United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 2006 HQ Rulings > HQ 563355 - HQ 965547 > HQ 563381

Previous Ruling Next Ruling
HQ 563381




June 30,2006

CLA-02 RR:CTF:VS 563381 FP

CATEGORY: CLASSIFICATION

Mr. Dale Seidner
5518 E Via Montoya Drive
Phoenix, Ariz. 85054

RE: Applicability of General Note 3(a)(v), HTSUS, to cow’s milk cheese, cow and buffalo milk cheese, and pure buffalo milk cheese from Egypt; qualified industrial zones

Dear Mr. Seidner:

This is in response to your letter, received June 8, 2005, in which you requested a tariff classification ruling from our National Commodity Specialist Division.

Your inquiry raised two distinct questions. First, what is the proper tariff classification of the items you wish to import. Secondly, what is the dutiable status of goods that have been manufactured in a qualifying industrial zone (“QIZ”) in Egypt and which contain some raw materials of Israeli origin.

We are aware that our National Commodity Specialist Division has already issued a ruling regarding the tariff classification of the above-referenced items. Please refer to New York Ruling Letter L85510, dated July 22, 2005.

Your question regarding the eligibility of these cheeses for preferential duty treatment as products of a QIZ in Egypt, under the provisions of General Note 3(a)(v), Harmonized Tariff Schedule of the United States (“HTSUS”), was referred to our office.

Optimally, we would have considered the additional information requested in our electronic communication of June 13, 2006, in order to better understand the facts prior to issuing this ruling letter. However, we did not receive a response to our request. Therefore, we are issuing a ruling based on our assumption of the facts.

FACTS:

Mediterranean Brands, Inc. (“MB”) currently imports soft and creamy feta cheese of Egyptian origin under its own Mediterrano brand. MB’s current imports are produced from cow’s milk. Additionally, MB is contemplating importing two new feta cheese variants – cow and buffalo milk cheese and pure buffalo milk cheese – from Egypt.

The products in question consist of different variations of a soft, spread-able feta cheese product. The product will be packaged in aseptic retail packages of 8.8 ounces, net, under the brand label “Mediterrano” labeled as “Regular,” “Hint of Chile” or “Light + Less Salt” flavors. These soft feta cheeses (whether “Regular,” “Hint of Chile” or “Light + Less Salt”) will be made from any of the following dairy starting materials. The cheeses may be made entirely from cow’s milk, from a mixture of over 50 percent by weight of buffalo milk and cow’s milk, from pure buffalo milk, or from buffalo milk to which milk protein concentrate has been added.

We assume that all of the materials used in the production of your cheeses are of Egyptian origin.

You stated that the Egyptian Ministry of International Trade had advised that there is a minimum requirement for originating Israeli materials, and that if your goods were produced within one of the qualified zones in Egypt, it should be exempted from both duties and tariff-rate quota.

ISSUES:

Whether the operations performed in Egypt, as described above, comply with the requirements for eligibility for preferential tariff treatment under GN 3(a)(v), HTSUS.

Whether the duty exemption provided for under GN 3(a)(v), HTSUS, applies to goods otherwise subject to tariff-rate quota.

Whether additional safeguard duties would apply, if these goods are otherwise eligible for duty free treatment, (even though the countries referenced in GN 3(a)(v) are not excluded in U.S. note 1, subchapter IV, in chapter 99).

LAW AND ANALYSIS:

I. Qualifying industrial zones

Pursuant to authority granted under section 9 of the United States-Israel Free Trade Area Implementation Act of 1985 (“IFTA Act”), as amended (19 U.S.C. 2112 note), Presidential Proclamation 6955 of November 13, 1996 (61 FR 58761) designated certain tariff treatment for articles of the West Bank, the Gaza Strip, and qualifying industrial zones. In particular, the Presidential Proclamation modified general note 3 of the Harmonized Tariff Schedule of the United States to provide duty-free treatment to qualifying articles that are the product of the West Bank, the Gaza Strip or a qualifying industrial zone and are entered in accordance with the provisions of section 9 of the IFTA Act.

Section 9(e) of the IFTA Act defines a “qualifying industrial zone” as an area that “(1) encompasses portions of the territory of Israel and Jordan or Israel and Egypt; (2) has been designated by local authorities as an enclave where merchandise may enter without payment of duty or excise taxes; and (3) has been specified by the President as a qualifying industrial zone.”

Accordingly, General Note 3(a)(v), HTSUS, provides for duty free entry of goods that are products of the West Bank, the Gaza Strip or a qualifying industrial zone. GN 3(a)(v)(G) states that:

(G) For the purposes of this paragraph, a "qualifying industrial zone" means any area that--

(1) encompasses portions of the territory of Israel and Jordan or Israel and Egypt;

(2) has been designated by local authorities as an enclave where merchandise may enter without payment of duty or excise taxes; and

(3) has been designated by the United States Trade Representative in a notice published in the Federal Register as a qualifying industrial zone.

Additionally, GN 3(a)(v)(A), HTSUS, requires that in order for goods to qualify for preferential tariff treatment, the goods must be imported directly from the West Bank, the Gaza Strip, a QIZ or Israel, and be (1) wholly the growth, product or manufacture of the West Bank, Gaza Strip, or a QIZ; or (2) new or different articles of commerce that have been grown or manufactured in the West Bank, the Gaza Strip or a QIZ and the sum of -- (I) the cost or value of the materials produced in the West Bank, the Gaza Strip, or a QIZ or Israel plus (II) the direct costs of processing operations (not including simple combining or packaging operations, and not including mere dilution with water or with another substance that does not materially alter the characteristics of such articles) performed in the West Bank, the Gaza Strip, a QIZ or Israel, is not less than 35 percent of the appraised value of such articles. U.S.-origin materials may be counted in an amount up to 15 percent of the appraised value of such articles.

Presidential Proclamation 6955 delegated to the United States Trade Representative the authority to designate qualifying industrial zones. See GN 3(a)(v)(G)(3), supra.

The governments of Israel and Egypt jointly requested the designation as a qualifying industrial zone of areas comprising a Greater Cairo zone, Alexandria zone, Suez Canal zone and Central Delta zone. The names and locations of the factories comprising these four zones were specified on maps and materials submitted by Egypt and Israel and on file with the Office of the U.S. Trade Representative. Israel and Egypt agreed that merchandise may enter, without payment of duty or excise taxes, areas under their respective customs control that comprise the Greater Cairo zone, Alexandria zone, Suez Canal zone and Central Delta zone. Further, the operation and administration of these zones are provided for in the previously agreed “Protocol between the Government of the State of Israel and the Government of the Arab Republic of Egypt On Qualifying Industrial Zones” (the “Protocol”).

Consequently, the Greater Cairo zone, Alexandria zone, the Suez Canal zone and Central Delta zone met the criteria under sections 9(e)(1) and (2) of the IFTA Act and were designated by the U.S. Trade Representative as qualifying industrial zones under section 9 of the IFTA Act. The designations for the Greater Cairo, Alexandria and Suez Canal zones and for the Central Delta zone were published in the Federal Register on December 29, 2004 (96 FR 78094) and November 16, 2005 (70 FR 69622), respectively, and applicable to articles shipped from these qualifying industrial zones after such dates.

Accordingly, goods the product of a qualifying industrial zone, whose appraised value includes not less than 35 percent of the cost of materials originating in the West Bank, the Gaza Strip or a qualifying industrial zone and the direct cost of processing operations performed in the West Bank, the Gaza Strip, a qualifying industrial zone or Israel, as defined in GN 3(a)(v)(A), HTSUS, are eligible for duty-free entry into the United States.

Please note that the value content percentages from Israel, Egypt or Jordan are established by agreement between those governments. For example, the minimum value content requirements for Egypt and Israel were established in the Protocol, which is available on-line at http://www.qizegypt.gov.eg/english/about_qiz_textprotocol.asp. Also, the Protocol established a QIZ Joint Committee, which determines whether a business qualifies for QIZ treatment.

Regarding the minimum requirement for originating Israeli materials, we assume that Egyptian Ministry of International Trade refers to the requirements contained in the Protocol. Articles II(D) and (E) of the Protocol stipulate a one-third (11.7%) Egyptian content contribution and a one-third (11.7%) Israeli content contribution towards the minimum 35% value content requirement.

Obviously, the figure for a minimum Israeli raw material content (11.7%) is not reflected in GN 3(a)(v), HTSUS. It is our opinion that the language of the Protocol does not alter the requirements of the General Note, namely that each good must meet the origin, imported directly, and value content requirements. We do not read the Protocol as allowing a more liberal interpretation of GN 3(a)(v), but rather, providing further requirements for a particular business to qualify for QIZ treatment.

It is our view that once the QIZ Joint Committee grants a certificate, then a business is eligible to participate. However, the business would still have to meet each of the GN 3(a)(v) requirements for each article imported into the U.S., including the 35% value content criterion. For Customs purposes, should a claim under GN 3(a)(v) be subjected to verification, only the requirements listed there would be controlling in supporting the eligibility of the claim for preferential duty treatment.

II. Tariff-rate quota

According to NY Ruling Letter L85510, the applicable subheading for Mediterrano brand Soft Feta cheese, whether made from pure cow’s milk, or from a mixture of buffalo milk and cow’s milk, or from a mixture of buffalo milk to which milk protein concentrate has been added, will be 0406.10.84, HTSUS.

Subheading 0406.10.84, HTSUS, makes reference to Additional U.S. Note 16, chapter 4, HTSUS, which provides for aggregate quantity limits and requires that the importer be the holder of an appropriate import license for cheese, issued by the Dairy Import Licensing Office, Foreign Agricultural Service, U.S. Department of Agriculture. Assuming the cheese is a product of Egypt, it would be subject to limits established for “Other countries or areas” and “Any country”.

If imported without such license, or after the tariff-rate quota has closed, the applicable subheading will be 0406.10.88, HTSUS. Cheese that is entered in subheading 0406.10.88, HTSUS, is subject to additional safeguard duties listed in subheadings 9904.06.38 to 9904.06.49, HTSUS.

Tariff-rate quotas for dairy and other agricultural products in chapters 1 through 24, HTSUS, uniformly do not include any of the duty benefit programs that are normally referenced in the Special Rates of Duty column in the HTSUS, such as the Generalized System of Preferences (“GSP”), the African Growth & Opportunity Act, the Caribbean Basin Economic Recovery Act, or the Andean Trade Preference Act, for preferential treatment under the high-tier subheadings of the tariff-rate quotas.

Duty benefits under these provisions are generally restricted to those countries that have negotiated benefits specifically in the agricultural area under various free trade agreements, such as those with Canada and Mexico, Australia, Jordan, Chile, Singapore, and Israel.

In fact, the preferential duty program for products of the Freely Associated States, in GN 10(d)(vi), HTSUS, which, like the duty program covered in GN 3(a)(v), has almost universal access to tariff subheadings in terms of eligibility for duty free entry, specifically excludes from its coverage those agricultural products that are subject to tariff-rate quota and entered in the high-tier quota provision, in excess of the in-quota quantity for such product.

It appears that the trade benefit program in GN 3(a)(v), HTSUS, may have been negotiated without taking into account the U.S. tariff treatment of trade sensitive agricultural products currently classified under tariff-rate quotas in other, similar benefit programs, such as GSP or for the Freely Associated States. As such, the GN 3(a)(v) program is not identifiable in the Special Rates of Duty column.

Therefore, there is no statutory basis to deny duty free treatment to qualifying goods under GN 3(a)(v), whether the cheese is classifiable in subheading 0406.10.84, up to the limits specified in Additional U.S. Note 16, or in subheading 0406.10.88, after the limits in Additional U.S. Note 16 have been reached. It is our opinion that GN 3(a)(v) applies to every subheading in the tariff, including those providing for quota merchandise, such as for goods entered at the high-tier quota rate for cheese in subheading 0406.10.88, HTSUS.

III. Safeguard duties

Subchapter IV, chapter 99, HTSUS, contains the safeguard measures established pursuant to section 101 of the Uruguay Round Agreements Act (19 U.S.C. 3511) and those that have been proclaimed pursuant to section 22 of the Agricultural Adjustment Act (7 U.S.C. 624).

U.S. Note 1 to the subchapter defines the scope of safeguard measures and enumerates countries whose goods are exempted from their applicability. U.S. Note 1, subchapter IV, chapter 99, HTSUS, states that:

"U.S. Notes

1. This subchapter contains safeguard measures established pursuant to Article 5 of the Agreement on Agriculture (as approved by section 101 of the Uruguay Round Agreements Act), which allows the imposition of additional duties based upon either the value or the quantity of goods imported into the United States for certain agricultural products. In addition, the subchapter contains provisions which may be proclaimed pursuant to section 22 of the Agricultrual Adjustment Act, as amended (7 U.S.C. 624). All of the duties provided for in this subchapter are cumulative duties which apply in addition to the duties, if any, otherwise imposed in the tariff schedule on the goods described herein. Unless otherwise stated, the duties or limitations provided for in this subchapter apply until suspended or terminated. Goods of the following countries imported into the United States shall not be subjected to any of the provisions, duties or limitations of this subchapter:

Canada, Mexico, Jordan, Singapore, Chile, Australia, Morocco" (Emphasis supplied.)

Thus, U.S. Note 1 does not exclude from payment of additional safeguard duties goods from the territories covered by the trade program described in GN 3(a)(v), HTSUS, namely the West Bank, the Gaza Strip or qualifying industrial zones. Further, it specifically states that additional safeguard duties apply to goods regardless of whether such goods are otherwise free or dutiable under their respective tariff schedule subheadings.

For the reasons stated, we find that GN 3(a)(v) permits free entry only from the duty rates listed in the “General” duty rate column of the chapters but does not address the special additional duties provided for in subchapter IV, chapter 99, HTSUS.

In our view, and consistent with the classification decision in NY Ruling Letter L85510, cheese that is entered at the high-tier quota rate in subheading 0406.10.88, HTSUS, is subject to additional safeguard duties listed in subheadings 9904.06.38 to 9904.06.49, HTSUS.

HOLDING:

On the basis of the limited information provided, we find that your goods are eligible for the preferential tariff treatment under GN 3(a)(v), provided that --

Each good meets the origin, imported directly, and value-content requirements of GN 3(a)(v), HTSUS; and

That your producer has obtained a certificate of eligibility from the QIZ Joint Committee.

The general duty exemption provided under GN 3(a)(v), HTSUS, applies to goods otherwise subject to tariff-rate quota. However, cheese that is entered at the high-tier quota rate in subheading 0406.10.88, HTSUS, is subject to the additional safeguard duties listed in subheadings 9904.06.38 to 9904.06.49, HTSUS.

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 official handling the transaction.

Sincerely,

Monika R. Brenner, Chief

Previous Ruling Next Ruling

See also: