Internal Advice 47/88 - Applicability of HTSUS subheading 9802.00.50 to, and the country of origin of, cracked raw green pistachio nuts imported from Hong Kong

HQ 555246 April 12, 1989 CLA-2 CO:R:C:V 555246 GRV CATEGORY: CLASSIFICATION TARIFF NO: 9802.00.50, HTSUS (formerly 806.20, TSUS) District Director of Customs 300 South Ferry Street Terminal Island San Pedro, CA 90731 RE: Internal Advice 47/88 - Applicability of HTSUS subheading 9802.00.50 to, and the country of origin of, cracked raw green pistachio nuts imported from Hong Kong Dear Sir: This is in response to your memorandum of September 12, 1988, requesting advice concerning the applicability of HTSUS subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to, and the country of origin of, cracked raw green pistachio nuts imported from Hong Kong. FACTS: You state that raw pistachio nuts of U.S. origin are exported to Hong Kong for cracking and then returned to the U.S. The importer enters these raw pistachio nuts under both TSUS items 145.26 and 806.20 and claims Hong Kong as the country of origin; the cracking substantially transforming the exported U.S. merchandise for country of origin purposes. You claim that the country of origin remains the U.S., as cracking does not sub- stantially transform the raw pistachio nuts, and that because the exported article is an unfinished product, it is ineligible for TSUS item 806.20 tariff treatment when returned to the U.S. ISSUES: I. Whether the returned article is eligible for the partial duty exemption under HTSUS subheading 9802.00.50. II. Whether the foreign cracking operation constitutes a substantial transformation of the article (raw pistachio nuts) for country of origin purposes. LAW & ANALYSIS: I. HTSUS Subheading 9802.00.50 eligibility Effective January 1, 1989, the HTSUS superseded and re- placed the TSUS. TSUS item 806.20 was carried over into the - 2 - HTSUS as subheadings 9802.00.40 (repairs or alterations made pursuant to a warranty) and 9802.00.50 (other repairs or altera- tions). These tariff provisions provide a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Under these tariff provisions, there is a duty only upon the value of the foreign repairs or alterations, pro- vided the documentation requirements of section 10.8, Customs Regulations (19 CFR 10.8), are met. In Dolliff & Company, Inc., v. United States, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015, 1019 (1979), the court stated that: ... repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or the manufacture of finished articles. (Court's emphasis). Thus, "the focus is upon whether the exported article is 'incomplete' or 'unsuitable for its intended use' prior to the foreign processing." Guardian Industries Corp. v. United States, 3 CIT 9 (1982), at page 13. In Headquarters Ruling Letter 554834 (May 25, 1988), U.S. grown pecan pieces were exported to Mexico for removal of the nut meat from the shell. In that case we determined that the foreign shelling process was not a repair or alteration operation, as the pecan pieces that were shipped to Mexico were incomplete for their intended use and required a further step in the preparation of the finished nut meat product. Accordingly, we denied the partial duty exemption available under TSUS item 806.20 to the returned pecan nut meat. See also, Headquarters Ruling Letter 071174 (February 22, 1983), wherein the foreign shelling of domestic pecan nuts was found to exceed an alteration. II. Country of Origin Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304) provides, in general, that all articles of foreign origin imported into the U.S. shall be legibly and conspicuously marked to indicate the country of origin to an ultimate purchaser in the U.S. U.S. products exported and returned are specifically excepted from country of origin marking requirements under section 134.32(m), Customs Regulations (19 CFR 134.32(m)). In applying this section, Customs has ruled that products of the U.S. which are exported for further processing and subsequently returned, are generally not subject to country of origin marking upon importation into the U.S., unless the further processing in the foreign country constituted a substantial transformation of the product. See, e.g., C.S.D. 80-15; C.S.D. 79-443. - 3 - In defining what constitutes a substantial transformation, Customs has held that a new and different article of commerce having a new name, character and use must emerge from the processing. See, United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940). In T.D. 85-158, 19 Cust. Bull. 360 (October 15, 1985), Customs determined that roasting, salting and coloring pistachio nuts, without more, does not result in a substantial transformation. Customs reasoned that the roasting, salting and coloring processes were simple operations which did not change the character or identity of the pistachio nuts. Customs further found that since no commercial use exists for green pistachio nuts, these steps constituted necessary processing to which all pistachio nuts are subjected and that it did not alter or limit the intended or potential commercial use of the nuts. Similarly, in the case at hand, we find that the cracking process, like the roasting and coloring processes, does not change the fundamental character of the nut or result in a new and different article of commerce. In fact, like the roasting and coloring, it is a necessary step to which all pistachio nuts, intended for any commercial use, are subjected. Therefore, the nuts remain products of the U.S. and are not subject to the requirements of the marking statute, 19 U.S.C. 1304. HOLDING: On the basis of the information presented, raw green in- shell pistachio nuts exported for cracking operations are incomplete for their intended use as exported and, therefore, are ineligible for the partial duty exemption available under HTSUS subheading 9802.00.50 upon their return to the U.S. However, the foreign cracking operation does not result in the substantial transformation of the pistachio nuts for country of origin marking purposes. Sincerely, John Durant, Director Commercial Rulings Division