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HQ 561579




July 20, 2000

CLA-2 RR:CR:SM 561579 KSG

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Frank Brennan
International Trade Resources LLC
1001 G Street, N.W.
Suite 430
Washington, D.C. 20001

RE: Eligibility of peanuts for NAFTA and subheading 9802.00.50, HTSUS treatment; country of origin marking; 19 CFR 102.18

Dear Mr. Brennan:

This is in response to your letter of October 4, 1999, which was forwarded to us by Customs’ National Commodity Specialist Division in New York for our response. Your letter on behalf of Logistic Services- Americas, asked for a binding ruling concerning the eligibility of imported peanuts for a duty preference under the North American Free Trade Agreement (“NAFTA”) or, in the alternative, a partial duty exemption under subheading 9802.00.50 of the Harmonized Tariff Schedule of the United States (“HTSUS”). You also asked us to address the issue of the country of origin for marking purposes. At your request, a conference was held on this matter at Headquarters on February 8, 2000. By letter dated February 15, 2000, you addressed certain of the issues raised during the conference.

FACTS:

The peanuts are grown and shelled in the U.S. Two different scenarios were presented. In the first scenario, the shelled U.S. grown peanuts are blanched and roasted in oil in Mexico. Blanching consists of removing the skins (seed coats) and usually the hearts of peanuts. The peanuts are then imported into the U.S.

In the second scenario, the shelled U.S. grown peanuts are blanched in Mexico. The peanuts are then imported into the U.S.

2

You stated in your submission that the imported peanuts are classified in subheading 2008.11 of the Harmonized Tariff Schedule of the United States (“HTSUS”).

ISSUES:

Whether the U.S. grown peanuts, processed as described in the two scenarios, are eligible for a duty preference under NAFTA.

Whether the U.S. grown peanuts, processed as described in the two scenarios, are eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, upon importation into the U.S.

What is the country of origin of the imported peanuts for country of origin marking purposes?

LAW AND ANALYSIS:

1. NAFTA Preference

General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(a)(ii) provides, in pertinent part:

(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 set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), when such goods are imported into the customs territory of the United States 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, in accordance with section 201 of the NAFTA Implementation Act.

Accordingly, the peanuts will be eligible for the “Special” “MX” rate of duty provided they are NAFTA “originating” goods under General Note 12(b), HTSUS, and qualify to be marked as a product of Mexico under the marking rules. General Note 12(b), HTSUS, provides, in pertinent part:

For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as goods originating in the territory of a NAFTA party only if—

(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and /or the United States; or (ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that—

(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth in therein, or

(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or

(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials

However, General Note 12(s) provides as follows:

(s) (i) Agricultural and horticultural goods grown in the territory of a NAFTA party shall be treated as originating in the territory of that party even if grown from seed, bulbs, rootstock, cuttings, slips or other live parts of plants imported from a non-party to the NAFTA, except that goods which are exported from the territory of Mexico and provided for in—

(A) heading 1202, if the goods were not harvested in the territory of Mexico,

(B) subheading 2008.11, if any material provided for in heading 1202 used in the production of such goods was not harvested in the territory of Mexico,
shall be treated as nonoriginating goods.

Since the peanuts in this case are classified in subheading 2008.11, HTSUS, and they are not harvested in the territory of Mexico, the peanuts are nonoriginating and not eligible for a duty preference under NAFTA.

You argued in your submissions that the peanuts are originating goods under the rule set forth in General Note 12(b)(iii). This rule states that goods are originating in the territory of a NAFTA party if they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials. However, it is clear that GN 12(s) lists exceptions to the operation of General Note 12(b). Also see 19 U.S.C. 3332(a)(2)(o).

Headquarters Ruling Letter (“HRL”) 959946, dated March 25, 1997, involved peanuts of U.S. origin that were coated with wheat flour and sugar syrup, roasted and then coated with a flavoring in Mexico. Customs ruled that the peanuts when returned to the U.S. were nonoriginating goods under NAFTA pursuant to General Note 12(s). New York Ruling Letter (“NY”) D80645, dated August 5, 1998, involved peanuts of U.S. origin which were exported to Mexico to be dried, floured, baked, toasted, seasoned and packaged and then returned to the U.S. Citing to General Note 12(s), Customs determined that the peanuts were nonoriginating goods under NAFTA. Also see NY D82116, dated September 23, 1998.

Based on the above, we find that the peanuts in this case are nonoriginating goods under NAFTA.

2. Subheading 9802.00.50

Articles exported from and returned to the U.S., after having been advanced in value or improved in condition by repairs or alterations in Mexico, may qualify for duty-free entry under subheading 9802.00.50, HTSUS, provided the foreign operation does not destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27 (1956) and Guardian Industries Corporation v. United States, 3 CIT 9 (CIT 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, 455 F. Supp. 618 (1978). Goods repaired or altered in Mexico are subject to the documentary requirements set forth in section 181.64(c), Customs Regulations (19 CFR 181.64(c)).

In HRL 558797, dated January 20, 1995, Customs held that U.S.-origin peanuts exported to Mexico where they were sugar-coated and salted were not eligible for the duty exemption under subheading 9802.00.50, HTSUS, because the operations were intermediate steps in the preparation of the finished peanuts. The same conclusion was reached in HRL 554934, dated April 3, 1989, where U.S.-origin peanuts were exported to Mexico for shelling, roasting and salting.

Similarly in this case, the peanuts are blanched or blanched and roasted in oil, which constitute intermediate steps in the preparation of finished peanuts. Accordingly, the imported peanuts are ineligible for the duty exemption under subheading 9802.00.50, HTSUS.

3. Country of origin marking

Section 304 of the Tariff Act of 1930 (19 U.S.C. 1304), provides that unless excepted, every article of foreign origin 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 Regulations (19 CFR Part 134), implements the country of origin marking requirements of 19 U.S.C. 1304.

Section 102.11, Customs Regulations (19 CFR 102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for the purposes of country of origin marking and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2. Paragraph (a) of this section 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.

In this case, the peanuts are not wholly obtained or produced in a single country or produced exclusively from domestic materials. Therefore, we proceed to paragraph (a)(3). The rule for subheading 2008.11 is set forth in 19 CFR 102.20(d):

2008.11 A change to subheading 2008.11 from any other chapter, provided that the change is not the result of mere blanching of peanuts. The Chapter 20 note provides that:

Notwithstanding the specific rules of this chapter, fruit, nut and vegetable preparations of Chapter 20 that have been prepared or preserved merely by freezing, by packing (including canning) in water, brine or natural juices, or by roasting, either dry or in oil (including processing incidental to freezing, packing, or roasting), shall be treated as a good of the country in which the fresh good was produced.

As the raw peanuts exported to Mexico appear to be classified in heading 1202, HTSUS, the peanuts change to subheading 2008.11 from another chapter as a result of the processing in Mexico under both scenarios. However, the tariff shift rule disallows the change if it is the result of mere blanching. Therefore, in regard to scenario two, the peanuts that are merely blanched do not satisfy the applicable rule. In addition, the Chapter 20 note disallows the tariff shift if the result of roasting (including processing incidental to roasting). Although we understand that both blanched and unblanched peanuts may be subjected to oil roasting, it is our opinion that, when roasting is performed on blanched peanuts, blanching clearly is incidental to the roasting process.

Since the country of origin of the peanuts cannot be determined under 19 CFR 102.11(a)(3), pursuant to the hierarchial rules, we proceed to 19 CFR 102.11(b). Section 102.11(b) provides, in pertinent part::

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) of this section, (1) the country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good....

Pursuant to 19 CFR 102.18(b)(1)(i), only materials that do not undergo the applicable tariff shift or satisfy any other applicable requirements will be considered in determining the single material that imparts the essential character to the good. Since the raw peanuts sent to Mexico for finishing do not undergo the requisite tariff shift, the raw peanuts impart the essential character to the good in accordance with 19 CFR 102.18(b)(iii). Accordingly, pursuant to 19 CFR 102.11(b), the country of origin of the imported peanuts is the U.S.

The language of 19 U.S.C. 1304 only applies to articles of foreign origin. The Federal Trade Commission has jurisdiction over goods marked “Made in the U.S.A.” Consequently, any inquiries regarding the use of such phrases reflecting U.S. origin should be directed to the FTC, at the following address: Federal Trade Commission, 6th & Pennsylvania Avenue, N.W., Washington, D.C. 20508.

HOLDING:

The imported peanuts are not originating goods under NAFTA and therefore, are not eligible for a duty preference under NAFTA.

The imported peanuts are not eligible for a duty exemption under subheading 9802.00.50, HTSUS, upon importation into the U.S.

The country of origin of peanuts under both scenarios is the U.S.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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.

Sincerely,

John Durant
Director
Commercial Rulings Division

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