Main Idea: When making multiple determinations in a single ruling, the totality of evidence based on each determination contributes to the final decisions.
In ruling N330744 (Feb. 28, 2023), Customs and Border Protection (CBP) issued a decision on the classification, country of origin, marking and eligibility of the United States-Mexico-Canada Trade Agreement (USMCA) for a “Sucrose, Lactose and Cocoa Powder Blend” (“SLCB”) from Mexico. This product is a dry blend of 94.9 percent refined cane sugar, 4.1 percent lactose and 1 percent cocoa powder. The sugar component is grown and refined in Mexico, the lactose component is a product of the United States, and the cocoa powder is produced in the United States using cocoa beans sourced from non-USMCA countries. All of the aforementioned ingredients are processed, blended, and packed in Mexico, and the finished SLBC will be imported in 1000-1500 kg supersacks via railway to be used in making chocolate and confectionary products.
CBP determined that the appropriate subheading for the SLCB is 1806.10.4500, Harmonized Tariff Schedule of the United States (HTSUS), providing for Chocolate and other food preparations containing cocoa: Cocoa powder, containing added sugar or other sweetening matter: Containing 90 percent or more by dry weight of sugar: Articles containing over 65% percent by dry weight of sugar described in additional U.S. note 2 to chapter 17: Described in additional U.S. note 7 to chapter 17 and entered pursuant to its provisions. The general rate of duty will be 10 percent ad valorem.
However, if the limit of additional U.S. note 7 chapter 17 have been reached, the product will be classified under subheading 1806.10.5500, HTSUS, and will be dutiable at the rate of 33.6 cents per kilogram. Additionally, products classified under subheading 1806.10.5500, HTSUS, will be subject to additional duties assessed based on their value, per subheadings 9904.17.17 to 9904.17.48, HTSUS.
Country of Origin Marking
CBP ultimately determined that the country of origin for the SLCB is Mexico.
“Country of origin” is defined in 19 C.F.R. § 134.1(b) as “the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of this part; however, for a good of a NAFTA or USMCA country, the marking rules set forth in part 102 of this chapter (hereinafter referred to as the part 102 Rules) will determine the country of origin.”
Under section 102.0, interim regulations related to marking rules, tariff-rate quotas, and other USMCA provisions, the rules outlined in sections 102.1 through 102.18 and 102.20 determine the appropriate country of origin for marking purposes, regarding goods imported from Canada and Mexico. Section 102.11 lays out a hierarchy that is used in determining the country of origin of a good and for marking purposes, excluding textile goods which are subject to the guidelines outlined in 19 C.F.R. § 102.21. The hierarchy is laid out as follows:
The country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other requirements of these rules are satisfied.
CBP first found that the SLCB was neither “wholly obtained or produced” nor “produced exclusively from domestic materials,” in Mexico and therefore determined that the first two criteria did not apply to this case. CBP thereby applied the third criteria and found that the applicable tariff shift requirement in section 102.20 for the “SLCB” of subheading 1806.10, HTSUS, consisted of the following:
A change to subheading 1806.10 from any other heading, except from heading 1805 or from Chapter 17; or
A change to subheading 1806.10 from Chapter 17, provided that the good contains less than 65 percent by dry weight of sugar.
CBP determined that the tariff shift rule was not satisfied because the foreign materials, cocoa powder and lactose, contained in the SLCB are classified in subheading 1805.00 and 1702.11 within the heading 1805 and Chapter 17. Section 102.13 provides for a de minimis exception for foreign materials that do not undergo applicable change in tariff classification as required in § 102.20. Section 102.13(a) provides:
Except as otherwise provided in paragraphs (b) and (c) of this section, foreign materials that do not undergo the applicable change in tariff classification set out in § 102.20 or satisfy the other applicable requirements of that section when incorporated into a good shall be disregarded in determining the country of origin of the good if the value of those materials is no more than 7 percent of the value of the good or 10 percent of the value of a good of Chapter 22, Harmonized System.
Based on the information supplied by the manufacturer of this product, the value of the cocoa powder contained in the SLCB does not exceed any more than 7 percent of the total value of the product. Therefore, CBP reasoned that the cocoa powder is de minimis below § 102.13(a) and is to be disregarded in tariff shift requirement applicability of § 102.20. However, the total value of lactose exceeds 7 percent of the total value of the SLCB.
Since the utilization of section 102.11(a)(3) did not yielded a country of origin determination, CBP turned to section 102.11(b) of the regulations.
Section 102.11(b) states, in relevant part:
Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good, or…
Upon determining the essential character of a good under 19 C.F.R. §§ 102.11, 102.18(b)(1) holds that only domestic and foreign materials classified under a tariff provision, which a change in tariff classification is not permitted under the section 102.20 specific rule or requirements applicable to the good will be taken info consideration.
With respect to the SCLB, the domestic material, which is sugar of Mexican origin, is classified under heading 1701 within Chapter 17, where the tariff classification change is now allowed under the tariff shift rule. Therefore, neither foreign material, lactose of U.S. origin, nor the domestic material, sugar of Mexican origin, meet the requirements of the applicable tariff shift and both the lactose and sugar require equal consideration for the essential character determination.
Section 102.18(b)(2) provides, in relevant part:
For purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under § 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following:
(i) The nature of each material, such as its bulk, quantity, weight or value; and
(ii) The role of each material in relation to the use of the good.
CBP determined that Mexican sugar provides the essential character of the SLCB because sugar has the highest value and weight in contrast to the other ingredients used in the SLCB. Therefore, per 19 C.F.R. § 102.11(b)(1), the country of origin of the SLCB for origin and marking purposes is Mexico.
Signed by the Governments of the United States, Mexico, and Canada in November 2018, the USMCA was approved and enacted in January 2020. General Note (“GN”) 11, HTSUS, implements USMCA and outlines the criteria for determination of whether a good is an originating good for purposes of the USMCA.
GN 11(b) states, in relevant part:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a “good originating in the territory of a USMCA country” only if—
(i) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
(ii) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
(iii) the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or
All of the ingredients in the SLCB are USMCA originating, and therefore the finished SLCB product is a good produced entirely within one or more USMCA countries. According to GN 11(b)(11), the SLCB is classified under subheading 1806.10.4500, HTSUS, is indeed eligible for preferential tariff treatment under the USMCA
However, as mentioned in the classification section, if the quantitative limits of additional U.S. note 7 to chapter 17 have been exceeded and the SLCB is classified under subheading 1806.10.5500, HTSUS. CBP noted that the special column for subheading 1806.10.5500, HTSUS, references subheadings 9823.10.01-9823.10.45, HTSUS. U.S. Note 10 to Subchapter XXII, concerning sugar containing products pursuant to the USMCA, provides that:
“This note and subheadings 9823.10.01 through 9823.10.45 are effective as to originating goods of the USMCA countries eligible for special tariff treatment under the terms of general note 11 to the tariff schedule provided for in subheadings … 1806.10.55 … From July 1, 2020, through December 31, 2020, in 2021 and in successive years thereafter, the rates of duty provided for in subheadings 9823.10.01 through 9823.10.45 in the “Special” subcolumn of rates of duty column 1 followed by the symbol “(S+)” shall apply to goods of such countries in lieu of the duty rates set forth in the special subcolumn in the permanent subheadings enumerated above.”
U.S. Note 10(a) states that “Goods of Mexico that qualify to be marked as a good of Mexico pursuant to U.S. law, without regard to whether the good is marked, and goods of the United States shall be eligible for USMCA tariff treatment only under subheading 9823.10.01.” Therefore, with respect to the SLCB, the “S+” rates are applicable for goods classified under subheading 1806.10.55, HTSUS.
CBP determined that the applicable subheading for the SLCB is 9823.10.01, HTSUS, which provides for goods entered under the provisions of the USMCA under general note 11 to the tariff schedule: (con.) Goods provided for in subheading . . . 1806.10.01 . . . . Goods provided for in note 10(a) to this subchapter. CBP therefore found that the special rate of duty will be free (S+).
In conclusion, CBP determined three things (1) that the appropriate subheading for the SLCB is 1806.10.4500, HTSUS, and the general rate of duty will be 10 percent ad valorem, (2) the country of origin of the SLCB for origin and marking purposes is Mexico, and (3) the SLCB is subject to USMCA tariff treatment under subheading 9823.10.01 and the special rate of duty will be free (S+).