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HQ 559863

Feb. 10, 1997

CLA-2 RR:TC:SM 559863 JML


TARIFF NO: 9802.00.50

Mr. Robert W. Cowie
Geo H. Young & Co. Ltd.
809-167 Lombard Avenue, Suite 809
Winnipeg, Manitoba
Canada R3B 3H8

RE: Applicability of partial duty exemptions pursuant to 9802.00.50, HTSUS, to carrots exported from the U.S. and processed in Canada by segmenting them into pieces, washing, peeling, bagging and boxing them; alterations; marking; NAFTA rules of origin, 19 CFR Part 102.

Dear Mr. Cowie:

This is in response to your letter of May 23, 1996, on behalf of Supreme Produce Inc., in which you requested a binding ruling with respect to the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States ("HTSUS"), to United States("U.S.") origin carrots exported to Canada for processing and subsequent return to the U.S. In addition, you requested a determination regarding the applicable country of origin marking requirements.


The information you provided indicates that Dakota Fresh Company will export fresh, U.S. grown 6"-8" carrots to Canada, where your client, Supreme Products Inc., will process them. The processing operations performed in Canada will consist of segmenting the carrots into 2" pieces, washing, peeling, bagging and boxing them. Upon completion of the processing operations in Canada, the carrots will be returned to the U.S. for sale.


I. Whether the carrots, when returned to the U.S., will be eligible for the partial duty exemption provided for in subheading 9802.00.50, HTSUS.

II. Whether the returned carrots are exempt from country of origin marking requirements.


I. 9802.00.50, HTSUS.

U.S. Note 2(a), subchapter II, Chapter 98, HTSUS, provides that any product of the U.S. which is returned after having been advanced in value or improved in condition abroad by any process of manufacture or other means shall be treated as a foreign article for duty purposes and shall be dutiable, unless exempt therefrom under a specific HTSUS provision.

Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles exported to Canada and returned to the U.S. after having been advanced in value or improved in condition by means of repairs or alterations, provided that the documentary requirements of Customs Regulations ?181.64 (19 CFR ?181.64) are met. For qualifying articles, duty is assessed only upon the value of the foreign repairs or alterations. However, in circumstances where the operations abroad destroy the identity of the exported article or create a new or commercially different article, entitlement to 9802.00.50, HTSUS, treatment is precluded. 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); Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip OP. 82-4 (January 5, 1982).

Customs Regulations ?181.64 (19 CFR?181.64), defines "repairs or alterations " as:
"..restoration, addition, renovation, redyeing, cleaning, resterilization, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different good from, the good exported from the United States." Articles incomplete for their intended use that require the foreign processing as a necessary step in their preparation or manufacture are also precluded from treatment under subheading 9802.00.50, HTSUS. Dolliff and Company, Inc. v. United States, 66 CCPA 77, CAD 1225, 599 F.2d 1015 (1975).

To the extent you describe the operations to be performed in Canada as washing, bagging and boxing the carrots, Customs generally considers such activities "alterations" for purposes of subheading 9802.00.50, HTSUS. (See Headquarters Ruling Letter ("HRL") 554645, dated July 6, 1987, (carrots merely cleaned, graded and packaged abroad); HRL 555180, dated December 26, 1989, (carrots exported to Mexico for washing, cooling, sorting by size, and packaging for retail sale)).

However, Customs has consistently ruled that certain types of cutting or slicing operations performed abroad do not constitute "alterations" under 9802.00.50, HTSUS. In HRL 554654, dated July 28, 1987, Customs held that the slicing of exported whole peaches, including removing the skin, not only destroys the identity of the exported peaches, but results in new articles of commerce. As such, Customs ruled that those operations exceeded the scope of the term "alteration" under item 806.20, TSUS, the precursor to 9802.00.50, HTSUS. Similarly, Customs held in HRL 555462, dated September 11, 1989, that dicing and quick-freezing apples abroad do not constitute acceptable "alterations" for purposes of subheading 9802.00.50, HTSUS. Customs determined that the dicing of the apples resulted in new and different commercial articles having uses different from those of whole apples.

In two cases involving the cutting and shredding of cheese abroad, Customs held that such operations do not constitute "alterations" for purposes of subheading 9802.00.50, HTSUS. In HRL 557633, dated February 10, 1994, and HRL 554654, dated May 19, 1994, blocks of U.S.-origin cheese were exported to Canada, where they were shredded, repackaged and returned to the U.S. In both cases, Customs concluded that shredding and cutting the cheese abroad constituted a necessary finishing step in the manufacture of the finished article (i.e. cut/shredded cheese), which resulted in a commercially different article than that exported from the U.S.--blocks of cheese.

Customs believes that the above-referenced rulings are dispositive of the cutting issue presented here. Customs finds that processing U.S.-origin carrots abroad by segmenting them into 2" pieces constitutes a necessary finishing step in the manufacture of the finished article and results in new and commercially different articles from whole carrots. Therefore, the operations to be performed in Canada cannot be considered "alterations," and the returned, segmented carrots will not be eligible for the partial duty exemption available under subheading 9802.00.50, HTSUS, when returned to the U.S.

II. Country of origin marking.

?304 of the Tariff Act of 1930, as amended (19 U.S.C. 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. Customs Regulations Part 134 (19 CFR Part 134), implements the country of origin requirements and exceptions as provided for in 19 U.S.C. ?1304.

Customs Regulations ?134.1(b) (19 CFR ?134.1(b)), defines "country of origin" as:

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. (Emphasis added).

Customs Regulations ?134.1(j) (19 CFR ?134.1(j)), provides that the "NAFTA Marking Rules" are the rules promulgated for the purposes of determining whether a good is a good of a NAFTA country. ?134.1(g), Customs Regulations, defines a "good of a NAFTA country" as an article for which the country of origin is Canada, Mexico, or the U.S. as determined under the NAFTA Marking Rules set out at 19 CFR Part 102. See 19 CFR ?134.1(g). Customs Regulations ?102.11 articulates the relevant test for determining whether a good is a good of a NAFTA country for marking purposes. Accordingly, ?102.11(a), Customs Regulations, 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 ?102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

Since the finished carrot products are produced in Canada with U.S.-origin carrots, these goods are neither wholly obtained or produced, nor produced exclusively from domestic materials. Paragraph (a)(3) of ?102.11 is the applicable rule that must be applied to determine the country of origin of the finished carrot product. Customs notes that carrots 6"-8" in length, as those exported to Canada, are generally classifiable under chapter 0706, HTSUS. Specifically, the finished carrots 2" in length are classifiable under subheading 0706.10.10, HTSUS, as carrots under 10 cm in length (based upon standard metric conversion rate of 1 inch = 2.54cm; 2 inches = 5.08cm). The applicable change in tariff classification set out in Customs Regulations ?102.20(b) (19 CFR ?102.20(b)), Section II, Chapters 6 through 14 provides:

0701-0709...A change to heading 0701 through 0709 from any other chapter.

Therefore, the requisite tariff classification change to any heading in 0701-0709, HTSUS from any other chapter cannot be met in this case. In these circumstances, Customs Regulations ?102.11(b) (19 CFR ?102.11(b)) must be applied.

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), the country of origin of the good:

(1) Is the country or countries of origin of the single material that imparts the essential character of the good....

As the goods in question are carrots segmented in 2" pieces, peeled, washed, bagged and boxed, Customs is of the opinion that the material that imparts their essential character is clearly the U.S.-origin carrots. Customs therefore determines that the country of origin of the finished carrot products, for purposes of the marking requirements under 19 U.S.C. ?1304, is the U.S. Accordingly, the carrots are not subject to the provisions of 19 U.S.C. ?1304 because they are not "article(s) of foreign origin." Thus, the finished carrot products do not require country of origin marking upon importation into the U.S.


Based upon the information provided, the proposed Canadian processing of U.S.-origin carrots by washing, peeling, segmenting them into 2" pieces, bagging and boxing does not constitute an "alteration" as that term is defined under Customs Regulations Canadian processing would create new and commercially different articles from those carrots originally exported, precluding their eligibility for the 9802.00.50, HTSUS, partial duty exemption. Therefore, the carrots will be dutiable on their full value when returned to the U.S.

Customs also concludes that, for purposes of country of origin marking, the country of origin of the Canadian processed carrots is the U.S. Upon importation they are not subject to the marking requirements of 19 U.S.C. ?1304 as they are not foreign articles.

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 Customs officer handling the transaction.


John Durant, Director
Tariff Classification

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