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HQ 555815


March 15, 1991

CLA-2 CO:R:C:S 555815 KCC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.10 - 9802.00.50

Mr. Ross S. Green
Kraft General Foods Canada Inc.
C.P./P.O. Box 6118
Montreal, Quebec H3C 3J3

RE: Powder cheddar cheese spray dried and mixed with salt and emulsifiers in Canada.Advance in value; improve in condition; 054825; alteration; new and commercially different article; 553080; 555519; 060915; 071041; 071207

Dear Mr. Green:

This is in response to your letter dated December 7, 1990, requesting a ruling concerning the applicability of subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), to powder cheddar cheese imported from Canada.

FACTS:

Kraft intends to ship U.S.-manufactured cheddar cheese to Canada in 500 pound containers. In Canada, the cheddar cheese will be spray dried into a powder form and then mixed with salts and emulsifiers. Upon completion of foreign operations, the powder cheddar cheese will be returned to the U.S.

ISSUE:

Whether the powder cheddar cheese will qualify for the duty exemption available under subheading 9801.00.10 and subheading 9802.00.50, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

Subheading 9801.00.10, HTSUS, provides for duty-free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by a process of manufacture or any other means while abroad. Articles satisfying the above conditions of the statute will be afforded duty-free treatment, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. Some change in the condition of the product while it is abroad is permissible, However, operations which either advance the value or improve the condition of the exported product render it ineligible for duty- free entry upon return to the U.S. See, Border Brokerage Company Inc. v. United States, 65 Cust.Ct. 50, C.D. 4052, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).

We have previously held that drying food articles into a powder form changes the basic characteristics of the exported article. Therefore, the powder article entering the U.S. will not be eligible for the duty exemption available under subheading 9801.00.10, HTSUS. See, Headquarters Ruling Letter (HRL) 054825 dated February 27, 1978, which held that reducing liquid egg whites to powder in Canada disqualifies the powder egg whites from the duty exemption available under item 800.00, Tariff Schedules of the United States (TSUS) (the precursor provision to subheading 9801.00.10, HTSUS).

We are of the opinion that spray drying the cheddar cheese into a powder form and then mixing the powder with salt and emulsifiers advances in value and improves in condition the exported U.S. cheddar cheese. U.S. cheddar cheese is exported to Canada and a new and different commercial article--powder cheddar cheese--is returned to the U.S. Additionally, we have held that combining ingredients together establishes a new product, as the identity of each ingredient is lost and merged into a new marketable product, having its own commercial identity and use. See, HRL 553080 dated November 15, 1984 (adding sugar to prepared cocktail mix concentrate precludes the concentrate from qualifying for the duty exemption available under item 800.00, TSUS), and HRL 555519 dated March 12, 1990 (combining different rices into a pouch, combining dehydrated vegetables and seasonings into a pouch, and then packaging the two pouches together advances in value and improves in condition the U.S. ingredients).

Additionally, the powder cheddar cheese will not be eligible for classification under subheading 9802.00.50, HTSUS, which provides for the assessment of duty on the value of repairs or alterations performed on articles returned to the U.S. after having been exported for that purpose. The application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See, A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'd, C.D. 1752, 36 Cust.Ct. 46 (1956); and Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (Jan. 5, 1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. See, Dolliff & Company, Inc. v. United States, 81 Cust.Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979).

As stated in our previous analysis, the foreign operations destroy the identity of the U.S. cheddar cheese, thereby creating a new and commercially different article--powder cheddar cheese. Presumably, the exported and imported cheeses are offered for sale and sold in different commercial markets to different classes of buyers. The changes are not only significant in the form of the cheddar cheese but also in the subsequent handling and uses of the powder cheddar cheese as compared to the handling and uses of the solid cheddar cheese. See, HRL 054825 which held that reducing liquid egg whites to a powder form in Canada creates a new and commercially different article, since the article being imported is powder eggs.

Moreover, mixing the powder cheddar cheese with salt and emulsifiers also produces a new and commercially different article beyond the alterations contemplated within this tariff provision. See, HRL 060915 dated October 5, 1979 (reconstituting orange juice renders the product ineligible for item 806.20, TSUS (the precursor provision to subheading 9802.00.50, HTSUS), treatment, as the exported product is not the same product returned to the U.S.); HRL 071041 dated November 23, 1982, and HRL 071207 dated August 2, 1983 (dehydrating a chemical product is the last step in the manufacturing process of the dried chemical, whereby a new and commercially different product is created which does not qualify for item 806.20, TSUS, treatment).

HOLDING:

Based on the prior rulings and the information submitted, it is our opinion that the cheddar cheese will be advanced in value and improved in condition abroad, and, therefore, tariff treatment of the powder cheddar cheese under subheading 9801.00.10, HTSUS, is precluded. Additionally, the foreign drying and mixing operation creates a new and commercially different article, thereby excluding the powder cheddar cheese from the partial duty exemption available under subheading 9802.00.50, HTSUS.

Accordingly, the powder cheddar cheese will be dutiable on its full value under the appropriate tariff provision.

Sincerely,

John Durant, Director
Commercial Rulings Division

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