CLA-2 CO:R:C:F 088799
Mr. Frank Brennan
De Angelus and Schaffer
1455 Pennsylvania Ave., N.W.
Washington, D.C. 20004
RE: Sweetened Cocoa Blended in Canada
Dear Mr. Brennan:
This is in reference to the request of February 27, 1991, by
Canadian Blending and Processing, Inc., in association with your
office, for a tariff classification ruling on sweetened cocoa
blended in Canada and then directly shipped to the United States.
Further information regarding that request was submitted with
your letter dated March 26, 1991, and subsequent oral and written
communications. Your letter of May 2, 1991, confirmed your prior
oral withdrawal of a request for confidential treatment of
information in the February letter and noted the existence of
Customs Headquarters telexes regarding the corrected rate of duty
under the United States - Canada Free Trade Agreement (CFTA) for
products under subheading 1806.10.4200, Harmonized Tariff
Schedule of the United States Annotated (HTSUSA).
The article under consideration is composed of cocoa powder
produced in the United States from cocoa beans of various foreign
origins which is blended with sugar. The sugar may come from
Finland or one of the Countries of the European Economic
Community (EEC). In such case the sugar would be white refined
sugar and would be used as is without further processing. - 2 -
Alternatively, the sugar might be of Australian or Latin American
origin. In that case it would be imported into Canada as brown
raw sugar which would have to be further refined to remove
The refined sugar and the cocoa powder will be weighed by
batch size, mixed in a commercial dry blender, and bagged in
Canada. No other contents will be added to the sweetened cocoa
nor will it be subjected to any further processing, except for
bagging, prior to its direct exportation to the United States.
The final product will be approximately 94 per cent sugar
and 6 per cent cocoa powder by weight. It is estimated that the
value of the cocoa powder and the Canadian processing for the
sugar refined prior to importation into Canada will be 25.71 per
cent of the value of the finished product. The value of the
cocoa powder and the Canadian processing for the sugar refined in
Canada will be 51.24 per cent of the value of the finished
1. What is the tariff classification of sweetened cocoa?
2. Is sweetened cocoa, composed of sugar from non-
U.S./Canadian sources and cocoa from the U.S., which is
blended in Canada, eligible for the treatment under the
3. Is the sweetened cocoa considered a product of Canada
for tariff classification and quota purposes?
4. What is the country of origin for marking purposes?
LAW AND ANALYSIS:
Classification of merchandise under the Harmonized Tariff
Schedule of the United States Annotated (HTSUSA), is governed by
the General Rules of Interpretation (GRI's) taken in order.
GRI 1 provides that the classification is determined first in
accordance with the terms of the heading and relative section and
chapter notes. If GRI 1 fails to classify the goods, and if the
heading and legal notes do not otherwise require, the remaining
GRI's are applied, taken in order.
- 3 -
In considering the headings under which the article may be
classified, we noted heading 1806, which covers chocolate and
other food preparations containing cocoa. Subheadings thereunder
provide for cocoa powder, containing added sugar or other
sweetening matter. The applicability of a particular subheading
is based on the per cent of sugar in the product and whether the
article is described in paragraphs (a) and (b) of additional U.S.
note 3 to chapter 17, HTSUSA. This note refers to the
establishment of quota amounts of sugars, etc., and the
allocation thereof to supplying countries. If the article is
described in the note, it is dutiable on the total sugars at the
rate applicable under subheading 1701.10.01, HTSUSA, and under
subheading 1701.11.03, HTSUSA, if not described under that note.
A special rate of duty is applicable if the article is eligible
for treatment under the CFTA. Since the article, which is
treated for duty purposes as sugar, contains more that 90 per
cent sugar and the sugars are not described in the aforementioned
U.S. note, it is clear, as suggested by the inquirer, that the
article is classifiable under subheading 1806.10.42, HTSUSA.
In considering the eligibility of the article for treatment
under the CFTA we considered the origin of each of the components
of the article, the nature of the processing which will take
place prior to importation into the United States, and the
applicability of the provisions of the United States-Canada Free-
Trade Agreement Implementation Act of 1988, as specified in
General Note 3(c)(vii) to the HTSUSA.
The final product will be composed of cocoa powder produced
in the United States from cocoa beans of various foreign origins.
The sugar will originate outside the U.S. and Canada and will be
refined at its source or in Canada. In Canada, the refined sugar
and the cocoa will be preweighed per batch size, fed into a dry
blender where they will be mixed to form the sweetened cocoa and
then bagged. The importer has suggested that since sugars are
classified in Chapter 17, HTSUSA, for duty purposes and the final
product is classified in chapter 18, HTSUSA, there has been a
change in the tariff classification and the final product is,
therefore, eligible for treatment under the CFTA. The importer
has specifically cited General Note (3)(vii)(R)(4)(aa) in support
thereof. The importer further suggested that, in the event that
the cocoa powder would not be considered to be of U.S. origin, - 4 -
the CFTA would still apply pursuant to General Note
(3)(vii)(R)(4)(cc), relative to a change to heading 1806 from any
The eligibility of the final product for treatment under the
CFTA would, as suggested by the importer, seem to be covered by
General Note 3(c)(vii)(B)(2)(1). Under that CFTA provision goods
are considered "goods originating in the territory of Canada" if
they have been transformed in the territory of Canada and/or the
United States, so as to be subject to a change in tariff
classification as described in the rules of subdivision
(c)(vii)(R) of General Note 3. We, however, note that General
Note 3(c)(vii)(C)(1), which is a reiteration of section 301(3)(a)
of the CFTA, provides that goods shall not (emphasis added) be
considered to originate in the territory of Canada pursuant to
subdivision (c)(vii)(B)(2) of General Note 3 merely by virtue of
(1) simple packaging or, except as expressly provided by
the rules of subdivision (c)(vii)(R) of this note,
combining operations (emphasis added).
Pursuant to the Communication from The President of the
United States , House Document 100-216 of the 100 Congress, 2d
Session, (at Page 175), transmitting various documents relating
the adoption of the CFTA, it is specified, on page 175, that the
prohibition of Article 301(3)(a) and (b) will be applied in the
same manner as under the Generalized System of Preference (GSP)
and the Caribbean Basin Initiative (CBI) programs. In this
regard it is noted that the Customs Regulations which implemented
the CBI, a simple combining operation does not qualify goods for
treatment under CBI, see section 10.195, Customs Regulations (19
In considering the applicability of the aforementioned
provisions regarding a simple combining operations not qualifying
goods for special treatment, we considered both of the suggested
scenarios: i.e., the one where the sugar is refined in Canada and
the one where the sugar is refined outside Canada. We do not
believe that the process whereby refined sugar imported into
Canada is mixed with cocoa of U.S. origin, produces a material
alteration of the goods as required by section 10.304, Customs
Regulations (19 CFR 10.304). Nothing will be done except
combining the sugar and the cocoa. We, therefore, have concluded
that such process amounts to no more than a simple combining
operation. Accordingly, the article composed of refined sugar - 5 -
imported into Canada and U.S. origin cocoa is not eligible for
special treatment under the CFTA.
We, however, believe that the process whereby raw sugar is
imported into Canada and subsequently refined to remove
impurities and raise its polarity before it is combined with U.S.
origin cocoa, is more that a simple combining. These goods may
be considered as goods originating in Canada, making the article,
sweetened cocoa, eligible for special treatment under the CFTA.
We do not agree with the importer that a substantial
transformation has taken place by combining (blending) the sugar
of whatever origin, and the cocoa of U.S. origin. We do not
believe that a new and different product has emerged from the
blending process. Cocoa will go into Canada and cocoa will come
out of Canada. While the product being exported was sweetened,
for tariff purposes, it remains cocoa. Conversely, from a tariff
treatment point of view, we have sugar, raw or refined, going
into Canada and sugar with an added ingredient, cocoa, being
exported. There has not been a transformation; a new and
different article must emerge having a distinctive name,
character, or use. Superior Wire v. U.S., 669 F. Supp. 472, (CIT
1987), aff'd 867 F. 2d 1409 (1989). Further, the refining in
Canada of raw sugar would not be a substantial transformation
(see Headquarters Ruling Letters 082033 and 085216 of September
5, 1989, and October 27, 1989, respectively). Accordingly, there
has not been a substantial transformation and the blended sugar
and cocoa remain the product of the countries where they
The imported article is a blend of sugar, which is a product
of a non-U.S./Canadian source, and cocoa, which is a product of
the U.S. These ingredients are not substantially transformed in
Canada, as previously discussed, and, therefore, remain the
product of the country from where each originated. However,
because the cocoa powder is a product of the U.S., it is excepted
- 6 -
from marking under section 134.32(m), Customs Regulations (19 CFR
132.34(m)), pertaining to U.S. products exported and returned.
Therefore, the product should be marked to indicate the country
of origin of the sugar. A marking such as "Sugar Product of
______________" would be acceptable.
The sweetened cocoa blended in Canada with cocoa powder
produced in the United States from cocoa beans of various foreign
origins and sugar of a non-U.S./Canadian origin, which will be
refined in the country of origin of the sugar or in Canada, is
classifiable in subheading 1806.10.42, HTSUSA, as cocoa powder,
containing added sugar or other sweetening matter, other, other.
The ingredients are not substantially transformed in Canada and,
therefore, they remain the product of the country of origin. The
article would be dutiable on the total sugars at the rate
applicable under subheading 1701.11.03.
The sweetened cocoa, if composed of sugar refined in Canada,
and U.S. origin cocoa, would be considered as goods originating
in Canada and eligible for a reduced rate of duty upon compliance
with the provisions of section 10.307, Customs Regulations
(19 CFR 10.307). If the sweetened cocoa is composed of sugar
refined outside of Canada and U.S. origin cocoa, it would not be
eligible for such special treatment.
Since no substantial transformation has taken place in
Canada the product must be marked to indicate the country from
where the sugar originated and in accordance with the
requirements of 19 CFR Part 134. The cocoa powder is excepted
from marking requirements under 19 CFR 134.21(m).
Since the sugar, combined with Cocoa, is provided for in
subheading 1806.10, HTSUSA, it is not subject to the section 22
fees under subheading 9904.40.20, HTSUSA, which is only
applicable to sugar classifiable under specific subheading of
Chapter 17, HTSUSA.
John Durant, Director
Commercial Rulings Division