Applicability of duty exemption to juice concentrates exported to Canada to produce apple juice or apple-raspberry juice; Packaging

HQ 556597 June 9, 1992 CLA-2 CO:R:C:S 556597 RAH CATEGORY: Classification TARIFF NO.: 9801.00.10, 9802.00.50 Mr. R.E. Vander Yacht President Border Brokerage Company P.O. Box B Blaine, Washington 98230 RE: Applicability of duty exemption to juice concentrates exported to Canada to produce apple juice or apple-raspberry juice; Packaging Dear Mr. Yacht: This is in response to your letter of March 17, 1992, requesting a ruling on behalf of your client, Tree Top, Inc., on the tariff status of apple juice and apple-raspberry juice produced and packaged in Canada. FACTS: Tree Top, Inc., is a major producer of apple juice, apple juice concentrates and other juice products with apple juice as the basic component. In the instant case, apple juice concentrate and apple juice essence is made in the United States from U.S.-grown apples. Apple juice concentrate is imported from West Germany, Austria, Hungary, Chile and Argentina. Both imported and domestic concentrates are laboratory tested in the United States to determine color, acidity, flavor and other factors. Selected concentrates are then mixed in the United States to create a "Master Blend" of pure apple concentrate. The "Master Blend" has a ratio by value of 83% U.S.-origin and 17% imported product. The apple "Master Blend" is sometimes mixed with raspberry concentrate to create a blend of 85% apple and 15% raspberry. The raspberry concentrate used in this blend is 100% U.S. origin. The apple "Master Blend" and the apple-raspberry "Master Blend" are exported to Canada with 250 ml boxes of U.S.-origin, corrugated trays of U.S.-origin and straws made in South Korea. Water is added in Canada to produce a reconstituted apple juice - 2 - or apple-raspberry juice. The juice is packed in the U.S. boxes and U.S. trays. Straws are affixed and the package is shrink wrapped with Canadian origin materials. The finished product is returned to the United States for retail sale. You contend that the juices in question should be classified under subheading 9801.00.1099, Harmonized Tariff Schedule of the United States (HTSUS), free of duty and not subject to merchandise processing fees. ISSUE: Whether apple or apple-raspberry concentrate composed of apple juice concentrate and/or raspberry concentrate from the United States mixed with apple juice concentrate from West Germany, Austria, Hungary, Chile or Argentina, is entitled to free entry under subheading 9801.00.10, HTSUS, or a partial duty allowance under subheading 9802.00.50, HTSUS, when returned to the United States from Canada where water is added to produce a reconstituted apple or apple-raspberry juice. LAW AND ANALYSIS: Subheading 9801.00.10, HTSUS, provides for the free entry of U.S.-made products that are exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. The juice concentrate in question exported to Canada is a mixture of U.S. concentrate and concentrate from other countries. Customs has long held that the simple mixing of two types of concentrate does not constitute a substantial transformation of the substance into a new and different article of commerce thereby rendering it a "product of" the country where the blending occurs. Headquarters Ruling Letter 554161 dated July 3, 1986. Therefore, as the juice concentrate exported to Canada contains foreign concentrate, it is not a U.S.-made product for purposes of subheading 9801.00.10, HTSUS. Moreover, water is added to the concentrate in Canada to make juice. This procedure makes the product consumable and clearly will advance the value and/or improve the condition of the concentrate. Accordingly, the apple and/or apple-raspberry juice in question does not qualify for duty free treatment under subheading 9801.00.10, HTSUS, because it is not a U.S.-made product and it will be advanced in value or improved in condition in Canada. - 3 - Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Such articles are dutiable only upon the value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. However, entitlement to this tariff treatment is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See, A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing. Guardian; Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 82, 599 F.2d 1015, 119 (1979). In the instant case, the operations performed in Canada exceed an alteration. The concentrate is incomplete for its intended use (as a consumable beverage) prior to the addition of water in Canada which constitutes a finishing operation necessary to produce the completed product. Accordingly, the apple and/or apple-raspberry juice will not be entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, upon importation into the United States. With respect to the dutiability of the packing materials, General Rule of Interpretation 5(b), HTSUS, provides that: [p]acking materials and packing containers entered with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision does not apply when such packing materials or packing containers are clearly suitable for repetitive use. Therefore, the value of non-reusable packing materials or containers normally used for packing such goods is considered a part of the value of its contents and is dutiable at the rate of its contents. However, we have held that U.S.-origin packaging materials which are not advanced in value or improved in condition while abroad are separately entitled to duty-free treatment under subheading 9801.00.10, HTSUS. The act of being filled with their contents is not considered to be an advancement in the condition of the container or materials. See, Headquarters Ruling Letter 731806 dated November 18, 1988. Thus, the U.S.-origin corrugated trays and boxes will be entitled to - 4 - duty-free treatment under subheading 9801.00.10, HTSUS, upon compliance with the documentation requirements of 19 CFR 10.1. The straws of South Korean-origin will be dutiable at the same rate as the juice. HOLDING: The apple or apple-raspberry juice concentrate composed of U.S. and foreign concentrate which is exported to Canada where water is added to produce a reconstituted apple and or apple- raspberry juice will not be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, because it is not a U.S.-made product and it will be advanced in value or improved in condition in Canada. Additionally, the apple and/or apple-raspberry juice will not be entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, as it is incomplete for its intended use (as a consumable beverage) prior to the foreign processing. Sincerely, John Durant, Director Commercial Rulings Division