HQ 559451 - Country of origin marking for milk chocolate; melting; Mexico; NAFTA; Article 509; - United States International Trade Commision Rulings

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HQ 559451

January 18, 1996

CLA-2 RR:TC:SM 559451 MLR

CATEGORY: MARKING

Ms. Mary Louise W. Porter
Hershey Foods Corporation
Corporate Headquarters
100 Crystal A Drive
P.O. Box 810
Hershey, PA 17033-0810

RE: Country of origin marking for milk chocolate; melting; Mexico; NAFTA; Article 509;

Dear Ms. Porter:

This is in reference to your letter of September 8, 1995, requesting a ruling concerning the country of origin marking requirements for milk chocolate.

FACTS:

Hershey Foods Corporation ("Hershey") plans to export 1800-pound bins of U.S.-origin milk chocolate which are unwrapped Hershey's Kisses, Hershey's Nuggets, and Hershey's Miniatures Bars and/or standard size Hershey's bars to Hershey's wholly-owned Mexican subsidiary. All of the exported chocolate contains the same ingredients and is made from the same formula. The only difference is in the weight, size, and shape of the chocolate. New York Ruling Letter (NYRL) 809919 dated May 16, 1995, stated that the Hershey's Kisses are classifiable under subheading 1806.90, Harmonized Tariff Schedule of the United States (HTSUS). Hershey also states that the other chocolates are classifiable under subheading 1806.32, HTSUS.

In Mexico, the Hershey's Kisses and/or Hershey's bars will be melted and molded into either five pound Hershey's milk chocolate bars, stated to be classifiable under subheading 1806.32, HTSUS, or six or eight ounce giant Hershey's Kisses, stated to be classifiable under subheading 1806.90, HTSUS. It is also stated that no additional ingredients are added.

ISSUE:

What are the country of origin marking requirements of the five pound Hershey's milk chocolate bars and six or eight ounce giant Hershey's Kisses?

LAW AND ANALYSIS:

The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. 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 U.S. the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

Section 134.1(b), interim regulations, defines "country of origin" as:

The country of manufacture, production, or growth of any article of foreign origin entering the United States. 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), 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), interim regulations, defines a "good of a NAFTA country" as an article for which the country of origin is Canada, Mexico, or the U.S. as determined under the NAFTA Marking Rules set out at 19 CFR Part 102, interim regulations.

Section 102.11, interim regulations, sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11(a), interim regulations, states that the country of origin of a good is the country in which:

(1) The good is wholly obtained or produced; (2) The good is produced exclusively from domestic materials; or (3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

Since the finished chocolate goods are produced in Mexico with U.S.-origin chocolate, these goods are neither wholly obtained or produced, nor produced exclusively from domestic materials. Accordingly, paragraph (a)(3) of section 102.11 is the applicable rule that next must be applied to determine the origin of the finished chocolate goods.

The finished chocolate goods are stated to be classifiable under subheading 1806.32 and 1806.90, HTSUS. The chocolate goods exported from the U.S. to Mexico are also classifiable in the same subheadings. The applicable change in tariff classification for 1806.32 and 1806.90 set out in section 102.20(d), Section IV, Chapters 16 through 24 of the interim regulations provide:

1806.32 ... A change to subheading 1806.32 from any other subheading; and

1806.90 ... A change to subheading 1806.90 from any other subheading.

Since the exported chocolate is classified under either subheading 1806.32 or 1806.90, HTSUS, and after the melting operations in Mexico the finished chocolate is also classified under either subheading 1806.32 or 1806.90, HTSUS, there may or may not be a change in tariff classification, depending on which exported chocolate goods are used to make the finished chocolate goods. If exported chocolate goods classified under subheading 1806.32, HTSUS, are used to manufacture the finished chocolate goods classified under subheading 1806.90, HTSUS, or exported chocolate goods classified under subheading 1806.90, HTSUS, are used to manufacture the finished chocolate goods classified under subheading 1806.32, HTSUS, then the requisite tariff shift would be met and, as a result, the country of origin of the finished five pound Hershey's chocolate bars and the six or eight ounce giant Hershey's Kisses would be Mexico.

However, if the exported chocolate goods classified under subheading 1806.32, HTSUS, are used to manufacture the finished chocolate goods classified under subheading 1806.32, HTSUS, or the exported chocolate goods classified under subheading 1806.90, HTSUS, are used to manufacture the finished chocolate goods classified under subheading 1806.90, HTSUS, then the requisite tariff shift would not be met. As a result, section 102.11(b) of the hierarchial rules must be applied next to determine the country of origin of the finished chocolate goods.

Additionally, a third possibility exists where exported chocolate goods classified under subheading 1806.32 and 1806.90, HTSUS, are combined and melted together to form the finished chocolate products classified under either subheading 1806.32 and 1806.90, HTSUS. In such instances, the requisite tariff shift would also not be met, and section 102.11(b) of the hierarchial rules must be applied.

Section 102.11(b), interim regulations, provides that:

Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a), the country of origin of the good:

(1) Is the country or countries of origin of the single material that imparts the essential character of the good ...

When determining the essential character of a good under section 102.11, interim regulations, section 102.18(b) provides that only domestic and foreign materials that are classified in a tariff provision from which a change is not allowed shall be taken into consideration and that, in deciding among these materials, consideration is given to various factors, including the nature of the material or component, bulk, quantity, weight, value, and the role of a constituent material in relation to the use of the goods.

Based upon these factors, in situations where the exported chocolate goods classified in both subheading 1806.32 and 1806.90, HTSUS, are combined and melted together, only one of the exported chocolate materials will not meet the requisite tariff shift depending on whether Hershey's chocolate Kisses or bars are made. Accordingly, when giant Hershey's Kisses classifiable under subheading 1806.90, HTSUS, are made, only the exported chocolate kisses will be considered because they do not meet the tariff shift. Since the exported chocolate Kisses are of U.S.-origin, pursuant to section 102.11(b)(1), the country of origin of the finished giant Hershey's Kisses is the U.S. When five pound Hershey's chocolate bars classifiable under subheading 1806.32, HTSUS, are made, only the exported chocolate classifiable under subheading 1806.32, HTSUS, will be considered. Since the exported chocolate is of U.S.-origin, pursuant to section 102.11(b)(1), the country of origin of the five pound Hershey's bars is the U.S. Similarly, in the situations where the exported chocolate goods are used to make finished chocolate goods classified in the same subheading, and, therefore, the requisite tariff shift is not met, the single material that imparts the essential character of the finished chocolate goods is the exported U.S.-origin chocolate. Therefore, pursuant to section 102.11(b)(1), the country of origin of those finished chocolate goods will be the U.S.

However, section 102.14, interim regulations, provides that:

No good, last advance in value or improved in condition outside the United States has United States origin. If under any other provision of this part such a good is determined to be a good of the United States, that determination will be disregarded and the country of origin of the good will be the last foreign country in which the good was advanced in value or improved in condition. (Emphasis added).

In both situations (i.e., exported chocolate goods from both subheadings are commingled, or exported chocolate goods from one subheading are used to make finished chocolate goods in the same subheading) the exported chocolate goods will be considered advanced in value or improved in condition as a result of being melted and re-molded into chocolate bars or Kisses. Therefore, pursuant to section 102.14, interim regulations, the country of origin of the finished chocolate goods will be "Mexico," the last foreign country in which the good is advanced in value or improved in condition. Section 134.43(e), interim regulations, provides that:

Where the country of origin of an article is determined in accordance with section 102.14 ... at the choice of the importer, the good, may be marked, as appropriate, in a manner such as the following:

(1) Assembled in (name of foreign country) from U.S. components;

(2) Further processed in (name of country of origin) from U.S. materials;

(3) Product of (name of foreign country) made from U.S. components; or

(4) Product of (name of foreign country).

Please note that in the May 5, 1995, Federal Register Notice of Proposed Rulemaking, Customs has proposed to remove section 102.14 and 134.43(e), interim regulations. Accordingly, if the proposed rules are adopted as final, the finished chocolate goods determined to be products of the U.S. under the two situations above will not require any country of origin marking for U.S. Customs purposes.

In order to limit the need for separate inventories of packaging bearing different countries of origin, Hershey wishes to mark all of the finished chocolate goods in accordance with 134.43(e), interim regulations, notwithstanding whether the exported chocolate goods undergo the requisite tariff shift. Hershey proposes to mark the finished chocolate goods: (1) Molded and Packaged in Mexico by Hershey Mexico, S.A. de C.V. from milk chocolate processed in the United States by Hershey Chocolate U.S.A.; (2) Molded and Packaged in Mexico by Hershey Mexico S.A. de C.V. from U.S. milk chocolate; or (3) Further Processed in Mexico by Hershey Mexico, S.A. de C.V. from U.S. ingredients.

The use of the phrase "such as" in section 134.43(e), interim regulations, makes it clear that the four detailed methods of marking are not mandatory. It is also clear that the third marking proposal will be appropriate for the finished chocolate goods made from the exported chocolate goods classified in the same subheading or from both subheadings. In regard to the other marking proposals, in C.S.D. 89-37 dated December 1, 1988, Customs ruled that the phrase "Fabric made in U.S.A. Tailored in Honduras" properly indicated that the country of origin of men's shirts was Honduras because the phrase "Tailored in" is used by shirt manufacturers. See also Headquarters Ruling Letter (HRL) 734031 dated May 20, 1991. However, in HRL 735093 dated September 8, 1993, the use of "Tailored in" instead of "Made in" or "Product of" was determined not to be a clear indication of the origin of brassieres as "Tailored in" was not a standard phrase used by this garment industry.

In regard to the use of "Molded and Packaged in" as a proper country of origin indicator for the finished chocolate goods which may be marked in accordance with section 134.43(e), interim regulations, it is our opinion that "Molded" is similar to "Further Processed" because the term "molded" specifically describes the processing of the chocolate. Additionally, for the finished chocolate products which meet the requisite tariff shift and are, therefore, considered products of Mexico, it is our opinion that "Molded" is similar to "Made in" for purposes of the chocolate industry, just as "Tailored in" was appropriate for describing the country of origin of shirts. However, it is also our opinion that the third marking proposal, i.e., "Further Processed ...," is not appropriate for those finished chocolate goods which undergo a tariff shift because the markings set forth in section 134.43(e), interim regulations, are only suggested when the origin is determined in accordance with section 102.14, interim regulations.

HOLDING:

Based upon the information provided, pursuant to section 102.11(a)(3), interim regulations, the country of origin of the finished chocolate goods made from the exported chocolate goods classified in a different subheading will be Mexico. Pursuant to section 102.11(b)(1), interim regulations, the country of origin of the finished chocolate goods made from exported chocolate goods classified in the same subheading or from both subheadings will be the U.S., but because of section 102.14 and 134.43(e), interim regulations, the finished chocolate goods will be required to be marked as a product of Mexico. It is our opinion that either of the three methods proposed by Hershey will satisfy the requirements of 134.43(e) and 19 U.S.C. 1304, since "Molded" is similar to "Further Processed" and "Made in." However, the use of "Further Processed..." will not be appropriate for the finished chocolate goods which undergo a tariff change in Mexico.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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