Application for Further Review of Protest No. 2304-16-100020; Tariff Classification and NAFTA Eligibility of Peanut-based Snack Products

HQ H304599 December 11, 2020 OT:RR:CTF:FTM H304599 TJS/KF CATEGORY: Classification; Entry TARIFF NO.: 1704.90.35; 2008.11.60 Port Director Port of Laredo U.S. Customs and Border Protection P.O. Box 3130 Laredo, TX 78044-3130 Attn: Jeffrey Hammel, Supervisory Entry Specialist RE: Application for Further Review of Protest No. 2304-16-100020; Tariff Classification and NAFTA Eligibility of Peanut-based Snack Products Dear Port Director: This is in response to the Application for Further Review (“AFR”) of Protest No. 2304-16-100020, filed on March 3, 2016, by Lawrence W. Hanson, on behalf of importer Internacional de Productos y Semillas, S.A. de C.V. (“IPS” or “Protestant”), concerning certain peanut-based snack products. Specifically, at issue are the products’ liquidation and reliquidation, tariff classification under the Harmonized Tariff Schedule of the United States (“HTSUS”), and eligibility for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”). Our decision is set forth below. FACTS: IPS manufactures snacks and candies for domestic and international sale. In 2013, IPS imported various peanut-based snack products. This AFR concerns 28 entries of certain products, which are identified in the table below: Table A Entry No. Entry Date Extension Date Liquidation Date Reliquidation Date  xxx-xxxxx9114 Jan. 15, 2013 N/A Nov. 29, 2013 Sept. 11, 2015  xxx-xxxxx2522 Jan. 31, 2013 N/A Dec. 13, 2013 Sept. 11, 2015  xxx-xxxxx4510 Feb. 11, 2013 N/A Dec. 27, 2013 Sept. 11, 2015  xxx-xxxxx9436 Mar. 6, 2013 N/A Jan. 17, 2014 Sept. 11, 2015  xxx-xxxxx4238 Mar. 29, 2013 N/A Feb. 7, 2014 Sept. 11, 2015  xxx-xxxxx5755 Apr. 5, 2013 N/A Feb. 14, 2014 Sept. 11, 2015  xxx-xxxxx7306 Apr. 12, 2013 N/A May 8, 2015 Sept. 11, 2015  xxx-xxxxx9120 Apr. 19, 2013 N/A Feb. 28, 2014 Sept. 11, 2015  xxx-xxxxx4823 May 13, 2013 Apr. 17, 2014 Apr. 24, 2015 Sept. 11, 2015  xxx-xxxxx8824 June 4, 2013 Apr. 17, 2014 Apr. 24, 2014 Sept. 11, 2015  xxx-xxxxx1398 June 15, 2013 Apr. 17, 2014 Apr. 24, 2015 Sept. 11, 2015  xxx-xxxxx3154 June 25, 2013 Apr. 17, 2014 Apr. 24, 2015 Sept. 11, 2015  xxx-xxxxx6256 July 11, 2013 Apr. 17, 2014 Apr. 24, 2015 Sept. 11, 2015  xxx-xxxxx7643 July 19, 2013 Apr. 17, 2014 Apr. 24, 2015 Sept. 11, 2015  xxx-xxxxx9201 July 30, 2013 Apr. 17, 2014 Apr. 24, 2015 Sept. 11, 2015  xxx-xxxxx1338 Aug. 14, 2013 Apr. 17, 2014 May 22, 2015 Sept. 11, 2015  xxx-xxxxx2328 Aug. 20, 2013 June 3, 2014 May 22, 2015 Sept. 11, 2015  xxx-xxxxx2336 Aug. 20, 2013 June 3, 2014 May 22, 2015 Sept. 11, 2015  xxx-xxxxx3946 Aug. 30, 2013 June 3, 2014 May 22, 2015 Sept. 11, 2015  xxx-xxxxx7236 Sept. 20, 2013 June 3, 2014 June 26, 2015 Sept. 11, 2015  xxx-xxxxx8440 Sept. 27, 2013 June 3, 2014 June 26, 2015 Sept. 11, 2015  xxx-xxxxx4661 Oct. 30, 2013 July 8, 2014 July 24, 2015 Sept. 11, 2015  xxx-xxxxx4679 Oct. 30, 2013 July 8, 2014 July 24, 2015 Sept. 11, 2015  xxx-xxxxx6302 Nov. 8, 2013 Aug. 4, 2014 Sept. 11, 2015 N/A  xxx-xxxxx0726 Dec. 4, 2013 N/A May 8, 2015 Sept. 11, 2015  xxx-xxxxx2219 Dec. 13, 2013 Sept. 15, 2014 Sept. 11, 2015 N/A  xxx-xxxxx3498 Dec. 20, 2013 Sept. 15, 2014 Sept. 11, 2015 N/A  xxx-xxxxx3993 Dec. 23, 2013 Sept. 15, 2014 Sept. 11, 2015 N/A   IPS filed the above entries with a claim for preferential tariff treatment under the NAFTA. U.S. Customs and Border Protection (“CBP”) sought to verify the NAFTA eligibility of the entries, and requested supporting documentation to substantiate the alleged country of origin for the entered merchandise. In the course of conducting this verification, CBP extended the liquidation deadline for 19 out of the 28 protested entries. Prior to the verification process concluding, 24 entries were automatically liquidated at the preferential tariff rates claimed by IPS. These 24 entries were liquidated before September 11, 2015, as noted above in Table A.  Upon completing its review of the NAFTA Certificates of Origin and samples provided by IPS, CBP determined that IPS could not substantiate the NAFTA eligibility of the entered merchandise. Accordingly, on September 11, 2015, CBP liquidated 4, and reliquidated 24, of the 28 protested entries without preferential tariff treatment. We note that only the entries pertaining to the snack mixes, fried peanuts, roasted peanuts, and Japanese-style peanuts were denied NAFTA preferential tariff treatment. IPS asserts that CBP’s actions on September 11, 2015, were improper because IPS did not receive a notice extending the one-year liquidation deadline for any of the 28 protested entries. Consequently, IPS contends that several of entries were deemed liquidated by operation of law upon the expiry of their liquidation deadline. IPS also contends that none of the reliquidations were timely, because they occurred outside of CBP’s 90-day deadline to voluntarily reliquidate an entry. IPS’ contentions thus hinge on whether extension notices were in fact issued, and whether CBP timely acted prior to the statutory (re)liquidation deadline applicable to each entry. On March 3, 2016, IPS filed the present protest based on its contentions. On July 14, 2016, the Port of Laredo denied the protest, and denied IPS’ request for further review. Although the port did not retain physical copies of the extension notices issued to IPS, the dates of issuance listed in Table A were recorded in CBP’s Automated Commercial System (“ACS”) database. The port also reiterated that IPS failed to substantiate its NAFTA preference claims by the documentation provided. On August 8, 2016, IPS requested that our office set aside the port’s denial of further review. Our office granted this request on October 7, 2016. We now address the documentation provided by IPS concerning the NAFTA eligibility of the subject merchandise. IPS has a manufacturing facility located in Mexico and a receiving facility in Texas. Protestant alleges that nearly all of the raw peanuts used in its peanut-based products are sourced from a select group of Mexican and U.S. suppliers. The raw peanuts are purchased in various forms including whole peanuts in their shell, shelled whole peanuts in their skin, shelled and skinned whole peanuts, and shelled and skinned halved peanuts. The merchandise under protest consists of two snack mixes, roasted peanuts, fried peanuts, Japanese-style peanuts, and one confection. The first snack mix is referred to as “Super Cantinero,” although IPS manufactures it for a variety of customers under several brand names. Super Cantinero contains fried peanuts, corn chips, garlic, chilies, oils, seeds, and seasonings, which are all manufactured and blended at IPS’ facility in Mexico. IPS fries the shelled peanuts, cuts and fries corn tortillas to make the corn chips, fries the garlic and chili pieces, and blends the mix with various spices. The second snack mix, generally referred to as “Party Mix,” includes two types of peanuts and fried, flavored corn meal sticks. This mix consists specifically of Virginia-style peanuts, which are shelled peanuts, fried with the paper-like skin on. At its facility in Mexico, IPS fries and salts the peanuts, blends the corn meal mix to create the corn sticks, and then fries and seasons the corn sticks before blending and seasoning all the components to complete the mix. After the Super Cantinero and Party Mix are mixed, they are weighed, packaged, and tested for quality and consistency. Both mixes are packaged in a variety of ingredient combinations, weights, and sizes in sealed plastic bags ready for retail sale. IPS provided a sample of each snack mix to CBP in retail package form, but CBP indicated that the mixes were imported in bulk. IPS manufactures a variety of roasted or fried seasoned peanut products that consist exclusively of peanuts. Protestant indicated that these products are manufactured from raw peanuts supplied to IPS from a variety of Mexican suppliers. The raw peanuts arrive at the IPS facility either shelled or still in the shell. Depending on the product being prepared, the peanuts are fried in oil or oven roasted, and then blended with salt and seasonings. The finished products are then packaged either in bulk packaging or for individual sale, checked for quality control and contaminants, and prepared for shipping. Protestant indicates that IPS used Mexican-origin runner-style peanuts for the roasted and fried peanuts because they are best suited for the manufacturing process. However, Protestant’s submission includes photos of runner-style peanuts in bulk from both Mexican and U.S. suppliers. To prove that the peanuts in these products originated in Mexico, Protestant provided documentation comparing IPS’ inventory of Mexican-origin raw peanuts to the exports to the United States, asserting that the short turn-around of raw peanuts within IPS’ manufacturing facility demonstrates that the exported products were manufactured from Mexican peanuts on-hand in warehouse inventory. Protestant provided a spreadsheet with information derived from purchase orders, invoices, inventory records, and export documents, showing IPS’ inventory of raw peanuts from Mexican suppliers and exports of roasted and fried seasoned peanuts to the United States. Japanese-style peanuts are peanuts with a baked-on coating of flour, honey, and seasoning. IPS purchases these Japanese-style peanuts in bulk from multiple suppliers based in Mexico, inspects them for quality, and then exports them to the United States in boxes and/or bags of approximately ten kilos. Protestant provided declarations from several Japanese-style peanut vendors in Mexico, and provided a NAFTA Certificate of Origin for Japanese-style peanuts, which covered a blanket period in 2012. During a meeting with CBP in August 2014, IPS suggested that one Mexican supplier may have sourced some peanuts from Nicaragua. The sugar-based, peanut-flavored confection is the Palanqueta bar, which consists of a mixture of peanuts, pumpkin seeds, sesame seeds, raisins, various sugars, margarine, lecithin, and citric acid. At IPS’ facility in Mexico, the raw ingredients are cooked, seasoned, and blended with the remaining ingredients. The mixture is then rolled out, cut into candy-bar shaped pieces, wrapped, and packaged for retail sale. Protestant disputes the tariff classification of the snack mixes and the Palanqueta bar and the denial of NAFTA preferential tariff treatment. The snack mixes, roasted and fried peanuts, and Japanese-style peanuts were liquidated as entered under subheading 2008.11.6000, Harmonized Tariff Schedule of the United States Annotated (“HTSUSA”), which provides for “Fruit, nuts and other edible parts of plants, otherwise prepared or preserved, whether or not containing added sugar or other sweetening matter or spirit, not elsewhere specified or included: Nuts, peanuts (ground-nuts) and other seeds, whether or not mixed together: Peanuts (ground-nuts): Other: Other.” The Palanqueta bar was liquidated as entered under subheading 1704.90.1000, HTSUSA, which provides for “Sugar confectionery (including white chocolate), not containing cocoa: Other: Confections or sweetmeats ready for consumption: Candied nuts.” ISSUES: Whether the protest entries were timely liquidated and reliquidated. What is the tariff classification of the snack mixes and Palanqueta bar under the HTSUSA? Whether the peanut-based products qualify for preferential tariff treatment under the NAFTA. LAW AND ANALYSIS: Whether the protest entries were timely liquidated and reliquidated. IPS contends that several of the protested entries were deemed liquidated, because IPS failed to receive notices extending the deadline for liquidation. Consequently, IPS contends the entries were untimely reliquidated after the expiry of CBP’s statutory deadline for voluntary reliquidation. We address the notice, liquidation, and reliquidation of the entries in turn. The statutory deadline for CBP to liquidate an entry, absent suspension of liquidation or extension, is “within 1 year from the date of entry.” 19 U.S.C. § 1504(a)(1)(A); see also 19 C.F.R. § 159.11(a). Failure to comply with this statutory deadline results in the entries’ deemed liquidation “at the rate of duty, value, quantity, and amount of duties asserted by the importer of record” on the entry documents filed with CBP. Id. As no suspension of liquidation is relevant to the protested entries, CBP could only extend the liquidation deadline for the protested entries through the issuance of an extension. IPS asserts that no notice of extension was ever issued or received for any of the 28 protested entries. A valid extension of the deadline for liquidation, pursuant to the prior iteration of 19 U.S.C. § 1504(b) in effect at the time of the subject entries, required timely “notice to the importer, his consignee, or agent.” Enron Oil Trading & Transp. Co. v. United States, 15 C.I.T. 511, 512 (1991) (hereinafter Enron). The corresponding customs regulation “in turn provide[d] for notice ‘on Customs Form 4333-A, … [stating] that the time [for liquidation] has been extended and the reasons for doing so.’ 19 C.F.R. § 159.12(b) (1991).” Id. Such notice is timely if given prior to the expiry of the one-year statutory deadline for liquidation under 19 U.S.C. § 1504. Notice serves to extend the liquidation deadline for no more than a year. See Headquarters Ruling Letter (“HQ”) 226631 (Jan. 23, 1997) (quoting 19 C.F.R. § 159.12). Additional extension notices may subsequently be issued, extending the liquidation deadline for a total of four years from the date of entry. Id. Timely issuance of notice may be established from copies of the actual notices issued, or, in circumstances where neither copies nor the original records still exist, from the date of notice recorded in CBP’s databases. See HQ 225027 (June 14, 1994) (noting that in Enron “Customs did not maintain paper copies of extension notices, but stored information relating to notices in a computerized history file” which evidenced the dates of issuance). CBP is also accorded a rebuttable presumption that it issued timely notices of extension, arising from the presumption of regularity which attaches to official Government acts. Peg Bandage v. United States, 17 C.I.T. 1337, 1340-1341 (1993) (“the government is accorded a presumption of regularity that attaches to Customs' recordkeeping”); Frontier Ins. Co. v. United States, 25 C.I.T. 717, 726 (2001) (“Frontier”); Intra-Mar Shipping Corp. v. United States, 66 Cust. Ct. 3, 6 (1971). In Frontier, a similar circumstance arose to the present protest - a surety challenged CBP’s liquidation of several entries at a higher duty rate than asserted by the importer, contending the entries were deemed liquidated due to CBP’s failure to properly effect notices extending the deadline for liquidation. Although CBP did “not retain a hard copy of the notices, [it asserted they we]re regularly mailed within a day of printing each week and … retain[ed] a printout indicating when and to what address notices of extension are mailed.” 25 C.I.T. 717 at 727. The Court of International Trade stressed that, as applied to the issuance of notice, the presumption of regularity accorded to the duties discharged by CBP served to substantiate “that notice was given in accordance with statutory and regulatory requirements, and the presumption of delivery.” Id. at 727. Due to the printout CBP provided, indicating the date on which notice was issued, the court concluded that the surety failed to rebut this presumption of regularity by merely asserting without evidence that delivery never occurred. Rebuttal required “proof of non-receipt” from the surety. Id. (citing A.N. Deringer, Inc. v. United States, 20 C.I.T. 978, 993 (1996)). CBP may therefore properly rely on the dates of notice recorded in ACS to establish that it timely extended the deadline to liquidate the protested entries. The evidentiary burden therefore rests on IPS to prove that it failed to receive the notices, but IPS has provided no such evidence. We consequently find that CBP has timely issued notices extending the liquidation deadline for 19 of the 28 protested entries. The dates on which CBP issued notices of extension for 19 entries are recorded in ACS, and listed in Table A. Upon reviewing these dates, we find that all 19 notices were timely issued within a year from the date of entry. See 19 C.F.R. § 159.12(a)(1)(i) (1991). CBP’s statutory deadline to liquidate these 19 entries was thereby properly extended for an additional year from the date of entry. The resulting liquidation deadlines applicable to the 28 protested entries are listed below in Table B. The nine entries for which notices of extension were not issued are denoted with an asterisk. Table B Entry No. Liq. Deadline Liq. Date Reliq. Deadline Reliq. Date  xxx-xxxxx9114* Jan. 15, 2014 Nov. 29, 2013 Feb. 27, 2014 Sept. 11, 2015  xxx-xxxxx2522* Jan. 31, 2014 Dec. 13, 2013 Ma. 13, 2014 Sept. 11, 2015  xxx-xxxxx4510* Feb. 11, 2014 Dec. 27, 2013 Mar. 27, 2014 Sept. 11, 2015  xxx-xxxxx9436* Mar. 6, 2014 Jan. 17, 2014 Apr. 17, 2014 Sept. 11, 2015  xxx-xxxxx4238* Mar. 29, 2014 Feb. 7, 2014 May 8, 2014 Sept. 11, 2015  xxx-xxxxx5755* Apr. 5, 2014 Feb. 14, 2014 May 14, 2014 Sept. 11, 2015  xxx-xxxxx7306* Apr. 12, 2014 May 8, 2015 Not Established Sept. 11, 2015  xxx-xxxxx9120* Apr. 19, 2014 Feb. 28, 2014 May 28, 2014 Sept. 11, 2015  xxx-xxxxx4823 May 13, 2015 Ap. 24, 2015 July 23, 2015 Sept. 11, 2015  xxx-xxxxx8824 June 4, 2015 Apr. 24, 2015 July 23, 2015 Sept. 11, 2015  xxx-xxxxx1398 June 15, 2015 Apr. 24, 2015 July 23, 2015 Sept. 11, 2015