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HQ 559769

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August 28, 1996

MAR 2-10 RR:TC:SM 559769 KBR

CATEGORY: MARKING

Alan I. Kojima, V.P.
American Customs Brokerage Co., Inc.
P.O. Box 261
Honolulu, Hawaii 96809

RE: Marking of Tropical Fruit Salad, Foreign Trade Zone, NAFTA

Dear Mr. Kojima:

This is in response to your letter dated February 28, 1996, to U.S. Customs Service, in New York, which was subsequently forwarded to this office and received on April 2, 1996, on behalf of the Maui Pineapple Company, Ltd., concerning the country of origin and proper duty rate of tropical fruit salad which is canned with both domestic and imported fruit in a foreign trade zone.

FACTS:

You state that the product involved in this matter is a "tropical fruit salad." The product is to be manufactured in a foreign trade zone (FTZ) in Hawaii. You state that the tropical fruit salad will be a canned product, and will consist of chunks of three different tropical fruits and the juice of one tropical fruit. You list the ingredients by weight (in percentages), along with the original country of origin as follows:

Ingredient % Original C. of Origin

Pineapple 46 United States
Frozen Papaya 13 Mexico
Frozen Guava 9 Mexico
Passion Fruit (juice concentrate) 1 Colombia Sugar 7 United States
Water 24 United States

You state that a breakdown of the cost of the product is as follows:

Pineapple 18.5%
Papaya 13.8%
Guava 9.7%
Passion Fruit (juice concentrate) 4.8%
Sugar 2.3%
Can 7.1%
Production 11.5%
Warehousing 1.8%
Fiber 1.2%
Raw Material Handling 0.6%
Shipping 3.2%
Overhead 18.7%
Margin 6.8%

In a telephone conference on August 6, 1996, with a representative of the Maui Pineapple Company, Ltd., Customs was informed that the pineapple is grown in the U.S. taken to the FTZ where it is peeled, trimmed and cut into chunks and then combined with the other ingredients. The papaya and the guava are imported in chunks and simply combined with the other ingredients in the FTZ. The passion fruit is imported as a juice concentrate and combined with the other ingredients in the FTZ.

You state that the foreign ingredients, papaya, guava, and passion fruit will be sold to your client on a duty-paid basis from various companies located in the United States and will be entered into the FTZ under privileged domestic status.

The cans for the product will be manufactured in the FTZ using tin-plate imported from Japan. The tin-plate will be entered into the FTZ under non-privileged foreign status.

ISSUES:

(1) Will the product qualify for designation as a "made in the U.S.A./Hawaii" product? If it does not qualify as a United States-made product, what will be the proper country of origin, tariff classification, and duty rate?

(2) If the product qualifies as a United States-made product, will duty be assessed on the value of the tin can manufactured in the FTZ from the imported tin-plate. If duty will be assessed, what will be the tariff classification and duty rate?

(3) Will duty be assessed on the value of the Mexican and Colombian fruits that are entered into the FTZ under privileged domestic status? If duty will be assessed, what will be the tariff classification and will duty be assessed at the Column 1 or the Mexican NAFTA duty rate?

(4) If the Mexican and Colombian fruits are entered into the FTZ under non-privileged foreign status, how will the answers to issues (1) and (3) be affected?

LAW AND ANALYSIS:

1. Duty

The statute governing the creation and operation of FTZ's is the Foreign Trade Zones Act of 1934, as amended (48 Stat. 998; 19 U.S.C. 81a through 81u). Under 19 U.S.C. 81c(a), foreign and domestic merchandise of every description (except prohibited merchandise) may be brought into a FTZ without being subject to the United States Customs laws and may there be, among other things, stored, mixed with foreign or domestic merchandise, or otherwise manipulated and be exported, destroyed, or sent into the United States customs territory. When foreign merchandise is so sent from a FTZ into United States customs territory it is subject to the United States laws and regulations affecting imported merchandise. Articles of the United States and articles previously imported on which duty and/or tax has been paid, or which have been admitted free of duty and tax, may be taken into a FTZ from the United States customs territory, placed under the supervision of the appropriate Customs officer, and, whether or not they have been combined with or made part of other articles while in the FTZ, be brought back thereto free of quotas, duty, or tax. If the identity of such articles (i.e., the "domestic status" articles described in the preceding sentence) has been lost, articles not entitled to free entry by reason of noncompliance with the requirements under the authority of this provision are treated as foreign merchandise if they reenter the customs territory. The Customs Regulations issued under the authority of this statute are found in 19 CFR Part 146.

In this case, the merchandise brought into the FTZ would consist of domestic status merchandise (the fruit, sugar, and water) and non-privileged foreign status merchandise (the tin-plate imported from Japan). As stated above, domestic status merchandise may be combined with or made part of other articles in the FTZ and be removed from the FTZ into the Customs territory without being subject to quotas, duty, or tax, provided that the identity of such articles has not been lost. Non-privileged foreign merchandise is subject to tariff classification in accordance with its character, condition and quantity as transferred to the Customs territory at the time entry or entry summary is filed with Customs (19 CFR 146.65(a)(2)). However, under General Rule of Interpretation (GRI) 5(b):

Subject to the provision of rule 5(a)
[concerning camera cases and similar containers not applicable in this case], packing materials and packing containers entered with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use.

In interpreting the foregoing, we have held that canned fruit produced in a FTZ with the use of domestic status ingredients and non-privileged foreign status canning materials may be entered for consumption from the FTZ free of duty (see, e.g., rulings 073879, February 29, 1984, and memorandum 220707, October 3, 1988, affirmed by ruling 221259, October 15, 1991). Thus, in the case under consideration, in which ingredients (all having domestic status) are packed in a FTZ in cans produced from Japanese origin tin-plate, when the canned "Tropical Fruit Salad" product is entered for consumption from the FTZ, neither the domestic status ingredients nor the canning materials would be subject to duty. This is so regardless of whether the product qualifies for designation as a "made in the U.S.A./Hawaii" product.

If, instead of using all domestic status ingredients, the papaya, guava, and passion fruit used were non-privileged foreign status, those non-privileged foreign ingredients would be classifiable and dutiable in accordance with the character, condition and quantity of the canned tropical fruit salad as transferred to the Customs territory at the time entry or entry summary is filed with Customs. Since, under GRI 5(b), the canning materials are classifiable with the goods contained therein, the canning materials would be classifiable and dutiable under the same terms. This also is so regardless of whether the product qualifies for designation as a "made in the U.S.A./Hawaii" product.

You should be aware that, under 19 U.S.C. 58c(a)(10), a merchandise processing fee is collected by Customs for the processing of merchandise formally entered for consumption (upon transfer from a FTZ to the Customs territory, such entry is required for all merchandise in foreign status or composed in part of merchandise in foreign status (see 19 U.S.C. 81c(a), 19 CFR 141.4, and 19 CFR 146.63)). The fee is based on the value of the merchandise and, in the case of merchandise entered for consumption from a FTZ, is based upon the appraised value of both the domestic and foreign merchandise. Thus, in the case under consideration, this fee would be collected on the total value of the canned tropical fruit salad (see 19 CFR 146.65(b)(1), 19 CFR 24.23, and ruling 221259, referred to above). (The exception in 19 U.S.C. 58c(b)(8)(D)(v) for agricultural products of the United States processed and packed in a FTZ, limiting this fee to only the value of material used to make the container of such products, is inapplicable in this case because the agricultural products in this case are not "agricultural products of the United States" (see Senate Report (Finance Committee) No. 101-252, 101st Cong., 2d Sess., printed at 1990 U.S.C.C.A.N. 928, 980-981, in which the intent of this provision is described as being to correct a problem arising from Customs application of the fee to "entries of canned pineapple (consisting of non-dutiable foreign-origin cans and U.S.-origin pineapple)" (emphasis added)).)

2. MARKING

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that unless excepted, every article of foreign origin 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. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlander & Co., 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940). Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304.

Section 134.1(b) of the 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 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 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 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. Section 134.35(b), provides that:

A good of a NAFTA country which is to be processed 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.

Part 102 of the 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 regulations, sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) of the regulations states that "[t]he 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 requirements of these rules are satisfied."

Since the tropical fruit salad is neither wholly obtained or produced in a single country nor produced exclusively from domestic materials, ?102.11(a)(1) and (2) are not applicable for purposes of determining whether the fruit salad is a good of the U.S. Therefore, it must be determined whether pursuant to tropical fruit salad meets the specific tariff rule of ?102.20. The tropical fruit salad has six components; pineapple, papaya, guava, passion fruit juice, sugar and water. The pineapple, sugar and water are products of the U.S.; the frozen, chunk papaya and frozen, chunk guava are from Mexico, and the passion fruit juice concentrate is from Columbia. After canning, the tropical fruit salad is classified in subheading 2008.90.10, HTSUS. Thus, the specific tariff rule for these goods is set out in section 102.20(d) (Section IV: Chapters 16 through 24) of the regulations, which states: "A change to subheading 2008.19 through 2008.99 from any other chapter, provided the change is not the result of mere blanching of nuts."

The foreign components must undergo the above change in tariff to satisfy 19 CFR ?102.11(a)(3). The components from Mexico undergo the necessary change in tariff classification. The frozen, chunk papaya is classified in subheading 0811.90.40, HTSUS, and the frozen, chunk guava is classified in subheading 0811.90.80, HTSUS.

However, the component from Columbia, the passion fruit juice concentrate, classified in subheading 2009.80.60, HTSUS, does not undergo the necessary tariff shift. Although the value of the passion fruit juice concentrate is less than 7 percent of the value of the tropical fruit salad, and therefore might be considered de minimis and be disregarded, section 102.13(b) specifically eliminates goods within Chapter 20 from consideration as de minimis.

Further, in the "Note" to Chapter 20 it states: "Notwithstanding the specific rules of this chapter, fruit, nut and vegetable preparations of Chapter 20 that have been prepared or preserved merely by freezing, by packing (including canning) in water, brine or natural juices, or by roasting, either dry or in oil (including processing incidental to freezing, packing or roasting), shall be treated as a good of the country in which the fresh good was produced." However, the pineapple in this case is grown in the U.S. and peeled, trimmed and cut into chunks prior to being combined with the other ingredients. Therefore, the pineapple alone is not classifiable in a provision from which a change in classification was not allowed.

Further, 19 CFR ?102.17 states that:

A foreign material shall not be considered to have undergone the applicable change in tariff classification set out in ?102.20, or satisfy the other applicable requirements of that Section by reason of:

(a) A change in end-use;
(b) Dismantling or disassembly;
(c) Simple packing, repacking or retail packaging without more than minor processing;
(d) Mere dilution with water or another substance that does not materially alter the characteristics of the material; or
(e) Collecting parts that, as collected, are classifiable in the same tariff provision as an assembled good pursuant to General rule of Interpretation 2(a), without any additional operation other than minor processing.

In this case, 19 CFR ?102.17(c), is applicable. Although the pineapple is cut from a fresh fruit into chunks, only the foreign fruit is considered in determining whether there was more than minor processing as defined in 19 CFR ?102.1(m). The foreign ingredients in this instance do not undergo more than minor processing. Therefore, the foreign components are not deemed to undergo the necessary tariff shift and 19 CFR

The next step in the hierarchy, 19 CFR ?102.11(b), states that, where ?102.11(a) is not applicable, the country of origin will be the country or countries of origin of the single material that imparts the essential character to the good. Section 102.18(b), states that the only materials to be considered for purposes of identifying the material that imparts the essential character to a good are those domestic or foreign materials that are classified in a provision from which a change in tariff classification is not allowed under the specific rule or other requirements. In this case, the U.S. components of the tropical fruit salad all are classified in a provision from which a change in classification is allowed under 19 CFR ?102.20. The pineapple is classified in subheading 0804.30 HTSUS, the sugar is classified in headings 1701-1702, HTSUS, and the water is classified in heading 2201, HTSUS. Therefore, pursuant to 19 CFR concentrate is considered in determining whether there is a single material that imparts the essential character to the of the tropical fruit salad. In this situation, there is no single material which establishes the essential character of the good. The papaya, guava and passion fruit juice concentrate are equally important components of the tropical fruit salad. Therefore, 19 CFR ?102.11(b), does not apply.

Where the country of origin cannot be determined under 19 CFR ?102.11(a) or (b), and the article is specifically described in the Harmonized System as a set or mixture, or classified as a set, mixture or composite good pursuant to General Rule of Interpretation 3, 19 CFR ?102.11(c) applies and states that the country of origin is the country or countries of origin of all materials that merit equal consideration for determining the essential character of the good. In this instance, the tropical fruit salad is a mixture pursuant to GRI 3(c). When Section 102.11(c) is applicable, all the components, foreign and domestic, which merit equal consideration must be considered. In this case, the pineapple, papaya, guava, passion fruit juice concentrate, sugar and water merit equal consideration in determining the essential character of the tropical fruit salad. Therefore, the country of origin of the tropical fruit salad is the countries of origin of these components; the U.S., Mexico, and Columbia. However, since the components from the U.S. are excepted from marking, the U.S. is not required to appear on the country of origin marking of the tropical fruit salad.

This ruling does not address whether the tropical fruit salad may be marked with the U.S.A. symbol. Although Customs has determined that the product is, in part, a product of the U.S., the determination of marking an item as "Made in USA" or "Made in Hawaii" is under the primary jurisdiction of the Federal Trade Commission and not this Service. See HQ 559366 (August 29, 1995). We therefore recommend that you contact the Federal Trade Commission, Division of Enforcement, located at 6th and Pennsylvania Avenue, N.W., Washington, D.C. 20580, for any views concerning marking the tropical fruit salad with the "USA" or "Hawaii" symbol.

HOLDING:

Based on the information submitted, after processing, the tropical fruit salad is a product of the U.S., Mexico and Columbia, and must be marked t indicate that its origin is Mexico and Columbia. The U.S. components are excepted from country of origin marking and are not required to be listed on the country of origin marking. The Federal Trade Commission should be contacted concerning whether the "U.S.A." symbol or "Made in Hawaii" may be used.

Therefore, the canned tropical fruit salad produced in a FTZ from ingredients all of which are domestic status and canned in the FTZ with the use of non-privileged foreign status tin-plate, may be entered for consumption from the FTZ free of duty; since that the identity of the domestic status merchandise is not lost; and subject to the requirement for entry for consumption and assessment of the merchandise processing fee (on the total value of the product) provided for in 19 U.S.C. 58c(a)(1).

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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
Tariff Classification Appeals

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See also:

• Tariff No.: 0811.90.40 - Papayas, frozen, in water or containing added sweetening
• Tariff No.: 0811.90.80 - Fruit, nesi, frozen, whether or not previously steamed or boiled
• Tariff No.: 2009.80.60 - Juice of any other single fruit, nesi, (including cherries and berries), concentrated or not concentrated