MAR-2 RR:CR:SM 562848 KSG
Port Director
U.S. Customs and Border Protection
477 Michigan Avenue, Room 200
Detroit, Michigan 48226
RE: Application for Further Review of Protest No. 3801-03-100174
Dear Director:
This is in reference to a Protest and Application for Further Review filed by counsel on behalf of Tate & Lyle North America Sugars, contesting the assessment of country of origin marking duties for 272 entries of blended cane molasses ("BCM") imported from Canada.
FACTS:
This case involves 272 entries of blended cane molasses entered from July 18, 2001 through September 1, 2002. Raw sugar, which is classified in subheading 1701.11 of the Harmonized Tariff Schedule of the United States ("HTSUS") was imported from various Central American countries into Canada. The raw sugar was refined in Canada. BCM is a by-product of the refining of the sugar. The BCM is classified in subheading 1703.10, HTSUS.
The 272 entries of BCM were imported into the U.S., and sent to Louisiana, where the BCM was mixed with U.S. origin- sugar liquor (made from U.S.-origin raw sugar) and boiled and crystalized to produce refined sugar. The BCM is less than 10% by bulk of the finished refined sugar and less than 5% of the value of the finished refined sugar. The refined sugar is classified in subheading 1701.99, HTSUS.
Marking duties in the amount of $453,145.87 were assessed because Customs and Border Protection ("CBP") determined that 19 U.S.C. 1304 requires that the packages of refined sugar indicate the foreign countries of origin of the BCM which was not done. The entries were liquidated on January 24, 2003. The protest was timely filed on April 15, 2003.
ISSUE:
Whether marking duties were properly assessed against the imported BCM.
LAW AND ANALYSIS:
I. Country of origin for marking purposes of the imported BCM
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 U.S. 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 U.S. 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 C.C.P.A. 297 at 302; C.A.D. 104 (1940). Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.
The first issue concerns the country of origin of the BCM imported from Canada. Section 102.11, Customs Regulations (19 CFR 102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for the purposes of country of origin marking and determining the rate of duty and staging category applicable to a NAFTA originating good as set out in Annex 302.2. Paragraph (a) of this section states that the country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
Since the BCM is not wholly obtained or produced in a NAFTA country or produced exclusively from domestic materials, we proceed to 102.11(a)(3). Pursuant to 19 CFR 102.20(d), the tariff shift rule for the BCM classified in subheading 1703.10, HTSUS, is as follows:
1703………………………… A change to heading 1703 from any other chapter.
Since the raw sugar is classified in heading 1701, the applicable tariff shift rule is not met. As we are unable to determine the country of origin of the BCM under 19 CFR 102.11(a)(3), pursuant to the hierarchical rules, we proceed to 19 CFR 102.11(b). Section 102.11(b) provides:
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 to the good....
In this case, the raw sugar from Central America is the single material that imparts the essential character to the good. Accordingly, pursuant to 19 CFR 102.11(b), for country of origin marking purposes, the imported BCM would be considered a product of the Central American countries from which the raw sugar originated.
II. Country of origin for marking purposes of the refined sugar
The second issue concerns whether the imported foreign origin BCM becomes a good of the U.S. as a result of the processing performed in the U.S.
As the BCM is not a good of a NAFTA country when imported into the U.S., the country of origin of the finished refined sugar will be based on whether the processing in the U.S. would cause the final product to be of U.S. origin pursuant to the substantial transformation test.
Pursuant to 19 CFR 134.35(a), an article other than goods of a NAFTA country:
used in the United States in manufacture which results in an article having a name, character, or use differing from that of the imported article, will be within the principle of the decision in the case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D.98). Under this principle, the manufacturer or processor in the United States who converts or combines the imported article into the different article will be considered the "ultimate purchaser" of the imported article within the contemplation of section 304(a), Tariff Act of 1930, as amended (19 U.S.C. 1304(a)), and the article shall be excepted from marking. The outermost containers of the imported article shall be marked in accord with this part.
The issue presented is whether the BCM is substantially transformed in the U.S. In Headquarters Ruling Letter ("HRL") 082033, dated September 5, 1989, Customs held that the refining of raw sugar is not a substantial transformation. This conclusion was based on a comparison of the raw sugar crystals and the refined sugar crystals. Customs concluded that the processing was essentially a cleaning operation that removed impurities in the raw sugar. In HRL 555182, dated June 6, 1990, Customs considered the issue of whether cane molasses was substantially transformed when it was used to produce high fructose syrup. Customs determined that the cane molasses was substantially transformed into a product with a new name and significantly different characteristics from the cane molasses from which it was made. Further, the processing operation changed the cane molasses, "a multifunctional product" into a distinct article of commerce suitable for specific uses.
This case is similar to HRL 555182 rather than to HRL 082033. In contrast to HRL 082033, raw sugar was processed to manufacture refined sugar. Blended cane molasses is, as pointed out in HRL 555182, a multifunctional product; the cane molasses was used to produce fructose syrup in HRL 555182 while in this case, the cane molasses is being used to manufacture refined sugar. Further, the BCM is only less than 10% by bulk and such a small amount of the value of the finished refined sugar. Accordingly, we find that the BCM, which is boiled and crystalized to make refined sugar, is a distinct product with a different name, character and use than the finished refined sugar, and is substantially transformed in the U.S.
Since the BCM is substantially transformed in the U.S., pursuant to 19 CFR 134.35(a), it is exempt from country of origin marking and only the outermost container in which it is imported into the U.S. is required to be marked with the country of origin. The packaging of the refined sugar is not required to be marked with the country of origin of the BCM.
Accordingly, marking duties were improperly assessed in this case.
HOLDING:
Based on the facts and analysis presented above, the protest should be granted in full.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60
days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision should be accomplished prior to mailing of this decision. Sixty days from the date of this decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public
on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division