MAR-02 OT:RR:CTF:VS H264874 RSD
Alex Schaffer, Esq.
Crowell & Moring LLP
1001 Pennsylvania Avenue, NW
Washington, DC 20004-2595
RE: Country of Origin Marking Requirements for Packages of Bolivian-Grown Quinoa Seeds that are Germinated in the United States; NAFTA Preference for Quinoa Sprouted in Mexico
Dear Mr. Alex Schaffer:
This letter is in response to an email of December 18, 2014 from Enray Inc., sent to the National Commodity Specialist Division, requesting a ruling regarding the country of origin marking requirements for sprouted quinoa. Your request was forwarded by the Director, National Commodity Specialist Division to our office for a response. We have received supplemental submissions dated April 14, 2015 and July 22, 2015, requesting a ruling regarding preferential tariff treatment under the North American Free Trade Agreement (NAFTA). On June 15, 2015, a meeting with Enray’s representatives to discuss this matter was held at our office.
FACTS:
According to your submissions, J.M. Smucker Company’s (Smucker) subsidiary, Enray, is planning to import organic quinoa seeds (Chenopodium quinoa) from Bolivia into the United States. In Bolivia, the quinoa is grown, harvested, pre-cleaned, and the outer coating known as “saponin” is removed. The quinoa is then dried and packaged into bulk bags for shipping directly to a processing facility in the United States. After importation, the U.S. facility will further process the quinoa by cleaning, sprouting, dehydrating and packaging the seed into plastic pouches for retail sale as organic sprouted quinoa. You describe the sprouting process as similar to germinating. It is a 24-48 hour process that involves soaking, sprouting, and dehydrating the whole quinoa to turn the product into “sprouted” quinoa. The process causes the quinoa to grow a physically visible sprout and/split. The sprouted quinoa significantly reduces cooking time for the product. In your July 22, 2015, submission, you state that the processing may also take place at a Mexican facility, before importation into the United States.
ISSUES:
I. What are the country of origin marking requirements for the sprouted quinoa described above that will be processed in the United States from quinoa seeds imported from Bolivia?
II. Whether the sprouted quinoa processed in Mexico is entitled to preferential tariff treatment under the NAFTA?
LAW AND ANALYSIS:
COUNTRY OF ORIGIN 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 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. By enacting 19 U.S.C. §1304, Congress intended to ensure “that the ultimate purchaser would be able to know by inspecting the marking on the imported goods the country of which the goods are 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, 302 (1940).
Section 134.1 (b), Customs Border Protection (CBP) Regulations (19 C.F.R. §134.1(b)), defines “country of origin” as the country of manufacture, production or growth of any article of foreign origin entering the U.S. 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.
Section 134.35(a), CBP Regulations (19 C.F.R. §134.35(a)), states:
Articles other than goods of a NAFTA country. An article 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 articles shall be marked in accord with this part.
The quinoa seeds will be imported from Bolivia into the United States where they will undergo a sprouting process. In Headquarters Ruling Letter (HQ) H262945 dated September 30, 2015, CBP ruled that mung beans imported from Asian countries were substantially transformed as a result of a sprouting process that took place in the United States. We explained that the sprouting was a significant process, which caused the mung beans to sprout and grow from a dormant bean form into a germinated live plant. Accordingly, we held that the importer, who performs the sprouting process was the ultimate purchaser of the mung beans, and the mung bean sprouts and their retail packages were excepted from the country of origin marking requirements of 19 U.S.C. 1304.
Similarly, in this instance, we believe that the quinoa seeds also undergo a significant change in the United States as a result of the sprouting process. The sprouting process causes the quinoa seeds to be transformed from dormant seed form into germinated live plants. When they sprout and split, the sprouted quinoa will resemble live plants, not just seeds. Although to the eye, the difference between a sprouted seed and an unsprouted seed can appear very minimal, significant chemical changes take place within the seed before any visible growth occurs. Most of these changes are related to saccarification of seed starches and proteolysis resulting from the action of enzymes released by the embryo plant. The process of sprouting seeds creates a new and different article of commerce no longer suitable for the purpose of the original product. Once a seed sprouts, it has passed the point-of-no-return because it must continue to grow or it will die and can no longer be used as a seed.
The desirable nutritional changes that occur during sprouting are mainly due to the breakdown of complex compounds into a more simple form, transformation into essential constituents and breakdown of nutritionally undesirable constituents. The metabolic activity of resting seeds increases as soon as they are hydrated during soaking. Complex biochemical changes occur during hydration and subsequent sprouting. See Chavan, JK; Kadan (1989). "SS". Critical Reviews in Food Science and Nutrition 28 (5): 401-437. These enzymatic changes are exactly what makes sprouts desirable as a food resulting in the quinoa sprouts being nutritionally different from the unsprouted quinoa seeds. Moreover, the sprouted quinoa also differs from the quinoa seeds in that the cooking time involved in preparing the quinoa sprouts is significantly reduced.
We also note that as a result of the sprouting process performed in the United States, the quinoa sprouts are no longer classified as seeds and will become a new product, malt, as demonstrated by the change in classification from subheading 1008.50.00, HTSUS to heading 1107, HTSUS.
Therefore, we find that the sprouting process of the imported quinoa seeds occurring in the United States will result in a substantial transformation of the imported quinoa seeds making the sprouted quinoa a product of the United States. In other words, under 19 C.F.R. 134.35(a), Smucker or its subsidiary, Enray, will be considered the ultimate purchaser of the imported quinoa seeds that will undergo the sprouting process in the United States. In accordance with 19 C.F.R. 134.35(a), the sprouted quinoa is excepted from the country of origin marking requirements of 19 U.S.C. 1304, and the retail packages in which the quinoa sprouts will be sold to consumers are not required to be marked to indicate either the country of origin of the quinoa sprouts or the unsprouted seeds. Under 19 C.F.R. 134.35(a), only the outermost containers in which the unsprouted quinoa seeds are imported are required to be marked to indicate their country of origin pursuant to 19 U.S.C. 1304(a)(3)(D).
However, you should be aware that the Federal Trade Commission ("FTC") has jurisdiction concerning the use of the phrase "Made in the U.S.A.", or similar words denoting U.S. origin. Consequently, any inquiries regarding the use of such phrases reflecting U.S. origin should be directed to the FTC, at the following address: Federal Trade Commission, Division of Enforcement, 6th & Pennsylvania Avenue, N.W., Washington, D.C. 20508.
NAFTA TARIFF PREFERENCE
In your most recent submission dated July 22, 2015, you indicate that the sprouting process may also take place at a facility located in Mexico before importation into the United States. If the quinoa seeds undergo the sprouting process in Mexico, you further contend that the sprouted quinoa should be entitled to preferential tariff treatment under the NAFTA.
General Note 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. General Note 12 (a)(ii), HTSUS, provides, in pertinent part, that:
Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
Accordingly, the sprouted quinoa imported from Mexico will be eligible for the “Special” “MX” rate of duty provided: (1) they are deemed to be NAFTA originating under the provisions of General Note 12(b), HTSUS; and, (2) qualify to be marked as products of Mexico under the NAFTA Marking Rules that are set forth in Part 102 of the Code of Federal Regulations (19 C.F.R. Part 102). In order to determine whether the sprouted quinoa is NAFTA-originating, we must consult General Note 12(b), HTSUS, which provides, in pertinent part, as follows:
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—
they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
(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 subdivisions (r), (s) and (t) of this note or the rules set forth therein, or
(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Because the sprouted quinoa will be sprouted from non-originating seeds produced in Bolivia, General Note 12(b)(i), HTSUS, does not apply. Therefore, we must determine whether the non-originating materials undergo the requisite tariff shift (or other applicable requirement) prescribed under General Note 12(b)(ii), HTSUS. As mentioned previously, the quinoa seeds are classified in subheading 1008.50.00, HTSUS, and the sprouted quinoa seeds are classified in heading 1107, HTSUS. The applicable rule regarding the requisite change of tariff classification for goods classified in Heading 1107, HTSUS, is found in General Note 12(t)/(11), HTSUS, which provides:
A change to headings 1101 through 1109 from any other chapter.
Accordingly, the applicable tariff shift rule for goods classified in Heading 1107, HTSUS, requires that the product undergo a change in the chapter of the HTSUS. Therefore, the quinoa seeds undergo a change in HTSUS chapter as a result of the sprouting process occurring in Mexico, and the sprouted quinoa would be considered originating in Mexico for purposes of the NAFTA tariff preference.
As previously noted, in order to be eligible for NAFTA tariff preference treatment, General Note 12(a)(i), HTSUS, provides that NAFTA-originating goods must also qualify to be marked as products of Mexico or Canada under the NAFTA Marking Rules. In this regard, 19 C.F.R. § 134.1(j) provides that "[t]he “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country.” 19 C.F.R. § 134.1(j) defines a “good of a NAFTA country” as “an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules.” Therefore, in order for the sprouted quinoa seeds at issue to qualify for preferential tariff treatment under the NAFTA, they must not only originate in the territory of Mexico under the provisions of General Note 12, but they must also qualify to be marked as goods of Mexico. Consequently, we must apply the NAFTA Marking Rules contained in 19 C.F.R. Part 102 of the CBP Regulations.
Section 102.11 sets forth the general rules for determining the country of origin of imported merchandise, with the exception of textile goods which are subject to the provisions of § 102.21. In this case, § 102.11(a)(3) is applicable and provides that 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.
As previously noted, the sprouted quinoa is classified in heading 1107, HTSUS, while the unsprouted quinoa seeds are classified in heading 1008. The applicable rule for products classified in heading 1107, HTSUS, under 19 C.F.R. 102.20(d), Section II: Chapters 6 through 14, is as follows:
1107 A change to heading 1107 from any other chapter;
Because the unsprouted quinoa seeds and the sprouted quinoa are classified in different chapters of the HTSUS, (Chapters 10 and 11 of the HTSUS) the requisite tariff shift rule specified above will be satisfied as a result of the sprouting process that will occur in the Mexico. Consequently, in accordance with the applicable tariff shift rule, the sprouted quinoa will become a good of the country where the sprouting process occurs, which in this case is Mexico. Therefore, the quinoa sprouted in Mexico qualifies to be marked as a good of Mexico and is eligible for NAFTA tariff preference.
You also contend that the sprouted quinoa product will be eligible for preferential tariff treatment under the United States-Korea Free Trade Agreement (UKFTA). However, because you have not indicated that the quinoa will be either grown or processed in Korea, we will not address whether the imported quinoa or the sprouted quinoa is eligible for preferential tariff treatment under the UKFTA.
HOLDING:
The quinoa seeds imported from Bolivia will be substantially transformed as a result of the sprouting process that will take place in the United States. The importer, who performs the sprouting process is the ultimate purchaser, and the quinoa sprouts and its retail packages will be excepted from the country of origin marking requirements of 19 U.S.C. 1304. At importation only the outermost containers must be marked in accordance with 19 C.F.R. 134.35.
The quinoa seeds sprouted in Mexico will be considered originating in Mexico for purposes of NAFTA preferential tariff treatment pursuant to General Note 12(b), HTSUS.
U.S. Customs and Border Protection NAFTA Regulations, 19 C.F.R. 181.100 (a)(2), provide that each NAFTA ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of an advance ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the advance ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the advance ruling was based. If any of the facts are materially different or a condition has not been satisfied, the treatment specified in the advance ruling will not be applied to the actual transaction.
A copy of this letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely,
Ieva K. O’Rourke Chief, Tariff Classification and Marking Branch