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HQ 562353




July 30, 2002

CLA-02 RR:CR:SM 562353 EAC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.10

Mr. Vincent A. Sommella
Capitol Customs Brokers, Inc. and International Freight Forwarders
99 W. Hawthorne Avenue
Valley Stream, NY 11580

RE: Country of origin determination for raw coffee beans grown in Puerto Rico and exported to Canada for decaffeination; eligibility of imported coffee for classification as American Goods Returned; eligibility of imported coffee for preferential treatment under NAFTA; Merchandise Processing Fee; 19 C.F.R. §24.23

Dear Mr. Sommella:

This is in response to your letter dated January 23, 2002, in which you request a ruling regarding the dutiable status and applicability of the merchandise processing fee to coffee beans grown in Puerto Rico, decaffeinated in Canada and then imported into the U.S.

FACTS:

It is stated that the coffee beans are grown in Puerto Rico. After harvesting the raw coffee beans, they are exported to Canada to be decaffeinated, a process that you describe as “washing the beans in water”. Subsequently, the decaffeinated coffee beans are imported into the United States by truck and then forwarded back to Puerto Rico.

ISSUES:

Whether the coffee beans, upon importation into the United States, meet the eligibility requirements of subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS).

Whether the coffee beans, upon importation into the United States, meet the requirements for preferential tariff treatment under NAFTA.

Whether the imported coffee beans are subject to the merchandise processing fee (MPF).

LAW AND ANALYSIS:

9801.00.10 Eligibility Requirements

Subheading 9801.00.10, HTSUS, provides for the duty-free entry of products of the U.S. that have been exported and returned to the United States, provided that the goods have not been advanced in value or improved in condition by any process of manufacture or other means while abroad. Goods are entitled to the aforementioned duty-free entry assuming that the documentary requirements of section 10.1, Customs Regulations (19 C.F.R. §10.1), are met. While some changes in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the United States. See Border Brokerage Co. v. United States, 65 Cust.Ct. 50, C.D. 4052, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).

General Note 2, HTSUS, defines the customs territory of the United States as: the States, the District of Columbia and Puerto Rico. Therefore, coffee grown in Puerto Rico is eligible to receive preferential duty treatment under subheading 9801.00.10, HTSUS, if exported and returned, provided the other requirements of the subheading are met.

You state that the raw coffee beans are decaffeinated by “only washing the beans in water”. In United States v. John V. Carr & Sons, Inc., 69 Cust. Ct. 78, C.D. 4377 (1972), the court held that for purposes of meeting the statutory requirements of item 800.00, Tariff Schedules of the United States (TSUS) (precursor to subheading 9801.00.10, HTSUS), the determinative factor is whether there has been an alteration to the product itself (apart from its container) that advances its value or improves its condition. The Carr and Border Brokerage decisions do not focus on the complexity of the process that spawned the change in the product. Rather they depend upon the occurrence of any change in the product that may enhance the product’s value or improve its condition upon exportation. Similarly, Customs’ concluded in HRL 558912, dated March 17, 1995, that merely cutting steel tubing to length abroad was an improvement in condition, thereby rendering the tubing ineligible for classification in subheading 9801.00.10, HTSUS. See HRL 555174, dated April 25, 1989 (decorative banners cut to shorter lengths were precluded from classification in subheading 9801.00.10, HTSUS, because they were more marketable thereby constituting an advancement in value); and HRL 559917, dated June 23, 1997 (cutting 640 pound blocks of cheese into smaller portions precluded classification in subheading 9801.00.10, HTSUS, because the smaller blocks were more marketable thereby constituting an improvement in condition).

In the case under consideration, the decaffeination of the coffee beans clearly advances their value. It follows then that the decaffeinated coffee beans, upon importation into the United States, may not be classified in subheading 9801.00.10, HTSUS. Rather, the coffee beans are properly classified in subheading 0901.22.00, HTSUS, if roasted, or in subheading 0901.12.00, HTSUS, if not roasted.

NAFTA Preference

The second issue concerns whether the imported coffee beans are entitled to preferential treatment under NAFTA. To address this issue, it must first be determined if Puerto Rico is considered to be a part of the “territory of the United States” under NAFTA.

The applicable provision, Annex 201.1 of NAFTA, is incorporated into General Note 12, HTSUS. Accordingly, General Note 12(q)(iii)(A), HTSUS, defines “territory of the United States” as:
the customs territory of the United States, as set forth in general note 2 to this schedule,

It has been established, supra, that Puerto Rico is considered part of the customs territory of the United States under General Note 2, HTSUS, and therefore is also considered to be within the “territory of the United States” for NAFTA purposes under General Note 12, HTSUS.

In order to be eligible for preferential tariff treatment under NAFTA, however, goods must be “originating goods” pursuant to the rules of origin in General Note 12(b), HTSUS, which provides, in pertinent part, as follows:

For purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as ‘goods originating in the territory of a NAFTA party’ only if –
they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
they have been transformed in the territory of Canada, Mexico and/or the United States so that –
except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or
the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials

In accordance with General Note 12(b)(i), HTSUS, the raw coffee beans are considered as “originating” if they are “wholly obtained or produced” entirely in the “territory of the United States”. Accordingly, General Note 12(n)(ii), HTSUS, provides that: “goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States” includes:
vegetable goods, as such goods are defined in this schedule, harvested in the territory of one or more of the NAFTA parties

The coffee beans at issue are properly classified in subheading 0901.12.00 or 0901.22.00, HTSUS, and as such, fall within the scope of Section II, Vegetable Products, HTSUS. Additionally, Part II, section 4(1)(b) of the Rules of Origin Regulations (19 C.F.R. Part 181 Appendix), provides that, for NAFTA originating purposes, a good is “wholly obtained or produced” if the good is “a vegetable or other good harvested in the territory of one or more of the NAFTA countries”. In consideration of the aforementioned provisions, it is apparent that the raw coffee beans are “wholly obtained or produced” entirely in the territory of the United States and therefore qualify as a NAFTA originating good.

Moreover, General Note 12(n)(x), HTSUS, provides that goods “wholly obtained or produced” includes:
goods produced in the territory of one or more of the NAFTA parties exclusively from goods referred to in subdivisions (n)(i) through (ix), inclusive [emphasis added], or from their derivatives, at any stage of production.

Thus, even though the coffee beans are processed in Canada, they retain their NAFTA originating status when imported into the U.S. from Canada.

To qualify for the NAFTA preference “CA” duty rate when imported into the U.S. from Canada, the decaffeinated beans must not only qualify as “originating goods,” but also as “goods of Canada” under the NAFTA Marking Rules. See General Note 12(a)(i), HTSUS. Section 134.1(j), Customs Regulations (19 C.F.R. §134.1(j)), 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) 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.

Part 102, Customs Regulations (19 C.F.R. Part 102), 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 sets forth the required hierarchy for determining country of origin for marking purposes. Applying the rules in section 102.11 (specifically section 102.11(b)(1)) to the facts in this case results in the imported decaffeinated coffee beans being considered goods of the U.S.

However, pursuant to 19 C.F.R. §102.19(b) of the NAFTA Marking Rules, the returned coffee will be treated as a product of Canada for duty purposes. Section 102.19(b) of the Customs Regulations (19 C.F.R. §102.19(b)), states:

If, under any other provision of this part, the country of origin of a good which is originating within the meaning of §181(q) of this chapter is determined to be the United States and that good has been exported from, and returned to, the United States after having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its return to the United States.

Therefore, the decaffeinated coffee beans will be subject to the Canadian preferential duty rate since they were last advanced in value or improved in condition in Canada before their return to the U.S. Accordingly, upon importation into the U.S., the decaffeinated coffee beans will be subject to the “CA” [Canada] rate (free) under subheading 0901.12.00 or 0901.22.00, HTSUS.

Merchandise Processing Fee

The final issue that must be addressed concerns whether the merchandise processing fee (MPF) is applicable to the imported coffee beans. Section 24.23(b)(1)(i)(A), Customs Regulations (19 C.F.R. §24.23(b)(1)(i)(A)), states:

Except as provided in paragraph (c) of this section,
merchandise that is formally entered or released is subject to the payment to Customs of an ad valorem fee of 0.21 percent. The fee shall be due and payable to Customs by the importer of record of merchandise at the time of presentation of the entry summary and shall be based on the value of the merchandise as determined under 19 U.S.C. 1401a.

Section 24.23(c), Customs Regulations (19 C.F.R. §24.23(c)), contains the exemptions and limitations to the aforementioned MPF. Specifically, 19 C.F.R. §24.23(c)(3) provides an exemption from the MPF for goods of Canada that are NAFTA originating. Since the coffee is a NAFTA originating product and a product of Canada, it will be exempt from the MPF.

HOLDING:

Based on the information submitted, we find that, subsequent to processing in Canada, the decaffeinated coffee beans are precluded from being imported into the U.S. under subheading 9801.00.10, HTSUS, because the raw coffee beans have been advanced in value and improved in condition abroad.

The decaffeinated coffee beans are, however, eligible to receive preferential tariff treatment under NAFTA because the coffee is a NAFTA originating good as defined by General Note 12(b)(i), HTSUS. Pursuant to 19 C.F.R. §102.19(b) of the NAFTA Marking Rules, the returned coffee will be treated as a product of Canada for duty purposes. Accordingly, upon importation into the U.S., the decaffeinated coffee will be subject to the “CA” [Canada] rate (free) under subheading 0901.12.00 or 0901.22.00, HTSUS.

Additionally, since the coffee is a NAFTA originating good and a product of Canada, it will be exempt from the MPF (see 19 C.F.R. §24.23(c)).

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,

Myles B. Harmon

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