CLA-2 RR:CTF:TCM 967752ptl

Port Director
Bureau of Customs and Border Protection
198 West Service Road
Champlain, NY 12919

RE: IA #05/009; Classification and IRT on Vinegar Stock

Dear Port Director:

This is our response to the request for Internal Advice filed by the Derringer Logistics Consulting Group on behalf of their client, Maison Des Futailles SEC Inc., seeking information regarding the classification and internal revenue tax status of a product referred to as red vinegar stock.

FACTS:

The product under consideration is referred to by the attorney for the importer as red vinegar stock, “a waste product fit only for further processing. It is spoiled non-drinkable wine not of merchantable quality suitable only for conversion to red wine vinegar. In its imported condition its acetic acid content is too high for consumption as wine and to [sic] low for consumption as vinegar, for which further acetous fermentation is necessary after importation.”

Documents provided by the importer indicate that the goods under consideration have been deemed not suitable for consumption as wines by an entity of the Canadian Province of Quebec, the Societe des alcohols du Quebec (SAQ), and that the exporter, Maison des Futailles, has been appointed to dispose of and eliminate the “faulty wines.” According to the SAQ, “Maison des Futailles recuperates the wine, recycles the empty glass and cartons and either, sells the bulk wine for vinegar production or distillates it.” The importer states that the product under consideration is being sold for vinegar production. Additional documents provided indicate that a blend of the product shipped contains a volatile acid level of 0.87g/L.

The product was entered as wine under subheading 2204.21.5025, HTSUS, which provides for “Wine of fresh grapes, including fortified wines; …: [o]ther wine; … : In containers holding 2 liters or less: Other: Of an alcoholic strength by volume not over 14 percent vol.: Other, Valued not over $1.05/liter: Other.” The product was accorded preference under the North American Free Trade Agreement (NAFTA), but was subject to Internal Revenue tax.

The importer contends that the merchandise should be classified in subheading 2103.90.80, HTSUS, which provides for, among other things, “mixed condiments and mixed seasonings; …: other: other: mixed condiments and mixed seasonings: other.”

ISSUE:

What is the classification of this product referred to as “vinegar stock”? Is the product subject to the Internal Revenue tax?

LAW AND ANALYSIS:

Merchandise is classifiable under the HTSUS in accordance with the General Rules of Interpretation (GRIs). The systematic detail of the HTSUS is such that most goods are classified by application of GRI 1, that is, according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied in order.

In understanding the language of the HTSUS, the Harmonized Commodity Description and Coding System Explanatory Notes may be utilized. The Explanatory Notes (ENs), although not dispositive or legally binding, provide a commentary on the scope of each heading of the HTSUS, and are the official interpretation of the Harmonized System at the international level. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).

Analysis of the physical properties of the product we are classifying shows that it is not vinegar. The importer’s agent agrees, stating: “… the imported product does not meet the standards for vinegar. It is not and cannot be sold as vinegar without further processing and enhancement of its acetic acid value through additional fermentation. The McGraw-Hill Encyclopedia of Science & Technology, 8th Edition 1997, pg. 254 states ‘vinegar sold in the United States must contain at least 4 g of acetic acid pre [sic] 100 ml of solution (40-grain vinegar)’.” This requirement is echoed in the tariff. Additional U.S. Note 9 to Chapter 22 states:

9. For the purposes of heading 2209, the standard proof of vinegar is 4 percent by weight of acetic acid.

Although the subject product cannot be classified as vinegar in heading 2209, HTSUS, it is said that the product will be converted into vinegar. Therefore, the importer suggests classification in 2103.90.80, HTSUS, as a mixed condiment or seasoning.

The ENs to heading 2103 provide, in relevant part: “Examples of products covered by the heading are: … products of Chapter 22 (other than those of heading 22.09) prepared for culinary purposes and thereby rendered unsuitable for consumption as beverages (e.g., cooking wines and cooking Cognac).”

Chapter 22, HTSUS, covers beverages, spirits and vinegar. Wines of fresh grapes are classified in heading 2204. The EN for the heading states that the heading includes four types of wines: Ordinary wines (red, white or rose), wines fortified with alcohol, sparkling wines and dessert wines (sometimes called liqueur wines). HTSUS Chapter note 1(a) to Chapter 22 states that: “1. This chapter does not cover: (a) Products of this chapter (other than those of heading 2209) prepared for culinary purposes and thereby rendered unsuitable for consumption as beverages (generally heading 2103)”.

Materials provided by the exporter indicate that the product does not satisfy quality control standards for wines that are maintained by a quality control agency of the Canadian province of Quebec. As a result, the product cannot be sold in the Quebec market and it must be either shipped back to the supplier or destroyed (in a manner approved by the SAQ). The exporter further states that “the volatile acidity in a fair drinkable wine usually does not exceed 0.80 g/L of acetic acid. This level is considered by the winemakers as a practical limit for quality wines even though the legal level limit is 1.3 g/L. This practical level is based on the fact that the threshold value for volatile acidity starts at 0.7 g/L for most people. A blend of the lots shipped to [the consignee] will result at 0.87 g/L, therefore considered as not suitable for fair quality wines.” (Emphasis added)

While the acidic level of the product under consideration may not be considered “suitable for fair quality wines,” it does not exceed the legal limit of acidity. Further, nothing has been added to the product under consideration to render it unsuitable for consumption as a beverage.

The regulations of the Alcohol and Tobacco Tax Trade Bureau (TTB), the United States agency that regulates and taxes the importation of alcoholic beverages into the U.S., pertaining to wine or wine products not for beverage use states that such products may be treated with methods or materials which render the wine or wine products unfit for beverage use. The three types of products identified as being considered unfit for beverage use are salted wine, defined as having not less than 1.5 grams of salt per 100 milliliter of wine, vinegar, and nonbeverage cooking wine, which is yet another wine product to which salt has been added. (See 19 CFR 24.215) There is nothing to indicate that the instant product has had any substance added to it which has rendered it unfit for beverage use.

The exporter had invoiced the product as “Red vinegar stock.” The regulations of the TTB provide a definition of vinegar stock at 19 CFR 24.217, which provides, in relevant part, as follows:

Vinegar stock may be made only by the addition of water to wine or by the direct fermentation of the juice of grapes or other fruit with added water.

Again, we note that nothing has been added to the instant product. Accordingly, it does not satisfy the requirements established for vinegar stock.

The product under consideration may not satisfy the quality standards of the SAQ in Quebec for fine wine. However, it does not exceed the maximum acidic level for wine. When classifying merchandise, CBP is not bound to abide by determinations of marketability issued by the administrative agencies of foreign countries. See T.D. 89-80. The product may not qualify for sale as “fair quality wines,” but it is still a wine, classifiable under heading 2204, HTSUS.

HOLDING:

Because the subject product has an alcohol content of 12.05 percent, and is imported in bulk containers of hectoliters (100 liters), as imported, the product is classified in subheading 2204.29.60, HTSUS, which provides for: “Wine of fresh grapes, including fortified wines; grape must other than that of heading 2009: Other wine: grape must with fermentation prevented or arrested by the action of alcohol: Other: In containers holding over 4 liters: Of an alcoholic strength by volume not over 14 percent vol.” The 2004 duty rate is 14¢/liter, plus the applicable Internal Revenue Tax and the Federal Excise Tax. Unless the subject product qualifies as a “good originating in the territory of a NAFTA party,” the product will not be eligible for a NAFTA preference. Information from the importer about the origin of the ingredients is needed before this determination can be made.

Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at www.usitc.gov.

Sincerely,

Myles B. Harmon, Director
Commercial and Trade Facilitation Division