HQ 557480 - Eligibility of using first-in/first-out method of accounting in determining whether sugar products from Canada will qualify for the duty preference under the U.S.-Canada Free Trade Agreement - United States International Trade Commision Rulings

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HQ 557480

November 16, 1993

CLA-2 CO:R:C:S 557480 WAS

CATEGORY: CLASSIFICATION

Mr. Patrick E. Mines
P. Mines
52 Queen Street
P.O. Box 1197, Station B
Fort Erie, Ontario L2A 5Y2
Canada

RE: Eligibility of using first-in/first-out method of accounting in determining whether sugar products from Canada will qualify for the duty preference under the U.S.-Canada Free Trade Agreement

Dear Mr. Mines:

This is in reference to your letter dated July 12, 1993, on behalf of R.W. Patten Distributors. You ask whether the first-in/first-out method of accounting may be used in determining whether sugar products from Canada will qualify as "goods originating" in the U.S. and/or Canada pursuant to the U.S.-Canada Free Trade Agreement (CFTA).

FACTS:

You state that your client exports sugar from the U.S. to Canada. The sugar is refined in the U.S. from both foreign (third country) and U.S. domestic raw sugars. You claim that the origin of the sugar exported into Canada is tracked by the refiners on a "first-in/first-out" method of accounting, and that by using this method of accountability, those products deemed to have been made from domestic raw sugar can be determined. Thus, you claim that when the refined sugar deemed to be of U.S. origin by this method is used to make products which are subsequently shipped back to the U.S., all of the ingredients are either of U.S. or Canadian origin, and all of the processing has taken place either in the U.S. or in Canada. You believe that these products should be eligible for treatment under the CFTA.

ISSUE:

Whether sugar products from Canada made from commingled U.S., and third-country origin sugar qualify as "goods originating" in the U.S. and/or Canada and, therefore, are eligible for the duty preference under the CFTA upon return to the U.S.

LAW AND ANALYSIS:

General Note 3(c)(vii), Harmonized Tariff Schedule of the United States (HTSUS), sets forth the standards for the CFTA rules of origin for goods, and, therefore, the eligibility of goods to receive preferential duty treatment under the CFTA. Under the CFTA, an imported article is entitled to CFTA treatment only if it is an "originating" good. To be "originating" it must be either (1) wholly obtained or produced in the territory of Canada and/or the U.S., or (2) the goods must have been transformed in the territory of either party or both parties. Since in this case, the sugar is made with some third country-origin sugar, it is not considered goods "wholly obtained or produced in the territory of Canada and/or the U.S." as provided for in General Note 3(c)(vii)(B)(1), HTSUS. Therefore, the sugar must be "transformed in the territory of Canada and/ or the U.S." as provided in General Note 3(c)(vii)(B)(2), HTSUS.

A transformation is evident when a change in tariff classification occurs as prescribed by General Note 3(c)(vii)(R), HTSUS. General Note 3(c)(vii)(R)(4), HTSUS, sets forth the change in tariff classification rules for, among other things, sugar products classifiable in Chapter 17, HTSUS. Because the refining operation performed in the U.S. on the third-country sugar does not result in the required change in tariff classification, the refined foreign sugar would not be considered an "originating good" when exported to Canada. Moreover, if the refined sugar exported to Canada is a blend of U.S. and foreign sugar, none of the sugar would be considered "originating" at that point. Therefore, if the required change in tariff classification does not result when the refined sugar is made into sugar products in Canada, the returned products would not possess "originating good" status and would not qualify under the CFTA.

With an exception not relevant to your case, there is no authority in the CFTA or the implementing Customs regulations for use of a first-in/first-out inventory method for purposes of determining whether or not products qualify as "originating goods" under the CFTA.

HOLDING:

Based on the information presented, we are of the opinion that the sugar products from Canada which are made from commingled U.S. and third-country origin sugar are not considered "originating goods" for purposes of qualifying for a duty preference under the CFTA, unless the processing in Canada results in the change in tariff classification required by General Note 3(c)(vii)(R)(4), HTSUS.

Sincerely,

John Durant, Director

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