OT:RR:CTF:VS H256783 AJR
Mr. Rodney Ralston
Trans-Border Customs Services, Inc.
One Trans-Border Drive
P.O. Box 800
Champlain, NY 12919
RE: Modification of NY H84143; NAFTA; GN 12, HTSUS; 19 CFR § 102.20 - Country of Origin Marking; Macadamia Nuts Roasted and Salted in Canada
Dear Mr. Ralston:
This is in reference to New York Ruling Letter (“NY”) H84143, dated August 6, 2001, issued to you on behalf of your client, Papco Foods, Inc., of St. Laurent, Quebec. At issue was the tariff classification of macadamia nuts, their eligibility for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”), and their country of origin marking. In NY H84143, U.S. Customs and Border Protection (“CBP”) determined, in relevant part, that raw macadamia nuts of Australian origin imported into Canada, where they were roasted and blanched or salted, qualified for preferential tariff treatment under the NAFTA when imported into the United States. In addition, CBP found that the prepared nuts qualified to be marked as goods of Canada. It is now our position that the nuts do not qualify for preferential tariff treatment under the NAFTA, and do not qualify to be marked as goods of Canada. For the reasons described in this ruling, we hereby modify NY H84143.
The tariff classification of the roasted and salted macadamia nuts under subheading 2008.19.9010 of the Harmonized Tariff Schedule of the United States (“HTSUS”), when imported from Canada, is unaffected.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. §1625(c)(1)), notice proposing to modify six ruling letters, including NY H84143, concerning the preferential tariff treatment of certain prepared nuts under the NAFTA was published on July 29, 2015, in Vol. 49, No. 30, of the Customs Bulletin. CBP received one comment in response to this notice.
FACTS:
NY H84143 stated, in relevant part:
The merchandise is comprised of raw macadamia nut kernels of Australian origin that are exported in bulk from Australia to Canada for roasting and salting. The nuts will then be shipped to the United States in bags of 1 or 2 pounds or in bulk bags of 5 or 10 pound bags.
CBP found that the non-originating macadamia nuts satisfied the changes in tariff classification required under General Note (“GN”) 12(t)/20.4, HTSUS, and that, upon compliance with all applicable laws, regulations, and agreements under the NAFTA, the nuts would be subject to a free tariff rate when imported into the United States. CBP also found that the nuts qualified to be marked as goods of Canada under the NAFTA Marking Rules (19 CFR §§ 102.11(a)(3) and 102.20(d)).
ISSUE:
Whether the roasted and salted macadamia nuts described in NY H84143 qualify for preferential tariff treatment under the NAFTA, and whether they may be marked as goods of Canada?
LAW AND ANALYSIS:
Pursuant to GN 12, HTSUS, for an article to be eligible for NAFTA preference, two requirements must be satisfied. First, the article in question must be “originating” under the terms of GN 12, HTSUS, and second, the article must qualify to be marked as a good of a NAFTA country under the NAFTA Marking Rules contained in 19 CFR § 102.20.
With regard to the first requirement, GN 12(b), HTSUS, provides, in pertinent part:
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 –
….
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 subdivision (r), (s) and (t) of this note or the rules set forth therein, or
(B) the goods otherwise satisfy the applicable requirements of subdivision (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note[.]
Raw macadamia nuts are classified in subheading 0802.90, HTSUS. In understanding the language of the HTSUS, the Explanatory Notes (“ENs”) of the Harmonized Commodity Description and Coding System may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the Harmonized System at the international level. See T.D. 89-80, 54 Fed. Reg. 35127 (August 23, 1989). The ENs to Chapter 8, HTSUS, explain that nuts prepared according to Chapter 20, HTSUS, are excluded from Chapter 8, HTSUS. Roasted and salted macadamia nuts are classified under subheading 2008.19.9010, HTSUS. The ENs to heading 2008, HTSUS, explain that this heading includes oil-roasted nuts whether or not containing or coated with salt. In this case, raw macadamia nuts were imported from Australia into Canada, where they were roasted and salted, and thus correctly classified under subheading 2008.19.9010, HTSUS.
The applicable rule in subdivision (t) provides for “a change to subheadings 2008.19 through 2008.99 from any other chapter.” See GN 12(t)/20.4, HTSUS. However, GN 12(s), Exceptions to Change in Tariff Classification Rules, HTSUS, provides, in relevant part:
(ii) Fruit, nut and vegetable preparations of chapter 20 that have been prepared or preserved merely by freezing, by packing (including canning) in water, brine or natural juices, or by roasting, either dry or in oil (including processing incidental to freezing, packing, or roasting), shall be treated as an originating good only if the fresh good were wholly produced or obtained entirely in the territory of one or more NAFTA parties.
Accordingly, though the non-originating nuts appear to undergo the requisite tariff shift from Chapter 8, HTSUS, to subheading 2008.19.9010, HTSUS, it remains to be determined whether they meet the additional test imposed by GN 12(s)(ii), HTSUS. Under this provision, when nut preparations are prepared “merely” by roasting or processing “incidental” to roasting, then the origin of the nuts in their “fresh” state determines the origin of the good. The “fresh” state refers to the state of the nuts before they were roasted or processed in a manner incidental to roasting. Thus, for such nut preparations to be originating, the “fresh” nuts used to make the good must be wholly obtained or produced entirely in the territory of one or more of NAFTA parties (Mexico, Canada, or the United States). That is, non-originating nuts that, while in a NAFTA territory, are merely roasted, or processed in a manner incidental to roasting, will not be treated as originating nuts.
The term “merely” is not specifically defined in GN 12, HTSUS, but per its dictionary definition means “only (what is referred to) and nothing more.” Read in the context of GN 12, HTSUS, the term “merely” means that the processes listed in GN 12(s)(ii), HTSUS, by themselves, are insufficient to qualify non-originating nuts for preferential tariff treatment under the NAFTA, despite changing tariff classifications per GN 12(b)(ii), HTSUS, and GN 12(t)/20.4, HTSUS. Thus, we find that the effect of GN 12(s)(ii), HTSUS, is to ensure that goods undergo sufficient processing in a NAFTA country, beyond the listed processes, in order to be considered originating for purposes of GN 12(b)(ii), HTSUS.
The term “incidental” is also not specifically defined in GN 12, HTSUS, but per its dictionary definition means “occurring or liable to occur in fortuitous or subordinate conjunction with something else of which it forms no essential part.” Applying this definition to GN 12(s)(ii), HTSUS, the term “incidental” indicates a process that may happen with or as a result of roasting, but is secondary to, or of lesser importance than, the process of roasting.
We find that “salting” is precisely the type of lesser process contemplated by the note as incidental. Salting often occurs in connection not only with roasting, as in this case, but also with canning or freezing. It is the roasting, canning, or freezing processes which are the means by which the products are principally prepared. By contrast, salting has far less consequences to the essential character of the product. Moreover, the addition of salt like other flavors, spices, or other ingredients is a relatively simply process and does not require a prescribed amount to be added.
Given that roasting by itself would not be sufficient to make a nut an originating good per GN 12(s)(ii), HTSUS, it would be inconsistent with that note to conclude that “salting” would provide otherwise. Furthermore, the ENs to Chapter 20, HTSUS, state, in relevant part:
This heading covers fruits, nuts and other edible parts of plants, whether whole, in pieces or crushed, including mixtures thereof, prepared or preserved otherwise than by any of the processes specified in other Chapters or in the preceding headings of this Chapter.
It includes, inter alia:
(1) Almonds, ground-nuts, areca (or betel) nuts and other nuts, dry-roasted, oil roasted or fat-roasted, whether or not containing or coated with vegetable oil, salt, flavours, spices or other additives. (Emphasis added).
…
(9) Fruit, nuts, fruit-peel and other edible parts of plants (other than vegetables), preserved by sugar and put in syrup (e.g. marrons glacés or giner), whatever the packing.
Moreover, while the ENs to Chapter 20, HTSUS, mention “salt,” the references to “dry-roasted, oil-roasted or fat-roasted” and “preserved by sugar and put in syrup” indicate the principal processes of preparation or preservation that would change the classification of nuts from Chapter 8, HTSUS, to Chapter 20, HTSUS. The fact that “salt” is mentioned with reference to the types of roasting, but is not specifically mentioned as a process of preparation or preservation, suggests that “salting” is something that may happen with or as a result of roasting nuts, but whether the nuts are salted, or not, is not essential to the preparation; what is essential to the preparation is the roasting. For all of the foregoing reasons, we find that for purposes of GN 12(s)(ii), HTSUS, the term “processing incidental to freezing, packing, or roasting,” includes the process of “salting.”
This interpretation of GN 12(s)(ii), HTSUS, is further supported by Headquarters Ruling Letter (“HQ”) H243328, dated August 19, 2013, which considered “salting” to be a process incidental to roasting with regard to a provision from the United States-Korea Free Trade Agreement (“UKFTA”) that is parallel to GN 12(s)(ii), HTSUS. HQ H243328 affirms the decision in HQ H240383, dated May 3, 2013, determining the origin of the nuts from their “fresh” state on the basis that “salting and roasting […] qualify as ‘processing incidental’ to roasting.”
CBP received one comment in response to the notice to modify six ruling letters addressing nuts. The commenter states that the rules and in particular, the note to Chapter 20, indicate a two-step process in deciding whether the goods are deemed originating and entitled to preferential treatment as follows: (1) determining whether the nuts have been prepared beyond mere roasting in oil including processes incidental to roasting; and (2) if the nuts were prepared beyond mere roasting, then determining whether the non-originating materials satisfy the tariff shift rule. The commenter defines “merely” as “just” or “only,” or “nothing more,” and defines “incidental” as “being likely to ensue as a chance or minor consequence” and “occurring merely by chance or without intention or calculation.” The commenter argues that the nuts considered in NY E87234, were prepared beyond mere roasting in oil because, after their importation to Canada, they underwent multiple processes, which are not incidental to roasting, including “salting, mixing with other ingredients, screening, aspiration, cooling, and packaging in usually small packaging.” The commenter concludes, by applying the second step, that the non-originating materials satisfy the tariff shift rule. The commenter supports this conclusion by citing Canadian International Trade Tribunal Case no. AP-2003-003, and NY N228118, dated August 8, 2012.
In response, we note that GN 12(s)(ii), HTSUS, (or the note to Chapter 20, as described by the commenter) must be read within the context of the provision that initiates its application, GN 12(b)(ii), HTSUS, which together ensure that such goods undergo sufficient processing in a NAFTA country to be considered originating goods. Accepting the commenter’s interpretation would mean that the processes of “salting, mixing with other ingredients, screening, aspiration, cooling, and packaging in usually small packaging” are sufficient to qualify non-originating nuts for preferential treatment under NAFTA because such processes performed together are not considered incidental to roasting, freezing, or packing. This would accord differing treatments to the same non-originating nuts, both roasted in NAFTA territories, on the basis that some were treated with salt plus other additives, and quality checked, while others were not, despite the fact that the essential character of the treated and untreated roasted nuts is the same. We find the commenter’s interpretation inconsistent with the proper interpretation of GN 12(s)(ii), HTSUS, which should instead be interpreted to include “salting” as a process incidental to roasting for the reasons discussed above. The other processes listed by the commenter should be interpreted similarly. “Mixing with other ingredients” should be treated the same way as “salting” because the ENs to Chapter 20, HTSUS, reference “flavours, spices or other additives” in the same manner as “salt.” Further, the mixture in NY E87234 concerns various nut varieties, which would mean that if we were to agree with the commenter, mixing various types of nuts would be accorded preferential treatment, whereas using only one type of nut would not. We do not agree that the use of more non-originating materials should accord preferential treatment. “Cooling” is incidental to roasting because after roasting, the nuts automatically will need to cool down below the temperature at which they were roasted. Likewise, “screening” and “aspiration” are incidental to roasting because they are performed to check the quality of the roasted nuts as a result of their roasting. Lastly, we note that we are not bound by cases from the Canadian International Trade Tribunal, and NY N228118 is being modified along with the NY ruling letter at issue, NY H84143.
Accordingly, we find that salting is a process incidental to roasting and does not render the product originating. Rather, the origin of the product as imported is determined by the origin of the nuts in the “fresh” state per GN 12(s)(ii), HTSUS. Given the foregoing, the roasted and salted macadamia nuts may not be treated as originating because they do not meet the requirements of GN 12(s)(ii), HTSUS; that is, they were not wholly obtained or produced entirely in Mexico, Canada, or the United States as fresh nuts. Therefore, the prepared macadamia nuts imported from Canada do not qualify for preferential tariff treatment under the NAFTA.
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 (or its container) 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. Congressional intent in enacting 19 U.S.C. § 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is 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 CCPA 297, 302, C.A.D. 104 (1940). Part 134, CBP Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304.
Section 134.1(b), CBP Regulations (19 CFR § 134.1(b)), defines "country of origin" as:
[T]he 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 [the marking laws and regulations]; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Part 102, CBP Regulations (19 CFR Part 102), sets forth the NAFTA Rules of Origin for country of origin marking purposes. As the macadamia nuts were grown in Australia, Section 102.11(a)(1) and (2) do not apply. Section 102.11(a)(3) provides:
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.
“Foreign material means a material whose country of origin as determined under these rules is not the same as the country in which the good is produced.” 19 CFR § 102.1(e).
Under the provisions of 19 CFR § 102.20, the tariff shift rule for subheading 2008.19, HTSUS, provides as follows:
A change to subheading 2008.19 through 2008.99 from any other chapter, provided that the change is not the result of mere blanching of nuts.
However, the note from Chapter 20, HTSUS, provides:
Notwithstanding the specific rules of this chapter, fruit, nut and vegetable preparations of Chapter 20 that have been prepared or preserved merely by freezing, by packing (including canning) in water, brine or natural juices, or by roasting, either dry or in oil (including processing incidental to freezing, packing or roasting), shall be treated as a good of the country in which the fresh good was produced.
Based on the note from Chapter 20, HTSUS, the country of origin of the macadamia nuts is not determined by 19 CFR § 102.11(a) (incorporating 19 CFR § 102.20), and the next step in the country of origin marking determination is provided in 19 CFR § 102.11(b), which states:
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 of the good…
“‘Material’ means a good that is incorporated into another good as a result of production with respect to that other good, and includes parts, ingredients, subassemblies, and components.” 19 CFR § 102.1(l).
“For purposes of identifying the material that imparts the essential character to a good under §102.11, the only materials that shall be taken into consideration are those domestic or 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.” 19 CFR § 102.18(b)(1).
Pursuant to 19 CFR § 102.11(b) (incorporating 19 CFR § 102.18(b)(1)), we find that the single material that imparts the essential character of the finished good is the macadamia nuts. Therefore, the prepared macadamia nuts may not be marked as goods of Canada, but rather must be marked to indicate that they are products of Australia.
HOLDING:
NY H84143 is modified to reflect that, by application of GN 12(s)(ii), HTSUS, the prepared macadamia nuts imported from Canada are not eligible for preferential tariff treatment under the NAFTA. In addition, by application of the note from Chapter 20, HTSUS, 19 CFR § 102.11(a) and (b), 19 CFR § 102.18(b)(1), and 19 CFR § 102.20, the prepared macadamia nuts may not be marked as goods of Canada, but rather must be marked to indicate that they are products of Australia. The tariff classification of the prepared macadamia nuts is unchanged.
EFFECT ON OTHER RULINGS:
NY H84143, dated August 6, 2001, is hereby MODIFIED. In accordance with 19 U.S.C. § 1625(c), this ruling will become effective 60 days after publication in the Customs Bulletin.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division