CLA-2-23:OT:RR:NC:2:231
Mr. Jack Williams
H.J. Baker and Bro, Inc.
228 Saugatuck Ave.
Westport, CT 06880
RE: The tariff classification and country of origin marking of U.S.-made lysine sulphate granules that have been coated in Germany.
Dear Mr. Williams:
In letters dated September 14 and September 28, 2009, an associate of yours, who has since left your firm, requested a tariff classification and country-of-origin ruling.
Your company plans to purchase lysine sulphate granules, made here in the United States, and first screen them to obtain a specific particle size. The sized granules will then be exported to Germany, where they will be coated. The finished, coated granules will then be sent back to the United States. You seek to learn the tariff classification and country-of-origin status of the finished, coated granules when they are imported into the United States following completion of the German processing. Further information on the nature of the merchandise and the purpose of the coating is provided below.
Lysine sulphate is typically produced by the fermentation of a culture medium that contains lysine-producing bacteria, sulfuric acid or ammonium sulphate, and carbohydrates or sugars. The resulting product is actually a mixture of L-lysine sulphate and fermentation by-products such as other amino acids and carbohydrates. Information you have submitted confirms that the lysine sulphate product your company obtains in the U.S. is such a mixture, in the form of a brown “granulate” containing approximately 51% L-lysine, 17% sulfate, a total of 11% other amino acids (including glutamic acid, alanine, aspartic acid, valine, leucine, glycine, arginine, and others), a total of 8% of various mineral salts and fruit acids, 6% carbohydrates (such as sucrose, fructose, dextrose and trehalose), 5% crude proteins, and 2% water. Based on previous experience, as well as on information you submitted, it is our understanding that the “granulate,” in this form (as purchased by your company in the United States), is commonly regarded as a finished ingredient for inclusion within commercially-produced animal feed, and is in fact used as such. (Since lysine, an essential amino acid, is sometimes lacking in animals’ diets, it is often added to feed as a dietary supplement.)
In this instance, however, you propose to send the aforementioned screened/sized lysine sulphate granules to Germany, where they will undergo a coating process intended to allow them to function more effectively when eventually consumed by the animal. In the German processing operation, each granule will receive a “protective, layered coating” made from rapeseed oil and stearic acid. The coating is designed to prevent the granules from breaking down in a ruminant animal’s first stomach chamber (the rumen), and allow the lysine and other nutrients to ultimately pass intact to the small intestine, where they can be directly absorbed into the bloodstream. (The concept is analogous to the “enteric coatings” sometimes used on dietary-supplements , e.g., tablets, soft gels, etc., produced for human consumption.) Thus, although the coated product is used as a feed additive in the same way as the non-coated product, it is believed that a smaller amount can achieve optimal results because of more efficient nutrient delivery and utilization by the animal.
The applicable subheading for the coated lysine sulphate granules returned from Germany will be 2309.90.9500, Harmonized Tariff Schedule of the United States (HTSUS), which provides for other (non-enumerated) preparations of a kind used in animal feeding. The rate of duty will be 1.4%.
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 World Wide Web at http://www.usitc.gov/tata/hts/.
Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of a repair or alteration. Duty is assessed only on the cost or value of the repair or alteration abroad, provided that the documentary requirements of section 10.8, Customs and Border Protection ("CBP") Regulations (19 CFR 10.8) are met. However, 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’g C.D. 1752, 36 Cust.Ct. 46 (1956), and Guardian Industries Corp. v. United States, 3 CIT 9 (1982). The partial duty exemption provided by subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use and the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of finished articles. See Dolliff & Co. v. United States, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015, 1019 (1979), aff’g 81 Cust. Ct. 1, C.D. 4755, 455 F.Supp. 618 (1978).
In Headquarters Ruling Letter (“HRL”) 559648 (5/20/96), CBP considered the applicability of subheading 9802.00.50, HTSUS, to certain baking pans which were exported from the United States to have their traditional release coatings removed and then replaced with superior non-stick coatings. CBP determined that the baking pans in their exported condition were complete for their intended use, and that their processing abroad did not serve to change their identity or character. No new or different article of commerce was created as a result of the processing abroad. Rather, the exported baking pans merely underwent an operation to equip them with the ability to function more effectively. CBP thus held that the processing abroad constituted alterations within the meaning of subheading 9802.00.50.
In HRL H007355 (3/2/07), CBP considered the applicability of subheading 9802.00.50, HTSUS, to certain nutritional oils, known as ARA and DHA, which were exported from the United States to be microencapsulated into powdered form. Microencapsulation entailed the entrapment of the DHA or ARA oil within a carbohydrate coating. It was established that ARA and DHA, in oil form, were (and would continue to be) used as food ingredients. The microencapsulated, powdered forms of ARA and DHA would also be used as food ingredients, but would have a longer shelf life and offer, for some manufacturers, easier handling characteristics. The chemical composition of the active/primary ingredients in the microencapsulated forms would nevertheless be the same as in the oil forms, and would provide the same nutritional benefits. CBP concluded that the microencapsulation process was an acceptable alteration for the purpose of subheading 9802.00.50, HTSUS.
The process of coating the lysine sulphate granules of the present case is analogous to the scenarios described in the rulings cited above. Both the uncoated and coated products are finished goods of a kind used as feed ingredients, and their nutritional (active-ingredient) content is the same. The coating merely allows the granules to function more effectively. We therefore find that the coating operation performed in Germany constitutes a qualifying alteration. Thus, the lysine sulphate granules, returned to the U.S. after being coated in Germany, are entitled to the partial duty exemption under subheading 9802.00.50, HTSUS.
The U.S. law relating to country of origin marking for imported merchandise is found in section 304 of the Tariff Act of 1930, as amended (19 U.S.C. § 1304). This law provides that, unless excepted, every article of foreign origin (or its container) 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. See 19 U.S.C. § 1304(a).
The purpose of the marking statute is to allow the ultimate purchaser of the goods to know, by simple inspection, specifically where they were made in case such knowledge might influence his or her decision to purchase the goods (i.e., to permit the ultimate purchaser in the United States to choose between domestic and foreign-made products, or between the products of different foreign countries). See, United States v. Friedlaender & Co. Inc., 27 C.C.P.A. 297, at 302 (1940).
The country of origin of an article for U.S. tariff purposes is the country in which the last substantial transformation took place. A substantial transformation occurs when an article is used in a manufacturing process or operation that results in a new article that has a new name, character or use different from that of the original article. A substantial transformation will not result from a minor manufacturing or combining process that leaves the identity of the article intact. See United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 (1940); and National Hand Tool Corp. v. United States, 989 F.2d 1201 (Fed. Cir. 1992).
As we noted above, the coating of the lysine sulphate granules is similar in concept to the enteric coating of certain products used for human consumption. HRL 562889 (1/21/04) dealt with a scenario in which the (for-human-consumption) drug lansoprazole, in bulk, powdered form, was manufactured in Italy and then sent to Ireland or Japan to be converted into an intermediate product known as enteric-coated lansoprazole microgranules. The purpose of the enteric coating was to protect the lansoprazole from stomach acid, thus enabling the drug to reach the intestines, where it could be better absorbed by the body. At issue was the question of whether the enteric-coating process substantially transformed the Italian powder into “new articles,” whose country of origin would then be Ireland or Japan. CBP concluded that the process did not result in a substantial transformation, so that Italy remained the country of origin for marking purposes. In the ruling, CBP noted that the “active ingredient” remained the same and had the same generic name before and after processing. CBP also noted that the chemical and physiological properties of the active ingredient, and its purpose/function, did not change as a result of the enteric coating.
We believe that the reasoning set forth in HRL 562889 applies to the current case. We thus find that the U.S.-made uncoated lysine sulphate granules are not substantially transformed as a result of the coating process done in Germany. Therefore, for marking purposes the country of origin of the returned, coated lysine sulphate granules is the United States. And, since the United States is not a “foreign” country, the goods (or their containers) need not be marked with their country of origin for CBP purposes. (Please note, however, that the question of whether the merchandise may be marked with a phrase such as "Product of U.S.A." is under the jurisdiction of the Federal Trade Commission, which may be contacted for advice at 6th & Pennsylvania Avenue, N.W., Washington, D.C. 20580.)
This merchandise is subject to The Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (The Bioterrorism Act), which is regulated by the Food and Drug Administration (FDA). Information on the Bioterrorism Act can be obtained by calling FDA at 301-575-0156, or at the Web site www.fda.gov/oc/bioterrorism/bioact.html.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Nathan Rosenstein at (646) 733-3030.
Sincerely,
Robert B. Swierupski
Director
National Commodity Specialist Division