H327577

HQ H327577 May 8, 2024 OT:RR:CTF:VS H327577 AMW CATEGORY: Valuation; Origin Center Director, Joanne Colonnello Pharmaceuticals, Health and Chemicals CEE U.S. Customs and Border Protection 1100 Raymond Blvd Newark, NJ Attn: John L. Amaya, Import Specialist, Pharmaceuticals, Health and Chemicals CEE RE: Application for Further Review of Protest No. 300422101621; SIPCO Innovations Inc.; USMCA Preference Eligibility for Plant Fertilizer Amendment; Section 301 Trade Remedy Dear Center Director Colonnello: This is in response to an Application for Further Review (“AFR”) of Protest Number 300422101621, timely filed on behalf of SIPCO Innovations Inc. (“SIPCO” or the “Protestant”), concerning the assessment of the merchandise processing fee and duties pursuant to Section 301 of the Trade Act of 1974 for one entry of Hyshield-brand plant fertilizer amendment. The AFR was forwarded to this office for consideration. FACTS: On August 21, 2020, SIPCO entered “plant fertilizer amendment” sold under the Hyshield brand at the Port of Blaine, Washington under either subheading 3101.00.00 or 3105.10.00, Harmonized Tariff Schedule of the United States (“HTSUS”), depending on the weight of the packaging. On February 22, 2021, the importer filed a post-importation claim under 19 U.S.C. 1520(d), claiming that the entry was eligible for preferential tariff treatment under the United States-Mexico-Canada Agreement (“USMCA”). The merchandise is produced in Canada with ingredients that include Canadian-origin water, citric acid, lactic acid, and potassium benzoate and Chinese-origin chitosan flakes. Upon importation, SIPCO declared the country of origin to be Canada. On March 18, 2022, CBP liquidated the merchandise as Chinese-origin, and classified the product under subheading 3913.90.20, HTSUS, which provides for, “Natural polymers (for example, alginic acid) and modified natural polymers (for example, hardened proteins, chemical derivatives of natural rubber), not elsewhere specified or included, in primary forms: Other: Polysaccharides and their derivatives” and assessed a duty of 5.8% ad valorem as well as an additional 25% duty under Section 301/List 3. The change in tariff classification, resulted in a denial of the USMCA claim, as the non-originating material chitosan flakes are also classified in heading 3913, HTSUS. SIPCO is now protesting the assessment of the duties, including the application of Section 301 duties and merchandise processing fees. In relevant part, SIPCO asserts that Hyshield qualifies for preferential treatment under the USMCA, should be marked a “product of” Canada, and is not Chinese origin for purposes of Section 301 duties. The protest was timely filed on July 5, 2022. The protest describes Hyshield as a “plant fertilizer amendment” used in agricultural and horticultural applications that improves fertilizer and nutrient efficiency. The product’s website further describes Hyshield as “a natural plant immunity booster made from chitosan” that “tricks the plants into thinking it’s being attacked by bugs, and as a result it ups its auto-immune system, keeping pathogens and pests at bay.” The Chinese-origin chitosan is imported in flake form, and is derived from chitin, which is obtained from the exoskeletons of shellfish, including shrimp, lobsters, or crabs. SIPCO purchases the chitosan from a U.S. supplier based in Bellingham, Washington. The protest argues that Hyshield is produced in Canada via a proprietary process (the “Canadian process”) in which the chitosan flakes are combined with various Canadian-origin inputs to create the liquid Hyshield. Specifically, the protest states that lactic or citric acid is added to the chitosan flakes, which causes an acid-base reaction that forms a zwitterion ion with the carboxyl group of the lactic or citric acid. As a result of this acid-base reaction, the imported chitosan’s amino group changes from NH2 to a charged +NH3 in the finished product. This enables the chitosan to be soluble in water. Following this, the Canadian ingredients including water, citric acid, lactic acid, and potassium benzoate, are blended with the chitosan liquid and then filtered to create Hyshield. In denying SIPCO’s protest, the Pharmaceuticals, Health and Chemicals CEE issued the following analysis: The country of origin analysis of the similar fertilizer aid of New York ruling [“NY”] N317486[, dated March 9, 2021] resembles the chitosan. Importer’s representatives indicate that the chitosan is purchased from a US supplier and manufacturer in Bellingham, WA who is both importing and producing Chitosan flakes. The chitosan is considered an active ingredient as a yield enhancing agent in New York ruling D83349. The importer adds acids and preservative to assist in the main purpose of the chitosan. The essential character of the preparation remains that of the chitosan salts which do not change other than being dissolved into water, which is a more dispersible form. There was no substantial transformation as the subheadings of the chitosan salts are in the same subheading as the chitosan as in New York ruling N310660. The combining process in Canada appears to be a minor one that leaves the identity of the chitosan intact and a substantial transformation has not occurred. Under General Note 11(n)(ii) Non-qualifying operations[,e]ach USMCA country shall provide that a good shall not be considered to be an originating good merely by reason of-- (A) mere dilution with water or another substance that does not materially alter the characteristics of the good[….] Likewise, as in General Note 11(v)(B) there is no “chemical reaction”. As the preparation process in Canada does not result in a molecule with a new structure by breaking intramolecular bonds and by forming new intramolecular bonds, or by altering the spatial arrangement of atoms in a molecule [no substantial transformation occurs]. On May 5, 2023, CBP’s Laboratory and Scientific Services Directorate (“LSSD”) determined that the Canadian process used to convert chitosan to zwitterionic chitosan “involves a chemical reaction that fundamentally alters its chemical structure.” LSSD further advised that the two chemicals have distinct chemical formulas, physical properties, and chemical activities. ISSUES: What is the proper classification of the imported fertilizer amendment under the Harmonized Tariff Schedule of the United States? Whether the imported fertilizer amendment qualifies for preferential tariff treatment under the USMCA? What is the proper country of origin marking of the imported fertilizer amendment? Whether CBP properly assessed Section 301 Trade Remedy Duties on the imported fertilizer amendment? LAW AND ANALYSIS: We note that this matter is protestable under 19 U.S.C. § 1514(a)(5) as a decision relating to the liquidation or reliquidation of an entry. The protest was timely filed, within 180 days of liquidation for the entry. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further review of this protest is properly accorded to the importer pursuant to 19 CFR § 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon. Classification Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied. The HTSUS provisions under consideration are as follows: 3101.00.00: Animal or vegetable fertilizers, whether or not mixed together or chemically treated; fertilizers produced by the mixing or chemical treatment of animal or vege

We note that this matter is protestable under 19 U.S.C. § 1514(a)(5) as a decision relating to the liquidation or reliquidation of an entry. The protest was timely filed, within 180 days of liquidation for the entry. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further review of this protest is properly accorded to the importer pursuant to 19 CFR § 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon.Classification Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied. The HTSUS provisions under consideration are as follows:3101.00.00: Animal or vegetable fertilizers, whether or not mixed together or chemically treated; fertilizers produced by the mixing or chemical treatment of animal or vegetable products3105.10.00: Mineral or chemical fertilizers containing two or three of the fertilizing elements nitrogen, phosphorus and potassium; other fertilizers; goods of this chapter in tablets or similar forms or in packages of a gross weight not exceeding 10 kg: Products of this chapter in tables or similar forms or in packages of a gross weight not exceeding 10 kg3913.90.20: Natural polymers (for example, alginic acid) and modified natural polymers (for example, hardened proteins, chemical derivatives of natural rubber), not elsewhere specified or included, in primary forms: Other: Polysaccharides and their derivatives.Note 6 to Chapter 31 provides:6. For the purposes of heading 3105, the term “other fertilizers” appli