CON-9-04-CO:R:C:E 222948 CB

Mr. Billy J. Gwin
Geo. S. Bush & Co., Inc.
1400 Exchange Building
821 Second Avenue
Seattle, WA 98104

RE: Request for binding ruling concerning a TIB entry of raw hops

Dear Mr. Gwin:

This is in reply to your letter of January 4, 1991, wherein you requested a binding ruling on a prospective shipment of raw hops which are to be made into hop pellets or hop extract.

According to your letter, the raw hops are made into pellets or extract and there is a four percent waste with the processing of hop pellets. Two percent is a weight loss from the packaging material and the other two percent is part evaporation of water and product loss through dust and impurities which is in the hops as stones, metal parts, and strings. The importer proposes to enter the merchandise under a temporary importation bond (TIB) entry under subheadings 9813.00.0520 and 1210.10.0000, Harmonized Tariff Schedule of the United States (HTSUSA).

You have posed the following questions in your letter and we will address them in that order:

1) How will the Customs Service treat the loss during manufacture?

2) Will the importer have to pay double duty on the waste since duty is based on weight?

3) Will Customs accept the importer's weight loss of four percent?

4) If the loss has no value and is not recoverable does the importer have to pay the penalty of double duty?

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First of all, we must advise you that you did not provide sufficient information to enable us to issue a binding ruling. However, we can provide you with general information. The importer must meet all of the accountability requirements under subchapter XIII, chapter 98, U.S. note 2(b), HTSUSA, which provides that if any processing of merchandise entered under a TIB results in an article (other than an article described in (a) of this note) manufactured or produced in the United States: (i) a complete accounting will be made to the Customs Service for all articles, wastes and irrecoverable losses resulting from such processing; and (ii) all articles and valuable wastes resulting from such processing will be exported or destroyed under Customs supervision within the bonded period; except that in lieu of the exportation or destruction of valuable wastes at rates of duties in effect for such wastes at the time of importation.

In order to issue a binding ruling, we would need to look at certain factors to determine if the spent hops are a waste. For example, how does the importer record the evaporation of water, an explanation on how the loss due to the packaging material and how the stones, metal and string are recorded and treated by the company. In CSD 81-224, Customs found that the intent of Congress was to allow tender of duty and retention in the U.S. of valuable waste where exportation or destruction is uneconomic. Any evidence, satisfactory to the district director, that is sufficient to identify the valuable waste and show its description and quantity is adequate. Such evidence might be a statement of the importer, or other person having knowledge of the facts, setting forth the circumstances of the production of the valuable waste.

However, if the Customs Service determines that the spent hops are a by-product of the imported hops, tender of duty is not allowed. By-products which result from the manufacture of articles entered under a TIB must be exported or destroyed. In general, Customs considers a number of elements in determining the distinction between a waste and by-product. In C.S.D. 82-109 a number of significant elements were listed. The Customs Service will look at the following:

1. The nature of the material of which the residue is composed.

2. The value of the residue as compared to the value of the principal product and the raw material.

3. The use to which the residue is put.

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4. Its status under the tariff laws, if imported.

5. Whether it is a commodity recognized in commerce.

6. Whether it must be subjected to some process to make it saleable.

In light of the above, the answer to your first question is that it depends on how the manufacturer treats the loss. The Customs Service would require that the importer submit evidence to that effect. Second, if the "waste" is valuable, the statute requires a tender of duty only. Third, Customs acceptance of the four percent loss depends on the specific records presented by the manufacturer to the district director. The district director must be satisfied that the claims of no value or irrecoverability are valid. And fourth, to the extent that the district director is satisfied that the "waste" is not an article and has no value or is not recoverable, the statute does not require the "waste" to be either exported or destroyed. Only valuable waste and articles must be exported, destroyed, or duty paid.

For your information, enclosed is a copy of HQ 223042 recently issued by the Customs Service regarding the treatment of spent hops.

Please be aware that this is an "information letter", as defined in section 177.1(d)(2), Customs Regulations (19 CFR 177.1(d)(2)), and not a "ruling" (see 19 CFR 177.1(d)(1)). The procedures and requirements for obtaining a binding ruling are set forth in Part 177 of the Customs Regulations (19 CFR Part 177).

Sincerely,

William G. Rosoff
Chief, Entry Rulings Branch


Enclosure