Application for Further Review of Protest No. 5201-09-10037; Dairy Spread from Honduras and Costa Rica

HQ H135641 October 24, 2013 OT:RR:CTF:TCM H066458 HvB H135641 PTM CATEGORY: Classification; CBERA Duty Preference; Liquidation (19 U.S.C. § 1504(b)) TARIFF NO.: 1901.90.42/43 and 1901.90.46.47; 9904.04/72/73/74 Port Director U.S. Customs and Border Protection 6601 NW 25th Street Miami, FL 33122 Attn: Dina M. Amato RE: Application for Further Review of Protest No. 5201-09-10037; Dairy Spread from Honduras and Costa Rica Dear Port Director: The following is our decision regarding the Application for Further Review (“AFR”) of Protest No. 5201-09-10037, timely filed by counsel on March 19, 2009, on behalf of AB International Brokers, Inc., (“ABI” or “Protestant”) concerning the classification of soft blend dairy spread under the Harmonized Tariff Schedule of the United States (“HTSUS”) and preferential duty treatment status under the Caribbean Basin Economic Recovery Act (“CBERA”). ABI, the customs broker for the entries, is identified as the importer of record. Counsel for the Protestant also asserts that liquidation of the protested entries was unlawfully extended. FACTS: This protest covers seven entries of Soft Blend Dairy Spread from Honduras and Costa Rica. The Honduran “Sula Soft Dairy Spread” (“Sula”) was manufactured by Lacteos de Honduras S.A and was entered between August 3, 2005 and June 9, 2006. The Costa Rican “La Cuscatle Ca” (“La Cuscatle”) dairy spread was entered between June 23, 2006 and August 17, 2006, and was produced by Cooperativa de Productores de Leche RL. The product is a semi-solid material composed of pasteurized partially skimmed milk, butter oil, vegetable oil, modified starch, gelatin and gum as stabilizers, salt, lecithin, lactic cultures, and sorbic acid as preservative. CBP’s Automated Commercial System (ACS), shows that the notices of extension of liquidation were sent to both the importer of record and the surety. The following are the entries at issue: Entry Number Entry Date Notice of Extension Liquidation Date Country of Origin  07XXXX18 (“18”) 09/14/2005 07/15/2006 10/17/2008 Honduras    02/10/2007      04/19/2008    07XXXX13 (“13) 08/03/2005 06/16/2006 10/17/2008 Honduras    04/14/2007      04/19/2008    07XXXX54 (“54”) 06/09/2006 03/17/2007 10/17/2008 Honduras    03/15/2008    07XXXX28 (“28”) 06/23/2006 03/17/2007 11/07/2008 Costa Rica    03/15/2008    07XXXX92 (“92”) 08/17/2006 06/16/2007 11/07/2008 Costa Rica    04/19/2008    07XXXX56 (“56”) 07/24/2006 04/14/2007 10/31/2008 Costa Rica    04/19/2008    07XXXX94 (“94”) 08/09/2006 04/14/2007 10/31/2008 Costa Rica    04/19/2008     The first three entries were imported from Honduras under subheading 2106.90.38, HTSUS, which provides for “”Food preparations not elsewhere specified or included, Other: Butter substitutes, whether in liquid or solid state, containing over 15 percent by weight of butter of other fats or oils derived from milk: Other: other”, claiming duty-free status “P” or “E” under the Dominican Republic-Central American-United States Free Trade Implementation Act (DR-CAFTA) or the Caribbean Basin Economic Recovery Act (“CBERA”). The merchandise was imported in a package labeled as “Sula Soft Blend Dairy Spread” (hereinafter “Sula”), with the following ingredients listed on the package: “pasteurized skim milk, milk fat, soybean oil, carrageenan (stabilizer), salt, lactic cultures and colored with annatto.” Samples were pulled from both the Honduran and Costa Rican manufacturers and sent to U.S. Customs and Border Protection’s (“CBP”) Office of Laboratory and Scientific Services (LSS) for analysis on June 16, 2006. On September 15, 2006, LSS issued Laboratory Report Number SV 20061210 for the Sula sample produced by Lacteos de Honduras S.A., and Laboratory Report Number SV 20061285 for the Costa Rican La Cuscatle sample produced by Cooperativa de Productores de Leche RL. The CBP Field Officer requested additional information regarding the milk solid content for both samples on October 4, 2006. CBP Laboratory Report SV20061210 indicates that by weight, the Sula product consists of 73% moisture (83% non-fatty matters); 12% total fat (45% moisture free basis); 3% butter fat (10% moisture free basis). The November 1, 2006, Supplemental Laboratory Reports SV 20061210S and SV 20061285S were issued by LSS due to an additional request for the milk solid content of the samples. Tests were administered on the La Cuscatle product for the two samples provided (Sample A and B). Sample A analysis reveals that the product contains 3% lactose, 6% non-fat milk solid and 19% milk solids (non-fat milk solid and butter fat). Analysis on the second package, Sample B, indicates that the product contains 3% lactose, 6% non-fat milk solid, and 17% milk solid (non-fat milk solid and butter fat). Both laboratory reports further indicate that the product is a “water-in-oil” type emulsion. The laboratory’s investigation determined that vegetable oil was present in both samples, precluding classification under chapter 4 of the HSTUS. The Costa Rican merchandise was described as “soft blend dairy spread” and consists of four entries, entered under subheading 0406.90.9900, HTSUS, which provides for “Cheese and curd: other cheeses and substitutes for cheese, including mixtures of the above (excluding goods containing mixtures of subheading 0406.90.61 or 0406.90.63: Other: Containing 0.5 percent or less by weight of butterfat: other: other” with a claim for duty-free status under CBERA. On September 8, 2008, a CBP Field Officer sent a message regarding the entries via the Quality & Uniformity Control System (“QUICS”) to a National Import Specialist (“NIS”) stating that “[b]ased on the 2 lab reports (SV20061210 and SV2006110S) team would like to confirm classification.” On September 10, 2008, another QUICS message was sent from the CBP Field Officer to the NIS stating “[r]eview of lab findings and tariff # used to enter product indicates that product may have been misclassified.” On September 17, 2008, the CBP Field Officer sent a fax to ABI stating “[h]ere is the 7501 and copy of invoice. The NIS is requesting for each product a breakdown of ingredients by weight.” On September 24, 2008, ABI sent a fax to the CBP Field Officer with an attached technical report for the La Cuscatle soft blend spread produced by Cooperativa de Productores de Leche RL. That information was forwarded to the NIS via fax on the same day. On September 25, 2008, the NIS sent the CBP Field Officer an email stating that the fax was not helpful because it “lists the ingredients, but does not provide the ingredients breakdown…A complete ingredients breakdown, by weight, is needed.” The CBP Field Officer responded to the NIS via email on September 25, 2008, stating “[a]dvised the importer (who is also the custom house broker). They will be contacting their client again.” On September 29, 2008, the Field Officer sent a fax to the NIS stating “[t]his is the information the Customs house broker was able to obtain.” The fax contained a report of the breakdown of “granel crema exportacion modificada con grasa vegetal,” which translates to “bulk cream for exportation modified with vegetable fat.” Subsequent to further review of the shipment and lab analysis, all Sula entries were reclassified and liquidated. A Notice of Action was issued to the importer on September 25, 2008, for the first entry, stating that a rate advance was required. The merchandise was reclassified and liquidated on October 17, 2008, under subheading 1901.90.47, which provides for food preparations of goods of headings 0401 to 0404 not specified elsewhere, not containing cocoa or less than 5 percent by weight of a cocoa calculated on a totally defatted basis, not elsewhere specified or included, and under subheading 9904.07.74, HTSUS. On September 29, 2009, the port issued Notices of Action for each of the remaining two entries, which were liquidated and reclassified under subheading 1901.90.47. The third entry was reclassified and liquidated under subheadings 1901.90.43. Both entries were liquidated on October 17, 2008, applying safeguard duty rates provided for in subheadings 9904.04.74 and 9904.04.53, HTSUS, respectively. Accordingly, on September 30, 2008, Notices of Action were issued for each of the four La Cuscatle entries and the merchandise was reclassified and liquidated under subheadings 1901.90.4300. Liquidation occurred on October 31 and November 7, 2008, applying the safeguard duty rates in subheading 9904.07.72, HTSUS. The importer has not provided any documentation to support its averred preferential treatment under CBERA. The protest was filed on March 19, 2009. The protestant challenges CBP’s classification of the products and states that CBP is barred from extending liquidation as the LSS report issued on September 15, 2006, removed all possible grounds for extension of liquidation. ISSUES: 1. Whether the subject merchandise is classifiable under subheading 1901.90, HTSUS, or under subheading 2103.90.91, HTSUS. 2 Whether the subject merchandise is eligible for preferential treatment under CBERA, per General Note 7 of the HTSUS 3. Whether the liquidated entries were properly liquidated by operation of law pursuant to 19 U.S.C. § 1504(a)). LAW AND ANALYSIS: Initially, we note that the issues raised in the protest are protestable under 19 U.S.C. § 1514(a)(2) and (a)(5) as a decision on classification, the amount dutiable, and liquidation is protestable. Under 19 U.S.C. 1514(c)(3)(A) and 19 CFR 174.12(e)(1), a protest shall be filed within 180 days after the notice of liquidation. Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii), (iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Counsel filed protest for a total of seven entries. Liquidation occurred on October 17, October 31, 2008, and November 7, 2008. The protest was timely filed on March 19, 2009, or within 180 days of liquidation. Further Review of Protest No. 5201-09-10037 was properly accorded to protestant pursuant to 19 C.F.R. § 174.24 because the decision against which the protest was filed is alleged to be inconsistent with a ruling of the Commissioner of Customs or his designee. Specifically, Protestant alleges that the action of the Port is inconsistent with New York Ruling Letter(s) (“NY”) I89044, dated December 12, 2002, and NY K83948, dated March 10, 2004, in which CBP classified substantially similar products under heading 2103, HTSUS, the provision for sauces. 1. CLASSIFICATION 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. The 2005 and 2006 HTSUS provisions under consideration are as follows: 1901 Malt extract; food preparations of flour, groats, meal, starch or malt extract, not containing cocoa or containing less than 40 percent by weight of cocoa calculated on a totally defatted basis, not elsewhere specified or included; food preparations of goods of heading 0401 to 0404, not containing cocoa or containing less than 5 percent by weight of cocoa calculated on a totally defatted basis, not elsewhere specified or included: *** 1901.90 Other: Other:Dairy products described in additional U.S. note 1 to chapter 4: Dairy preparations containing over 10 percent by weight of milk solids: *** 1901.90.42 Described in additional U.S. note 10 to chapter 4 and entered pursuant to its provisions Other 1/ 1901.90.47 Other 2/ 1/ See subheadings 9904.04.50-9904.05.01 2/ See subheadings 9904.04.50-9904.05.01 Additional U.S. Note 1 to Chapter 4, HTSUS, provides as follows: 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, provides as follows: 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). * * * 2103 Sauces and preparations therefor; mixed condiments and mixed seasonings; mustard flour and meal and prepared mustard: Mixed condiments and mixed seasonings: Mixed condiments and mixed seasonings described in additional U.S. note 3 to this chapter: 2103.90 Other 2103.90.90 Other Additional U.S. Note 3 to Chapter 21, HTSUS, provides as follows: For the purposes of this chapter, the term "mixed condiments and mixed seasonings described in additional U.S. note 3 to this chapter" means articles containing over 10 percent by dry weight of sugars derived from sugar cane or sugar beets, whether or not mixed with other ingredients, except (a) articles not principally of crystalline structure or not in dry amorphous form that are prepared for marketing to the ultimate consumer in the identical form and package in which imported; or (b) cake decorations and similar products to be used in the same condition as imported without any further processing other than the direct application to individual pastries or confections, finely ground or masticated coconut meat or juice thereof mixed with those sugars, and sauces and preparations therefor. The Harmonized Commodity Description and Coding System Explanatory Notes ("ENs") constitute the official interpretation of the Harmonized System at the international level. While not legally binding nor dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989). The General 2002 EN for heading 1901explains that the “preparations of this heading may be distinguished from the products of headings 04.01 to 04.04 in that they contain, in addition to natural milk constituents, other ingredients not permitted in the products of those earlier headings.” The 2002 ENs for heading 2103, state in relevant part: This heading covers preparations, generally of a highly spiced character, used to flavour certain dishes (meat, fish, salads, etc.), and made from various ingredients (eggs, vegetables, meat, fruit, flours, starches, oil, vinegar, sugar, spices, mustard, flavourings, etc.). Sauces are generally in liquid form and preparations for sauces are usually in the form of powders to which only milk, water, etc. need to be added to obtain a sauce. Sauces are normally added to a food as it cooks or as it is served.  Sauces provide flavour, moisture, and a contrast in texture and colour.  They may also serve as a medium in which food is contained, for example, the velouté sauce of creamed chicken. Seasoning liquids (soy sauce, hot pepper sauce, fish sauce) are used both as ingredients in cooking and at table as condiments.        The heading also includes certain preparations, based on vegetables or fruit, which are mainly liquids, emulsions or suspensions, and sometimes contain visible pieces of vegetables or fruit. * * * As noted above, the “Sula” products were entered under heading 0406, HTSUS, the provision for cheese, and the ”La Cuscatle” products were entered under subheading 2106, HTSUS, for other butter substitutes. Protestant now asserts that the subject merchandise is classifiable under heading 2103, HTSUS, as a sauce. The U.S. Supreme Court has opined on the meaning of the word “sauce.” It wrote that “[t]he word "sauce," as commonly used, designates a condiment, generally but not always of liquid form, eaten as an addition to and together with a dish of food, to give it flavor and make it more palatable; and is not applied to anything which is eaten, alone or with a bit of bread, either for its own sake only, or to stimulate the appetite for other food to be eaten afterwards.” Bogle v. Malone, 152 U.S. 623, 625 (1894). See also Nestle Refrigerated Food Co. v. United States, 18 CIT 661, 668 (Ct. Int’l Trade 1994)). The instant spreadable product is indeed eaten with a bit of bread, for its own sake only. It is neither a liquid nor a condiment, but is instead a spreadable paste. While the CBP Laboratory Report describes the product as a “water-in-oil emulsion,” this does not make the product a “liquid.” Rather, the Supplemental Laboratory Report, undertaken to analyze the milk solid content of the sample, furthermore described the merchandise as a “yellow paste like material,” which confirmed to information later provided by the La Cuscatle manufacturer. As such, the terms of heading 2103, HTSUS do not describe the merchandise. EN 21.03 supports our conclusion, by stating that sauces “are generally in liquid form,” which is not the case here. Furthermore, the EN reference to emulsions is for “certain preparations, based on vegetables or fruit.” CBP lab analysis confirmed that the instant products do not contain vegetables or fruit. Thus, protestant’s reliance on the ENs is of little help i