[Federal Register Volume 68, Number 135 (Tuesday, July 15, 2003)]
[Notices]
[Pages 41836-41839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17802]


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DEPARTMENT OF HOMELAND SECURITY

Bureau of Customs and Border Protection


Notice of Decision on Domestic Interested Party Petition and 
Notice of Desire To Contest Decision

AGENCY: Customs and Border Protection, Department of Homeland Security.

ACTION: Notice of petitioner's desire to contest Customs decision in 
response to domestic interested party petition.

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SUMMARY: On September 18, 2002, the U.S. Customs Service (now Customs 
and Border Protection (CBP)) published in the Federal Register a notice 
of receipt of a domestic interested party petition which had been 
received pursuant to section 516, Tariff Act of 1930, as amended, 
regarding the classification, under the Harmonized Tariff Schedule of 
the United States, of certain imported dairy protein blends. The 
petition asked CBP to review the classification of these products and 
change the classification from a non-quota classification into a quota 
classification. On April 1, 2003, after reviewing comments received in 
response to the petition, CBP issued a Headquarters decision denying 
the petition and affirming the current classification of the milk 
protein blends. On April 29, 2003, pursuant to 19 CFR 175.23, the 
domestic interested party petitioner filed a notice with CBP that it 
desired to contest this decision.
    Pursuant to Section 516(c), this notice attaches CBP's 
determination as to the classification of the merchandise and 
notification of petitioner's desire to contest that decision.

DATES: July 15, 2003.

FOR FURTHER INFORMATION CONTACT: Peter T. Lynch, General Classification 
Branch, Office of Regulations and Rulings, CBP, Department of Homeland 
Security, 202-572-8778.

SUPPLEMENTARY INFORMATION:

Background

Classification of Merchandise

    Classification under the Harmonized Tariff Schedule of the United 
States (HTSUS) is made in accordance with the General Rules of 
Interpretation (GRIs). GRI 1 provides that classification shall be 
determined according to the terms of the headings and any relative 
section or chapter notes. Merchandise that cannot be classified in 
accordance with GRI 1 is to be classified in accordance with subsequent 
GRIs taken in order.

Milk Protein Concentrates/Milk Protein Blends

    Classification of dairy products is essentially based on the 
composition of the product. In the matter here in issue, direction is 
also provided by Additional U.S. Note 13 to Chapter 4, HTSUS, which 
states: ``For the purposes of subheading 0404.90.10, the term ``milk 
protein concentrate'' means any complete milk protein (casein plus 
lactalbumin) concentrate that is 40 percent or more protein by 
weight.'' CBP has classified several products which are called milk 
protein concentrates under subheading 0404.90.10, HTSUS, which provides 
for: ``Whey, whether or not concentrated or containing added sugar or 
other sweetening matter; products consisting of natural milk 
constituents, whether or not containing added sugar or other sweetening 
matter, not elsewhere specified or included: Other: Milk protein 
concentrates'' which has a general duty rate of 0.37 cents per 
kilogram, and is not subject to a tariff-rate quota.
    The petition filed by the domestic interested party pursuant to 
section 516, Tariff Act of 1930, as amended, (19 U.S.C. 1516), 
contended that certain merchandise is not eligible for classification 
in subheading 0404.90.10, HTSUS, because in petitioner's view it does 
not conform to all the requirements set forth in Additional U.S. Note 
13 to Chapter 4 (set forth above). The petition asked CBP to review two 
classification rulings on products identified as ``milk protein 
concentrates.'' On September 18, 2002, a notice of the petition was 
published in the Federal Register (67 FR 58837) informing the public of 
the petition and inviting comments on the correctness of CBP 
classification of the merchandise.
    After careful review of arguments set forth by petitioner, as well 
as those raised by comments received in response to the Federal 
Register Notice, CBP determined that the classification contained in 
the rulings under review was correct and, on April 1, 2003 issued the 
decision appended hereto, which denied the petitioner's requested 
reclassification of the goods.
    On April 29, 2003, pursuant to 19 CFR 175.23, by letter to the CBP, 
petitioner filed a notice that it desired to contest the classification 
of the goods. The notice to contest designated the ports at which the 
goods are currently being entered and at which petitioner desires to 
protest the liquidation of one entry of the goods.

    Authority: This notice is published in accordance with 19 CFR 
175.24 and 19 U.S.C. 1516.

    Dated: July 9, 2003.
Robert C. Bonner,
Commissioner, Customs and Border Protection.

HQ 965592

April 1, 2003.

CLA-2 RR:CR:GC 965592ptl

Category: Classification.
Tariff No.: 0404.90.10.
RE: Domestic Interested Party Petition on Dairy Protein Blends.

Mr. Robert Torresen, Sidley Austin Brown & Wood, LLP, 1501 K Street, 
NW., Washington, DC 20005.
    Dear Mr. Torresen: This letter concerns Customs decision 
regarding a petition you filed on behalf of the National Milk 
Producers Federation (NMPF), pursuant to Section 516, Tariff Act of 
1930, as amended (19 U.S.C. 1516), involving the tariff 
classification of certain products referred to

[[Page 41837]]

as dairy protein blends under the Harmonized Tariff Schedule of the 
United States (HTSUS).

Facts

    On June 21, 2001, NMPF requested that Customs initiate a 
proceeding under Section 625(c) of the Tariff Act of 1930, as 
amended (19 U.S.C. 1625(c)), to modify various ruling letters 
relating to the classification under the HTSUS of certain dairy 
protein blends identified as ``milk protein concentrates'' (MPC). 
Should Customs not initiate a proceeding under section 625, NMPF 
requested that its communication be considered a domestic interested 
party petition pursuant to Section 516 of the Tariff Act of 1930, as 
amended (19 U.S.C. 1516).
    Specifically, NMPF contends that certain dairy products 
classified in New York ruling letters (NY) 800374, dated July 27, 
1994, and NY D83787, dated November 13, 1998, did not meet the 
statutory definition of MPC and were therefore not classifiable in 
subheading 0404.90.10, HTSUS, which provides for ``milk protein 
concentrates.'' In its submission, NMPF suggests that the subject 
dairy protein blends should be classified in heading 0402, HTSUS, 
which provides for milk and cream, concentrated or containing added 
sugar or other sweetening matter.
    The products in the rulings you have identified are described by 
the importer as being milk protein concentrates. According to the 
rulings, the products have the following ingredients:
    Product 1: Lactose (42.2 percent, +/- 0.5 percent), protein 
(41.5 percent, +/- 0.5 percent), ash (8.2 percent, +/- 0.5 percent), 
moisture (4.1 percent, +/- 0.3 percent), and fat (2.5 percent, +/- 
0.5 percent) (NY 800374).
    Product 2: Protein (41 percent), fat (29 percent), minerals (7 
percent), and moisture (6 percent) (NY D83787).
    Both products contain over 40 percent protein by weight. 
Additionally, product 2 also contains a significantly higher 
percentage of fat than naturally occurs in milk. Neither ruling 
contains any information about how the product was manufactured and 
there is no indication that this information was provided to 
Customs. Unfortunately, any materials which might have been included 
in the original case files were lost in the destruction of the New 
York Customs House at the World Trade Center on September 11, 2001.
    As requested, Customs reviewed the classification decisions in 
both NY 800374 and NY D83787. This review did not persuade Customs 
that the classification in those rulings was incorrect. Therefore, 
on September 18, 2002, in accordance with the procedures outlined in 
19 U.S.C. 1516, and Title 19, Code of Federal Regulations, Part 175 
(19 CFR Part 175), Customs published a notice of ``Receipt of 
Domestic Interested Party Petition Concerning Tariff Classification 
of Dairy Protein Blends'' in the Federal Register (67 FR 58837). 
Customs summarized the NMPF contentions and invited the public to 
comment on the correctness of the rulings cited and the arguments 
made by NMPF. During the comment period that ended on November 18, 
2002, Customs received over 960 comments. Many of the comments 
contained nearly identical language expressing support for or 
opposition to the NMPF position.

Issue

    Whether milk protein concentrates of subheading 0404.90.10, 
HTSUS, are limited to products produced by ultrafiltration and 
containing casein and lactalbumin in the same proportion as found in 
milk, or whether they also include a blend of milk constituents and 
concentrated milk proteins where the total casein and lactalbumin 
content exceeds 40 percent by weight.

Law and Analysis

    Merchandise is classifiable under the Harmonized Tariff Schedule 
of the United States (HTSUS) in accordance with the General Rules of 
Interpretation (GRIs). The systematic detail of the HTSUS is such 
that most goods are classified by application of GRI 1, that is, 
according to the terms of the headings of the tariff schedule and 
any relative Section or Chapter Notes. In the event that 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 in order.
    In understanding the language of the HTSUS, the Harmonized 
Commodity Description and Coding System Explanatory Notes may be 
utilized. The Explanatory Notes (ENs), although not dispositive or 
legally binding, provide a commentary on the scope of each heading 
of the HTSUS, and are the official interpretation of the Harmonized 
System at the international level. See T.D. 89-80, 54 Fed. Reg. 
35127, 35128 (August 23, 1989).
    The HTSUS provisions under consideration are as follows:

0402--Milk and cream, concentrated or containing added sugar or 
other sweetening matter:
0404--Whey, whether or not concentrated or containing added sugar or 
other sweetening matter; products consisting of natural milk 
constituents, whether or not containing added sugar or other 
sweetening matter, not elsewhere specified or included:
* * * * *

 
0404.90...................................  Other:
0404.90.10................................  Milk protein concentrates
                                            Other:
                                            Dairy products described in
                                             additional U.S. note 1 to
                                             chapter 4:
0404.90.28................................     Described in general note
                                                15 of the tariff
                                                schedule and entered
                                                pursuant to its
                                                provisions.
0404.90.30................................     Described in additional
                                                U.S. note 10 to this
                                                chapter and entered
                                                pursuant to its
                                                provisions.
0404.90.50................................     Other \1\
------------
 
\1\ See subheadings 9904.04.50-9904.05.01.

    Additional U.S. Note 13 to Chapter 4 describes ``Milk protein 
concentrate'' as follows:
    13. For purposes of subheading 0404.90.10, the term ``milk 
protein concentrate'' means any complete milk protein (casein plus 
lactalbumin) concentrate that is 40 percent or more protein by 
weight.
    You contend that the products classified in NY 800374 and NY 
D83787 are not ``complete milk proteins'' as defined by Additional 
U.S. Note 13 because they are not ``unified protein complexes in 
which both the casein and lactalbumin are present in the same 
proportion, relative to each other, as they are found in milk.'' 
Even though the rulings do not provide information about the method 
of manufacture, you also contend that neither product of the rulings 
can be described as ``concentrates,'' since you contend that they 
have not been produced and concentrated by means of ultrafiltration.
    You assert that the language of Additional U.S. Note 13 is 
intended to restrict classification in subheading 0404.90.10, HTSUS, 
to products which have been produced from skim milk by a process 
known as ultrafiltration. In that process, skim milk is forced 
through a membrane which allows smaller lactose, water, mineral, and 
vitamin molecules to pass through the membrane, while the larger 
protein and fat molecules are retained and concentrated. You argue 
that the phrase ``complete milk protein (casein plus lactalbumin)'' 
requires that a product classified in subheading 0404.90.10 contain 
only fully functional, single (unified) protein complexes in 
concentrate form. You claim that only products made by the 
ultrafiltration process contain such proteins. You also contend that 
milk proteins obtained from methods other than ultrafiltration are 
neither complete nor fully functional. You state that products 
produced by means other than ultrafiltration are not products 
described in the note and are not eligible for classification in 
subheading 0404.90.10, HTSUS.
    You refer to two Customs Headquarters ruling letters, HQ 070297, 
dated October 7, 1982, and HQ 073235, dated December 21, 1983, in 
which an ultrafiltrated product referred to as Total Milk Proteinate 
(TMP) containing nearly 90 percent milk protein was classified as a 
product in chief value of casein and not subject to the dairy quota. 
Despite the fact that these rulings were

[[Page 41838]]

issued under the Tariff Schedules of the United States (TSUS) (the 
predecessor to the Harmonized Tariff Schedule of the United States), 
you argue that they show a clear intent of Customs to classify only 
products which are manufactured by means of ultrafiltration in non-
quota provisions. In your view, these rulings served as the impetus 
for Congressional modification of the TSUS. To support your position 
you provided language from the 1984 Senate Finance Committee Report 
on the Omnibus Tariff and Trade Measures (S. Prt 98-219) which 
created three new provisions in the TSUS to provide for: Whey 
Protein Concentrate (Item 118.35); Lactalbumin (Item 118.40); and 
Milk Protein Concentrate (Item 118.45). The Committee report 
describes total milk proteinate as being ``a soluble milk proteinate 
in which casein and undenatured whey products are isolated as a 
single protein complex.''
    That Committee Report also contained a proposed TSUS Headnote 
defining milk protein concentrate as ``any milk protein concentrate 
that is 40 percent or more protein by weight.'' You contend that the 
report demonstrates that only ultrafiltrated milk protein 
concentrates were intended to be included within the non-quota 
tariff provision created by Congress. When the HTSUS was adopted, 
the non-quota treatment of MPCs was carried forward to the 
subheading at issue. However, you concede that Congress did not 
include any language in either the TSUS Headnote, or the HTSUS 
Additional U.S. Note, which explicitly identifies any particular 
manufacturing process as being required for MPC.
    As stated above, goods are classified under the HTSUS according 
to the terms of the headings and relevant section and chapter notes 
and by applying the GRIs in order. You have contended that the MPC 
products in the identified rulings should be classified in heading 
0402, HTSUS. Heading 0402, HTSUS, provides for: Milk and cream, 
concentrated or containing added sugar or other sweetening matter. 
``Concentrated'' milk is defined by the U.S. Food and Drug 
Administration (FDA) as being ``the liquid food obtained by partial 
removal of water from milk.'' The products which are the subjects of 
the disputed rulings are not concentrated milk, but rather are 
products which consist of milk constituents. The ENs to heading 
0404, HTSUS, provide, in pertinent part, ``The heading also covers 
fresh or preserved products consisting of milk constituents, which 
do not have the same composition as the natural product, provided 
they are not more specifically covered elsewhere. Thus the heading 
includes products which lack one or more natural milk constituents, 
milk to which natural milk constituents have been added (to obtain, 
for example, a protein-rich product).'' As such, milk protein 
concentrates are described by the terms of heading 0404 and not 
those of heading 0402. Accordingly, they are ineligible for 
classification in heading 0402 and we must now determine the correct 
subheading for the products within heading 0404, HTSUS.
    The manufacturers and importers buy and sell the products under 
consideration as ``Milk Protein Concentrates.'' We have determined 
that the products are goods of heading 0404, HTSUS. We must now 
determine whether the products are included within the scope of the 
legal definition of milk protein concentrate contained in Additional 
U.S. Note 13 to Chapter 4.
    A number of the comments received in response to the 516 Notice 
discussed the terms of Additional U.S. Note 13. Many of the comments 
contend that your position, which limits coverage of the Note to 
products produced by ultrafiltration, is not supported by the 
language of the Note. These comments point out that when Congress 
was drafting the Note, it could have used restrictive language to 
achieve the result you urge. However, this was not done.
    These commenters state that in the food industry, the term 
``milk protein concentrates'' is commonly used to refer to a wide 
variety of products of varying composition. These products are 
manufactured to specification to render them suitable for specific 
end uses in the food industry. In addition, they point out that 
certain milk protein concentrates are obtained by a combination of 
ultrafiltration and blending, while other products contain milk 
proteins that are isolated from milk by other processes such as 
precipitation. They contend that products containing 40 percent or 
more protein by weight have more protein than milk and are thus milk 
protein concentrates. They also note that if Congress intended the 
provision to be limited to the total milk proteinate that was the 
subject of the previous Customs ruling, it would not have enacted 
the broad language of Additional Note 13 and would not have set the 
milk protein threshold as low as 40 percent.
    Upon consideration of the petition and the comments submitted, 
Customs agrees with the comments received that the Note does not 
restrict MPCs to any particular method of manufacture. Rather, the 
Note speaks to ``any'' complete milk protein concentrate which 
contains a specified protein percentage by weight. The use of the 
term ``any'' suggests that a broad rather than restrictive reading 
of the note was intended. The Note does require that the protein be 
``complete'' which, according to the Note, requires that it contain 
casein and lactalbumin. However, the Note neither requires that the 
proteins be in the same proportion as they are found in milk, nor 
does it specify relative percentages of the protein components. It 
requires only that the source of the proteins be milk, that casein 
and lactalbumin be present, and that they constitute 40 percent or 
more, by weight, of the product.
    None of the conditions you urge such as retention of ``fully 
functional properties'' and that the proteins not be ``denatured'', 
which you have indicated are requirements for inclusion in the 
subheading 0404.90.10, are specified in the text of Additional U.S. 
Note 13 to Chapter 4. Had Congress intended the subheading to be 
limited to only those products which meet the standards you specify, 
it could have drafted the provision accordingly. However, the text 
that was adopted does not contain any of the narrow restrictions you 
describe. Moreover, there is nothing in the legislative history that 
demonstrates an intent to limit the provision to ultrafiltrated 
products. Finally, as many commenters pointed out, and the study 
performed by the General Accounting Office on this issue made clear, 
the term ``milk protein concentrates'' is used in commerce to refer 
to a class of products much broader than those produced by 
ultrafiltration. For example, the study states that products known 
as milk protein concentrates produced in Canada are made by blending 
milk proteins. (General Accounting Office, Report to Congressional 
Requesters, Dairy Products: Imports, Domestic Production, and 
Regulation of Ultra-filtered Milk, GAO-01-326, March 2001, at 7). 
Tariff terms are presumed to reflect their commercial meaning. 
(Nylos Trading Co. v. United States, 37 CCPA 71 (1949); Carl Zeiss, 
Inc v. United States, 195 F.3d 1375 (1999), citing Simod Am. Corp. 
v. United States, 872 F.2d 1572 (Fed. Cir. 1989).
    For a product to be eligible for classification in subheading 
0404.90.10, HTSUS, it must be a concentrate. You argue that the term 
refers to a product that has had liquids removed from it to make it 
stronger, and that only ultrafiltered products satisfy this 
requirement. Customs itself initially considered this view in 2001, 
when, as part of a Notice of proposed revocation, it stated: ``the 
common dictionary meaning of the words `milk protein concentrate' 
would be a protein product derived from milk in which the milk 
protein content has been intensified or purified by the removal of 
'foreign or inessential' milk constituents, such as water, minerals 
and lactose.'' (See Customs Bulletin and Decisions, Vol. 35, No. 40, 
October 3, 2001).
    Comments received in response to that Notice noted that products 
known in the trade as milk protein concentrates were in fact 
produced by a variety of methods other than ultrafiltration. They 
argued these products, e.g., a blend of skim milk and whey protein 
concentrates or caseinates, were concentrates since they were dairy 
products whose milk protein content was higher than that found in 
milk.
    Upon further consideration, Customs agrees that such products 
may be considered concentrates within the meaning of the provision. 
These products consist of milk constituents whose protein content 
has been intensified by blending with a concentrated milk protein 
such as whey protein concentrate or caseinates.
    In that same proposed revocation, Customs referred to an 
International Dairy Federation publication of May 1992, as the basis 
for the statement that ``The dairy industry has specific terminology 
and parameters when referring to milk protein concentrate.''
    While that statement reflected certain information before 
Customs at the time of the proposal, comments received thereafter 
revealed that there is no standard of identity for MPC recognized 
under the Codex Alimentarius or other international non-governmental 
organizations. Similarly, there is no recognized commercial standard 
for these products. Milk protein concentrates contain varying 
amounts of milkfat, proteins

[[Page 41839]]

and other constituents which are customized by producers to meet the 
needs of customers.
    It has become clear that in the dairy industry, it currently is 
common practice to create products by adding ingredients, which may, 
in fact be protein concentrates themselves (such as whey protein 
concentrates or caseinates), to raw materials. The resulting 
products are marketed and sold to customers as milk protein 
concentrates. This practice is acknowledged by the previously cited 
EN to heading 0404, ``Thus the heading includes * * * milk to which 
natural milk constituents have been added (to obtain, for example, a 
protein-rich product).''
    Based upon the foregoing information provided in the comments, 
Customs decided to withdraw the proposed revocation of the rulings.
    Additional U.S. Note 13 to Chapter 4, in our view, describes a 
product, not a process. The provision cannot be seen to specify all 
the methods that might be employed to create MPC, in part because 
they had not been developed. Technologies have developed since 1984 
which enable manufacturers to produce an increasing number of 
varieties of products that are entered into the marketplace and 
offered for sale to purchasers which are identified as MPCs. This 
analysis of tariff language was recently employed by the United 
States Court of International Trade when, in reference to chemical 
products, it stated: ``* * * the tariff schedule should not be 
interpreted by reference to the method of producing the chemical 
compound at issue, instead of the relative simplicity of the 
finished product's chemical structure. Relying on method of 
production would undermine any consistency in the classification of 
imported chemicals, as new and complex chemical processes are 
developed constantly.'' E.T. Horn Co. v. United States, CIT Slip Op. 
03-20 (February 27, 2003).
    Over the course of many years, Customs has classified many 
different products identified as MPCs in subheading 0404.90.10, 
HTSUS. These products contain varying amounts of proteins and other 
ingredients such as milkfat and lactose. The determinative factor in 
these rulings has been the protein content, not the manufacturing 
process (see, HQ 950484, dated January 3, 1992, a product produced 
from skim milk by a chromatographic separation process, containing 
76 to 80 percent protein; NY 812858, dated August 3, 1995, a product 
produced from coagulated, heated skim milk, containing 80 percent 
protein; NY 800374, dated July 27, 1994, process unidentified, 
protein content 41 percent; HQ 965395, dated April 5, 2002, a 
product produced either by dry blending nonfat dry milk, whey 
protein concentrate 35 and fine, 90-mesh casein or by mixing 
condensed liquid skim milk with whey protein concentrate 35 and 
casein, containing 42 to 44 percent protein). Moreover, these 
products were bought and sold in the trade as MPCs.
    Based upon the above analysis of the language of the tariff, the 
arguments you raised and the comments received in response to the 
Notice, Customs finds that the classification provided in rulings NY 
800374, dated July 27, 1994 and NY D83787, dated November 13, 1998 
is correct. Accordingly, Customs hereby denies your petition to 
reclassify the subject products, referred to as dairy protein 
blends.

Holding

    The classification of milk protein concentrates in subheading 
0404.90.10, HTSUS, in NY 800374, dated July 27, 1994 and NY D83787, 
dated November 13, 1998, which were the subject of the domestic 
interested party petition, is correct, and these rulings are 
affirmed.
    Please be advised that pursuant to 19 CFR 175.23, if you so 
wish, you may file a notice that you desire to contest the 
classification of the subject products within 30 days of the date of 
this letter. Such notice should also designate the port or ports at 
which the products are being imported into the United States, and at 
which you desire to protest.
     Sincerely,
Myles B. Harmon,
Director, Commercial Rulings Division.

[FR Doc. 03-17802 Filed 7-14-03; 8:45 am]
BILLING CODE 4820-02-P