MAR-2-05 CO:R:C:S 557994 DEC

Mr. John Peterson
Neville, Peterson & Williams
2300 N Street, N.W.
Washington, D.C. 20037

RE: Country of origin marking for peanut butter; NAFTA; Article 509; 19 U.S.C. 1304; Part 102, Interim Regulations; 19 CFR 102.11-General Rules; 19 CFR 134.35(b); 19 CFR 102.18

Dear Mr. Peterson:

This is in response to your letter dated June 21, 1994, in which you seek a ruling with respect to the appropriate country of origin marking for a finished peanut butter product which your client intends to import into the United States.

FACTS:

Your initial ruling request, file number 734946, dated January 14, 1992, concerning the country of origin marking requirements for peanut butter to be imported by your client was administratively closed on April 29, 1994. On June 21, 1994, you renewed your request for a ruling and indicated that the applicable standard that should be applied to the processing of the peanut butter is substantial transformation rather than the North American Free Trade Agreement (NAFTA) Marking Rules.

Your client proposes to import shelled peanuts into Canada where they will be roasted, blanched, split, and ground into a "slurry" (a gritty paste). Subsequent to importation into the United States, the foreign slurry will be combined with a slurry made from United States-origin peanuts. Additional proprietary processing is conducted in the United States once the slurries are combined which include the addition of salt, sweeteners, and stabilizers to complete the finished peanut butter. ISSUE:

Whether the peanut slurry imported from Canada for processing into peanut butter in the United States, through the addition of U.S.-origin slurry as well as salt, sweeteners, and stabilizers, results in the product becoming a good of the United States pursuant to the NAFTA Marking Rules, thereby excepting the product from country of origin marking requirements.

LAW AND ANALYSIS:

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 name of the country of origin of the article. Part 134 of the Customs Regulations implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

The country of origin marking requirements for a "good of a NAFTA country" are also determined in accordance with Annex 311 of the North American Free Trade Agreement (NAFTA), as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057) (December 8, 1993) and the interim amendments to the Customs Regulations published as T.D. 94-4 (59 Fed. Reg. 109, January 3, 1994) with corrections (59 Fed. Reg. 5082, February 3, 1994) and T.D. 94-1 (59 Fed. Reg. 69460, December 30, 1993). These interim amendments took effect on January 1, 1994, to coincide with the effective date of the NAFTA. The marking rules used for determining whether a good is a good of a NAFTA country are contained in T.D. 94-4 (adding a new Part 102, Customs Regulations). The marking requirements of these goods are set forth in T.D. 94-1 (interim amendments to various provisions of Part 134, Customs Regulations).

Section 134.1(b) of the interim regulations 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 this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. (emphasis added).

Section 134.1(j) of the interim regulations, provides that the "NAFTA Marking Rules" are the rules promulgated for purposes of determining whether a good is a good

of a NAFTA country. Section 134.1(g) of the interim regulations 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. Section 134.45(a)(2) of the interim regulations provides that a "good of a NAFTA country may be marked with the name of the country of origin in English, French, or Spanish.

Section 134.35(b), Customs Regulations (19 CFR 134.35(b)) states that

A good of a NAFTA country which is to be processed in the United States in a manner that would result in the good becoming a good of the United States under the NAFTA Marking Rules is excepted from marking. Unless the good is processed by the importer or on its behalf, the outermost container of the good shall be marked in accord with this part.

In order to determine the country of origin marking requirements, we must first apply the NAFTA Marking Rules to determine whether the imported peanut slurry is a good of a NAFTA country prior to being further processed in the United States. Part 102 of the interim regulations, sets forth the NAFTA Marking Rules for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 of the interim regulations sets forth the required hierarchy for determining country of origin for marking purposes.

Applying the NAFTA Marking Rules set forth in Part 102 of the interim regulations to the facts of this case, we find that, for marking purposes, the imported peanut slurry is a product of Canada prior to being further processed in the United States. This conclusion is reached through an analysis of interim regulation 102.11. Section 102.11(a)(1) and section 102.11(a)(2) do not apply to the facts presented because the good (the imported peanut slurry) is neither wholly obtained or produced in Canada nor is it produced exclusively from domestic materials. In fact, the shelled peanuts are imported into Canada from an unspecified non-NAFTA country where they are roasted, blanched, split, and ground. Since an analysis of sections 102.11(a)(1) and 102.11(a)(2) has not yielded a country of origin determination, we look to section 102.11(a)(3). Section 102.11(a)(3) provides that the country of origin is the country in which "[e]ach foreign material incorporated in that good undergoes an applicable change in tariff classification in  102.20. . .." When imported into Canada, the shelled peanuts are classified under subheading 1202.10, Harmonized Tariff Schedule of the United States (HTSUS). The peanut slurry is classified under subheading 2008.11.90, HTSUS. The applicable tariff shift rule found in section 102.20 provides as follows:

HTSUS Tariff Shift and/or other requirements 2008.11 ....... A change to subheading 2008.11 from any other chapter, provided that change is not the result of mere blanching of nuts.

Thus, the shelled peanuts, classified under subheading 1202.10, HTSUS, undergo an applicable tariff shift when processed into a peanut slurry. Consequently, the country of origin of the peanut slurry imported into the United States is Canada.

Since the peanut slurry that will be imported is a good of a NAFTA country (Canada) when imported into the United States, the country of origin marking requirements of the finished peanut butter will be based on the determination of whether the processing in the United States would cause the final product to be of United States origin pursuant to the NAFTA Marking Rules. To make this determination, a similar hierarchical analysis as detailed above must be undertaken. In this case, the items to be analyzed include the peanut slurry of Canadian origin and the addition of the United States origin peanut slurry.

Applying the NAFTA Marking Rules to the Canadian peanut slurry and the processing to be performed in the United States, no determination of country of origin can be made under section 102.11(a) of the interim regulations. The finished product, peanut butter, is neither wholly obtained or produced in a single country as is provided under section 102.11(a)(1) nor is the finished product produced exclusively from domestic materials (i.e. U.S.) as provided under section 102.11(a)(2). Section 102.11(a)(3) also does not provide a country of origin determination because the imported peanut slurry does not undergo an applicable tariff shift pursuant to 102.11(a)(3). The imported peanut slurry is classified under subheading 2008.11.90, HTSUS, and the finished peanut butter is classified under subheading 2008.11.10, HTSUS. The tariff shift requirements for subheading 2008.11 are not met.

Since an analysis of section 102.11(a) does not yield a country of origin determination, the analysis turns to section 102.11(b) which focuses on an examination of the single material that imparts the essential character of the good to determine the country or countries of origin of the peanut butter. Section 102.18(b)(2) of the interim regulations provides that only materials (domestic and foreign) that do not undergo a tariff shift are to be taken into consideration in determining the essential character of a good. We find that the imported and domestic peanut slurry imparts the essential character of the finished peanut butter. Accordingly, as the processing in the United States does not result in the peanut butter becoming a good of the United States under the NAFTA Marking Rules, the section 134.35(b) exception from the country of origin marking requirements does not apply. The retail container of the finished product that reaches the ultimate purchaser must be marked to reflect Canada as the country of origin.

Your request for confidential treatment of your client's company name is not granted. Specific details with respect your client's manufacturing process, the ratio of imported materials used, the process diagram, and the marketing research study will be honored.

HOLDING:

The Canadian-origin peanut slurry does not become a good of the United States under the NAFTA Marking Rules when processed into peanut butter in the United States. As a result, the finished peanut butter is not excepted from country of origin marking under 19 CFR 134.35(b), and the retail container must be marked to indicate Canada as the country of origin.

Sincerely,

John Durant
Director, Commercial Rulings Division