May 16 CBP Bulletin Rulings Modified on Bonded Warehouses, NAFTA Coco Peat
In the May 16, 2012 issue of the U.S. Customs and Border Protection Bulletin (Vol. 46, No. 21), CBP published two notices on its modification of rulings and treatment regarding (i) impermissible manufacture in bonded warehouses and (ii) the origin and NAFTA eligibility of CoCo Peat as "used goods."
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Modifications Are Effective July 16
CBP is modifying these rulings, and revoking or modifying any substantially identical rulings not identified, as well as any treatment CBP previously accorded to substantially identical transactions, effective for merchandise entered or withdrawn from warehouse for consumption on or after July 16, 2012.
Determining "Manufacture" in Bonded Warehouses
| Rulings were correct: In HQ 228508 (September 1999), CBP correctly held that the blending of frozen broccoli florets and stalks was an impermissible manufacture in a CBP bonded warehouse. In HQ H046995 (February 2009), CBP also correctly held that the addition of salt to drinking wine (to make cooking wine) was an impermissible manufacture in a CBP bonded warehouse. |
| But low threshold 'test" should be used: In both rulings, CBP incorrectly used and referenced the “substantial transformation” analysis of Ferrostaal Metals Corp. v. U.S. (1987), in determining whether an action would constitute ‘manufacture’ for purposes of 19 USC 1562. The rulings should have clearly been based on Tropicana Products, Inc. v. U.S. (1992), which determined that the “substantial transformation” test (a ‘high’ threshold test) was inapplicable for 19 USC 1562 determinations of ‘manufacture’ and instead a “low threshold” test should be used. As a result, the modified rulings more clearly state that the mixing of frozen broccoli florets with broccoli stalks, or the mixing of salt in drinking wine (to make cooking wine) in a CBP bonded warehouse was an impermissible manufacture under the "low threshold" standard. |
| New rulings: HQ H140895 modifies HQ 228508 (frozen broccoli), and HQ H141855 modifies HQ H046995 (wine) |
(See ITT's Online Archives 12013020 for summary of the proposed modification of these rulings.)
NAFTA Eligibility and Origin of CoCo Peat as "Used Goods"
| Item: CoCo Peat. It is comprised of used coconut shell coir pith. Coir is the outside layer of husk surrounding the outside shell of the coconut. Coir pith is the cork-like substance between the fibers. The coir pith is originally imported into Canada from Sri Lanka to be used for the hydroponic growing of vegetables in Canada. After one season of use, the coir pith is no longer suitable for use in growing vegetables and is normally discarded. One company, Envirotex, collects the used coir pith and ships it to their Canadian facility where it is run through a number of screens to break down the product down to a fine medium and transformed into the product identified as CoCo Peat. The CoCo Peat is then imported to the U.S. under 1404.90.90 (duty-free) as vegetable products not elsewhere specified or included. In the U.S., it is blended with other raw materials, such as peat moss and compost, and used as an ingredient in the Miracle Gro® potting soil mix product. |
| Nafta eligible: Eligible for NAFTA preferential treatment (was previously ineligible under NAFTA, but was duty-free under 1404.90.90); Origin: Canada, NAFTA originating good for marking purposes (previously Sri Lanka was the country of origin for marking purposes). |
| Reason: CBP previously held that the CoCo peat was a product of Sri Lanka because its tariff classification did not change between export from Sri Lanka and importation into the U.S and no substantial transformation occurred. CBP now finds that the used coir pith is fit only for the recovery of its raw materials and cannot be used for growing hydroponic vegetables. As the CoCo peat is derived from the used coir pith, it constitutes "used goods" collected within the territory of a NAFTA party (Canada). Therefore, CBP now holds that CoCo Peat is "waste and scrap" and is a NAFTA originating good and may be marked as a product of Canada. |
| New ruling: HQ H061739 modifies NY N054636 (2009) |
(See ITT's Online Archives 12011124 for summary of the proposed modification of this ruling.)