Country of Origin Marking requirements for Organic Sprouted Rice Trio from Red Rice; NAFTA Preference for Rice Sprouted in Mexico

HQ H267764 December 27, 2016 CLA-02 OT:RR:CTF:TCM H267764 GA CATEGORY: Marking Ms. Tina Fanfara Senior Manager, International Trade Compliance J.M. Smucker Company 1 Strawberry Lane Orrville, Ohio 44667 RE: Country of Origin Marking requirements for Organic Sprouted Rice Trio from Red Rice; NAFTA Preference for Rice Sprouted in Mexico Dear Ms. Fanfara: This is in response to your Electronic Ruling request (eRuling) dated December 17, 2014, on behalf of your client Enray Inc., (“Enray”), sent to the National Commodity Specialist Division, requesting a ruling regarding the country of origin marking requirements for organic Sprouted Rice Trio, which is made from red rice from Thailand, India and/or U.S.A. Your request was forwarded by the Director, National Commodity Specialist Division to our office for a response. CBP has also considered the supplemental submission received on September 1, 2015, requesting a ruling whether the Sprouted Rice Trio qualifies for preferential tariff treatment under the North Atlantic Free Trade Agreement (NAFTA). FACTS: You state that J.M. Smucker Company’s (Smucker) subsidiary, Enray, sources rice from multiple processors. Red rice (Oryza sativa) is grown, harvested, and cleaned in Thailand, the U.S., and/or India. Brown rice (L. Oryza Sative) and wild rice (Zizania) are grown, harvested and cleaned in the U.S. Wild rice is parboiled. After importation of the red rice, the U.S. facility further processes the red and brown rice by cleaning, germinating, and dehydrating the rice. Enray states that the germinated red rice is then combined with germinated brown rice and wild rice of U.S. origin, and packaged in a plastic pouch for retail sale as Sprouted Rice Trio. You also state that the further processing may take place in a Mexican facility, before importation of the Sprouted Rice Trio to the United States. Enray’s Sprouted Rice Trio consists of 53% germinated brown rice, 35% germinated red rice and 12% wild rice. Enray states that sprouting is a 24-48 hour process that involves soaking, sprouting, and dehydrating rice to turn the product into “sprouted” rice. This process (1) causes the grain to grow a physically visible sprout and/or split; and (2) significantly reduces the cooking time for the product. Further, germinating uses the same process as sprouting, but sprouts are not actually visible by the end of the process. The hull splits and the kernel inside softens, enabling the rice to cook more quickly. ISSUE: What are the country of origin marking requirements for the Sprouted Rice Trio described above that is processed in the United States from red rice from Thailand, the U.S., and/or India. Whether the Sprouted Rice Trio qualifies for preferential tariff treatment under NAFTA. LAW AND ANALYSIS: The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "country of origin" as: the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of this part; however, for a good of a North America Free Trade Agreement (NAFTA) country, the NAFTA Marking Rules determine the country of origin. A substantial transformation occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing. A substantial transformation will not result from a minor manufacturing or combining process that leaves the identity of the article intact. See United States v. Gibson Thomsen Co, 27 CCPA 267 (1940) and National Juice Products Association v. United States, 628 F. Supp. 978 (Ct. Int’l Trade 1986). Section 134.35(a), CBP Regulations (19 C.F.R §134.35(a)), states: Articles other than goods of a NAFTA country. An article used in the United States in manufacture which results in an article having a name, character, or use differing from that of the imported article, will be within the principle of the decision in the case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98). Under this principle, the manufacturer or processor in the United States who converts or combines the imported article into a different article will be considered the “ultimate purchaser” of the imported article within the contemplation of section 304(a), Tariff Act of 1930, as amended (19 U.S.C. 1304(a)), and the article shall be excepted from marking. The outermost containers of the imported articles shall be marked in accord with this part. Red rice from Thailand and India processed in the United States The issue to be considered here is whether the imported red rice that is sourced from Thailand and/or India and combined with brown rice and wild rice of U.S. origin in the U.S. becomes a good of the United States. by undergoing a substantial transformation as a result of the germination and mixing operations. In H262945 dated September 30, 2015, CBP ruled that mung beans imported from Asian countries were substantially transformed as a result of the sprouting process that took place in the United States. In H262945, CBP determined that as a result of the sprouting process, the mung beans sprouted and grew from a dormant bean form into a germinated live plant. When they sprout and split, the sprouted beans had a different appearance in that they became sprouts, which resemble live plants and not beans. They were then referred to as bean sprouts, rather than beans. The way the sprouted mung beans could be used also differed from the beans because the cooking time to prepare the product was significantly reduced and the mung bean sprouts had a different nutritional value from the unsprouted mung beans. Therefore, CBP found that the sprouting process of the imported mung beans in the United States resulted in their substantial transformation, which made them a product of the United States. Accordingly, CBP found that the country of origin of the sprouted mung beans was the United States. See also HQ 735520, dated July 22, 1994. Similarly, in this instance, red rice grown in Thailand and/or India is imported into the United States, where it undergoes a process of germination and dehydration, and is combined with rice of U.S. origin. As in H262945, we find that the red rice undergoes a substantial transformation, such that the Sprouted Rice Trio may be considered a product of the United States. Accordingly, under 19 C.F.R. 134.35(a), Smucker or its subsidiary, Enray, will be considered the ultimate purchaser of the imported red rice that will undergo the germination process in the United States. In accordance with 19 C.F.R. 134.35(a), the Sprouted Rice Trio is excepted from the country of origin marking requirements of 19 U.S.C. 1304, and the retail packages in which the Sprouted Rice Trio will be sold to consumers are not required to be marked to indicate the country of origin of the red rice. Under 19 C.F.R. 134.35(a), only the outermost container in which the red rice is imported is required to be marked to indicate its country of origin pursuant to 19 U.S.C. 1304(a)(3)(D). However, you should be aware that the Federal Trade Commission ("FTC") has jurisdiction concerning the use of the phrase "Made in the U.S.A.", or similar words denoting U.S. origin. Consequently, any inquiries regarding the use of such phrases reflecting the U.S. origin of a product should be directed to the FTC, at the following address: Federal Trade Commission, Division of Enforcement, 6th & Pennsylvania Avenue, N.W., Washington, D.C. 20508. NAFTA Tariff Preference In your supplemental submission dated September 1, 2015, you indicate that the Sprouted Rice Trio may also be produced at a facility located in Mexico before importation to the United States. You contend that the Sprouted Rice Trio imported from Mexico, should be entitled to preferential tariff treatment under NAFTA. General Note 12, Harmonized Tariff Schedule of the United States (HTSUS), incorporates Article 401 of the NAFTA. General Note 12(a)(ii), HTSUS, provides, in pertinent part, that: Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act. Accordingly, the Sprouted Rice Trio imported from Mexico will be eligible for the “Special” “MX” rate of duty provided: (1) it is deemed to be NAFTA originating under the provisions of General Note 12(b), HTSUS; and, (2) qualifies to be marked as a product of Mexico under the NAFTA Marking Rules that are set forth in Part 102 of the Code of Federal Regulations (19 CFR 102). In order to determine whether the Sprouted Rice Trio is NAFTA-originating, we must consult General Note 12(b), HTSUS, which provides, in pertinent part, as follows: For the purposes of this note, goods imported into the Customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if— they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or (ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that— (A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or (B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials. While the Sprouted Rice Trio processed in Mexico under this scenario includes originating brown and wild rice, because the Sprouted Rice Trio includes red rice produced in Thailand and/or India, General Note 12(b)(i), HTSUS, does not apply. Therefore, we must determine whether the non-originating materials (red rice) undergo the requisite tariff shift (or other applicable requirement) prescribed under General Note 12(b)(ii), HTSUS. Red rice is provided for in Heading 1006, HTSUS. However, the sprouting process renders it “malt” of heading 1107, HTSUS. Because the finished “trio” mixture consists of 88% germinated grain, it is classifiable as malt of heading 1107, HTSUS, in accordance with GRI 3(b). The applicable rule regarding the requisite change of tariff classification for goods classified in Heading 1107, HTSUS is found in General Note 12(t)/(11), HTSUS which provides: A change to headings 1101 through 1109 from any other chapter. Therefore, as the red rice changes from chapter 10 to chapter 11, as a result of the sprouting and mixing process in Mexico, the Sprouted Rice Trio would be considered originating for purposes of the NAFTA preference. As previously noted, in order to be eligible for NAFTA tariff preference treatment, General Note 12(a)(i), HTSUS, provides that NAFTA-originating goods must also qualify to be marked as products of Mexico or Canada under the NAFTA Marking Rules. In this regard, 19 C.F.R. § 134.1(j) provides that "[t]he “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country.” 19 C.F.R. § 134.1(j) defines a “good of a NAFTA country” as “an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules.” Therefore, in order for the Sprouted Rice Trio at issue to qualify for preferential treatment under the NAFTA, it must not only originate under the provisions of General Note 12, but it must also qualify to be marked as a good of Mexico. Consequently, we must apply the NAFTA Marking Rules contained in 19 C.F.R. Part 102 of the CBP Regulations. Section 102.11 sets forth the general rules for determining the country of origin of imported merchandise, with the exception of textile goods which are subject to the provisions of § 102.21, in part as follows: (1) The good is wholly obtained or produced; (2) The good is produced exclusively from domestic materials; or (3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in §102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied. “Foreign material” is defined as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.” 19 CFR § 102.1(e). Under the scenario where the rice is processed in Mexico, all three types of rice (red, brown, and wild) are foreign materials as their individual countries of origin (India or Thailand, and the U.S.) are different than the country where the Sprouted Rice Trio is produced (Mexico). Applying the NAFTA Marking Rules, we find that the rice imported into Mexico from Thailand, India, or the U.S. is neither “wholly obtained or produced,” nor “produced exclusively from domestic [Mexican] materials,” which prevents the rice from qualifying to be marked as a good of Mexico under 19 CFR §§ 102.11(a)(1) - 102.11(a)(2). Accordingly, we must examine the applicable change in tariff shift set out in 19 CFR § 102.20, in order to determine the country of origin of the imported rice for marking purposes per 19 CFR § 102.11(a)(3). Brown rice is provided for in heading 1006 and wild rice is provided for in heading 1008, HTSUS. As previously noted, the red rice is also classified in Heading 1006, HTSUS, and the sprouting process renders the red rice, along with the wild and brown rice, “malt” of heading 1107, HTSUS. Because the finished “trio” mixture consists of 88% germinated grain, it is classifiable as malt of heading 1107, HTSUS, in accordance with GRI 3(b). The applicable rule for products classified in heading 1107, HTSUS, under 19 C.F.R. 102.20(d), Section II: Chapters 6 through 14, is as follows: 1107 A change to heading 1107 from any other chapter. Because the red and brown rice (“unsprouted”) are classified in heading 1006, HTSUS, and the wild rice (“unsprouted”) is classified in heading 1008, HTSUS, all three types of rice undergo the requisite tariff shift rule specified above, as a result of the sprouting process that will occur in Mexico. Accordingly, the Sprouted Rice Trio will be considered a good of Mexico and will be eligible for the NAFTA tariff preference. HOLDING: The red rice imported from Thailand and India will be substantially transformed as a result of the sprouting process that will take place in the United States. The importer, who performs the sprouting process is the ultimate purchaser, and the sprouted rice trio and its retail packages will be excepted from the country of origin marking requirements of 19 U.S.C. 1304. At importation only the outermost containers must be marked in accordance with 19 C.F.R. 134.35. Based upon the information presented, the sprouted trio rice imported from Mexico after being processed there will qualify for preferential tariff treatment under NAFTA. U.S. Customs and Border Protection NAFTA Regulations, 19 CFR 181.100 (a)(2), provide that each NAFTA ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of an advance ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the advance ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the advance ruling was based. If any of the facts are materially different or a condition has not been satisfied, the treatment specified in the advance ruling will not be applied to the actual transaction. A copy of this 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 Customs officer handling the transaction.    Sincerely,  Ieva K. O’Rourke Chief, Tariff Classification and Marking Branch