OT:RR:CTF:ER

Category: NAFTA Drawback

John B. Pellegrini, Esq.
McGuireWoods, LLP
1345 Avenue of the Americas
New York, NY 10105-0106

Re: Syngenta Crop Protection, Inc.: Request for reconsideration and proposed modification of HRL 231152 (6/13/2006); 19 U.S.C. § 3333; 19 C.F.R. § 181.45; NAFTA drawback; same condition.

Dear Mr. Pellegrini:

This is in response to your request on behalf of your client, Syngenta Crop Protection, Inc. (Syngenta), dated 7/20/2006, for reconsideration of our determination in HRL 231152 (6/13/2006). We have also received your correspondence dated 8/10/2006, and 4/14/2008, and have taken into consideration your comments during our teleconference on 4/7/2008. Our determination upon reconsideration of the issue is explained below.

Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. 1625(c)(1)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057), a notice was published on June 11, 2008, in Vol. 42, No. 25 of the Customs Bulletin, proposing to modify HRL 231152. No comments were received in response to this notice.

FACTS:

In a 9/13/2005, ruling request, Syngenta requested that we rule that the product at issue, a liquid fungicide, was in “the same condition” within the meaning of 19 U.S.C. § 3333, when exported to Canada as when admitted to a foreign trade zone. If the fungicide is in the “same condition” it will not be subject to the NAFTA-imposed limitation on duty deferral on exportations to Canada and Mexico, i.e., such duty-deferral may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of

duties paid on the exported good on its subsequent importation into Canada or Mexico. In response to this request, HRL 231152 (6/13/2006), was issued. HRL 231152 concluded that the addition of propylene glycol in the FTZ to the concentrated active ingredient imparted the characteristic of “flowability” to the end product, liquid fungicide, and therefore, the exported fungicide was not in the same condition that it was when the concentrate was admitted to the FTZ. Thus, the NAFTA duty-deferral limitations applied.

The facts under consideration are these. Azoxystrobin Millbase concentrate, which is about 50% percent by weight active ingredient, will be imported in 1,000 liter tote tanks and admitted to a foreign trade zone. The concentrate is made up of water, a dispersant/surfactant, a preservative/anti-bacterial agent, an antifoaming agent and the active ingredient. Its CAS number is 13186033-8 and its product number is A1336D. Within the zone propylene glycol is added. In addition, a biocide is added and a stabilizer, i.e., bentonite. According to Syngenta, the propylene glycol is added to dilute the concentrate and prevent freezing and the bentonite is added “to ensure that the active ingredient remains suspended in the solution ensuring a homogenous mixture of active ingredient.” This ensures that, after further dilution with water by the end users, the fungicide can be applied via spraying and at a measurable rate of delivery.

The finished fungicide is about 23% Azoxystrobin Millbase by weight. The Azoxystrobin Millbase imported in concentrated form and the finished fungicide are both classified under subheading 3808.20.15, HTSUS. The fungicide is tested, packaged and labeled in the zone, then exported to Canada. The finished exported product is named “Abound Flowable,” product number A12705a. Its CAS number is 13186033-8. The concentrate is not used as a fungicide in the U.S. because it is not registered with the Environmental Protection Agency and the ingredients added in the FTZ are necessary for use because, Syngenta explains, without the ingredients added in the FTZ, the Azoxystrobin Millbase would not remain in suspension making further the dilution in the field and spraying difficult.

When Syngenta’s request was first considered, in response to a request to review the material safety data sheets for the imported concentrate and the exported fungicide, the CBP Laboratory stated that, “the additional ingredients in the exported product do not change the characteristic of the active ingredient or the products. But, the addition of the propylene glycol specifically to prevent freezing does change the condition of the exported product from the imported product. Without the propylene glycol, the product could freeze and would then lose its flowable condition.” Based on this determination, we stated In HRL 231152, that, [The lab] has concluded that the characteristic of active ingredient in the liquid fungicide, as imported, is not changed by the processing done in the FTZ. [The lab] has found, however, that the propylene glycol is added to liquid fungicide to prevent the freezing of the liquid. Without the addition of propylene glycol, the liquid fungicide is susceptible to freezing in the colder climate of Canada, affecting its ‘flowability.’ Thus the article produced as a result of the processing in the FTZ goes beyond ‘mere dilution of the imported product,’ . . . . Given that flowability is a characteristic not found in the liquid fungicide before the addition of propylene glycol, we conclude that the addition of such to the liquid fungicide changes the condition of the liquid fungicide to the extent that it has become used. The use in this case consists of using the imported article to produce an article suitable for use as a liquid fungicide in [a] potentially freezing climate, such as Canada.”

The request for reconsideration asserts that there are mistakes in the conclusions reached in HRL 231152. That is, propylene glycol has no effect on "flowability." The imported concentrate contains ingredients that effect flowability and the fungicide is not used in freezing conditions. Syngenta states that the imported active ingredient contains two wetting agents, a biocide and a surfactant and that the “flowability,” i.e., the measure of the fungicide’s efficient use in spraying equipment, is imparted to the fungicide by surfactants that are present in the imported active ingredient. “A surfactant, or surface active agent, is designed to reduce the surface tension of liquids. It is the surfactants that enhance the flowability of the finished product not propylene glycol . . . .” “Storage in cold conditions is the sole reason for the addition of propylene glycol . . . .” Our research reflects that flowability is directly related to the fungicide’s efficient use in spraying equipment. When asked to reconsider the facts in this case, the CBP lab stated, “propylene glycol is an antifreeze [added to the concentrate] for long term storage.”

ISSUE:

Whether the imported concentrate is changed in condition by the addition of the ingredients in the zone within the meaning of 19 U.S.C. § 3333(a), such that the exported fungicide is subject to the limitation on duty deferral imposed by the NAFTA?

LAW and ANALYSIS:

Section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act (Public law 103-182; 107 Stat. 2057, 2086; 19 U.S.C. § 3333), provides for the treatment of goods subject to NAFTA drawback. Section 203(a)(2) of the NAFTA Implementation Act exempts from the general duty drawback (that is, the NAFTA "lesser of" rule) and duty deferral rules of article 303 of NAFTA, merchandise which is exported to another NAFTA party in the same condition as when it was imported. See Article 303.6(b) of NAFTA, which permits full drawback of U.S. duties upon exportation to other countries, including Canada and Mexico; 19 U.S.C. § 3333(a)(2). However, antidumping and countervailing duties may not be waived, remitted nor refunded under NAFTA. See 19 U.S.C. § 3333(e); 19 C.F.R. § 181.42(a).

Under § 3333(a), a good subject to NAFTA drawback means any good other than, inter alia--

(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph—

(A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good

(19 U.S.C. § 3333(a)(2)). The Customs Regulations issued under the authority of the NAFTA Implementation Act (see above) specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country (for effective dates of the provisions in these regulations, see 19 C.F.R. § 181.41). Paragraph (b)(1) of § 181.45, same condition defined, provides that:

For purposes of this subpart, a reference to a good in the "same condition" includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good: (i) Mere dilution with water or another substance; . . . (v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or (vi) Testing, marking, labeling, sorting or grading.

The exemplars in § 181.45 are permitted so long as such actions do not “materially alters the characteristics of the good.”

First, we conclude that the statement made in HRL 231152, that “Given that flowability is a characteristic not found in the liquid fungicide before the addition of propylene glycol,” is not entirely correct. Flowability is a characteristic found in the imported concentrate. Second, HRL 231152 concluded that the addition of the ingredients to the Azoxystrobin Millbase changed the condition so that the exported fungicide was subject to the NAFTA-imposed limitations on drawback. We agree. While we acknowledge the similarities between the concentrate and the exported fungicide: they are classified under the same subheading, have very similar handling and data safety instructions and are assigned the same CAS numbers, among other things, the standard for use under 19 U.S.C. § 3333 and 19 C.F.R. § 181.45 is intentionally narrow. In Syngenta’s case, the addition of the ingredients in the zone does not fall into any of the exemplars in § 181.45(b)(1) and also materially alters the characteristic of the concentrate. Therefore, the exported fungicide is not in the same condition as the imported concentrate.

Syngenta asserts that the concentrate is merely diluted in the FTZ by the addition of the propylene glycol, which is permitted so long as such dilution does not alter the material characteristics of the good. The addition of the ingredients in the zone is not “mere dilution,” which, when given the common meaning, means “nothing more than” “making weaker or less concentrated.” The concentration of the active ingredient is reduced from 50% to about 23% by the addition of the other ingredients. But Syngenta states that “in order for the product to be used in spray equipment, the most common means of applying the fungicide, the ingredients added after importation are necessary” because without the ingredients added in the FTZ, the active ingredient would not remain in suspension making further dilution and spraying difficult. Thus, the “mere dilution” assertion is contradicted, i.e., something in addition to a reduction in concentration happens to the Azoxystrobin Millbase.

In HRL 231372 (5/4/2006) we determined that painting adhesive on brushing sleeves so that rubber would bond to the sleeves was a use within the meaning of § 3333(a)(2) and § 181.45(b)(1) because “the application of the adhesive paint is necessary to the further processing of the bushing sleeves.” In exactly the same way, the addition of the ingredients in the zone is necessary for the further processing of the fungicide. The added ingredients are necessary so that the fungicide may be further diluted. Thus, the addition of the ingredients to the fungicide changes its condition within the meaning of § 3333(a)(2) and § 181.45(b)(1) and is not just a change in the concentration of the active ingredient.

In HRL 555740 (5/28/1991) a herbicide was mixed with a dispersant, two wetting agents and a diluent clay to enhance the product's water solubility so that less agitation was required for proper mixing. The herbicide, which was usable before the operations considered, was also granulated which consisted of spraying the herbicide with water, adding heat to remove the excess water and removing grains of an inconsistent size. The granulation eliminated a powdery consistency making the product easier to measure for the end user. No chemical change took place in the herbicide through the processes. The importer described the processes as making the herbicide “more user friendly.” In HRL 555740 we held that “we find that the formulation and granulation processes constitute alterations within the meaning of subheading 9802.00.50, HTSUS.”

Syngenta argues that the addition of the ingredients to the Azoxystrobin Millbase makes the fungicide “more user friendly” and cites HRL 555740 for the proposition that the additions made by Syngenta to the fungicide “constitute something less tha[n] a substantial alteration.” In fact, HRL 555740 held that the subject herbicide was “improved in condition” and “altered.” Moreover, unlike Syngenta’s fungicide, the herbicide in HRL 555740 was usable as a herbicide before the processing that improved its condition. Thus, clearly, 555740 does not lead to the conclusion that making a product “more user friendly” is indicative that the product was not altered and it is unclear how HRL 555740 supports Syngenta’s position that the concentrate is not changed in condition or altered in the zone.

In HRL 230166 we held that the addition of silicon dioxide - an anti-caking agent which absorbs moisture and prevents powders or granules from sticking – to vegetable powder changes the condition of the vegetable powder. The vegetable powder was made of ground-up vegetables and without the silicon dioxide the powder would be “clumpy and less easily pourable” and thus, the vegetable powder was not in the same condition after the addition of the silicon dioxide. The change in the vegetable powder after the silicon dioxide was added is analogous to the change in the fungicide after the ingredients are added in the zone. The addition of the silicon dioxide made the powder stick together less and thus it was more easily poured. In the same way, the addition of the ingredients to the concentrate enable the active ingredient to remain in suspension that further dilution and spraying is easer. Thus, the silicon dioxide changed the vegetable powder into usable, i.e., pourable form, exactly the same way that the added ingredients render the fungicide concentrate into usable, i.e., sprayable form.

Finally, CBP has considered how the manufacturer treats the good before and after the process at issue when determining whether there has been a change in condition. In HRL 228961 (1/23/2002) we considered whether indigo powder of approximately 96 percent strength was in the same condition when, after adding water, a dispersing agent and an antimicrobial agent and then passing the powder through a sand mill to reduce the size of the indigo particles, the result was a paste of approximately 42 percent concentration. In addition to other factors, we looked at the differences in the way the powder and paste were treated by the manufacturer. In that ruling we found it significant that the powder and paste were treated as different products i.e., they were described separately on the web site, the powder was packaged in cartons and the paste was packaged in drums and the handling instructions were different. In this case, Syngenta treats the concentrate differently than it treats the fungicide. Syngenta refers to the concentrate as “Azoxystrobin Millbase,” product number A13367D and the exported product as “Abound Flowable,” product number A12705A. The Azoxystrobin Millbase is imported in 1000 liter tanks but the fungicide is packaged into different containers with different labeling. The Azoxystrobin Millbase concentrate is not used in the U.S. but the Abound Flowable is sold and used in the U.S.

Considering all the factors described above, the exported fungicide is not in the same condition within the meaning § 3333 and § 181.45 as the imported Azoxystrobin Millbase. Accordingly, the conclusion in HRL 231152 was justified and correct.

HOLDING:

The imported concentrate is changed in condition by the addition of the ingredients in the zone within the meaning of 19 U.S.C. § 3333(a), and therefore the exported fungicide is considered “used” for purposes of the limitation on duty deferral imposed by the NAFTA.

EFFECT ON OTHER RULINGS:

HRL 231152, dated June 13, 2006, is MODIFIED. In accordance with 19 U.S.C. §1625(c), this ruling will become effective sixty (60) days after publication in the Customs Bulletin.


Sincerely,

Myles B. Harmon, Director
Commercial and Trade Facilitation Division