HQ 735559 - Country of origin marking for dry gelatin/sugar mix; NAFTA; Article 509; 19 U.S.C. ?1304; Part 102, Interim Regulations; 19 C.F.R. ?102.11-General Rules; 19 C.F.R. ?102.18 - Rules of Interpretation; 19 C.F.R. ?102.19-NAFTA Preference Override; - United States International Trade Commision Rulings

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HQ 735559

September 1, 1994

MAR-2-05 CO:R:C:S 735559 DEC

CATEGORY: MARKING

Mr. Robert H. Schor
Barnes, Richardson & Colburn
475 Park Avenue South
New York, New York 10016

RE: Country of origin marking for dry gelatin/sugar mix; NAFTA; Article 509; 19 U.S.C. ?1304; Part 102, Interim Regulations; 19 C.F.R. ?102.11-General Rules; 19 C.F.R. ?102.18 - Rules of Interpretation; 19 C.F.R. ?102.19-NAFTA Preference Override;
Essential Character; 19 C.F.R. ? 134.22; 19 C.F.R. ?134.32; 19 C.F.R. ?134.25; 19 C.F.R. ?134.46

Dear Mr. Schor:

This is in response to your letter dated February 25, 1994, in which you seek a ruling with respect to the appropriate country of origin marking for a dry gelatin/sugar mix which your client, Hormel Foods Corporation ("Hormel") intends to import into the United States.

FACTS:

Hormel plans to manufacture a dry gelatin powder in the United States. Gelatin is classified under heading 3503, Harmonized Tariff Schedule of the United States Annotated ("HTSUSA"). The dry gelatin will be shipped to Canada to be mixed with powdered sugar (from sugar cane or sugar beets) to form a dry gelatin/sugar combination. The sugar is from an unspecified, non-NAFTA country and is classified under heading 1701, HTSUSA. This dry gelatin/sugar blend, which will contain approximately ninety (90%) sugar and ten (10%) gelatin, will be imported into the United States where Hormel will combine it with United States-made powder flavorings, coloring, preservatives, other additives, and sugar/dextrose to form a powder mix which will be packaged for retail sale as a gelatin dessert mix.

You have received New York Ruling 895327, dated March 22, 1994, in which Customs has classified the gelatin and sugar blend to be imported from Canada under subheading 2106.90.2070, HTSUSA. The New York ruling also states that the imported sugar, after being blended with the gelatin, will satisfy the change in tariff classification required under HTSUSA General Note 12(t)/21. Consequently, the sugar and gelatin blend will be entitled to the 2.4 percent ad valorem preferential rate of duty under the NAFTA.

You contend that the imported merchandise is excepted from country of origin marking because the gelatin/sugar blend becomes a product of the United States due to the substantial additions to the blend once it is imported into the United States. Various chemicals are added to lower the ph, to preserve the product, and to give the product an anti-foaming agent. In addition, a "core mix" is added which includes flavoring and coloring. Additional sugar or dextrose is added to the blend in the United States as well.

ISSUE:

Whether the further processing of a gelatin/sugar blend in the United States, through the addition of chemicals and coloring, results in an applicable tariff shift pursuant to the NAFTA Marking Rules, thereby excepting the finished gelatin dessert mix from the country of origin marking requirements because it would be considered a product of the United States.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Part 134 of the Customs Regulations implements the country of origin marking requirements and exceptions of 19 U.S.C. ?1304.

The country of origin marking requirements for a "good of a NAFTA country" are also determined in accordance with Annex 311 of the North American Free Trade Agreement ("NAFTA"), as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057) (December 8, 1993) and the interim amendments to the Customs Regulations published as T.D. 94-4 (59 Fed. Reg. 109, January 3, 1994) with corrections (59 Fed. Reg. 5082, February 3, 1994) and T.D. 94-1 (59 Fed. Reg. 69460, December 30, 1993). These interim amendments took effect on January 1, 1994, to coincide with the effective date of the NAFTA. The marking rules used for determining whether a good is a good of a NAFTA country are contained in T.D. 94-4 (adding a new Part 102, Customs Regulations). The marking requirements of these goods are set forth in T.D. 94-1 (interim amendments to various provisions of Part 134, Customs Regulations).

Section 134.1(b) of the interim regulations defines "country of origin" as
the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order
to render such other country the "country of origin" within the meaning of this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. (emphasis added).

Section 134.1(j) of the interim regulations, provides that the "NAFTA Marking Rules" are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) of the interim regulations defines a "good of a NAFTA country" as an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules. Section 134.45(a)(2) of the interim regulations provides that a "good of a NAFTA country may be marked with the name of the country of origin in English, French, or Spanish.

Section 134.35(b), Customs Regulations (19 C.F.R.

A good of a NAFTA country which is to be processed in the United States in a manner that would result in the good becoming a good of the United States under the NAFTA Marking Rules is excepted from marking. Unless the good is processed by the importer or on its behalf, the outermost container of the good shall be marked in accord with this part.

In order to determine the country of origin marking requirements, we must first apply the NAFTA Marking Rules to determine whether the imported gelatin/sugar blend is a good of a NAFTA country prior to being further processed in the United States. Part 102 of the interim regulations, sets forth the NAFTA Marking Rules for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 of the interim regulations sets forth the required hierarchy for determining country of origin for marking purposes.

Applying the NAFTA Marking Rules set forth in Part 102 of the interim regulations to the facts of this case, we find that, for marking purposes, the imported gelatin/sugar blend is a product of Canada prior to being further processed in the United States.
This conclusion is reached through an analysis of interim regulation 102.11. Section 102.11(a)(1) and section 102.11(a)(2) do not apply to the facts presented because the good (the imported blend) is neither wholly obtained or produced in Canada nor is it produced exclusively from domestic materials. In fact, the gelatin is imported from the United States and the sugar is imported from a non-NAFTA country.

Since an analysis of sections 102.11(a)(1) and 102.11(a)(2) have not yielded a country of origin determination, we look to section 102.11(a)(3). Section 102.11(a)(3) provides that the country of origin is the country in which "[e]ach foreign material incorporated in that good undergoes an applicable change in tariff
classification in ? 102.20. . .." When imported into Canada, the gelatin is classified under heading 3503, HTSUSA and the sugar is classified under heading 1701, HTSUSA. The gelatin/sugar blend is classified under subheading 2106.90, HTSUSA. The applicable tariff shift rule found in section 102.20 provides as follows:

HTSUS Tariff Shift and/or other requirements 2106.90 ....... A change to subheading 2106.90 from any other subheading except from Chapter 4,
Chapter 17, heading 2009, subheading 1901.90 or subheading 2202.90; or
A change to subheading 2106.90 from Chapter 4 or subheading 1901.90 provided that the good contains no more than 50 percent of milk solids by weight; or
A change to subheading 2106.90 from Chapter 17 provided that the good contains less than 65 percent by dry weight of sugar; or . . ..

Thus, the gelatin, classified under heading 3503, HTSUSA, undergoes an applicable tariff shift when blended with the sugar. However, the sugar does not meet the applicable tariff shift rule because the blend does not contain less than sixty-five percent (65%) sugar by dry weight. In this case, the sugar component of the blend is ninety percent (90%).

Since an analysis of section 102.11(a) has not produced a country of origin determination for the gelatin/sugar blend, we turn to section 102.11(b) of the interim regulations. Section 102.11(b) provides that where the country of origin cannot be determined under section 102.11(a), and the good is not specifically designated as a set pursuant to the Harmonized System nor classified as a set under General Rule of Interpretation 3, the country of origin of the article is "the country or countries of origin of the single material that imparts the essential character of the good. . .."

The rule of interpretation which determines the "essential character" of the blend is found in section 102.18(b)(2) of the interim regulations. This rule states that

For purposes of applying ? 102.11, only domestic and foreign materials (including self-produced materials) that are classified in a tariff provision from which a change in tariff classification is not allowed in the rule for the good set out in ? 102.20 shall be taken into consideration in determining the essential character of the good.

In this case, the sugar is the foreign material that does not undergo the applicable tariff shift. Consequently, it is the origin of the sugar (an unspecified non-NAFTA country) that imparts the essential character of this gelatin/sugar blend and determines its country of origin under the NAFTA Marking Rules.

However, section 102.19, the NAFTA preference override, of the interim regulations provides that

Notwithstanding any provision of these rules other than ? 102.11(a) or (b) or ? 102.14, if a good originates under Chapter Four of the NAFTA, and the country of origin of that good is not determined to be a single NAFTA country under ? 102.11(a) or (b), the country of origin of the good is the last NAFTA country in which the good underwent production other than minor processing, provided that a Certificate of Origin has been completed and signed for the good.

Since it has been determined that the gelatin/sugar blend to be imported into the United States is entitled to preferential duty treatment under the NAFTA and that its country of origin is not determined to be a single NAFTA country, it is subject to the NAFTA preference override. Provided that the Certificate of Origin is completed and signed, the country of origin of the gelatin/sugar blend, therefore, is Canada because Canada is the last NAFTA country in which the blend will undergo production other than minor processing as defined in section 102.1(m) of the interim regulations.

Since the gelatin/sugar blend is a good of a NAFTA country (Canada) when imported into the United States, the country of origin marking requirements of the finished gelatin dessert mix will be based on the determination of whether the processing in the United States would cause the final product to be of United States origin pursuant to the NAFTA Marking Rules. To make this determination, a similar hierarchical analysis as detailed above must be undertaken. In this case, the items to be analyzed include the gelatin/sugar blend of Canadian origin and the addition of the various chemicals and colorings in the United States.

Applying the NAFTA Marking Rules to the Canadian gelatin/sugar blend and the processing to be performed in the United States, no determination of country of origin can be made under section 102.11(a) of the interim regulations. The finished product, a gelatin dessert mix, is neither wholly obtained or produced in a single country as is required under section 102.11(a)(1) nor is the finished product produced exclusively from domestic materials (i.e. U.S.) as required under section 102.11(a)(2). Section 102.11(a)(3) also does not provide a country of origin determination because the imported gelatin/sugar blend does not undergo an applicable tariff shift pursuant to 102.11(a)(3).

Section 102.11(b) turns the focus of our analysis to the essential character of the finished product to determine the country of origin of the finished gelatin dessert mix. Section 102.18(b)(2) of the interim regulations provides that only materials that do not undergo a tariff shift are to be taken into consideration to determine the essential character of a good. Therefore, the
gelatin/sugar blend, which has been determined to be of Canadian origin and does not undergo a tariff shift in the United States, imparts the essential character of the finished gelatin dessert mix.
The retail packaging in which the gelatin dessert mix will reach the ultimate purchaser must be marked to reflect the product's Canadian origin.

Under the provisions of section 134.25, Customs Regulations (19 C.F.R. ?134.25), if an article is to be repacked in new containers for sale to an ultimate purchaser after its release from Customs custody, the importer shall certify to the district director that the new container shall be marked to indicate the country of origin of the article in accordance with Part 134 (Customs Regulations) or if the article is intended to be sold or transferred to a subsequent purchaser or repacker, the importer shall notify such purchaser or transferee, in writing, at the time of sale or transfer, that any repacking of the article must conform to these requirements. The importer or his authorized agent shall sign a statement to this effect. In this case, because the imported gelatin/sugar blend will be repackaged before it reaches the ultimate purchaser, the certification procedures should be followed.

You ask whether the retail package may be marked "Made in Canada" or "Product of Canada, made in part from U.S. components." The marking "Made in Canada" is acceptable. However, the second proposed marking is unacceptable because it has two conflicting origin statements, i.e., "Product of Canada" and "made in part from U.S. components," which may confuse the ultimate purchaser. Therefore, the words "made in" or a similar statement of origin may not be used in connection with the words "U.S. components." However, Customs has no objection to the reference to "U.S. components" in the proposed marking, provided that the name of the country of origin, Canada, is preceded by the words "made in", "produced" or other words of similar meaning. See 19 C.F.R. ?134.46. Thus, for example, "Made in Canada in part of U.S. materials" would be an acceptable marking.

HOLDING:

The Canadian-origin gelatin/sugar blend does not undergo the applicable tariff shift in the United States. As a result, the retail package containing the finished gelatin dessert mix must be marked indicating Canada as the country of origin.

Sincerely,

John Durant

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