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HQ 557633




February 10, 1994

CLA-2 CO:R:C:S 557633 WAS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Mr. Robert A. Barton
Jolina Foods USA, Inc.
P.O. Box 242
Richmond, VT 05477

RE: Reconsideration of HRL 557395; concerning the applicability of the partial duty exemption available under subheading 9802.00.50, HTSUS, to mozzarella cheese from Canada; shredding; slicing; dicing; cutting; 554654; 555462; 555174; 554736; T.D. 70-49(1)

Dear Mr. Barton:

This is in response to your request for reconsideration of Headquarters Ruling Letter (HRL) 557395 dated September 17, 1993, concerning the applicability of the partial duty exemption available under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to mozzarella cheese which is sent to Canada for processing. In HRL 557395, we found that shredding the cheese in block form is a process which exceeds the scope of the term "alteration" for purposes of subheading 9802.00.50, HTSUS, and therefore, the cheese was not entitled to a partial duty exemption upon return to the U.S.

FACTS:

You state that you intend to ship mozzarella cheese which is produced in Richmond, Vermont from 100 percent U.S.-origin milk to Quebec, Canada, where it will be shredded and repackaged. You state that the cheese will be sent to Quebec in blocks weighing approximately 5.2 pounds. The blocks will be either wrapped singularly or four to a package. The film used to package the cheese labels the product "mozzarella cheese." You state that the cheese will be sent to Saputo Cheese, St. Leonard, Quebec. You also state that in Canada there will be no sale of the product; Saputo Cheese will charge Richmond Cheese approximately $0.10 per pound for labor and packaging. In Canada, the processing operations consist of: (1) removing the plastic film and putting the blocks of cheese directly into a shredding machine; (2) adding a small amount of anti-caking agent to the cheese to prevent clumping; (3) packaging the cheese in plastic film, and shipping it to the U.S.

In support of your position that the returned cheese is eligible for the partial duty exemption under subheading 9802.00.50, you state the following:

There will be absolutely no chemical change to the cheese due to the shredding and packaging in Canada. There will be no need to clean, trim or do anything else to the cheese to make it suitable for use as a pizza topping. The only thing added to the cheese will be the anti-caking agent which does not alter the characteristics of the cheese in any way. Essentially, only the size of the cheese is changed. It will leave the United States in 5.2 pound blocks and come back into the United States in smaller shredded pieces. The use of the cheese does not change. The block cheese exported to Canada is used as a pizza topping as is the shredded cheese brought back to the United States. The purchaser of the shredded cheese is the same type of customer to whom we sell block mozzarella cheese; a pizza shop or a distributor who sells mozzarella cheese to pizza shops.

ISSUE:

Whether cheese exported to Canada where it is shredded and repackaged is entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Such articles are dutiable only upon the value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. However, entitlement to this tariff treatment 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); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing. Guardian; 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, 82, 599 F.2d 1015, 119 (1979).
We have previously held that certain types of cutting or slicing operations abroad preclude application of item 806.20, Tariff Schedules of the United States (TSUS) (the precursor to subheading 9802.00.50, HTSUS). For instance, in HRL 071399 dated July 19, 1983, we found that frozen fish fillets which have been caught by U.S. flag fishing boats and sent to Korea and China, where they are cut into three pieces, wrapped in plastic, and boxed, before being returned to the U.S., constitutes "more than an alteration." In using the factors set forth by the court in A.F. Burstrom v. United States, C.A.D. 631 (1956), we stated in that case that the fish slices created overseas differed in name, value, appearance, size, and shape, and therefore, were not within the purview of the provision for alterations. In another case, T.D. 66-144(2), we held that fruits and vegetables exported, and while abroad, washed, grated, and in some instances cut and packaged, were not classifiable under either item 800.00, TSUS, or item 806.20, TSUS. T.D. 70-49(1) involved U.S.-origin mushrooms which were exported in bulk to Canada where they were cleaned, treated with an anti-oxidant solution, rinsed, frozen, and packaged in bulk boxes or bags. We held that they were entitled to entry under item 806.20, TSUS. However, we stated that mushrooms which were cut during the same process, or packaged in retail containers were precluded from item 806.20, TSUS.

In a case involving slicing of fruit abroad, we held that the slicing of peaches exceeds the scope of the term "alteration" under item 806.20, TSUS. See HRL 554654 dated July 28, 1987. In HRL 554654, we stated that the slicing of exported whole peaches, including removal of the pits and skins, not only destroys the identity of the exported peaches but results in new articles of commerce, more suitable and better adapted not only for ice cream but other industries as well. In addition, we held in HRL 555462 dated September 11, 1989, that dicing and individually quick-freezing apples abroad does not constitute an acceptable alteration for purposes of subheading 9802.00.50, HTSUS. In that case, we stated that the dicing of apples resulted in new and different commercial articles having uses different from those of whole apples. See also HRL 555174 dated April 25, 1989 (where continuous rolls of decorative banner material, measuring approximately 140 feet in length, were exported to Mexico and cut there to shorter lengths of approximately 32 inches for retail sale, the cutting operation was found to exceed an alteration within the meaning of subheading 9802.00.50, HTSUS, because it constituted a finishing step in the manufacture of the completed decorative banners); HRL 554736 dated February 16, 1988 (where facial tissue paper was to be exported to Mexico in rolls for cutting to length, folding, and packaging for retail sale, the cutting operation constituted a finishing step in the manufacture of a usable facial tissue product and was, therefore, not an alteration within the meaning of item 806.20, TSUS.)

Based on the reasoning set forth in the above-referenced cases, we find that the mozzarella cheese exported to Canada is not a completed article as it is not in a condition suitable for its intended use prior to the foreign processing operations. The shredding operation performed in this case is similar to those cases in which we found that cutting operations performed abroad (e.g.., cutting frozen fillets, mushrooms, peaches, etc.) exceeds the scope of the term "alterations" under subheading 9802.00.50, HTSUS. The foreign operations which entail shredding the cheese, adding an anti-oxidant ingredient and repackaging, are more than simple packaging operations. Instead, these operations constitute necessary finishing steps in the total manufacturing process of the finished article (i.e., shredded mozzarella cheese), which is begun in the U.S. Even though you state that the block cheese may be sold to the same customers as the shredded cheese, the cheese in block form must still undergo a shredding operation before it is suitable for its intended use as a pizza topping. Therefore, the operations performed in Canada cannot be considered proper "alterations" and the returned shredded mozzarella cheese will not be eligible for the partial duty exemption available under subheading 9802.00.50, HTSUS, when returned to the U.S.

In support of your position, you argue that since the mozzarella cheese which is exported to Canada is classified under the same subheading as the mozzarella cheese which is returned to the U.S., the cheese undergoes an acceptable alteration and should be eligible for a partial duty exemption under subheading 9802.00.50, HTSUS. However, this argument was specifically rejected by the court of appeals in Dolliff, which noted the "irrelevance" to its determination of whether the foreign processing in that case was an alteration, the fact that both the greige goods and finished fabrics were classifiable under the same tariff item.

HOLDING:

Based on the information submitted, it is our opinion that the foreign processing operations comprise further processing steps which are performed on an unfinished article and which lead to a completed article. Accordingly, the shredded mozzarella cheese imported from Canada is not eligible for the partial duty exemption available under subheading 9802.00.50, HTSUS, but is dutiable upon its full value, when returned to the U.S.

HRL 557395 is affirmed.

Sincerely,

John Durant, Director

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