CBP Ruling H130926

HQ H130926 August 23, 2012 FOR 2-06 WAR 3-02 OT:RR:CTF:ER H130926 TT Mr. George N. Kampouris G. Van Kam Trading Company Ltd. 4920 de Maisonneuve W., #402 Westmount, QC H3Z 1N1 Canada RE: Confectionary anhydrous milk fat; FTZ Dear Mr. Kampouris: This is in response to your request for a prospective ruling, dated October 26, 2010, pursuant to 19 C.F.R. § 177.1. You submitted your request to U.S. Customs and Border Protection ("CBP") on behalf of G. Van Kam Trading Company Ltd. (herein "Van Kam") and filed additional information on November 8 and 10, 2010. Your request was originally submitted to CBP's National Commodity Specialist Division ("NCSD"), but that division forwarded your request to this office because it was outside the scope of its rulings program. Our response follows. FACTS: Van Kam is an international trading company that specializes in dairy products. Van Kam intends to import pure anhydrous milk fat ("AMF") from New Zealand into a foreign trade zone ("FTZ") where it would be admitted as nonprivileged merchandise. While in the FTZ, Van Kam will melt the AMF and add sugar, salt, glucose or other food ingredients to produce confectionary anhydrous milk fat ("CAMF"). The created product, CAMF, is composed of 49 percent anhydrous milk fat and 51 percent sugar, salt, glucose or other added ingredients. The CAMF will then be exported to Canada. In a conference call on June 26, 2012, you clarified that, although you included other questions in the ruling request, the only question for CBP is the tariff classification of the CAMF when it is withdrawn from a FTZ. ISSUE: What is the tariff classification of confectionary anhydrous milk fat that is withdrawn from an FTZ after being processed from AMF in nonprivileged status? LAW AND ANALYSIS: Van Kam inquires into the tariff classification of its merchandise when it is imported and processed in an FTZ before being exported to Canada. Since its merchandise will be admitted into an FTZ in nonprivileged status, its duties will be assessed on its condition upon withdrawal. While in the FTZ, Van Kam will process the anhydrous milk fat to create CAMF. Thus, the duties will be assessed on the basis of the classification for CAMF. Generally, merchandise is classified and appraised on the basis of its condition at the time of importation into the United States, not on the basis of what its condition may become after being imported into the United States. See, e.g., United States v. Citroen, 223 U.S. 407, 414 (1911) (holding that the dutiable classification of imported articles were ascertained by the condition in which the articles were imported), Simod America Corp. v. United States, 872 F. 2d 1572, 1577 (Fed. Cir. 1989) (explaining that, "[i]t is a principle of Customs law that imported merchandise is dutiable in its condition as imported. . . ."). An exception to this general rule is the Foreign Trade Zone Act of 1934, as amended (19 U.S.C. § 81a et seq.). Foreign trade zones are outside the customs territory of the United States. 19 U.S.C. § 81c. Under Section 3(a) of the FTZ Act (19 U.S.C. § 81c(a)), merchandise may be designated nonprivileged foreign ("NPF") or privileged foreign ("PF"). NPF merchandise will have its duties assessed upon its condition at time of withdrawal from the FTZ, while PF merchandise is classified based on its condition upon admission to the FTZ. 19 C.F.R. § 146.65(a). Specifically, 19 C.F.R. § 146.65(a)(2), explains that "nonprivileged foreign merchandise provided for in this section will be subject to tariff classification in accordance with its character, condition and quantity as constructively transferred to Customs territory at the time the entry or entry summary is filed with Customs." Since Van Kam's merchandise is admitted into an FTZ in NPF status, its duties will be assessed on its condition upon withdrawal from the FTZ. Classification under the HTSUS is made in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order. As there is no dispute that the subject CAMF is classified under heading 2106, HTSUS, the instant matter is governed by GRI 6, which provides as follows: For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule, the relative section, chapter and subchapter notes also apply, unless the context otherwise requires. The HTSUS subheadings under consideration are as follows: 2106 Food preparations not elsewhere specified or included: 2106.90 Other: Other: Other: Containing over 10 percent by weight of Milk solids: Other, dairy products described in additional U.S. note 1 to chapter 4: * * * 2106.90.64 Described in additional U.S. note 10 to chapter 4 and entered pursuant to its provisions... * * * 2106.90.66 Other...1 Additional U.S. Note 1 to Chapter 4, HTSUS, states: For the purposes of this schedule, the term "dairy products described in additional U.S. note 1 to chapter 4" means any of the following goods: malted milk, and articles of milk or cream (except (a) white chocolate and (b) inedible dried milk powders certified to be used for calibrating infrared milk analyzers); articles containing over 5.5 percent by weight of butterfat which are suitable for use as ingredients in the commercial production of edible articles (except articles within the scope of other import quotas provided for in additional U.S. notes 2 and 3 to chapter 18); or, dried milk, whey or buttermilk (of the type provided for in subheadings 0402.10, 0402.21, 0403.90 or 0404.10) which contains not over 5.5 percent by weight of butterfat and which is mixed with other ingredients, including but not limited to sugar, if such mixtures contain over 16 percent milk solids by weight, are capable of being further processed or mixed with similar or other ingredients and are not prepared for marketing to the ultimate consumer in the identical form and package in which imported. Additional U.S. Note 10 to Chapter 4, HTSUS, states, in pertinent part: The aggregate quantity of dairy products described in additional U.S. note 1 to chapter 4, entered under subheadings 0402.29.10, 0402.99.70, 0403.10.10, 0403.90.90, 0404.10.11, 0404.90.30, 0405.20.60, 1517.90.50, 1704.90.54, 1806.20.81, 1806.32.60, 1806.90.05, 1901.10.35, 1901.10.80, 1901.20.05, 1901.20.45, 1901.90.42, 1901.90.46, 2105.00.30, 2106.90.06, 2106.90.64, 2106.90.85 and 2202.90.24 in any calendar year shall not exceed 4,105,000 kilograms (articles the product of Mexico shall not be permitted or included under the aforementioned quantitative limitation and no such articles shall be classifiable therein).... (emphasis added). The terms of subheading 2106.90.64, HTSUS, explain that a tariff rate quota applies to this merchandise. This quota is specified in Additional U.S. Note 10 to Chapter 4, and allows 4,105,000 kilograms of this product to be imported in a calendar year. Once the quota is filled, the merchandise is classified elsewhere at a different duty rate. Subheading 2106.90.66 includes a footnote that references subheadings 9904.04.50-9904.05.01. According to U.S. Note 2 to Chapter 99, subchapter IV, [t]he provisions imposing safeguard duties based upon value set forth in the subchapter shall apply to all goods (other than sheep meat) described therein except during periods announced in the Federal Register by the Secretary of Agriculture. . . as the effective periods of the provisions imposing safeguard duties based upon quantity with respect to such goods, during which period the safeguard duties based upon value shall be deemed suspended and only the safeguard duties based upon quantity shall apply to such goods. Unless the Secretary of Agriculture invokes safeguard duties based upon quantity for specified goods and so announces in the Federal Register (as provided in the first sentence of this note), the tariff provisions providing for such duties shall be deemed suspended and shall not apply to the goods described therein." Since there was no Federal Register announcement imposing safeguard duties based upon quantity, subheading 2106.90.66, HTSUS, will apply additional duties based on the value of the CAMF. Thus, subheadings 9904.04.59 to 9904.04.66 provides: Dairy products described in additional U.S. note 1 to chapter 4, provided for in subheadings 0402.29.50, 0402.99.90, 0403.10.50, 0403.90.95, 0404.10.15, 0404.90.50, 0405.20.70, 1517.90.60, 1704.90.58, 1806.20.82, 1806.20.83, 1806.32.70, 1806.32.80, 1806.90.08, 1806.90.10, 1901.10.40, 1901.10.85, 1901.20.15, 1901.20.50, 1901.90.43, 1901.90.47, 2105.00.40, 2106.90.09, 2106.90.66, 2106.90.87 or 2202.90.28: If entered during the effective period of safeguards based upon value: Provided for in subheadings 0404.10.15, 0405.20.70, 1517.90.60, 1704.90.58, 1806.20.82, 1806.20.83, 1806.32.70, 1806.32.80, 1806.90.08, 1806.90.10, 1901.20.15, 1901.20.50, 2106.90.66 or 2106.90.87: * * * 9904.04.59 Valued less than 30¢/kg 9904.04.60 Valued 30¢/kg or more but less than 50¢/kg 9904.04.61 Valued 50¢/kg or more but less than 70¢/kg 9904.04.62 Valued 70¢/kg or more but less than 90¢/kg 9904.04.63 Valued 90¢/kg or more but less than $1.10/kg 9904.04.64 Valued $1.10/kg or more but less than $1.30/kg 9904.04.65 Valued $1.30/kg or more but less than $1.50/kg 9904.04.66 Valued $1.50/kg or more (emphasis added). Since Van Kam has not provided the value of its CAMF, if the quota is filled, merchandise that would otherwise be classified in 2106.90.66 is classified under 9904.04.59 to 9904.04.66 depending on its value. Therefore, since the CAMF is composed of 49% anhydrous milk fat, if it is entered within the above-referenced quota amount, then the CAMF is properly classified under subheading 2106.90.64, HTSUS. Once Van Kam's CAMF exceed the quota amount in a calendar year, then the instant merchandise is properly classified under subheading 2106.90.66, HTSUS, with duties imposed under 9904.04.59 to 9904.04.66, HTSUS, depending on its value. HOLDING: Duties on the CAMF will be assessed on its condition upon withdrawal from the FTZ. If the merchandise satisfies the terms of the quota set forth in Additional U.S. Note 10 to Chapter 4, HTSUS, it will be classified under subheading 2106.90.64, HTSUS, with a 2012 column one general duty rate of 10%. If the quota in Additional U.S. Note 10 to Chapter 4 is exceeded, it will be classified under subheading 2106.90.66, HTSUS, and will be subject to the provisions in 9904.04.59 to 9904.04.66, HTSUS, depending on its value. Duty rates are provided for your convenience and subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at www.usitc.gov. 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 CBP officer handling the transaction. Sincerely, Myles B. Harmon, Director Commercial and Trade Facilitation Division 1 See subheadings 9904.04.50-9904.05.01. --------------- ------------------------------------------------------------ --------------- ------------------------------------------------------------ 6