CLA-2 RR:CTF:TCM H029877 KSH
Classification
Ms. Sherri Comeau
Barry Callebaut Co.
2950 Nelson St.
St. Hyacinthe, Quebec J2S1Y7
Canada
RE: Classification and marking of milk chocolate snaps
Dear Ms. Comeau: This is in response to your letter of April 23, 2008, requesting a binding ruling concerning the classification and country of origin marking under the North American Free Trade Agreement (NAFTA) of milk chocolate snaps. Your request was forwarded from the Customs and Border Protection (CBP) National Commodity Specialist Division in New York to this office for review and direct reply.
FACTS:
The merchandise at issue is initially fabricated into chocolate product in liquid form in the United States. It is composed, in part, of 1.025% milk fat, 17.889% milksolid and 5.3% nonfat cocoa solids. It is stated to contain 46.6% sugar, 21.48% partially hydrogenated palm kernel and palm oil, 14.71% skim milk powder, 7.39% palm kernel oil, 3.18% whole milk powder, 3.13% natural cocoa powder, 2.83% alkalized cocoa powder, 0.6% soya lecithin, 0.03% vanillin and 0.01% vanilla. The liquid product is subsequently exported to Canada where it is molded into snaps (pieces). No ingredients are added in Canada. Only the form of the product is manipulated. The product is packaged into 30 pound cases in Canada and the milk chocolate snaps are imported into the United States.
ISSUE:
I. What is the proper classification of the milk chocolate snaps?
II. What are the country of origin marking requirements for the milk chocolate snaps?
LAW AND ANALYSIS:
I. Classification
Classification of goods under the Harmonized Tariff Schedule of the United States (HTSUS) is governed by the General Rules of Interpretation (GRI). GRI 1 provides that classification shall be determined 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 GRI may then be applied.
Heading 1806, HTSUS, provides for “Chocolate and other food preparations containing cocoa.” In accordance with GRI 1, the milk chocolate snaps are classified in heading 1806, HTSUS. Inasmuch as the snaps will be imported in a 30 pound case and are in tablet or pastille form, they are classified in subheading 1806.20, HTSUS. See Headquarters Ruling Letter (HQ) 083901, dated May 12, 1989. If imported in quantities that fall within the limits described in additional U.S. note 10 to chapter 4, the applicable subheading will be 1806.20.8100, HTSUS, which provides for “Chocolate and other food preparations containing cocoa: Other preparations in blocks, slabs or bars, weighing more than 2 kg or in liquid, paste, powder, granular or other bulk form in containers or immediate packings, of a content exceeding 2 kg: Other: Other: Other: Dairy products described in additional U.S. Note 1 to chapter 4: Described in additional U.S. note 10 to chapter 4 and entered pursuant to its provisions.” If the quantitative limits of additional U.S. Note 10 to chapter 4 have been reached, the applicable subheading will be 1806.20.8200, HTSUS, which provides for: “Chocolate and other food preparations containing cocoa: Other preparations in blocks, slabs or bars, weighing more than 2 kg or in liquid, paste, powder, granular or other bulk form in containers or immediate packings, of a content exceeding 2 kg: Other: Other: Other: Dairy products described in additional U.S. Note 1 to chapter 4: Other: Containing less than 21 percent by weight of milk solids.”
II. Country of Origin
The marking statute, section 304, 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. Part 134, Customs and Border Protection Regulations (CBP) (19 CFR Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.
Section 134.1(b), CBP regulations, defines "country of origin":
“Country of Origin” means the country of manufacture, production, or growth of any article of foreign origin entering the United States. 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.
Section 134.1(j), CBP regulations, provides that the “‘NAFTA Marking Rules’ are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country.” Section 134.1(g), CBP regulations, 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” which are set out at 19 CFR Part 102.
Section 102.11 sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11(a) 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 finished chocolate snaps are produced in Canada with U.S.-origin chocolate, these goods are neither wholly obtained or produced, nor produced exclusively from domestic materials. Accordingly, paragraph (a)(3) of section 102.11 is the next applicable rule that must be applied to determine the origin of the finished chocolate snaps.
The finished chocolate snaps are stated to be classifiable under subheading 1806.20, HTSUS. The chocolate liquid exported from the U.S. to Canada is also classifiable in the same subheading. The applicable change in tariff classification for 1806.20 set out in section 102.20(d), Section IV, Chapters 16 through 24 of the CBP regulations provide:
1806.20 ... A change to subheading 1806.20 from any other heading, except from Chapter 17; or
A change to subheading 1806.20 from Chapter 17, provided that the good contains less than 65 percent by dry weight of sugar.
Since the exported chocolate liquid is classified under subheading 1806.20 and after the molding operations in Canada the finished chocolate snaps are also classified under subheading 1806.20, HTSUS, the requisite tariff shift would not be met. As a result, section 102.11(b) of the hierarchial rules must be applied next to determine the country of origin of the finished chocolate snaps.
Section 102.11(b) provides that:
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)…:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character of the good ...
When determining the essential character of a good under section 102.11, section 102.18(b) provides that only domestic and foreign materials that are classified in a tariff provision from which a change is not allowed shall be taken into consideration and that, in deciding among these materials, consideration is given to various factors, including the nature of each material or component such as its bulk, quantity, weight, value, and the role of each material in relation to the use of the good.
Based upon these factors, the exported chocolate liquid and the finished chocolate snaps are classified in the same subheading. Therefore, the requisite tariff shift is not met and the single material that imparts the essential character of the finished chocolate snaps is the exported U.S.-origin chocolate liquid. Therefore, pursuant to section 102.11(b)(1), the country of origin of those finished chocolate snaps will be the U.S.
Article 401 of the NAFTA, is incorporated into General Note 12, HTSUS.
General Note 12(a) provides in pertinent part that: (i) 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 Canada under the terms of the marking rules ....and are entered under a heading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "CA" in parentheses, are eligible for such duty rate...
(ii) 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....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....
Thus, by operation of General Note 12, the eligibility of a particular article for NAFTA duty preference is predicated, in part, upon an origin determination under the NAFTA Marking Rules of either Canada or Mexico. As demonstrated by the foregoing analysis, in the case before us, application of the NAFTA Marking Rules contained in 19 CFR 102.11 did not yield an origin determination of either Canada or Mexico, but the United States. However, the NAFTA Preference Override set forth in 19 CFR 102.19 is applicable to the subject merchandise. Specifically, 19 CFR 102.19(b) states:
(b) If, under any other provision of this part, the country of origin of a good which is originating .....is determined to be the United States and that good has been exported from, and returned to, the United States after having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its return to the United States.
Based on the facts presented, the milk chocolate snaps at issue are an
originating good under NAFTA and have been determined under section 102.11(b) to be a good of U.S. origin. Because the articles were returned to the U.S. after having been advanced in value or improved in condition in Canada by virtue of finishing operations to mold the chocolate snaps, the country of origin of the milk chocolate snaps for CBP duty purposes is Canada, pursuant to 19 CFR 102.19(b). Accordingly, the "CA" NAFTA rate will be applicable to the milk chocolate snaps.
HOLDING:
The milk chocolate snaps are classified in heading 1806, HTSUS. If imported in quantities that fall within the limits described in additional U.S. note 10 to chapter 4, the applicable subheading will be 1806.20.8100, HTSUS, which provides for “Chocolate and other food preparations containing cocoa: Other preparations in blocks, slabs or bars, weighing more than 2 kg or in liquid, paste, powder, granular or other bulk form in containers or immediate packings, of a content exceeding 2 kg: Other: Other: Other: Dairy products described in additional U.S. Note 1 to chapter 4: Described in additional U.S. note 10 to chapter 4 and entered pursuant to its provisions.” The general, column one rate of duty is 10% ad valorem. If the quantitative limits of additional U.S. Note 10 to chapter 4 have been reached, the applicable subheading will be 1806.20.8200, HTSUS, which provides for: “Chocolate and other food preparations containing cocoa: Other preparations in blocks, slabs or bars weighing more than 2 kg or in liquid, paste, powder, granular or other bulk form in containers or immediate packings, of a content exceeding 2 kg: Other: Other: Other: Dairy products described in additional U.S. Note 1 to chapter 4: Other: Containing less than 21 percent by weight of milk solids.” The general, column one rate of duty is 32.7 cents/kg + 8.5% ad valorem.
On the basis of the information provided, for country of origin marking purposes, the country of origin of milk chocolate liquid manufactured in the U.S. and exported to Canada for molding into snaps prior to importation into the United States is the U.S., pursuant to 19 CFR 102.11(b)(1). Therefore, the imported snaps are not subject to the marking requirements of 19 U.S.C. 1304. The milk chocolate liquid of U.S. origin which undergoes additional processing to form the snaps in Canada prior to importation into the U.S. will be considered of Canadian origin for purposes of CBP duty pursuant to 19 CFR 102.19(b), inasmuch as the milk chocolate snaps qualify as an originating good pursuant to General Note 12, HTSUS, and may be assessed duties at the "CA" NAFTA rate. A copy of this ruling 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 CBP officer handling the transaction.
Duty rates are provided for your convenience and are subject to change. The text of the most current HTSUS and the accompanying duty rates are provided for on the World Wide Web, at http://www.usitc.gov/tata/hts/.
Sincerely,
Gail A. Hamill, Chief
Tariff Classification and Marking Branch