Applicability of partial duty exemption under HTSUS subheading 9802.00.50 to Alaskan Pollock; blocks; cut; battered; breaded; frozen; Canada; NAFTA; Article 509; 19 CFR 181.64

HQ 559793 July 29, 1996 CLA-2 RR:TC:SM 559793 MLR CATEGORY: Classification TARIFF NO.: 9802.00.50 Stephen J. Leahy, Esq. Leahy & Ward 63 Commercial Wharf Boston, MA 02110 RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.50 to Alaskan Pollock; blocks; cut; battered; breaded; frozen; Canada; NAFTA; Article 509; 19 CFR 181.64 Dear Mr. Leahy: This is in reference to your letter of March 25, 1996, to Customs in Portland, Maine, requesting a ruling on behalf of Fishery Products International, Ltd. ("FPI"), regarding the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to certain fish products. FACTS: It is stated that FPI in Canada plans to receive Alaskan Pollock blocks from a U.S. plant. The blocks will be cut into portions in Canada, and these portions will be battered, breaded, and frozen for shipment to the U.S. The merchandise imported into the U.S. is classifiable under subheading 1604.19.40, HTSUS. ISSUE: Whether the Alaskan Pollock returned to the U.S. after being cut, battered, breaded, and frozen in Canada will qualify for the partial duty exemption available under subheading 9802.00.50, HTSUS. LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides for a partial or complete duty exemption for articles exported from and returned to the U.S. after having been advanced in value or improved in condition by repairs or alterations, provided the documentary requirements of section 181.64, Customs Regulations (19 CFR 181.64), are satisfied. However, entitlement to this tariff treatment is precluded in circumstances where the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Section 181.64, Customs Regulations (19 CFR 181.64), which implements Article 307 of the North American Free Trade Agreement (NAFTA), provides that goods returned after having been repaired or altered in Canada other than pursuant to a warranty are subject to duty upon the value of the repairs or alterations using the applicable duty rate under the United States-Canada Free Trade Agreement, provided that the documentation and other requirements of this section are met. "Repairs or alterations" for purposes of 19 CFR 181.64 are defined as follows: ... restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different good from, the good exported from the United States. As support that the Canadian operations constitute alterations, you cite C.S.D. 90-50, where Customs held that the cutting to length of certain concrete reinforcing end bars was an alteration. However, we note that in other rulings addressing cutting-to-length processes, Customs has held that certain cutting operations constituted finishing steps. See Headquarters Ruling Letter (HRL) 555174 dated April 25, 1989 (continuous rolls of decorative banner material exported to Mexico and cut to shorter lengths exceeded an alteration); and HRL 554736 dated February 16, 1988 (facial tissue paper exported in rolls and cut to length, folded, and packaged for retail sale also exceeded an alteration). In regard to the processing of food products, in HRL 557633 dated February 10, 1994, Customs considered blocks of mozzarella cheese cut into portions, shredded, repacked and returned to the U.S. from Canada. In determining that subheading 9802.00.50, HTSUS, did not apply, HRL 557633 relied upon HRL 071399 dated July 19, 1983, where it was held that frozen fish fillets caught by U.S. flag fishing boats and sent to Korea and China where they were cut into three pieces, wrapped in plastic, boxed and returned to the U.S. constituted "more than an alteration." Using the factors set forth in A.F. Burstrom, Customs stated that the fish slices created differed in name, value, appearance, size and shape from the exported material. Furthermore, in HRL 554934 dated April 3, 1989, Customs held that peanuts exported to Mexico where they were shelled, roasted and salted were not eligible for subheading 9802.00.50, HTSUS, treatment, as the operations constituted intermediate steps in the preparation of finished peanuts. Additionally, in HRL 952685 dated January 11, 1993, Customs considered crabs shipped to China where they were thawed, the meat was extracted, and the extracted body meat was frozen into blocks and packed in coated boxes for export to the U.S. Relying on HRL 051909 dated June 29, 1977, it was determined that the crab was not eligible for subheading 9802.00.50, HTSUS, treatment, as the exported crab-in-shell product was commercially different from the returned extracted crab meat product. In HRL 555462 dated September 11, 1989 {abstracted at C.S.D. 89-134(2)}, Customs held that apples exported to Mexico where they were diced and quick-frozen exceeded the scope of the term "alteration." See also HRL 554654 dated July 28, 1987, (whole peaches sliced abroad not only destroyed the identity of the exported peaches, but resulted in new and different articles of commerce with many uses different from those for whole peaches). However, in HRL 084353 dated June 2, 1989, Customs held that freeze drying diced, frozen chicken in Canada was an alteration. In this case, not only are the Alaskan Pollock blocks cut into portions, but they are also battered and breaded which presumably makes them ready for cooking and consumption. Therefore, as determined in the rulings cited above regarding the shredding of the mozzarella, the slicing of the fish fillets, or the dicing of the apples, the portions of fish created in this case are commercially different from the blocks of Alaskan Pollock. Furthermore, the battering and breading of the fish are intermediate steps in the preparation of ready-to-eat fish, which clearly destroys the identity of the Alaskan Pollock blocks. Accordingly, the returned fish product will not be eligible for subheading 9802.00.50, HTSUS, treatment. HOLDING: On the basis of the information submitted, we are of the opinion that the operations in Canada are intermediate steps in the preparation of the ready-to-eat fish, such that a new and commercially different article is created, thereby rendering the returned fish product ineligible for the partial duty exemption under subheading 9802.00.50, HTSUS. 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, John Durant, Director Tariff Classification Appeals Division