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HQ 229962

August 1, 2003
229962 IOR


Julia M. McCalmon, Esq.
Thompson Hine LLP
1920 N Street, NW
Washington DC 20036-1600

RE: Temporary Importation Bond; subheading 9813.00.05 HTSUS; alteration; processing; manufacture; Canadian Wheat; product of wheat

Dear Ms. McCalmon:

This responds to your request for a prospective ruling, dated May 1, 2003, on behalf of Archer Daniels Midland Company (“ADM”), regarding the temporary importation of Canadian wheat for the purpose of blending and grading. Our decision, based upon your submissions, including a follow-up submission dated July 24, 2003, and a teleconference held on July 3, 2003, follows. In your initial submission you requested that certain information be treated as confidential, however you withdrew your request telephonically on May 8, 2003.


ADM purchases Red Spring Wheat, classified under subheading 1001.90.2021.2029, Harmonized Tariff Schedule of the United States (HTSUS), from Canada, and proposes to import the wheat under subheading 9813.00.05, HTSUS, for blending with U.S. Red Spring Wheat. The imported wheat is of a certain grade, protein level, moisture content and falling number. The grade, protein level, moisture content and falling number of each importation would vary. The wheat would be blended with the U.S. wheat, and the blended wheat would be exported, but not to Canada or Mexico. The imported wheat falls under the same HTSUS subheading as the exported wheat.

The imported and the U.S. wheat, may or may not be blended prior to purchase by ADM. ADM’s purchase orders typically specify a certain grade and minimum protein level. The Canadian wheat may have to be blended to achieve homogeneity between the grains prior to sale to ADM and importation. Similarly, the U.S. wheat may have to be blended prior to sale to ADM. The class name of the imported wheat will be the same as the class name of the exported wheat.

The purpose of the blending is to alter the wheat in grade, protein level, moisture content or falling number to meet foreign customer specifications. ADM provides the example that the proposed blending operation may improve a lower quality U.S. wheat by blending it with a Canadian wheat with a higher protein level, thus altering the wheat to produce a wheat blend with a higher protein level than the original U.S. wheat. The result of the alteration is that ADM may get a better price for the wheat blend than it would have for the U.S. wheat by itself. The blended wheat will be graded prior to exportation.

The wheat market correlates higher quality with higher price. Indicia of higher quality include higher grades, protein levels, moisture content or falling numbers. The wheat grade is determined by its test weight, wheat purity and other material content. The improved grade or cleaner wheat blend increases flour extraction during the milling process, providing millers with a greater return on their purchase of wheat. Higher protein levels tend to increase the absorption capability of flour making it preferable for use by small and mid-size bakeries because an increased absorption capability allows for less flour to be used during baking and reduces preparation time. With respect to moisture content, some consumers prefer a wheat blend with lower moisture content because it is better suited for their storage facilities or it is better suited for their baking methods. With respect to falling number, bakers generally prefer flour with falling numbers above 300, which yields fuller bread or pastries. Generally, customers require a certain falling number to produce a certain product. Both the Canadian wheat prior to blending and the wheat blend compete in the same milling market and will ultimately be used to make flour for baking, but the wheat blend will have different characteristics to satisfy consumer preferences and achieve pricing objectives.

The imported wheat is subject to Antidumping case no. A-122-847, and Countervailing duty case number C-122-848.

ADM takes the position that the blending of the wheat is an alteration and not a processing, because the differences in protein level or other characteristics do not indicate a change in the name, essential use, or character of the wheat. Further, ADM takes the position that if the blending of the wheat is a processing, the resulting blended wheat is not a “product of wheat”.


Whether the wheat may be imported for blending and grading under the Temporary Importation provision of subheading 9813.00.05, HTSUS.


General Note 1, HTSUS, dictates that all merchandise imported into the U.S. is subject to duty unless specifically exempted therefrom. Subheading 9813.00.05, HTSUS, provides for the temporary, duty-free entry, under bond, for “articles to be repaired, altered or processed (including processes which result in articles manufactured or produced in the United States)”.

Pursuant to U.S. Notes 1(a) of Subchapter XIII of Chapter 98, HTSUS, under subheading 9813.00.05, articles, may enter into the United States temporarily free of duty under a Temporary Importation Under Bond (TIB) for exportation within one year from the date of importation. This one year period may be extended for one or more additional periods, which when added to the initial period may not exceed three years. See 19 CFR 10.37. The imported merchandise may not be imported for the purpose of a sale or sale on approval.

U.S. Notes 2 of Subchapter XII of Chapter 98, HTSUS, allows entry of merchandise under subheading 9813.00.05 only on condition that:

(a) Such merchandise will not be processed into an article manufactured or produced in the United States if such article is: .

(iii) A product of wheat

(b) If any processing of such merchandise results in an articlemanufactured or produced in the United States:

(i) A complete accounting will be made to the Customs Service for all articles, wastes and irrecoverable losses resulting from such processing; and (ii) All articles and valuable wastes resulting from such processing will be exported or destroyed under customs supervision within the bonded period; except that in lieu of the exportation or destruction of valuable wastes, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.

The language in U.S. Notes 2(a) was added to section 308 (the predecessor to subheading 9813.00.05, HTSUS) of the Tariff Act of 1930 by Public law 85-414 (May 16, 1958). Prior to the amendment of the statute, merchandise could be imported temporarily for repair, alteration or processing, only if the processing did not result in articles manufactured or produced in the U.S. In the Senate Report, No. 1485 (April 28, 1958), the example was given that prior to the amendment, an importer of airplane parts processed into an airplane to be exported, would have to file a drawback claim under 19 U.S.C. §1313(a) in order to get drawback of 99% of the duty paid for the imported airplane parts. This procedure was said to be costly and time consuming to both the importer and the Government. The legislative history further stated:

Adoption of the provisions contained in the bill (designed to supplement the drawback procedures, which are the only ones available under existing law) would result in a substantial reduction of time-consuming work to the Customs Service and would enable many importers who manufacture solely for export to avoid having their money tied up for extended periods awaiting the processing of their claims for drawback.

In light of the fact that the amendment of the TIB provision was designed to supplement the drawback procedures, it is appropriate to look to drawback precedent to determine whether the imported wheat is processed, or is altered or repaired. The parenthetical in subheading 9813.00.05, HTSUS, as well as the restrictions of the pre-1958 provision, make it clear that Congress recognized that there are processes that do not result in an article manufactured or produced in the U.S.

Also, not all manufactures require a substantial transformation. In HQ 228512, dated December 18, 2000, Customs specifically held that the particular process at issue was a manufacture/production for TIB purposes, and that the process resulted in an article manufactured or produced in the U.S., however the process did not substantially transform the imported product. In that case, a bulk chemical was converted into an agricultural form of the chemical, through dilution, mixing with agents and pelletizing for end user application. In HQ 228056, dated February 25, 1999, it was determined that a substantial transformation was not necessary to determine that for purposes of NAFTA restrictions on duty-deferral programs, a process beyond a repair or alteration had occurred.

In determining whether there has been a manufacture or production for drawback purposes, Customs has long used the criteria in the case of Anheuser-Busch v. United States, 207 U.S. 556 (1908). Under Anheuser-Busch, a manufacture or production is considered to have occurred when the merchandise under consideration is changed or transformed into a new and different article having a distinctive name, character or use. In T.D.’s 93-5-J, and 89-42-V, Customs approved a substitution manufacturing process under 19 U.S.C. §1313(b), which consisted of “blending and grading” wheat. One of the bases of approval of the process for substitution manufacturing drawback, was that the blending and grading of wheat is the use of merchandise to manufacture an article, as required by the statute. In both of the cited T.D.’s, the wheat was blended either to meet specific contract specifications, or to produce certain marketable factors. In the instant case, according to the submissions, the wheat is blended to alter the wheat in grade, protein level, moisture content or falling number to meet foreign customer specifications. The result is a change in the character and use of the wheat. The character is changed in the grade, protein level, moisture content or falling number, and the use is changed to meet certain customer specifications.

Based on drawback precedent we conclude that the blending and grading of the wheat goes beyond an alteration and is a process for TIB purposes. In addition, generally raw materials, as opposed to finished articles, are not “altered” but are manufactured. See E. Dillingham, Inc. v. United States, 29 Cust. Ct. 16 (1952); Guardian Industries Corporation v. United States, 3 C.I.T. 9 (1982). In this case the wheat is a raw material and is not a finished article. The fact that a process occurs does not mean that the wheat becomes an article manufactured in the U.S. for TIB purposes. For drawback purposes the blended and graded wheat was considered to be a new and different article. However, a new and different article for drawback purposes is not necessarily considered an “article manufactured or produced in the United States” for purposes of subheading 9813.00.05, HTSUS. Nothing in the information submitted suggests that the blended and graded wheat is “an article manufactured or produced in the United States”.

In support of the position that the blending and grading of the wheat is an alteration, ADM cites United States v. Oakville Company, 402 F.2d 1016, 56 CCPA 1, C.A.D. 943 (1968), as well as numerous Headquarters rulings in which certain processes were determined to be alterations as opposed to manufactures. In the Oakville Company, as well as the cited rulings, the determinations were for purposes of subheading 9802.00.50, HTSUS, which provides a partial duty exemption for articles returned to the U.S. after having been advanced in value or improved in condition by means of repair or alteration.

In Oakville Company, it was determined that for purposes of subheading 9802.00.50, HTSUS, merchandise which is returned as a mere component of a different article, was not altered, but instead became a new article. In HQ 226904, dated May 29, 1996, following Oakville Company, as well as other precedent, it was determined for purposes of NAFTA duty deferral restrictions (19 CFR 181.53(b)(5)) that the use of parts to create a subassembly was more than an alteration, because the subassembly was an article of commerce different from the parts themselves. In this case we do not conclude that a new article resulted from the blending and grading. The wheat itself may be changed, but it is still wheat, and is not a component of another article.

The application of subheading 9802.00.50, HTSUS is precluded when the operation abroad destroys the identity of the exported article or creates a new or commercially different article. In HQ 561231, dated August 25, 1999, it was determined that U.S.–origin cut-up fruit in syrup, exported in bulk containers to the Philippines for draining of the syrup, removal of small fruit particles, the addition of new syrup and in some cases the addition of Philippine-origin pineapple, and packed in retail cans, was altered for purposes of subheading 9802.00.50 HTSUS, but that a new and different commercial article was not created.

In HQ 558833, dated February 10, 1995, it was determined that a technical grade chemical plant growth regulator which was exported to be finely ground, blended with talc and tested for even blending, was altered for purposes of subheading 9802.00.50, HTSUS. The purpose of the alteration was to render the product easier to use. The material was said to be used interchangeably both before and after the grinding and blending operations. Similarly, in HQ 557836, dated April 11, 1994, a granular nylon resin was exported for the purpose of being rendered into a powder form. The granulated and powder form of the resins were used “mostly” in the same markets, and the granular form was complete for its intended application and was in fact sold in the U.S. in its granular form. It was determined that the operation to render the resin into a powder did not have the effect of destroying the identity of the resin, or changing it’s chemical composition, but only served to change the form of the resin, and that the operation performed was an acceptable alteration for purposes of subheading 9802.00.50, HTSUS.

In HQ 561918, dated July 30, 2001, it was determined that acrylic coatings used as automotive paint exported as a liquid, and returned in the form of an aerosol were only changed in form, not in the character or use of the product, and were therefore subjected to an acceptable alteration for purposes of subheading 9802.00.50, HTSUS.

ADM also cites to HQ 115281, dated July 20, 2001, in which blended and graded wheat was determined not to be a “new and different product” for purposes of 19 CFR 4.80b(a), which implements the “Jones Act”.

The purpose of subheading 9802 is to limit the extent of foreign operations on U.S. goods, to ensure that no foreign merchandise is entered into the U.S. without being subject to duty. The purpose of the Jones Act is to prevent coastwise transportation of goods by non-coastwise-qualified vessels. The exemption under the Jones Act would appear to require a substantial transformation and an examination of the commercial documents regarding the blending in order to prevent abuse of the statutory exemption. Under the TIB provision, the statutory purpose is to employ U.S. labor and capital on foreign goods that will be exported from the U.S. See Senate Report, No. 1485, supra, which quotes the Department of Labor as stating that the enactment of the bill “should have the effect of increasing employment opportunities” in referring to the Department of Labor’s approval of the basic purpose of the legislation.

With regard to the above-cited decisions, the blending and grading of wheat may in fact be an alteration, or not amount to a manufacture or process for purposes of the law applied in those decisions, that is subheading 9802.00.50 or the Jones Act, but the decisions do not control for the purposes of the applicable law in this case. The status of a process or operation under one program is not determinative of its status under another program. However, the decisions are instructive and support the conclusion that the blended and graded wheat is not changed in its character and use to the extent that it is an “article manufactured or produced in the United States”. Based on the information provided and the above decisions, we find that the blended and graded wheat is not an article manufactured or produced in the U.S.

In Tropicana products, Inc. v. United States, 789 F. Supp. 1154, 1158 16 C.I.T. 155, 160 (1992), on the issue of whether a manufacture had occurred in a bonded warehouse, the court stated:

The short of the matter: the criterion of whether goods have been “manufactured” serves different purposes under different statutes, particularly §1562 on the one hand and statutes concerned with country-of-origin marking, Generalized System of Preferences and drawback on the other; substantial transformation criteria cannot be applied indiscriminately in the identical manner across the entire spectrum of statutes for which it is necessary to determine whether merchandise has been “manufactured”.

See also National Juice Products Association v. United States, 628 F. Supp. 978, 10 C.I.T. 48 (1986), in which the Court stated that although the language of tests applied for purposes of the Generalized System of Preferences, drawback and country-of-origin marking statutes is similar, “the results may differ where differences in statutory language and purpose are pertinent.” 628 F.Supp. at 988, 10 C.I.T. at 58.

As we have determined that the processed wheat is not an article manufactured or produced in the U.S., the imported merchandise is not subject to the limitations and requirements of U.S. Notes 2 of Subchapter XII of Chapter 98, HTSUS.

We note that the subject merchandise is subject to Antidumping/ Countervailing duties (AD/CVD) cases A-122-847 and C-122-848. TIB entries of merchandise are not consumption entries, and although AD/CVD to which the imported merchandise is subject need not be deposited, the TIB bond should be set in an amount to take into account any AD/CVD in order to protect the revenue. See HQ 223491, dated March 30, 1992.


The subject wheat may be imported for blending and grading under the Temporary Importation provision of subheading 9813.00.05, HTSUS, and the blending and grading does not result in an article manufactured or produced in the U.S.


Myles Harmon, Director

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