations containing cocoa: Cocoa powder, containing added sugar or other sweetening matter: Containing 90 percent or more by dry weight of sugar: Articles containing over 65 percent by dry weight of sugar described in additional U.S. note 2 to chapter 17: Described in additional U.S. note 7 to chapter 17 and entered pursuant to its provisions. The general rate of duty will be 10 percent ad valorem.
If the quantitative limits of additional U.S. note 7 to chapter 17 have been reached, the product will be classified in subheading 1806.10.5500, HTSUS, and dutiable at the rate of 33.6 cents per kilogram. In addition, products classified in subheading 1806.10.5500, HTSUS, will be subject to additional duties based on their value, as described in subheadings 9904.17.17 to 9904.17.48, HTSUS.
Country of Origin Marking
The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. 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 U.S. the English name of the country of origin of the article.
The "country of origin" is defined in 19 CFR 134.1(b) as “the country of manufacture, production, or growth of any article of foreign origin entering the United States. 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 this part; however, for a good of a NAFTA or USMCA country, the marking rules set forth in part 102 of this chapter (hereinafter referred to as the part 102 Rules) will determine the country of origin.”
Pursuant to section 102.0, interim regulations, related to the marking rules, tariff-rate quotas, and other USMCA provisions, published in the Federal Register on July 6, 2021 (86 FR 35566), the rules set forth in §§ 102.1 through 102.18 and 102.20 determine the country of origin for marking purposes with respect to goods imported from Canada and Mexico. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes, with the exception of textile goods which are subject to the provisions of 19 C.F.R. § 102.21. Applied in sequential order, the required hierarchy establishes that: (a) The country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other requirements of these rules are satisfied.
The subject merchandise is neither “wholly obtained or produced” nor “produced exclusively from domestic materials.” Therefore, Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the “SLCB” is neither wholly obtained nor produced exclusively from “domestic” (Mexico, in this case) materials. Accordingly, we look to section 102.11(a)(3). The applicable tariff shift requirement in section 102.20 for the “SLCB” of subheading 1806.10, HTSUS, consists of the following:
A change to subheading 1806.10 from any other heading, except from heading 1805 or from Chapter 17; or
A change to subheading 1806.10 from Chapter 17, provided that the good contains less than 65 percent by dry weight of sugar.
Because the foreign materials, cocoa powder and lactose, contained in the “SLCB” are classified in subheading 1805.00 and 1702.11 within the heading 1805 and Chapter 17, the tariff shift rule is not satisfied.
We note that Section 102.13 provides for a de minimis exception for foreign materials that do not undergo the applicable change in tariff classification required in § 102.20. Section 102.13(a) provides:
Except as otherwise provided in paragraphs (b) and (c) of this section, foreign materials that do not undergo the applicable change in tariff classification set out in § 102.20 or satisfy the other applicable requirements of that section when incorporated into a good shall be disregarded in determining the country of origin of the good if the value of those materials is no more than 7 percent of the value of the good or 10 percent of the value of a good of Chapter 22, Harmonized System.
Based on the information provided, the value of the cocoa powder contained in the “SLCB” is no more than 7 percent of the value of the product. Therefore, the cocoa powder is de minimis under § 102.13(a) and shall be disregarded in applying the tariff shift requirement of § 102.20. However, the value of the lactose is over 7 percent.
Since an analysis of section 102.11(a)(3) has not produced a country of origin determination, we turn to section 102.11(b) of the regulations.
Section 102.11(b) states, in relevant part:
Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good, or…
When determining the essential character of a good under 19 C.F.R. § 102.11, 19 C.F.R. § 102.18(b)(1) provides that only domestic and foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the § 102.20 specific rule or other requirements applicable to the good shall be taken into consideration.
In this case, the domestic material, sugar of Mexican origin, is classified in heading 1701 within Chapter 17, which is a provision from which a change in tariff classification is not allowed under the tariff shift rule. Therefore, neither the foreign materials, lactose of U.S. origin, nor the domestic materials, sugar of Mexican origin, undergo the applicable tariff shift. Therefore, both materials merit equal consideration for determining the essential character of the product.
Section 102.18(b)(2) provides, in relevant part:
For purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under § 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following:
(i) The nature of each material, such as its bulk, quantity, weight or value; and (ii) The role of each material in relation to the use of the good.
In this instance we find that the Mexican sugar provides the essential character of the “SLCB” as the sugar is the greatest by value and weight of any item used to make the “SLCB”. Therefore, in accordance with 19 C.F.R. § 102.11(b)(1), the country of origin of the “SLCB” for origin and marking purposes is Mexico.
USMCA:
The USMCA was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11, 14 (19 U.S.C. § 4511(a)). General Note (“GN”) 11, HTSUS, implements the USMCA. GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(b) states, in relevant part:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a “good originating in the territory of a USMCA country” only if—
(i) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
(ii) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
(iii) the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or
…
Since all of the ingredients in the “SLCB” are USMCA originating, the product is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials under GN 11(b)(ii). Accordingly, the “SLCB” classified under subheading 1806.10.4500, HTSUS, is eligible for preferential tariff treatment under the USMCA.
However, as indicated in the classification section above, if the quantitative limits of additional U.S. note 7 to chapter 17 have been reached and the “SLCB” is classified under subheading 1806.10.5500, HTSUS, we note that the special column for subheading 1806.10.5500, HTSUS, references subheadings 9823.10.01-9823.10.45, HTSUS. U.S. Note 10 to Subchapter XXII, which concerns sugar containing products pursuant to the USMCA, provides that:
This note and subheadings 9823.10.01 through 9823.10.45 are effective as to originating goods of the USMCA countries eligible for special tariff treatment under the terms of general note 11 to the tariff schedule provided for in subheadings … 1806.10.55 … From July 1, 2020, through December 31, 2020, in 2021 and in successive years thereafter, the rates of duty provided for in subheadings 9823.10.01 through 9823.10.45 in the “Special” subcolumn of rates of duty column 1 followed by the symbol “(S+)” shall apply to goods of such countries in lieu of the duty rates set forth in the special subcolumn in the permanent subheadings enumerated above.
U.S. Note 10(a) states that “Goods of Mexico that qualify to be marked as a good of Mexico pursuant to U.S. law, without regard to whether the good is marked, and goods of the United States shall be eligible for USMCA tariff treatment only under subheading 9823.10.01.” Therefore, with respect to the “SLCB”, the “S+” rates are applicable for goods classified under subheading 1806.10.55, HTSUS.
The applicable subheading for the “SLCB” will be 9823.10.01, HTSUS, which provides for Goods entered under the provisions of the US-Mexico-Canada Agreement under general note 11 to the tariff schedule: (con.) Goods provided for in subheading …1806.10.01 …: Goods provided for in note 10(a) to this subchapter. The special rate of duty will be free (S+).
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 the World Wide Web at https://hts.usitc.gov/current.
This merchandise is subject to The Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (The Bioterrorism Act), which is regulated by the Food and Drug Administration (FDA). Information on the Bioterrorism Act can be obtained by calling FDA at 301-575-0156, or at www.fda.gov/oc/bioterrorism/bioact.html.
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, please contact National Import Specialist Frank Troise at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division