HQ 0954722 - Classification of sweetened cocoa powder in 1806, HTSUS, as chocolate and other food preparations containing cocoa; Tariff Preferences under CFTA for flavored beverage mixes and sweetened cocoa powder; General Notes 3(c)(vii)(B), - United States International Trade Commision Rulings

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HQ 954722

March 11, 1994

CLA-2 CO:R:C:F 954722 LPF

CATEGORY: CLASSIFICATION

TARIFF NOS.: 1806.10.41; 1806.10.42

Mr. Robert V. Tinkham
Chicago Sweeteners, Inc.
37 Hillside Avenue
Hillside, IL 60162

RE: Classification of sweetened cocoa powder in 1806, HTSUS, as chocolate and other food preparations containing cocoa; Tariff Preferences under CFTA for flavored beverage mixes and sweetened cocoa powder; General Notes 3(c)(vii)(B),

Dear Mr. Tinkham:

This is in response to your letters of March 29, 1993 and July 26, 1993, regarding the proper classification under the Harmonized Tariff Schedule of the United States (HTSUS), as well as the applicability of the United States-Canada Free Trade Agreement (CFTA), to flavored beverage mixes and sweetened cocoa powder. We regret the delay in responding to your inquiry. Because the Department of Agriculture has requested that we refrain from issuing rulings regarding the application of certain quotas established pursuant to Section 22 of the Agricultural Adjustment Act, this ruling will not provide the HTSUS classification for the flavored beverage mixes.

FACTS:

The flavored beverage mixes contain 95 percent refined sugar and 5 percent other ingredients. The sugar is raw sugar from Australia which will be refined in Canada. The other ingredients, which we assume consist of various flavorings, colorings, etc. are of U.S. origin and will be combined with the sugar in Canada.

The sweetened cocoa powder contains between 90 and 94 percent refined sugar and 6 to 10 percent cocoa powder. It is our understanding that the product will be manufactured from sugar purchased from Canada or elsewhere and refined in Canada or the U.S. It will also be manufactured from cocoa powder purchased in the U.S. or elsewhere. The product will be blended and manufactured in Canada and then exported to the U.S. in 50, 100, or 2000 pound bags.

ISSUE:

Whether the sweetened cocoa powder is classifiable in heading 1806 as chocolate and other food preparations containing cocoa or is classifiable elsewhere in the HTSUS; and whether the flavored beverage mixes and sweetened cocoa powder may be considered "goods originating in Canada" for purposes of the United States - Canada Free Trade Agreement (CFTA) and, thus, are eligible for preferential tariff treatment.

LAW AND ANALYSIS:

Tariff Classification

The General Rules of Interpretation (GRIs) taken in their appropriate order provide a framework for classification of merchandise under the HTSUS. Most imported goods are classified by application of GRI 1, that is, according to the terms of the headings of the tariff schedule and any relative section or chapter notes. The Explanatory Notes (ENs) to the Harmonized Commodity Description and Coding System, which represent the official interpretation of the tariff at the international level, facilitate classification under the HTSUS by offering guidance in understanding the scope of the headings and GRIs.

Heading 1806 provides for chocolate and other food preparations containing cocoa. The ENs to 1806 indicate that the heading includes:

...all sugar confectionery containing cocoa in any proportion (including chocolate nougat), sweetened cocoa powder, chocolate powder, chocolate spreads, and, in general, all food preparations containing cocoa....

Accordingly, the sweetened cocoa powder is classifiable in heading 1806. At the six digit subheading level, the product is classifiable in 1806.10 which provides for cocoa powder. Insofar as the product is described in, and entered pursuant to, Additional U.S. Note 3(a) and 3(b) to Chapter 17 (Notes 3(a) and 3(b)), it is classifiable in subheading 1806.10.41. If the product is not entered pursuant to Notes 3(a) and 3(b), it is classifiable in subheading 1806.10.42.

United States - Canada Free Trade Agreement

Articles which are imported from Canada may be entitled to certain tariff preferences under the United States - Canada Free Trade Agreement (CFTA) if the articles are "originating goods" as defined by General Note 3(c)(vii)(B), HTSUS. There are two
means in General Note 3(c)(vii)(B) by which articles imported into the United States may be "goods originating in the territory of Canada." General Note 3(c)(vii)(B)(1) provides for goods "wholly obtained or produced in the territory of Canada and/or United States." General Note 3(c)(vii)(B)(2) provides for goods "transformed in the territory of Canada and/or the United States."

A product which is "wholly obtained or produced in the territory of Canada and/or the United States" is defined, in part, in General Note 3(c)(vii)(L) as one which is grown, mined, harvested, born and raised in Canada and/or the United States. If all the ingredients of the flavored beverage mixes and sweetened cocoa powder are wholly obtained or produced in Canada and/or the U.S., the merchandise will qualify as "originating goods" under General Note 3(c)(vii)(B)(1).

However, in the case of the flavored beverage mixes, you submit that even if the merchandise does not qualify as "originating goods" under General Note 3(c)(vii)(B)(1) that the flavored beverage mixes would qualify under General Note 3(c)(vii)(H)(1) and the sweetened cocoa powder would qualify under General Note

In regard to the flavored beverage mixes, General Note 3(c)(vii)(H) grants "originating goods" status to certain merchandise if the value of Canadian and/or U.S. materials plus the direct costs of processing performed in Canada and/or the U.S. equals at least 50% of the appraised value of the completed goods. However, there are only two types of goods covered by this provision. The first consists of articles which are imported into Canada in an unassembled or disassembled form in accordance with GRI 2(a), HTSUS. General Note 3(c)(vii)(G)(1). The second type of goods consists of those covered by tariff provisions which provide for both the goods themselves and their parts. General

Because the beverage mixes do not enter Canada in an unassembled or disassembled condition in accordance with GRI 2(a), HTSUS, and because the appropriate HTSUS heading for the beverage mixes does not provide for parts, the flavored beverage mixes at issue are not the type of good which may be considered "originating goods" by application of the 50% value content criteria.

In regard to the sweetened cocoa powder, the merchandise may become an "originating good" if it is transformed in Canada and/or the U.S. in accordance with General Note 3(c)(vii)(B)(2). A transformation is evident when a change in tariff
classification occurs that is authorized by General Note 3(c)(vii)(R). In this instance, assuming the ingredients are sourced from other than Canada or the U.S., the sugar and cocoa powder imported into the U.S. and/or Canada are classified within headings 1701 and 1805, respectively. General Note 3(c)(vii)(R)(4)(cc) provides that a transformation into "originating goods" occurs if there is a change in tariff classification to heading 1806 from any other heading. As discussed above, the sweetened cocoa powder is classifiable within heading 1806.

We note, however, that General Note 3(c)(vii)(C)(1), which is a reiteration of section 301(3)(a) of the CFTA, provides that:

(C) Goods shall not be considered to originate in the territory of Canada pursuant to subdivision (c)(vii)(B)(2) merely by virtue of having undergone--

(1) simple packaging or, except as expressly provided by the rules of subdivision (c)(vii)(R) of this note, combining operations,....

Although the terms "packaging" and "combining" are not defined in the CFTA, there is, however, a reference in the legislative history as to the manner in which the 3(c)(vii)(C)(1) prohibition is interpreted. The prohibition was discussed in the Statement of Administrative Action which accompanied the implementing bill submitted to Congress. House Document 100-216, 100th Congress, 2nd Session, page 175 (July 26, 1988), provides that the prohibition of Article 301(3)(a) and (b) will be applied in the same manner as under the Generalized System of Preferences (GSP) and the Caribbean Basin Initiative (CBI) programs. In this regard, we note that under the Customs Regulations which implemented the CBI, a simple combining operation does not qualify goods for treatment under CBI. See section 10.195, Customs Regulations (19 CFR 10.195).

HOLDING:

The sweetened cocoa powder, entered pursuant to Notes 3(a) and 3(b) is classifiable in subheading 1806.10.41. The general column one rate of duty is 1.4606 cents per kilogram less 0.020668 cents per kilogram for each degree under 100 degrees (and fractions of a degree in proportion) but not less than 0.943854 cents.

If not entered pursuant to Notes 3(a) and 3(b), the sweetened cocoa powder is classifiable in subheading 1806.10.42. The general column one rate of duty is 37.386 cents per kilogram less

0.529 cents per kilogram for each degree under 100 degrees (and fractions of a degree in proportion) but not less than 24.161 cents per kilogram.

If all the ingredients of the flavored beverage mixes and sweetened cocoa powder are "originating materials" of the U.S. or Canada, the merchandise will qualify as "originating goods" under General Note 3(c)(vii)(B)(1) and will be entitled to preferential tariff treatment under the CFTA.

Because the flavored beverage mixes at issue are not the type of good which may be considered "originating goods" by application of the 50% value content criteria pursuant to General Note 3(c)(vii)(H), they are not afforded "originating good" status pursuant to General Note 3(c)(vii)(H).

In accordance with Presidential Proclamation 6641, on January 1, 1994 the North American Free Trade Agreement (NAFTA) became effective thereby suspending the CFTA. Advance rulings specifically may be requested with respect to prospective, current, and ongoing NAFTA transactions from the Office of Regulations and Rulings or the Area Director of Customs, New York Seaport. In this regard, it is suggested that you consult the procedures relating to advance NAFTA rulings in interim regulations 19 C.F.R. 181, Subpart I, as published in the Federal Register of December 30, 1993.

Sincerely,

John Durant, Director

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