OT:RR:CTF:VS H270451 AJR
Mr. James Corpstein
J.R. Simplot Company
999 Main Street, Suite 1300
Boise, ID 83702
RE: Modification of NY N260916; NAFTA; Country of Origin Marking; Substantial Transformation; Roasted Vegetables Mixed in United States
Dear Mr. Corpstein:
This is in reference to New York Ruling Letter (“NY”) N260916, dated February 18, 2015, issued to you with regard to “Roasted Mediterranean Vegetables” (hereinafter, “RMV(s)”). At issue was the tariff classification and country of origin marking of the RMV. In NY N260916, U.S. Customs and Border Protection (“CBP”) found, in relevant part, that the RMV made by mixing imported individually quick frozen vegetables (“IQF(s)”) from Mexico and other foreign countries with olive oil and seasoning in the United States were products of the United States as determined solely under the North American Free Trade Agreement (“NAFTA”) Marking Rules, and thus exempt from country of origin marking. It is now our position that the NAFTA Marking Rules only apply to the IQFs from Mexico, while the IQFs from non-NAFTA countries that are mixed with the IQFs from Mexico in the United States require a separate substantial transformation analysis to determine their countries of origin. Additionally, because this results in different countries of origin, other than the United States, the RMV is not exempt from country of origin marking. For the reasons described in this ruling, we hereby modify NY N260916.
The country of origin marking determination with respect to the RMVs that were made from only non-NAFTA IQFs, and the tariff classification of the RMV under subheading 2004.90.8580, Harmonized Tariff Schedule of the United States (“HTSUS”), are unaffected.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. § 1625(c)(1)), notice proposing to modify NY N260916 was published on September 21, 2016, in Vol. 50, No. 38, of the Customs Bulletin. CBP received one comment in response to this notice.
FACTS:
NY N260916 stated, in relevant part:
The subject product, “Roasted Mediterranean Vegetables,” consists of approximately 19 percent IQF (Individually Quick Frozen) yellow squash, 18 percent IQF green beans, 18 percent IQF sliced carrots, 18 percent IQF sliced zucchini, 9 percent IQF roasted onion strips, 5 percent IQF roasted red bell pepper strips, 5 percent IQF roasted green bell pepper strips, 4 percent IQF roasted yellow bell pepper strips, 2 percent extra virgin olive oil, and one percent seasoning.
The IQF green beans and seasoning are products of the United States. The IQF roasted onion strips, IQF roasted red bell pepper strips, IQF roasted green bell pepper strips, IQF roasted yellow bell pepper strips are grown and processed in the United States. The IQF sliced carrots are a product of Israel. The IQF sliced zucchini is a product of Guatemala or Mexico. The olive oil is a product of Spain, Tunisia, Italy, Turkey or Morocco. The IQF yellow squash is a product of Guatemala, Mexico or Spain. In a telephone conversation with a member of my staff, on February 9, 2015, you confirmed that each ingredient was prepared separately in their specified state in their respective countries, then mixed together at your company’s United States (U.S.) based facility to become the final product, “Roasted Mediterranean Vegetables.” The finished product will be ready for retail sale in frozen condition.
ISSUE:
What is the proper country of origin marking for the RMVs which are processed in the United States with ingredients that were separately imported directly into the United States from Mexico and from non-NAFTA countries?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930 (19 U.S.C. § 1304), as amended, provides that unless excepted, every article of foreign origin 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.
Part 134, CBP Regulations (19 C.F.R. Part 134), implements the country of origin marking requirements of 19 U.S.C. § 1304. Pursuant to 19 C.F.R. § 134.1(b), the country of origin is 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 this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. A “good of a NAFTA country” is defined as “an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules.” See 19 C.F.R. § 134.1(g).
In N260916, CBP found that when the sliced zucchini and/or the yellow squash sourced from Mexico and the sliced carrots and olive oil products sourced from non-NAFTA countries, were prepared into the final product in the United States, the NAFTA Marking Rules applied. Under the NAFTA Marking Rules set forth in 19 C.F.R. Part 102, the RMVs were determined to be a product of the United States because each foreign ingredient underwent an applicable tariff shift pursuant to 19 C.F.R. § 102.11(a)(3) and 19 C.F.R. § 102.20(d). Furthermore, it was noted
that while “vegetable preparations of Chapter 20 that have been prepared or preserved merely by freezing, by packing […], or by roasting, either dry or in oil (including processing incidental to freezing, packing, or roasting), shall be treated as a good of the country in which the fresh good was produced […] [m]ixing the vegetables with olive oil and a seasoning according to the pre-determined formulation exceeds the operations described in the Chapter 20 Note.” With regard to marking, CBP held that since these RMVs became products of the United States, they were exempt from country of origin marking.
In this case, the RMVs consist of a mix of NAFTA and non-NAFTA goods. The issue to be considered here is whether these imported goods blended with each other in the United States become a product of the United States as a result of the blending operations. Because the IQFs from Mexico are goods of a NAFTA country, the NAFTA Marking Rules will determine the country of origin after they are subjected to the blending operations in the United States. However, the IQFs and ingredients from non-NAFTA countries are not goods of a NAFTA country. As a result, further work or materials added to these articles in the United States must effect a substantial transformation in order to render the United States the country of origin.
Headquarters Ruling Letter (“HQ”) 561208, dated March 8, 1999, illustrates how the country of origin marking rules should be applied to NAFTA and non-NAFTA goods that are imported and blended together in the United States, and sold as a blended product like the RMVs at issue. In HQ 561208, a distributor blended crab meat in the United States that was sourced from Mexico, Venezuela, and other foreign countries. With regard to the imported crab meat sourced from Venezuela and other non-NAFTA countries, the issue was whether this imported crab meat (sourced from non-NAFTA countries) was substantially transformed when it was blended with crab meat from another country (U.S. or foreign) in the United States. CBP held that the countries of origin of the crab meat sourced from non-NAFTA countries remained unchanged because the blending operations did not substantially transform this crab meat. Separately, with regard to the imported crab meat sourced from Mexico, the issue was whether the Mexican crab meat became a good of the United States under the NAFTA Marking Rules when it was blended with crab meat from another country (U.S. or foreign) in the United States. CBP held that the country of origin of the Mexican crab meat remained Mexico pursuant to the NAFTA Marking Rules. CBP was satisfied with the crab meat distributor’s proposed marking label that read “Blended Crabmeat Product of […] Mexico […] Venezuela […] United States […] Other:_______” and similar variations of this label. There was no indication that CBP determined the country of origin of the Venezuelan crab meat by applying the NAFTA Marking Rules merely because it was blended with Mexican crab meat. Rather, HQ 561208 only applied the NAFTA Marking Rules to the Mexican portion of the crab meat blend and separately applied the substantial transformation test to determine the country of origin of the non-NAFTA portion of the crab meat blend.
Thus, despite the fact that a non-NAFTA good is blended in the United States with another NAFTA good, the country of origin marking for the non-NAFTA good is still determined by examining whether it was substantially transformed, and not by applying the NAFTA Marking Rules, even though such rules will apply to the NAFTA portion of the blended product. Accordingly, we find that when the RMVs consist of a blend of IQFs from Mexico and IQFs and ingredients from non-NAFTA countries that are all blended together in the United States, the country of origin marking for these imported goods is determined separately: (1) by applying the NAFTA Marking Rules to the IQFs from Mexico only; and, (2) by examining whether the IQFs and ingredients from non-NAFTA countries are substantially transformed in the United States.
With regard to the IQFs and ingredients from non-NAFTA countries, we find that they were not substantially transformed as a result of the blending operations in the United States. CBP has consistently held that blending operations, which do not change the essential character of the imported good being blended, do not result in a substantial transformation of the good. See National Juice Products Association v. United States, 628 F. Supp. 978 (CIT 1986); see also HQ 561208; HQ 967925, dated February 28, 2006; and, HQ 559965, dated January 24, 1997. Therefore, we find that the countries of origin of the RMVs with respect to the non-NAFTA IQFs are the countries of origin from which such non-NAFTA IQFs were sourced.
With regard to the IQFs from Mexico, the issue to be addressed is whether the Mexican IQFs that are blended in the United States with IQFs and ingredients from another country (non-NAFTA or the United States) become a good of the United States under the NAFTA Marking Rules. The NAFTA Marking Rules, per 19 C.F.R. § 102.11, set forth the required hierarchy for determining whether a good is a good of a NAFTA country for purposes of country of origin marking. 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.
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the RMV, because it is neither wholly obtained or produced in the United States, nor produced exclusively from United States materials. Since an analysis of sections 102.11(a)(1) and 102.11(a)(2) will not yield a country of origin determination for the RMV, we look to section 102.11(a)(3).
The applicable rule in 19 C.F.R. § 102.20(a) provides for a “change to heading 2001 through 2007 from any other chapter.” However, the note to Chapter 20, HTSUS, provides:
Notwithstanding the specific rules of this chapter, fruit, nut and vegetable preparations of Chapter 20 that have been prepared or preserved merely by freezing, by packing (including canning) in water, brine or natural juices, or by roasting, either dry or in oil (including processing incidental to freezing, packing or roasting), shall be treated as a good of the country in which the fresh good was produced.
See 19 C.F.R. § 102.20(a).
Though the IQFs from Mexico appear to undergo the requisite tariff shift from Chapter 7, HTSUS, to subheading 2004.90.8580, HTSUS, it remains to be determined whether they meet the additional test imposed by the note to Chapter 20, HTSUS. Under this provision, when vegetable preparations are prepared “merely” by freezing, or by processing “incidental” to freezing, then the origin of the vegetables in their “fresh” state determines the origin of the good. The “fresh” state refers to the state of the vegetables before they are frozen or processed in a manner incidental to freezing. Thus, the country of origin for such vegetable preparations will be the country where the vegetable originated prior to its preparation by freezing and operations incidental to freezing.
The term “merely” is not specifically defined in 19 C.F.R. Part 102, but per its dictionary definition means “only (what is referred to) and nothing more.” Read in the context of 19 C.F.R. Part 102, the term “merely” means that the processes listed in the note to Chapter 20, HTSUS, by themselves, are insufficient to change the country of origin, despite changing tariff classifications per 19 C.F.R. § 102.20(a). Thus, we find that the effect of the note to Chapter 20, HTSUS, is to ensure that a good undergoes sufficient processing in a NAFTA country, beyond the listed processes, in order to be considered a good of a NAFTA country for purposes of 19 C.F.R. Part 102.
The term “incidental” is also not specifically defined in 19 C.F.R. Part 102, but per its dictionary definition means “occurring or liable to occur in fortuitous or subordinate conjunction with something else of which it forms no essential part.” Applying this definition to the note to Chapter 20, HTSUS, the term “incidental” indicates a process that may happen with or as a result of freezing, packing, or roasting, but is secondary to, or of lesser importance than, these processes.
In this case, the IQFs from Mexico were already frozen prior to being mixed with other IQFs and ingredients in the United States to make the RMV. Inasmuch as all the IQFs are already frozen prior to their importation into the United States, then mixed together with olive oil and seasoning in the United States, and ultimately sold as a frozen product to customers in the United States, this means that the entire product is frozen and that the non-frozen ingredients were not only mixed with the blend of IQFs, but also frozen in the United States to the extent necessary to sell the entire RMV as a frozen product. As such, the Mexican IQFs appear to undergo a further freezing process in oil and seasoning while in the United States.
NY N260916 held that mixing the vegetables with olive oil and seasoning exceeds the operations described in the note to Chapter 20, HTSUS. HQ 561242, dated May 7, 1999, made a similar determination with regard to Mexican fresh green olives and provisionally preserved green olives that were unsuitable for immediate consumption, and imported into the United States under Chapter 7, HTSUS. In the United States, the olives underwent a calculated pickling process in 10 ton chambers, which turned the imported green olives into black olives, while removing their natural bitterness. The black olives were subsequently treated with brine, filtered, canned, and cooked. The final prepared black olives were classified in subheading 2005.70, HTSUS. While it concluded that the canning process would not confer U.S.-origin on the Mexican olives, this particular ripening process was distinguished from the canning process as a process that was unique to olives. Namely, the ripening process was unrelated to the canning process because it transformed the imported green olives into black ripe olives, and thus exceeded the operations described in the note to Chapter 20, HTSUS.
We find that the facts in NY N260916 are different from the facts in HQ 561242, and do not result in operations that would exceed the preparations of the note to Chapter 20, HTSUS. In this case, the IQFs from Mexico do not undergo a pickling process, and there is no indication that they were imported in a state that was unsuitable for human consumption, as were the olives in HQ 561242. Rather, the IQFs from Mexico, along with the other IQFs, “were prepared separately in their specified state in their respective countries, then mixed together” in the “United States based facility to become the final product, ‘Roasted Mediterranean Vegetables.’” This indicates that the IQFs from Mexico were already frozen prior to importation into the United States. In the United States, the only additional processing involves mixing the Mexican IQFs with other already frozen IQFs, olive oil, and seasoning in order to make the RMV, which is sold as a frozen product to customers in the United States.
Moreover, the mixing with seasoning is precisely the type of lesser processing contemplated by the note as incidental. Mixing with seasoning often occurs in connection with freezing, canning, or roasting. It is the freezing, canning, and roasting processes, either dry or in oil, which are the means by which the products are principally prepared (here, by freezing in oil and seasoning). By contrast, mixing with seasoning has far less consequences to the essential character of the product. Moreover, the addition of seasoning like salt, other flavors, spices, or other ingredients is, comparatively, a relatively simple process. See HQ H243329, dated March 9, 2016 (holding that salting was incidental to the process of roasting nuts under the NAFTA); and, HQ H243328, dated August 19, 2013 (salting was a process incidental to roasting with regard to a provision from the United States-Korea Free Trade Agreement (“UKFTA”) that is parallel to the NAFTA provision).
CBP received one comment in response to the notice to modify NY N260916. The commenter states the NAFTA Marking Rules must be applied to determine the country of origin of the IQF and ingredients from non-NAFTA countries because such are processed into the RMV in the United States, a NAFTA country. The commenter cites to HQ 561749, dated November 8, 2000, to show that CBP applied the NAFTA Marking Rules only to determine whether mushrooms from Chile originated in Canada. The commenter also cites to HQ H243329, HQ H243328, and NY J87490, dated July 31, 2003, to note that CBP applied the “FTA Marking Rules to determine the origin of an item manufactured in Canada and Korea from non-originating goods.” The commenter argues that “[n]othing in the NAFTA suggests that CBP is only to apply the NAFTA Marking Rules to determine whether an article is a good of a NAFTA country other than the United States.” The commenter further differentiates this case from HQ 561208 because HQ 561208 did not analyze whether the NAFTA Marking Rules should be applied to the items from non-NAFTA countries and applying the NAFTA Marking Rules in HQ 561208 would not result in a determination that the item was a good of a NAFTA country. The commenter also cites to NY N235705, dated December 17, 2012; and HQ 557994, dated October 25, 1994, to show that CBP applied the NAFTA Marking Rules to imported items further processed in the United States. The commenter concludes that the RMV is a product of the United States by applying the NAFTA Marking Rules to both the IQFs and ingredients from NAFTA and non-NAFTA countries. In support, the commenter argues that the note to Chapter 20, HTSUS, does not apply because the IQFs are already frozen before entering the United States and kept frozen in freezing facilities in the United States, and thus they could not have been prepared merely by freezing, or operations incidental to freezing, while in the United States.
In response, we note the following portions from 19 C.F.R. § 134.1(d):
The “ultimate purchaser” is generally the last person in the United States who will receive the article in the form in which it was imported; however, for a good of a NAFTA country, the “ultimate purchaser” is the last person in the United States who purchases the good in the form in which it was imported. It is not feasible to state who will be the “ultimate purchaser” in every circumstance. The following examples may be helpful:
(1) If an imported article will be used in manufacture, the manufacturer may be the “ultimate purchaser” if he subjects the imported article to a process which results in a substantial transformation of the article, even though the process may not result in a new or different article, or for a good of a NAFTA country, a process which results in one of the changes prescribed in the NAFTA Marking Rules as effecting a change in the article's country of origin.
(2) If the manufacturing process is merely a minor one which leaves the identity of the imported article intact, the consumer or user of the article, who obtains the article after the processing, will be regarded as the “ultimate purchaser.” With respect to a good of a NAFTA country, if the manufacturing process does not result in one of the changes prescribed in the NAFTA Marking Rules as effecting a change in the article's country of origin, the consumer who purchases the article after processing will be regarded as the ultimate purchaser.
As previously discussed, marking is required for the purpose of indicating this marking to the ultimate purchaser in the United States. As 19 C.F.R. § 134.1(d) illustrates for purposes of determining the ultimate purchaser, when articles are imported into the United States and subject to further processing in the United States, a determination needs to be made as to whether or not that imported article will be considered a good of a NAFTA country prior to the processing that occurs in the United States. That is, with non-NAFTA materials we determine whether the processing was substantial or not in order to determine whether the manufacturer or consumer is the ultimate purchaser; while with NAFTA materials we look to the NAFTA Marking Rules to determine whether the processing satisfied the rules or not in order to determine whether the manufacturer or consumer is the ultimate purchaser. In this case, the process of blending the IQFs and ingredients from non-NAFTA countries in the United States is not a substantial transformation, eliminating the manufacturer as the ultimate purchaser. Instead, we find the blending process in the United States to be minor, rendering the consumer the ultimate purchaser based on the substantial transformation test. Moreover, CBP has consistently applied the substantial transformation test to determine whether non-NAFTA materials imported directly into the United States become products of the United States as a result of further processing in the United States. See HQ H259326, dated April 13, 2015; HQ H253522, dated February 5, 2015; HQ H213362, dated August 17, 2012; and, HQ 563286, dated August 25, 2005. Permitting the commenter’s rationale and applying the NAFTA Marking Rules to this case would contradict CBP’s consistent use of the substantial transformation test for these fact patterns (i.e., non-NAFTA materials imported directly to, and further processed in, the United States).
Furthermore, we disagree with the commenter’s arguments based on HQ 561749, HQ H243329, NY J87490, NY N235705, and HQ 557994. In these cases, CBP applied the NAFTA Marking Rules because the materials were from, or underwent processing in, Canada prior to importation into the United States. The fact that some of these materials were then further processed in the United States after importation did not dictate application of the NAFTA Marking Rules, particularly since the imported materials themselves were already considered materials of a NAFTA country (Canada) prior to any processing in the United States. See generally HQ H264609, dated June 30, 2016 (explaining application of the NAFTA Marking Rules with regard to materials imported from a NAFTA country into the United States). Furthermore, we disagree with the commenter’s arguments based on HQ H243328. Like the NAFTA cases above, the reason for the particular use of origin rules in HQ H243328 is that preference was claimed under the UKFTA for an article that was imported from a member country into the United States. However, we note that our use of HQ H243328 above is only to interpret “incidental to the process” and not to illustrate the country of origin marking rules. Furthermore, in contrast to HQ 561749, HQ H243329, NY J87490, NY N235705, HQ 557994, and HQ H243328, we find that HQ 561208 is directly applicable to the case at hand because it considers the manner in which a product should be marked after blending imported articles from NAFTA and non-NAFTA countries in the United States. That HQ 561208 did not analyze whether the NAFTA Marking Rules should be applied to the items from non-NAFTA countries is precisely the assessment that should have been made when articles are imported into the United States from non-NAFTA countries.
To this extent, we only apply the NAFTA Marking Rules to the IQFs imported from Mexico into the United States, and we further disagree with the commenter’s argument that the note to Chapter 20, HTSUS, does not apply. The commenter states that the IQFs were never thawed and re-frozen in the United States because the IQFs were already frozen and kept frozen in freezing facilities throughout the processing in the United States. Because the IQFs are in a constant frozen state throughout the process, the commenter states that the blending with oil and other seasonings cannot be considered a process incidental to freezing, and more specifically that the oil and seasonings are not prepared or preserved through the freezing process. Assuming, as the commenter implies, that the oil and seasonings are not frozen while blended with the IQFs at facilities in the United States which are kept at freezing temperatures to ensure that the IQFs do not thaw, this does not preclude the conclusion that the blending with oil and seasoning is a process that is incidental to the process of freezing. Here, the blending is specifically done with freezing temperatures in the United States for the purpose of maintaining the frozen state of the IQFs. That is, the IQFs are literally preserved in their frozen state while blended with oil and seasonings through the process of using facilities in the United States that are kept frozen. While the oil and seasoning may not have been prepared through the freezing process, these are not the goods subject to the NAFTA Marking Rules. Instead, the IQFs from Mexico are the imported goods subject to these rules, and the processing to convert these goods into the RMV requires preserving them in their frozen state using freezing temperatures. Moreover, we find the process of blending with oils and seasoning constitutes processing that is incidental to the process of preparation or preservation by roasting, packaging, or freezing as has been previously noted in HQ H243329 with regard to processes such as salting and mixing with other ingredients.
Given the foregoing, the country of origin of the Mexican IQFs per 19 C.F.R. § 102.11(a)(3) (incorporating the note from Chapter 20, HTSUS, under 19 C.F.R. § 102.20) is the country where the fresh vegetable was produced, which in this case is Mexico.
HOLDING:
Based on the information presented, NY N260916 is modified to reflect that the country of origin marking should be applied separately for the non-NAFTA portion of the good and for the NAFTA portion of the good. With regard to the non-NAFTA portion of the good, the non-NAFTA IQFs and ingredients are not substantially transformed by the further processing in the United States. Accordingly, the countries of origin of these non-NAFTA IQFs and ingredients are the countries where such materials were sourced. With regard to the NAFTA portion of the good, the country of origin of the NAFTA IQFs is determined to be Mexico under the NAFTA
Marking Rules. The final RMV product must be marked to indicate all of the countries of origin contained therein, as the individual vegetables from Mexico do not meet the requisite rule and the non-NAFTA vegetables do not undergo a substantial transformation.
EFFECT ON OTHER RULINGS:
NY N260916, dated February 18, 2015, is hereby MODIFIED. In accordance with 19 U.S.C. § 1625(c), this ruling will become effective 60 days after publication in the Customs Bulletin.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division