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HQ 557670




May 19, 1994

CLA-2 CO:R:C:S 557670 WAS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

John S. Rode, Esq.
Edward J. Farrell, Esq.
Rode & Qualey
295 Madison Ave.
New York, N.Y. 10017

RE: Applicability of the partial duty exemption under subheading 9802.00.50, HTSUS, to cheese sent to Canada for cutting or shredding; 554654; 555462; 555174; 554736; T.D. 70-49(1); 557633

Dear Mssrs:

This is in response to your letter dated November 1, 1993, on behalf of Kraft General Foods Inc., concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to blocks of cheese which are sent to Canada for cutting and/or shredding operations, before being returned to the U.S. Your request for a country of origin marking determination is being addressed in a separate ruling by the Value and Marking Branch.

FACTS:

You state that the subject cheese will be produced entirely in the United States; some of the cheese will be produced in manufacturing plants of Kraft General Foods Inc., while the remainder will be purchased from unrelated manufacturers. The cheeses will be produced in various forms; your client expects to purchase and export to Canada blocks of cheese weighing between 20 and 700 pounds each. You state that cheese in such block form is used as an ingredient in the manufacture of other food products and preparations; large blocks are also sold to institutional end-users, and to retail establishments for sale to the customer either in block form or after the blocks have been cut to specification. Cheese in block form is also cut into smaller wedges, blocks, or sticks, or shredded, and packaged prior to sale to, or in the retail store.

You state that Kraft USA will ship the subject cheese to Canada, where some of the blocks will be cut, by means of passing a heated wire through the block, into six, eight, ten, twelve, or sixteen ounce sticks; other blocks will be cut by the same process into one, two, or three pound chunks; the stocks and chunks will then be packaged by wrapping in plastic film, paper, or foil. Other blocks will be mechanically shredded into pieces each approximately 0.125 inches thick and between 0.25 and 0.50 inches in length, and packaged in recloseable plastic bags containing four, six, eight, ten, twelve, or sixteen ounces of shredded cheese. As a result of the cutting or shredding, you state that a modest quantity of irregularly shaped "trimmings" which are too small for packaging will be returned to the U.S. in bulk containers for use in production.

In sum, you state that the operations to be performed in Canada on the U.S.-origin cheese will be limited to cutting or shredding and packaging. The cutting or shredding will be performed directly on the blocks of cheese shipped from the U.S. to Canada, without any intermediate steps. In addition, you state that the blocks exported from the U.S. will not be melted or otherwise changed in form or condition while in Canada, so that the end result of the cutting or shredding and packaging in Canada will be cheese which has been simply cut to size, or shredded, and packaged.

In addition, you state that cheese of any of the types which your client proposes to ship to Canada for cutting or shredding ad packaging, when imported into the U.S. are generally subject to the quantitative limitations and licensing requirements under subheading 9904.10.27 through 9904.10.57, HTSUS. You further submit that, inasmuch as the prospective importations of cheese remain products of the U.S. notwithstanding the cutting or shredding and packaging in Canada, they are not properly subject to the quantitative limitations or licensing requirements of Chapter 99 of the HTSUS upon their return to the U.S.

ISSUE:

Whether the cheese which is cut and/or shredded in Canada qualifies for the partial duty exemption available 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 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 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 cutting or 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 cutting or shredding the cheese and packaging, are more than simple packaging operations. Instead, these operations constitute necessary finishing steps in the total manufacturing process of the finished article (i.e., cut or shredded cheese), which is begun in the U.S. Therefore, the operations performed in Canada cannot be considered proper "alterations" and the returned cut or shredded cheese will not be eligible for the partial duty exemption available under subheading 9802.00.50, HTSUS, when returned to the U.S.

In addition, in a case virtually indistinguishable from the facts at issue here, we held that U.S.-origin cheese which is sent abroad for shredding and then returned to the U.S. does not qualify for the partial duty exemption under subheading 9802.00.50, HTSUS. See HRL 557633 dated February 10, 1994. In HRL 557633, mozzarella cheese of U.S.-origin was shipped to Canada, where it was shredded, repackaged and returned to the U.S. In that case, we held:

"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 addition, questions regarding licensing procedures and applications for license to import products subject to dairy quotas should be addressed to:

Foreign Agriculture Service
U.S. Department of Agriculture
Room 5531
Import Policies & Trade Analysis Division Washington, D.C. 20250-1000
(202) 720-5270

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 cut or shredded 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.

Sincerely,

John Durant, Director

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