Main Idea: Chapter 98 classifications can be a significant opportunity for duty-savings, but require robust tracing and recordkeeping processes from importers.
In ruling H323401, (Sept. 29, 2022) U.S. Customs and Border Protection (CBP) considers the applicability of secondary subheading 9801.00.10, HTSUS for certain retail bags of frozen fruit (e.g., strawberries or fruit medleys).
The ruling requestor, Nature’s Touch, is a Canadian company that imports bulk frozen fruits from Chile, Ecuador, Mexico, Serbia, and other countries into the United States. The bulk frozen fruits enter the U.S. customs territory for consumption. Nature’s Touch pays all required duties, taxes and fees. The Company subsequently exports the bulk frozen fruit to its Canadian facility for storage and segregates the product within its warehouse via a reporting system for traceability purposes. Later, the Company breaks down the bulk shipments and repackages the frozen fruit into retail bags. No further operations occur at the Company’s Canadian facility.
Likely in an effort to mitigate exposure to double payment of duty on the subject imports (which will have formally entered the U.S. customs territory), the Company seeks secondary classification under subheading 9801.00.10, HTSUS.
Historically, subheading 9801.00.10, HTSUS, applied only to U.S. goods that had been exported and returned. In 2016, Section 904(b) of the Trade Facilitation and Trade Enforcement Act of 2015 amended subheading 9801.00.10, HTSUS, to include any product that is returned within three (3) years of being exported. The provision now allows for the duty-free treatment of: “Products of the United States when returned after having been exported, or any other products when returned within three years after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad.”
Classification under this special secondary subheading requires the importer to maintain robust tracing mechanisms for its inventory. In this instance, Nature’s Touch claims that the foreign-origin frozen fruit, which previously entered the United States, will be exported to Canada and returned within three (3) years. While in Canada, the Company explains that its Canadian warehouse uses an inventory tracking system to trace the merchandise by shipment and product, and that all of the fruit merchandise can be traced back to specific U.S. customs entries and matched with export bills of lading and Canadian B-2 customs entry forms for consumption. Nature’s Touch relies on these tracking mechanisms to verify that the returned article is the same article that it previously exported from the United States.
Further, and consistent with the terms of the subheading, Nature’s Touch affirms that the frozen fruit does not undergo any operations in Canada, apart from storage and repacking the shipments of bulk merchandise into individual portion retail packages. Per United States vs. John v. Carr & Sons, Inc., 347 F. Supp. 1390 (Cust. Ct. 1972), 496 F.2d 1225 (CCPA 1947), the mere repackaging of product, even for the purpose of resale to an end-user, does not preclude the merchandise from duty-free treatment under this “goods returned” tariff provision (which, in its current form, is subheading 9801.00.10, HTSUS), provided the merchandise does not itself undergo some alterations or changes. Based on this precedent, CBP determines that the repackaging operations in Canada does not advance in value or improve in condition the frozen fruits in this case. Therefore, the returned frozen fruit products will indeed be eligible for duty-free treatment under subheading 9801.00.10, HTSUS, provided the following documentary requirements of 19 C.F.R. § 10.1 are met.
Classification and eligibility for duty-free treatment under subheading 9801.00.10, HTSUS, requires the importer’s adherence to additional documentary and recordkeeping burdens. Section 10.1(A), CBP Regulations (19 C.F.R. § 10.1(a)) sets forth the rules for entry under subheading 9801.00.10, HTSUS. When claiming duty-free treatment under this provision, the regulations require the importer to file the following documents in connection with entries of articles in shipments valued over $2,500:
- Foreign shipper’s declaration; and
- Declaration by the owner, importer, consignee, or agent having knowledge of the facts regarding the claim for free entry.
The required declarations act to substantiate the importer’s claim that the goods are properly eligible for duty-free treatment under the terms of the subheading. The specific data and general form of each declaration are prescribed in the regulatory text. The regulation further describes various exceptions and other documentation or evidence that CBP may request in connection with such a claim.
Based on the aforementioned information, CBP rules that the returned frozen fruit products are eligible for duty-free treatment under subheading 9801.00.10, HTSUS, provided the documentary requirements of 19 C.F.R. § 10.1 are satisfied.