CLA-2 CO:R:C:S 555815 KCC
Mr. Ross S. Green
Kraft General Foods Canada Inc.
C.P./P.O. Box 6118
Montreal, Quebec H3C 3J3
RE: Powder cheddar cheese spray dried and mixed with salt and
emulsifiers in Canada.Advance in value; improve in
condition; 054825; alteration; new and commercially
different article; 553080; 555519; 060915; 071041; 071207
Dear Mr. Green:
This is in response to your letter dated December 7, 1990,
requesting a ruling concerning the applicability of subheading
9801.00.10, Harmonized Tariff Schedule of the United States
(HTSUS), to powder cheddar cheese imported from Canada.
FACTS:
Kraft intends to ship U.S.-manufactured cheddar cheese to
Canada in 500 pound containers. In Canada, the cheddar cheese
will be spray dried into a powder form and then mixed with salts
and emulsifiers. Upon completion of foreign operations, the
powder cheddar cheese will be returned to the U.S.
ISSUE:
Whether the powder cheddar cheese will qualify for the duty
exemption available under subheading 9801.00.10 and subheading
9802.00.50, HTSUS, when returned to the U.S.
LAW AND ANALYSIS:
Subheading 9801.00.10, HTSUS, provides for duty-free entry
of U.S. products that are exported and returned without having
been advanced in value or improved in condition by a process of
manufacture or any other means while abroad. Articles satisfying
the above conditions of the statute will be afforded duty-free
treatment, provided the documentary requirements of section 10.1,
Customs Regulations (19 CFR 10.1), are met. Some change in the
condition of the product while it is abroad is permissible,
However, operations which either advance the value or improve the
condition of the exported product render it ineligible for duty-
free entry upon return to the U.S. See, Border Brokerage Company
Inc. v. United States, 65 Cust.Ct. 50, C.D. 4052, 314 F. Supp.
788 (1970), appeal dismissed, 58 CCPA 165 (1970).
We have previously held that drying food articles into a
powder form changes the basic characteristics of the exported
article. Therefore, the powder article entering the U.S. will
not be eligible for the duty exemption available under subheading
9801.00.10, HTSUS. See, Headquarters Ruling Letter (HRL) 054825
dated February 27, 1978, which held that reducing liquid egg
whites to powder in Canada disqualifies the powder egg whites
from the duty exemption available under item 800.00, Tariff
Schedules of the United States (TSUS) (the precursor provision to
subheading 9801.00.10, HTSUS).
We are of the opinion that spray drying the cheddar cheese
into a powder form and then mixing the powder with salt and
emulsifiers advances in value and improves in condition the
exported U.S. cheddar cheese. U.S. cheddar cheese is exported to
Canada and a new and different commercial article--powder
cheddar cheese--is returned to the U.S. Additionally, we have
held that combining ingredients together establishes a new
product, as the identity of each ingredient is lost and merged
into a new marketable product, having its own commercial identity
and use. See, HRL 553080 dated November 15, 1984 (adding sugar
to prepared cocktail mix concentrate precludes the concentrate
from qualifying for the duty exemption available under item
800.00, TSUS), and HRL 555519 dated March 12, 1990 (combining
different rices into a pouch, combining dehydrated vegetables and
seasonings into a pouch, and then packaging the two pouches
together advances in value and improves in condition the U.S.
ingredients).
Additionally, the powder cheddar cheese will not be eligible
for classification under subheading 9802.00.50, HTSUS, which
provides for the assessment of duty on the value of repairs or
alterations performed on articles returned to the U.S. after
having been exported for that purpose. The application of this
tariff provision is precluded in circumstances where the
operations performed abroad destroy the identity of the articles
or create new or commercially different articles. See, A.F.
Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'd,
C.D. 1752, 36 Cust.Ct. 46 (1956); and Guardian Industries
Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (Jan.
5, 1982). Subheading 9802.00.50, HTSUS, treatment is also
precluded where the exported articles are incomplete for their
intended use and the foreign processing operation is a necessary
step in the preparation or manufacture of finished articles.
See, Dolliff & Company, Inc. v. United States, 81 Cust.Ct. 1,
C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D.
1225, 599 F.2d 1015 (1979).
As stated in our previous analysis, the foreign operations
destroy the identity of the U.S. cheddar cheese, thereby creating
a new and commercially different article--powder cheddar cheese.
Presumably, the exported and imported cheeses are offered for
sale and sold in different commercial markets to different
classes of buyers. The changes are not only significant in the
form of the cheddar cheese but also in the subsequent handling
and uses of the powder cheddar cheese as compared to the
handling and uses of the solid cheddar cheese. See, HRL 054825
which held that reducing liquid egg whites to a powder form in
Canada creates a new and commercially different article, since
the article being imported is powder eggs.
Moreover, mixing the powder cheddar cheese with salt and
emulsifiers also produces a new and commercially different
article beyond the alterations contemplated within this tariff
provision. See, HRL 060915 dated October 5, 1979
(reconstituting orange juice renders the product ineligible for
item 806.20, TSUS (the precursor provision to subheading
9802.00.50, HTSUS), treatment, as the exported product is not the
same product returned to the U.S.); HRL 071041 dated November 23,
1982, and HRL 071207 dated August 2, 1983 (dehydrating a chemical
product is the last step in the manufacturing process of the
dried chemical, whereby a new and commercially different product
is created which does not qualify for item 806.20, TSUS,
treatment).
HOLDING:
Based on the prior rulings and the information submitted, it
is our opinion that the cheddar cheese will be advanced in value
and improved in condition abroad, and, therefore, tariff
treatment of the powder cheddar cheese under subheading
9801.00.10, HTSUS, is precluded. Additionally, the foreign
drying and mixing operation creates a new and commercially
different article, thereby excluding the powder cheddar cheese
from the partial duty exemption available under subheading
9802.00.50, HTSUS.
Accordingly, the powder cheddar cheese will be dutiable on
its full value under the appropriate tariff provision.
Sincerely,
John Durant, Director
Commercial Rulings Division