Ruling of the Week 2016.10: Share-A-Dram and NAFTA Marking

I've been at this a long time. Nevertheless, I am still sometimes surprised. That happened when I read N272495 (Mar. 1, 2016).

There are two "travel kits" at issue in this ruling. These are travel kits of the kind used by Victorian gentlemen tromping around the Amazon or Africa trailing a line of porters carrying their necessities. In this case, the necessities include six glass bottles with caps, two pipets, a funnel, coasters, a whisky taking journal, some other stuff, and a leather case for all of it. There is also a Share-A-Dram kit consisting of 12 glass bottles, a funnel, paper neck tags, and sample tasting ledger.

Customs and Border Protection decided that these kits are to be classified as retail sets based on the single item that imparts their essential character. For the travel kits and the Share-A-Dram, that is the glassware, specifically the drinking glasses, which are the most expensive glass items.

Here's the more interesting point. The drinking glasses are made in Germany and etched in the UK. There are pipettes in the kits, which are products of the United States. Everything else appears to be from China. The leather case includes a Japanese zipper. So, how should the importer determine the country of origin of the set and how should it be marked?

Interestingly, and without discussion, Customs used the NAFTA marking rules of 19 CFR Part 102 to determine whether the glass etching produced a tariff shift in the UK (it did not). Similarly, Customs used the NAFTA rules to determine that the zipper form Japan made a sufficient tariff shift to make the leather case a product of China. Chinese pencils embossed in the US do not change tariff classification and remain products of China.

Why is Customs doing this? It gives me a headache and this kind of analysis has given me a headache for years.  The only clue I can find is that the party requesting the ruling is in British Columbia, which is in Canada, which is a NAFTA country. The NAFTA marking rules are applicable to goods of a NAFTA country, so maybe that's the connection.

Let's assume that the goods are actually shipped from Canada, is this analysis correct? 19 CFR 134.1(b) says this:

Country of origin. “Country of origin” means 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 country, the NAFTA Marking Rules will determine the country of origin. 

So let's say, hypothetically, I import a German glass, etched in the UK from Canada. How do I determine the country of origin? Well, it comes from Canada, so for laughs we can check the NAFTA rules. We do that, and we determine that the glass is from Germany. It is not a good of a NAFTA country. Are we done? I don't think so. We next have to ask whether the etching is a substantial transformation. It's not, so we end up at the same place, but this is not a trivial matter.

The reason we have NAFTA tariff shift rules is to replace the substantial transformation test. That means the two test might produce different results. The NAFTA rules apply to goods of a NAFTA country. That means the NAFTA rules do not apply to goods for which the NAFTA marking rules indicate that the country of origin is other than Canada, Mexico, or the United States.

When a product is not the good of a NAFTA country, Customs needs to revert to substantial transformation. Or, am I wrong? Someone talk me out of this.

Ruling of The Week 2015.20: Malt Beverages

This one is for Lando Calrissian and his doppelganger Billy Dee Williams. It has to do with the tariff treatment of malt beverages and whether they are, in fact, beer.The ruling is H243087 (Jan. 13, 2015).

The beverages at issue are "Green Apple Sparkletini Italian Spumante" and similar products in raspberry and peach varieties. There is also a "Verdi Spumante." The obvious question is, "In what analysis is spumante beer?"

Maybe in this case. The beverages are made from a mash of malted barley and non-malted cereals plus hops. That mixture is "wort," which is then mixed with brewer's yeast and allowed to ferment. So far, that sounds like beer to me.

Hat tip to my local favorite

But, the base is then filtered to remove color and aroma (two of the best parts of beer). This produces a clear base to which natural flavors in the form of "wine base" and sugar are added. We now have something that sounds a lot more like the Bartles & Jaymes of my youth and not the craft beer of my middle age.

The classification dispute here is between Heading 2203, "Beer made from malt," and Heading 2206, "Other fermented beverages and mixtures of fermented beverages and non-alcoholic beverages, not elsewhere specified or included." The importer claimed that the merchandise should be classified as beer based, in part, on the regulations of the Alcohol and Tobacco Tax and Trade Bureau. The TTB allows for beer to be flavored provided the flavoring does not exceed 49% of the alcohol content of the finished product. For labeling purposes, the TTB classified these products as flavored malt beverages, which might make Billy Dee Williams happy.

In its analysis, Customs and Border Protection starts from the correct premise that it and the TTB are doing different things. The collection of federal excise taxes on alcohol is not guidance for tariff classification under the HTSUS.

"Beer made from malt" is an eo nomine classification that includes all forms of the product (unless there is indication of a contrary intent). Looking at the Explanatory Notes, Customs found that beer is obtained from fermenting wort prepared from malted barley or wheat, water, and (usually) hops. Flavoring may be added during fermentation and other substances (e.g., color and sugar) can also be added.

Here, the flavoring is added after fermentation and after the beer base has been filtered. But, because other substances can be added after fermentation without precluding classification as beer, Customs says the issue is not yet resolved.

What does resolve the issue is the fact that this is allegedly spumante (i.e., Italian sparkling wine). It is packaged in large bottles with corks and colorful labels. According to Customs and Border Protection:

The instant spumante beverages are distinct from beer because they do not have the taste, aroma, character or appearance of beer.  The beverage base is filtered after fermentation to remove the color and aroma—and consequently, any trace of “beer” characteristics or flavor—from the final product.  Furthermore, approximately 40% of the total alcohol content of the finished product is derived from the wine base.  The instant products are altered during the manufacturing process via filtering and the addition of wine base so as to fundamentally change their character; the finished products are no longer “beer”, or even flavored beer, within the scope of heading 2203, HTSUS. 

In addition to the physical nature of the product, Customs noted that the product is not marketed as wine and that some retailers stock it alongside wine. For this, CBP made the interesting decision to rely on website information to reflect real world marketing. At some point, that will be an issue.

Malt beverage-based spumante is, perhaps not surprisingly, not beer for tariff purposes. At least not for tariff classification purposes.

Ruling of the Week 2015.17: The Drinking Dead

You may recall, I previously posted about my concerns for the proper means of entering the shambling undead. It appears U.S. Customs and Border Protection has already contemplated the tariff treatment of drinkable zombies mixes.

In NY N008597 (Apr. 13, 2007), the product was, among other things, a coffin-shaped cardboard box containing a bottle of "Citrus Zombie." The drink was about 70% water and 30% sugar with small amounts of flavoring a citric acid. The bottle included instructions to mix with equal parts of tequila, which is odd since a zombie cocktail is traditionally made with rum.

According to CBP, this product is a food preparation not elsewhere specified or included, classifiable in 2106.90.9972. Helpfully, CBP pointed out that the item was not properly marked with its country of origin and that the food preparation is subject to FDA regulation.

All of which is a segue into this cartoon from yesterday's paper. For copyright reasons, I'm just giving the link. It is a cartoon by Harry Bliss showing a man at the stove while a woman and cat relax behind him. The man says "Honey, quick -- the demi-glace is about to simmer -- pass me a shot of Don Julio 1942 tequila."

Here's the thing, I own and very much enjoy my bottle of Don Julio 1942. I also do some of the cooking in the house and I know what demi-glace means. I don't think I have ever made a demi-glace, but I watch a lot of Chopped, so I know these things.

I don't want to be overly defensive, but I am trying to see if I missed a joke in which I am the punchline. It's possible there is no joke here. Maybe the cartoonist was simply depicting a scene typical of his house. On the other hand, maybe I am a tool. Either is possible.