HQ 227559 - Ruling request; orange juice; NAFTA drawback; drawback; manufacture; concentrate; reconstituted; 19 U.S.C. ?1313(j)(1); 19 U.S.C. ?1313(a); 19 U.S.C. ?1313(b); CF 7511; shrinkage; loss of product; waste - United States International Trade Commision Rulings

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HQ 227559

March 3, 1998

DRA-2-02-DRA-4-RR:IT:EC 227559 IOR

CATEGORY: DRAWBACK

Debbie Clune
Consulting Services Department
PBB Group
434 Delaware Ave
Buffalo NY 14202

RE: Ruling request; orange juice; NAFTA drawback; drawback; manufacture; concentrate; reconstituted; 19 U.S.C. ?1313(j)(1); 19 U.S.C. ?1313(a); 19 U.S.C. ?1313(b); CF 7511; shrinkage; loss of product; waste

Dear Ms. Clune:

This is in response to Joseph Giumentaro's (it is our understanding that Mr. Giumentaro is no longer with your office) letter of May 7, 1997, on behalf of Jansen Blyth Enterprises (Jansen), regarding drawback under unused merchandise for imported orange juice concentrate.

FACTS:

In your submission you state the following:

Orange juice concentrate (66 degree Brix) is purchased and exported to the U.S. in drums. The concentrate, product of Brazil, is blended with water and the reconstituted juice (10 degree Brix) is packaged into five liter bag-in-a-box containers. These containers are of the type ready to serve for retail customers. Losses or shrinkage of orange juice and packaging will occur during the reprocessing and packaging operations. These losses, due to drawing, pumping into the pasteurizer, spillage, etc. are limited to 2% during the conversion process. Once the reconstituted juice is packaged, it is sent to Canada for sale to the Canadian market.

To date, PBB USA, Inc. has been preparing CF7511 Forms prior to exporting the reconstituted juice to Canada. A sample form is provided. These are presented to U.S. Customs prior to exportation and remain in the possession of the carrier until after importation into Canada.

(Note: however, some of these forms are not being returned to PBB USA, Inc.) [F]irst, is this procedure acceptable for drawback purposes and secondly, would Canadian import documentation be acceptable in lieu of the CF7511?

You ask whether the Brazilian orange juice concentrate, reconstituted in the U.S. and exported to Canada is eligible for full drawback as unused merchandise, whether duties previously paid are recoverable based on completion and submission of CF7511, and what effect will the "shrinkage" or loss of product during the conversion process have on any potential claim for duty drawback. In response to requests for additional information regarding the imported and exported product, we were provided with an entry summary and accompanying invoice for Brazilian frozen concentrated orange juice, and a copy of a Canadian B3 electronic entry summary for reconstituted orange juice. The CF 7511 submitted with the ruling request is blank.

ISSUE:

Whether the orange juice concentrate is eligible for full drawback upon exportation of the reconstituted juice to Canada.

LAW AND ANALYSIS:

The drawback law was substantively amended by section 632, title VI- Customs Modernization, Public Law 103-182, the North American Free Trade Agreement Implementation Act (107 Stat. 2057), enacted December 8, 1993. Section 692 of the Act provides that titleVI provisions take effect on the date of enactment.

Section 632 of the act changes same condition direct identification drawback under 19 U.S.C. ?1313(j)(1), by providing that imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation, and is within 3 years of the date of importation, exported or destroyed under Customs supervision and was not used in the United States before such exportation or destruction, is eligible for "unused merchandise drawback." The law no longer requires that the merchandise be in the same condition as when imported.

Regarding the use of articles under section 1313(j)(1), 19 U.S.C. ?1313(j)(3) provides as follows:

The performing of any operation or combination of operations (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking), not amounting to manufacture or production for drawback purposes under the preceding provisions of this section on--

(A) the imported merchandise itself in cases to which paragraph (1) applies... shall not be treated as a use of that merchandise for purposes of applying paragraph (1)(B)....

In HQ 225985, dated November 30, 1995, based on the language of 1313(j), Customs stated that either an operation results in a manufacture for drawback purposes or the operation does not amount to a use for the purposes of 19 U.S.C. 1313(j). Customs concluded that the listed operations in 1313(j)(3), do not impose a limitation on the qualifying operations, but are illustrative of operations that, may, but do not always, result in a new article being manufactured for drawback purposes. In HQ 225985 it was determined that attaching watch straps to a watch head is an assembly which does not amount to a manufacture or production, and that the assembly does not amount to a "use" for the purposes of 1313(j).

It is Customs position in T.D. 85-110, which provides for drawback for orange juice products, that the blending of water with concentrated orange juice for manufacturing (of not less than 55ø Brix) and heat treatment of the blend to reduce the enzymatic activity and the number of viable microorganisms, to make orange juice from concentrate (reconstituted juice) is a production for purposes of 19 U.S.C. ?1313(b). Pasteurization is the process of heat treatment to reduce substantially enzymatic activity and the number of viable microorganisms. Therefore, as the process described amounts to a manufacture or production for drawback purposes, it is a use under 19 U.S.C. ?1313(j), as provided by (j)(3), and the merchandise would not qualify for drawback as unused merchandise. However, it could qualify for manufacturing drawback under 19 U.S.C. ?1313(a) or (b), provided all statutory and regulatory requirements are met.

Regarding exportations to Canada and Mexico, section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act (Public law 103-182; 107 Stat. 2057, 2086; 19 U.S.C. ?3333), provides for the treatment of goods subject to NAFTA drawback. Under 19 U.S.C. ?3333(a) (section 203(a) of the NAFTA), such goods mean any imported good other than, among other things, "a citrus product that is exported to Canada." The term "citrus product" is not defined in the NAFTA specifically with respect to section 3333. For ordinary usage, the term "citrus" is defined as "of or pertaining to trees or shrubs of the genus Citrus, many of which bear edible fruit such as the orange, lemon, lime, and grapefruit." American Heritage Dictionary, second college edition, 1982, p.276. The term "product" is defined as "something produced by human or mechanical effort or by a natural process." Id., at 988. The foregoing definitions would include orange juice concentrate and reconstituted orange juice within the definition of "citrus product." In addition, section 202(d) of the Trade Act of 1974 (19 U.S.C. ?2252(d)) was amended by the NAFTA Implementation Act by the addition of "citrus product" to the coverage of relief authority, and by inserting a new subparagraph (A) in paragraph (5) to read as follows:

"(A) The term 'citrus product' means any processed oranges or grapefruit, or any orange or grapefruit juice, including concentrate.".

Based on the foregoing, we conclude that the subject merchandise constitutes a "citrus product," within the meaning of 19 U.S.C.

The Customs regulations issued under the authority of the NAFTA Implementation Act specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country. Customs Regulations 181.43 (19 CFR 181.43) provides that, except as otherwise provided, drawback is authorized under 19 U.S.C. ? 1313(a) and (b) for goods exported to Canada or Mexico. It is provided in 19 CFR 181.44(c) and (d), that drawback under section 1313(a) and (b) must be claimed based on the drawback limitation set forth in 19 CFR 181.44(a) (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the U.S. or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). However, under 19 CFR 181.45(d), a good identified in Annex 303.6 of the NAFTA and in sections 203(a)(7) and (8) of the North American Free Trade agreement Implementation Act, if exported to Canada, is eligible for drawback without regard to the limitation on drawback. Annex 303.6 identifies imported citrus products and section 203(a)(7) provides for a citrus product that is exported to Canada.

Accordingly, the imported orange juice concentrate, pursuant to 19 U.S.C. ?3333(a) and 19 CFR 181.45(d), as a citrus product exported to Canada, is not subject to the NAFTA drawback limitation. The reconstituted juice exported to Canada is eligible for full drawback of the duty paid on the imported concentrate, under 19 U.S.C. ?1313(a) or (b), provided that all statutory and regulatory drawback requirements are met.

The available procedures for establishment of exportation of articles for drawback purposes are set forth in 19 CFR 191.51(a) through (e). One of the procedures is (a) "Notice of exportation," the requirements of which are set forth in 19 CFR 191.52.

Under 19 CFR 191.52(a), it is stated that a drawback claim may be supported with a "notice of exportation" on Customs Form (CF) 7511. Section 191.52(b) provides for the information that must be included on the CF 7511. Under 19 CFR 191.52(c), two forms of the CF 7511 are accepted for compliance with the notice of exportation procedure. Section 191.52(c)(1) provides for Customs certification of the CF 7511 upon verification of the facts of exportation upon receipt of the outbound manifest. The CF 7511 must be submitted to Customs with the shipper's export declaration or the ocean/airway export bill of lading. Upon verification, after receipt of the outbound manifest, a certified copy of the CF 7511 and one uncertified copy of the CF 7511 are to be returned to the exporter-claimant. Section 191.52(c)(2) provides for uncertified notice of exportation. The CF 7511 is to be supported by "documentary evidence of exportation, such as the bill of lading, air waybill, freight waybill, Canadian Customs manifest, cargo manifest, or certified copies thereof, issued by the exporting carrier." Section 191.52(c)(2) requires that the supporting documentary evidence "shall establish fully the time and fact of exportation and the identity of the exporter."

Based on the documents submitted, we cannot determine whether the CF 7511 being submitted to Customs is acceptable, as the CF 7511 submitted was not completed and was not accompanied with the shipper's export declaration or the ocean/airway export bill of lading, and an outbound manifest. Provided the correct documents are submitted to Customs under 19 CFR 191.52(c)(1), the procedure is acceptable for drawback purposes. Under 19 CFR 191.52(c)(2), a completed CF 7511 is still required, but does not need to be certified by Customs. The uncertified CF 7511 must be supported by documentary evidence of exportation as described in 19 CFR 191.52(c)(2). The Canadian B3 Entry Summary submitted is sufficient documentary evidence to support the CF 7511, as it is a Canadian customs manifest.

With respect to the issue of loss of product due to drawing, pumping into the pasteurizer, and spillage, the described loss of product constitutes irrecoverable and valueless waste, and does not reduce the drawback if the basis of the drawback claim is the duty paid on the quantity of imported material used in manufacture. However, if the basis of the drawback claim is the quantity of imported merchandise appearing in the exported articles, the quantity of waste incurred, whether it is valueless or valuable, will reduce the drawback paid.

HOLDING:

The orange juice concentrate is not eligible for unused merchandise drawback under 19 U.S.C. ?1313(j)(1), but is eligible for drawback under 19 U.S.C. ?1313(a) or (b), and is not subject to the limitation of drawback under 19 U.S.C. ?3333.

Sincerely,

Director, Commercial
Rulings Division

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