Applicability of partial duty exemption under HTSUS subheading 9802.00.50 to CLSP-870; vegetable oil; bleaching; deodorizing

HQ 557632 January 14, 1994 CLA-2 CO:R:C:S 557632 MLR CATEGORY: Classification TARIFF NO.: 9802.00.50 Ms. Claire Goldenberg A.N. Deringer, Inc. 10600 W. Higgins Road #708 Rosemont, IL 60018 RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.50 to CLSP-870; vegetable oil; bleaching; deodorizing Dear Ms. Goldenberg: This is in reference to your letter of September 2, 1993, requesting a ruling on behalf of Loders Croklaan, regarding the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to vegetable oil from Canada. FACTS: Loders Croklaan processes crude cotton seed and soybean oils in its plant in Illinois. The processes performed include refining the oil to remove undesirable components such as gums or fatty acids, blending, hydrogenating, and fractionation. The resulting product is referred to as LB 870. LB 870 is then shipped to Canada where it is bleached and deodorized which takes away the odor from the oil. After the bleaching and deodorization processes, the oil is referred to as Croklaan Special 870 (CLSP- 870), which is described as a fractionated, hydrogenated vegetable oil based on cottonseed and soybean oils. You have submitted Loders Croklaan's Shortening & Oils Glossary which defines "bleaching" and "deodorization." Bleaching is "a process for removing the color from an oil to obtain the more-desired, light-colored oil. Diatomaceous earth, Fuller's earth, activated clay, and activated carbons are the most commonly used bleaching agents." Deodorization is "a process of removing prooxidant and odor-producing substances from a fat. It is accomplished by a process of steam distillation under reduced pressure. Deodorization removes from fats the volatile flavor, odor materials, reduces free fatty acid content and generally improves color." Upon return to the U.S., the CLSP-870 is used in a manufacturing process as a coating fat for the confectionery industry. ISSUE: Whether the oil subjected to bleaching and deodorization processes in Canada qualifies for the partial duty exemption available under subheading 9802.00.50, HTSUS, when returned to the U.S. LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides for a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations, provided the foreign operation does not destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Accordingly, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended purpose prior to the foreign processing and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations when returned to the U.S., provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. In Headquarters Ruling Letter (HRL) 082425 dated December 1, 1988, we considered whether refining U.S.-origin crude oil in Canada, and returning it to the U.S. in the form of gasoline was considered an alteration. It was held that the refining of crude oil is more than a mere alteration, and involves a process which turns the crude oil into an entirely new and commercially different product. Furthermore, the crude oil was incomplete for its intended use and the processing was held to be a necessary step in the processing of gasoline. In HRL 557283 dated August 18, 1993, we also found that crude oil refined or degummed in Mexico to make the product free of humidity and fatty acids, and bleached and deodorized, exceeded an alteration, thereby precluding tariff treatment under subheading 9802.00.50, HTSUS. In this case, the oil is only bleached and deodorized in Canada, and unlike HRL 557283, it is not refined abroad. Therefore, the issue is whether the bleaching and deodorization processes alone are necessary to complete the oil for its intended use. Referring to the McGraw-Hill Encyclopedia of Science & Technology, Vol. 7 at 19 (6th Ed. 1987), we note that the processing of fats and oils is carried out in a series of individual steps: "extraction, refining, bleaching, and deodorization." It is also indicated, as in Loders Croklaan's Shortening & Oils Glossary, that bleaching is the "process for removing pigments from fats and oils...", and deodorization is "used to remove volatile materials from the oil product [and] along with the removal of compounds which contribute flavor and odor, free fatty acids, monoglycerides, and some color bodies are distilled off...the resulting product is essentially bland in flavor and odor." Id. at 20. It is also stated that flavor reversion is caused by "changes in substances which have been oxidized prior to, but not removed by, deodorization." In particular, soybean oil is cited as an oil that may develop disagreeable flavors. Consequently, we find that while the oil is not refined in Canada, the deodorization process removes the prooxidant and odor-producing substances in the oil and reduces free fatty acids (as in HRL 557283) to complete the oil for its intended purpose as a coating fat in the confectionery industry, thereby precluding tariff treatment under subheading 9802.00.50, HTSUS. HOLDING: On the basis of the information provided, it is our opinion that bleaching and deodorizing oil in Canada is not considered an alteration because it completes the oil for its intended purpose. Therefore, the partial duty allowance under subheading 9802.00.50, HTSUS, is inapplicable, and the CLSP-870 will be dutiable upon its full value when it is returned to the U.S. Sincerely, John Durant, Director