HQ W231152 - Ruling request exportation to Canada of liquid fungicide manufactured in foreign trade zone; NAFTA; same condition drawback; 19 U.S.C. 1313(j)(1); 19 CFR 181.45(b)(1) - United States International Trade Commision Rulings

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HQ W231152

June 13, 2006

FOR-4-03:RR:CTF:ER 231152 TLS

CATEGORY: DRAWBACK NAFTA

Mr. John B. Pelligrini
McGuireWoods LLP
1345 Avenue of the Americas
New York, New York 10105-0106

RE: Ruling request exportation to Canada of liquid fungicide manufactured in foreign trade zone; NAFTA; same condition drawback; 19 U.S.C. 1313(j)(1); 19 CFR 181.45(b)(1)

Dear Mr. Pelligrini:

This is in response to your request for a ruling, dated September 13, 2005, on behalf of Syngenta Crop Protection, Inc. Specifically, you request a ruling determining the whether liquid fungicide manufactured in a foreign trade zone (FTZ) is eligible for drawback when exported to Canada. Our response follows.

FACTS:

Syngenta plans to formulate and package liquid fungicide at an FTZ. A bulk active ingredient manufactured in the United Kingdom will be used in the processing of the liquid fungicide. Some of the product will be withdrawn for consumption, and some for exportation to Canada.

You describe the processing of the liquid fungicide in the FTZ as follows:

The concentrated active ingredient is received in 1,pp liter tote tanks and is diluted, additional ingredients added, tested, and packaged for retail sale in Canada and the United States...

The conversion of the product to retail pack entails the dilution of the imported active ingredient concentrate, addition of ingredients for preservation and stabilization purposes, packaging into measured containers, and labeling and testing...

The only processing performed in the imported concentrate is to dilute it with propylene glycol and the addition of substances which stabilize the fungicide and protect it against biological infestation...

You contend that the processing done in the FTZ does not materially alter the liquid fungicide. As such, you further contend that the liquid fungicide is eligible for same condition drawback upon exportation to Canada.

ISSUE:

Whether the imported and subsequently processed liquid fungicide is eligible for drawback upon exportation to Canada, pursuant to the North American Free Trade Agreement, 19 U.S.C. § 1313(j)(1), and 19 CFR 181.45(b)(1).

LAW AND ANALYSIS:

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), such goods mean any good other than, among other things - (2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph -- (A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good[.] . . .

Furthermore, this section provides that "[a] good exported to a NAFTA country in the same condition as when imported into the United States" is not a good subject to the NAFTA drawback limitation. This section applies only to goods imported into the United States that are subsequently exported into Canada on or after January 1, 1996, or into Mexico on or after January 1, 2001. See Annex 303.7, section C, NAFTA; 19 CFR 181.41.

The U.S. Customs and Border Protection (CBP) 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. Under 19 CFR 181.44(g), with regard to unused goods under 19 U.S.C. § 1313(j)(1) that have changed in condition, a good that is imported under 19 U.S.C. § 1313(j)(1), that is unused in the United States, and that is shipped to Canada or Mexico not in the same condition within the meaning of 19 CFR 181.45(b)(1) may be eligible for drawback under this section, except when the shipment to Canada or Mexico does not constitute an exportation under 19 U.S.C. § 1313(j)(4).

Under 19 CFR 181.45(b), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition is eligible for drawback under 19 U.S.C. § 1313(j)(1) without regard to the limitation on drawback provided for in 19 CFR 181.44 (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Subparagraph (b)(1) of section 181.45 provides that:

For purposes of this subpart, a reference to a good in the "same condition" includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good:

(i) Mere dilution with water or another substance; (ii) Cleaning, including removal of rust, grease, paint or other coatings; (iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint; (iv) Trimming, filing, slitting, or cutting; (v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or (vi) Testing, marking, labeling, sorting or grading.

Before determining whether the liquid fungicide is “used” within the meaning of section 1313(j)(1), we must determine the intended purpose of the subject merchandise.

You state that the processing done in the FTZ is intended to dilute the liquid fungicide with propylene glycol “and the addition of substances which stabilize the fungicide and protect it against biological infestation.” You cite CBP Ruling HQ 228961 (January 23, 2002), to support your claim that the addition of a biocide is a dilution of the liquid fungicide permitted under 19 CFR 181.45(b)(1)(i). You also claim the fact that the process begins and ends with liquid fungicide is relevant in determining whether or not it has been materially altered, citing CBP Ruling HQ 227312 (December 4, 1997). You also cite CBP Ruling HQ 228056 (February 25, 1999) to support your claim that adding inert materials or a wetting agent does not change the essential character of the liquid fungicide.

We agree that the processing you describe begins and end with liquid fungicide as a product. Our Office of Laboratory and Scientific Services (OLSS) has reviewed the specifications and the processing description you provided. OLSS has concluded that the characteristic of active ingredient in the liquid fungicide, as imported, is not changed by the processing done in the FTZ. OLSS has found, however, that propylene glycol is added to liquid fungicide to prevent the freezing of the liquid. Without the addition of propylene glycol, the liquid fungicide is susceptible to freezing in the colder climate of Canada, affecting its “flowability.” Thus, the article produced as a result of the processing in the FTZ goes beyond “mere dilution of the imported product,” inconsistent with our finding in HQ 228961, supra. Syngenta markets the product on its website as “Abound® Flowable Fungicide,” stating that it “is available as a flowable suspension concentrate (SC) formulation,...” Given that flowability is a characteristic not found in the liquid fungicide before the addition of propylene glycol, we conclude that the addition of such to the liquid fungicide changes the condition of the liquid fungicide to the extent that it has become used. The use in this case consists of using the imported article to produce an article suitable for use as a liquid fungicide in potentially freezing climate, such as Canada. Therefore, the product, as exported from the FTZ to Canada, is not eligible for drawback under 19 U.S.C. § 1313(j)(1).

HOLDING:

The addition of propylene glycol to the imported liquid fungicide materially alters the liquid fungicide to the extent that it is not in the same condition upon exportation to Canada. Therefore, the exported liquid fungicide is not eligible for drawback under 19 U.S.C. § 1313(j)(1).

Sincerely,

William G. Rosoff, Chief
Entry Process and Duty Refunds Branch

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