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HQ 230327




May 10, 2004

CON-9-04 RR:CR:DR HQ 230327 MK

Julia M. McCalmon, Esq.
Christopher D. Perry, Esq.
Thompson Hine LLP
1920 N Street, N.W.
Washington, D.C. 20036-1600

RE: Prospective Ruling; Temporary Importation Under Bond; Canadian Wheat Blending and Export to Mexico; Subheading 9813.00.05, HTSUS; NAFTA Drawback

Dear Sir and Madam:

This responds to your request for a prospective ruling, dated February 10, 2004, on behalf of Archer Daniels Midland Company (“ADM”), regarding the temporary importation of Canadian wheat for the purpose of blending and grading and subsequent export to Mexico. You state in your letter that you have already attained a ruling on identical facts, with only one difference, in HQ 229962, issued on August 1, 2003. Therefore, we rely on the facts of that ruling.

Our decision follows.

FACTS:

ADM purchases Hard Red Spring Wheat, classified under subheadings 1001.90.2021- 2029, Harmonized Tariff Schedule of the United States (“HTSUS”), from Canada and proposes to import the wheat under subheading 9813.00.05, HTSUS, for blending with U.S. Hard Red Spring Wheat. The imported wheat is of a certain protein level, moisture, content and falling number. The grade, protein level, moisture content and falling number of each importation would vary. The wheat would be blended with the U.S. wheat, and the blended wheat would be exported to Mexico.

We note that the one difference between HQ 229962, issued on August 1, 2003, and this case is the export destinations of the previous ruling specifically excluded Canada and Mexico. The imported wheat falls under the same HTSUS subheading as the exported wheat.

The imported and the U.S. wheat, may or may not be blended prior to purchase by ADM. ADM’s purchase orders typically specify a certain grade and minimum protein level. The Canadian wheat may have to be blended to achieve homogeneity between the grains prior to sale to ADM and importation. Similarly, the U.S. wheat may have to be blended prior to sale to ADM. The class name of the imported wheat will be the same as the class name of the exported wheat.

The purpose of the blending is to alter the wheat in grade, protein level, moisture content or falling number to meet foreign customer specifications. ADM provides the example that the proposed blending operation may improve a lower quality U.S. wheat by blending it with a Canadian wheat with a higher protein level, thus altering the wheat to produce a wheat blend with a higher protein level than the original U.S. wheat. The result of the alteration is that ADM may get a better price for the wheat blend than it would have for the U.S. wheat by itself. The blended wheat will be graded prior to exportation.

The wheat market correlates higher quality with higher price. Indicia of higher quality include higher grades, protein levels, moisture content or falling numbers. The wheat grade is determined by its test weight, wheat purity and other material content. The improved grade or cleaner wheat blend increases flour extraction during the milling process, providing millers with a greater return on their purchase of wheat. Higher protein levels tend to increase the absorption capability of flour making it preferable for use by small and mid-size bakeries because an increased absorption capability allows for less flour to be used during baking and reduces preparation time. With respect to moisture content, some consumers prefer a wheat blend with lower moisture content because it is better suited for their storage facilities or it is better suited for their baking methods. With respect to falling number, bakers generally prefer flour with falling numbers above 300, which yields fuller bread or pastries. Generally, customers require a certain falling number to produce a certain product. Both the Canadian wheat prior to blending and the wheat blend compete in the same milling market and will ultimately be used to make flour for baking, but the wheat blend will have different characteristics to satisfy consumer preferences and achieve pricing objectives.

The imported wheat is subject to Antidumping case no. A-122-847, and Countervailing duty case number C-122-848.

In HQ 229962, it was determined that the blending and grading of wheat goes beyond an alteration and is a process for TIB purposes but does not amount to an article manufactured or produced in the U.S. for the purposes of subheading 9802.00.50, and that the imported merchandise was not subject to the limitations and requirements of U.S. Note 2 of Subchapter XIII of Chapter 98, HTSUS.

ISSUE:

Whether wheat imported from Canada, subject to the above described process, and subsequently exported to Mexico is subject to the NAFTA drawback “lesser of” rule of U.S. Note 1(c) to HTSUS Chapter 98, Subchapter XIII?

LAW & ANALYSIS:

General Note 1, HTSUS, dictates that all merchandise imported into the U.S. is subject to duty unless specifically exempted therefrom. Subheading 9813.00.05, HTSUS, provides for the temporary, duty-free entry, under bond, for "articles to be repaired, altered or processed (including processes which result in articles manufactured or produced in the United States)".

Pursuant to U.S. Notes 1(a) of Subchapter XIII of Chapter 98, HTSUS, under subheading 9813.00.05, articles, may enter into the United States temporarily free of duty under a Temporary Importation Under Bond (TIB) for exportation within one year from the date of importation. This one year period may be extended for one or more additional periods, which when added to the initial period may not exceed three years. See 19 CFR 10.37. The imported merchandise may not be imported for the purpose of a sale or sale on approval.

U.S. Note 1(c), Chapter 98, Subchapter XIII, HTSUS provides:

For purposes of this subchapter, if an article imported into the United States under heading 9813.00.05 is withdrawn for exportation to the Territory of Canada or of Mexico, the duty assessed shall be waived or reduced in an amount that does not exceed the lesser of the total amount of duty payable on the article that would have been payable on importation under chapters 1 through 97, inclusive of the Harmonized Tariff Schedule of the United States or the total amount of customs duties paid to Canada or Mexico on the exported article, unless such article is covered by section 203(a)(1) through 203(a)(8), inclusive, of the NAFTA Implementation Act.

Section 203(a) of the NAFTA Implementation Act provides that all goods imported into the United States are subject to NAFTA drawback restrictions unless otherwise specifically exempted. One of the categories of goods exempted from the NAFTA drawback restrictions is merchandise that qualifies under the rules of origin set out in 19 U.S.C. 1332 and exported to or used as a material in the production of another good that is exported to a NAFTA country. It is your position that the Canadian wheat qualifies under the exemption of this statue.

Section 3332(a)(1)(A) of Title 19 of the United States Code states that “a good originates in the territory of a NAFTA country if the good is wholly obtained or produced entirely in the territory of one or more of the NAFTA countries.” In this case, the wheat is said to be of Canadian origin and the prospective ruling includes a NAFTA Certificate of Origin. We find this is sufficient documentation to evidence a NAFTA country of origin.

Additionally, Note 2(b) of Subchapter XIII, HTSUS, requires a complete accounting of articles, wastes, and losses to CBP when a processing of merchandise admitted into the United States under subheading 9813.00.05, HTSUS, results in an article manufactured or produced in the United States

The CBP has interpreted the temporary importation under bond provisions as usually requiring direct identification of each particular article to show timely exportation. There have been exceptions, however, to requiring direct identification of each individual article covered by a TIB entry when direct identification of the imported merchandise was impossible because the imported merchandise was indistinguishable from and commingled with other merchandise, and thus the ability to directly account for the imported merchandise was lost. The FIFO method has been permitted as one such exception, and this office has held in the past that “the FIFO method, as illustrated in Schedule X to the 19 CFR Part 181 Appendix, may be used to identify the goods when the finished products are manufactured from fungible domestic merchandise commingled with fungible TIB merchandise." (See HQ 225566, issued on August 7, 1995).

We note that our determinations are strictly limited to the facts presented and, notwithstanding our conclusions, note that 19 U.S.C. 3333(e) states that “nothing in [section 3333] or its amendments made by it shall be considered to authorize the refund, waiver, or reduction of countervailing or antidumping duties imposed on an imported good.” This appears to override the exemption provided by 19 U.S.C. 3333(a)(1)-(8) with respect to dumping or unlawful subsidies, which are within the purview of the Department of Commerce. We have raised this issue with that department and have requested a statement of its position on that statutory provision.

HOLDING:

The subject wheat, imported from Canada, blended and graded with American wheat, and subsequently exported to Mexico, is not subject to the NAFTA drawback “lesser of” rule of U.S. Note 1(c) to HTSUS Chapter 98, Subchapter XIII.

Sincerely,

Myles B. Harmon, Director

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