• Type : Other • HTSUS :

FOR-2-04 CO:R:C:E 220095 KP

S. Richard Shostak, Esq.
Stein, Shostak, Shostak & O'Hara
Suite 1240
3580 Wilshire Boulevard
Los Angeles, California 90010-2597

RE: The status and tariff treatment of pecans which are shelled in a foreign trade zone.

Dear Mr. Shostak:

In your letter dated January 18, 1988, which was submitted on behalf of your client SNA Nut Company, you requested a binding ruling with regard to a pecan-shelling operation which would be performed in a foreign trade zone. We have considered your pro- posal, and our decision follows:

FACTS:

A U.S. company plans to establish a pecan-shelling operation in a foreign trade zone located in El Paso, Texas. Under the proposed operation, unshelled pecans would be entered into the zone. Some of the pecans would be of Mexican origin, and the remainder would be of United States origin. Once in the zone, the pecans would be sorted by size and separated from dirt and debris. Next, they would be placed in hot water for cleaning and softening the shells in preparation for the cracking process. The pecans would then be cracked, and the shells would be sepa- rated from the pecan meat. The shells would be transferred to a trash bin for disposal, and the pecans would be sorted by color with inedible meat being removed. Finally, the pecans would be sorted by size according to USDA standards and boxed in 30-pound cases.

The inquirer requests a binding ruling with respect to sev- eral aspects of this operation, as set forth below.

ISSUES:

(1) May the imported Mexican unshelled pecans be designated as privileged foreign merchandise in the foreign trade zone?

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(2) If the Mexican unshelled pecans may be and, in fact, are designated as privileged foreign merchandise, would they be clas- sifiable under subheading 0802.90.10, Harmonized Tariff Schedule of the United States (HTSUS)(former item 145.22, Tariff Schedules of the United States (TSUS))?

(3) Would the unshelled pecans from the United States quali- fy for domestic status in the foreign trade zone, and therefore be eligible for duty-free treatment upon returning to the customs territory of the United States under section 146.43(c), Customs Regulations (19 CFR 146.43(c))?

(4) May the nutshell waste from the shelling operation be (a) destroyed in the foreign trade zone (e.g., by depositing it in the trash), (b) removed to the customs territory of the United States for disposal under 19 CFR 146.52(e), (c) exported, or (d) entered into the United States?

(5) If the nutshell waste may be entered into the United States, would it be classifiable under sub-heading 1404.90.00, HTSUS, (former item 793.00, TSUS) upon entry?

LAW AND ANALYSIS:

Section 146.41(a), Customs Regulations (19 CFR 146.41(a)), provides that, for purposes of foreign trade zones, foreign mer- chandise which has not been manipulated or manufactured so as to effect a change in tariff classification will be given status as privileged foreign merchandise on proper application to the dis- trict director. Under this section, then, if proper application is made to the district director, the unshelled Mexican pecans may be designated as privileged foreign merchandise provided that they have not, at that time, been manipulated or manufactured so as to effect a change in tariff classification. However, in determining whether to approve the application for privileged foreign status, the district director may consider whether the merchandise will remain identifiable to his satisfaction so that the revenue will be adequately protected if and when the pecans are entered into the United States.

Under 19 CFR 146.65(a)(1), privileged foreign merchandise is subject to tariff classification according to its character, con- dition, and quantity, at the rate of duty and tax in force on the date of filing, in complete and proper form, the application for privileged status. Accordingly, if the unshelled Mexican pecans are granted privileged foreign status, the sorted and packaged shelled pecans produced therefrom will be classified, upon entry into the United States, under subheading 0802.90.10, HTSUS, and will be dutiable at the rate which was in effect for that provision when the application to obtain privileged foreign status was filed in complete and proper form. Currently, subheading 0802.90.10, HTSUS, carries a duty rate of 11 cents per kilogram.

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19 CFR 146.43(a) permits domestic status to be granted, for purposes of foreign trade zones, to, inter alia, merchandise the growth, product, or manufacture of the United States on which all internal revenue taxes, if applicable, have been paid. Thus, the U.S. domestic pecans would be eligible for domestic status in the foreign trade zone provided that all applicable taxes on them, if any, have been paid. Generally, no application or permit is re- quired for the admission of domestic status merchandise into a zone. However, if the U.S. pecans are granted domestic status, an application or permit will be required under 19 CFR 146.43(b) to process and transfer them to the customs territory of the United States if they are mixed with merchandise in another zone status (the Mexican pecans) as part of the contemplated opera- tion. If the U.S. domestic pecans are granted domestic status and all requirements pertaining to applications and permits are complied with, then those pecans may return to the customs territory of the United States free of quotas, duty, or tax, as provided in 19 CFR 146.43(c). However, if the domestic pecans lose their identity as domestic merchandise, then they will have nonprivileged foreign status under 19 CFR 146.42(c) and will be subject to tariff classification in accordance with their char- acter, condition, and quantity at the time they enter the customs territory of the United States.

Under title 19, United States Code, section 81c (19 U.S.C. 81c), as amended, foreign and domestic merchandise brought into a foreign trade zone, whether for processing or otherwise, may be exported, destroyed, or sent into the customs territory of the United States from the zone. Thus, the nutshell waste from the shelling operation may be exported from or destroyed in the zone. However, insofar as your proposal to destroy the waste by depos- iting it in a trash bin is concerned, we have said:

According to Webster's New World Dictionary, "destroy implies a tearing down or bringing to an end by wreck- ing, ruining, killing, eradicating, etc. * * *." Any such process should be considered one of destruction for the purposes of the Foreign Trade Zones Act.

C.S.D. 80-67, 14 Cust. Bull. 830, 832 (1979). We do not equate the mere depositing of nutshell waste in a trash bin with pro- cesses such as wrecking, ruining, killing, eradicating, and the like. Therefore, we do not consider that action to be a destruc- tion for purposes of the Foreign Trade Zones Act.

The nutshell waste from the proposed operation may also be entered into the United States from the zone. Under 19 CFR 146.42(b), waste recovered from any manipulation or manufacture of privileged foreign merchandise in a zone has the status of nonprivileged foreign merchandise. Therefore, if entered for consumption, the nutshell waste from the Mexican pecans would be

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classifiable under subheading 1404.90.00, HTSUS (currently duty- free), regardless of whether the Mexican pecans were given privileged foreign status. Nutshell waste from the U.S. domestic pecans, though, would retain their domestic status if they did not lose their identity as domestic merchandise, and could be returned to the customs territory free of duty.

The nutshell waste could not be removed to the customs ter- ritory of the United States for disposal under 19 CFR 146.52(e). That section authorizes a district director to permit merchandise in a foreign trade zone to be destroyed outside of the zone if it cannot be properly destroyed within the zone. You have neither established nor even alleged that the nutshells could not be properly destroyed within a foreign trade zone. 19 CFR 146.52(e) also provides that any residue from the destruction of merchan- dise within a zone, which is determined to be without commercial value, may be removed to the customs territory for disposal. The nutshell waste, though, is not residue from the destruction of other merchandise within a zone.

HOLDINGS:

(1) The imported Mexican unshelled pecans may be designated as privileged foreign merchandise in the foreign trade zone upon approval by the district director of a proper application there- for.

(2) If the Mexican unshelled pecans are designated as privi- leged foreign merchandise, they would be classifiable under subheading 0802.90.10, HTSUS, upon entering the customs territory of the United States.

(3) The unshelled pecans from the United States would quali- fy for domestic status in the foreign trade zone, and therefore would be eligible for duty-free treatment upon returning to the customs territory of the United States under 19 CFR 146.43(c) provided that they did not lose their identity as domestic mer- chandise.

(4) The nutshell waste from the shelling operation may be destroyed in the foreign trade zone, exported, or entered into the United States. However, depositing the nutshell waste in the trash would not constitute destruction for these purposes. The nutshell waste could not be removed to the customs territory of the United States for disposal under 19 CFR 146.52(e).

(5) Upon entering the United States, the nutshell waste from the Mexican pecans would be classifiable under subheading 1404.90.00, HTSUS. The nutshell waste from the U.S. domestic pecans could return duty-free to the customs territory of the United States if it retains its identity as domestic merchan- dise.

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Inasmuch as we understand that this matter has been brought to the attention of the Foreign Trade Zones Board at the Depart- ment of Commerce, we are furnishing the Board with a copy of this ruling.

Sincerely,

John A. Durant
Director
Commercial Rulings Division