CBP: China Is Fertilizer's Country of Origin for Marking, but It Qualifies for USMCA Treatment
The Hyshield brand plant fertilizer produced by British Columbia-based Sipco Innovations ultimately should have China as its country of origin for marking purposes. However, the country of origin for the Hyshield product is Canada for Section 301 purposes, and it qualifies for preferential tariff treatment under USMCA, according to a May 8 ruling addressed to CBP’s Pharmaceuticals, Health and Chemicals Center of Excellence and Expertise in Newark, New Jersey, and recently released by CBP.
“This protest should be DENIED in part and GRANTED in part,” CBP said. “Based on the information provided, we find that the imported Hyshield fertilizer amendment classified under 3913.90.20, HTSUS, does qualify for preferential tariff treatment under the USMCA. The country of origin for marking purposes is nevertheless China. Furthermore, we also find that the country of origin for purposes of Section 301 is Canada and, therefore, Section 301 remedies do not apply.”
Sipco had filed an entry in February 2021 claiming that the fertilizer was eligible for preferential treatment under USMCA because 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. Sipco also declared the country of origin to be Canada when it imported the fertilizer into the U.S.
But CBP liquidated the merchandise as Chinese-origin in March 2022, thus assessing a duty of 5.8% ad valorem as well as an additional 25% duty under Section 301.
Sipco protested CBP’s actions, saying that Hyshield qualifies for preferential treatment under the USMCA, should be marked as a product of Canada, and isn't Chinese origin for purposes of Section 301 duties.
CBP’s May ruling describes Hyshield as a “plant fertilizer amendment” used in agricultural and horticultural applications that improves fertilizer and nutrient efficiency. The chitosan is imported from China 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, according to CBP.
Hyshield is produced via a proprietary process in which the chitosan flakes are combined with various Canadian-origin inputs to create the liquid Hyshield. While CBP found the chitosan didn't undergo the required tariff shift to be marked as a product of Canada, natural polymers made through a chemical reaction occurring in a USMCA country may be treated as an originating good, according to USMCA rules of origin.
“We find that the subject merchandise is therefore substantially transformed by the chemical reaction occurring in Canada,” CBP said in its May decision. “First, the subject chitosan undergoes a change in name when it is dissolved into the solution and incorporated into a product with a new name, the Hyshield fertilizer amendment. Second, the chitosan undergoes a change in character when the chemical structure of the chitosan is transformed by the lactic/citric acid reaction as the amine functional groups on the poly d-glucosamine chain (R-NH2) are converted from an amine to the zwitterionic amine form (R-NH3+). On a physical level, the reaction converts the chitosan from an insoluble flake form into a fully dissolved liquid suspension.”
CBP continued: “Third, a change in use occurs because the initial chitosan flakes have limited agricultural use as a fungicide whereas the resultant Hyshield performs a variety of functions as a fertilizer amendment, including improving plant survival in extreme heat and cold and reducing transpiration without lowering crop output. Based on the foregoing, we determine that the process by which the chitosan flakes are manufactured into the liquid Hyshield in Canada constitutes a substantial transformation. As a result, [Section] 301 remedies are not applicable to the subject Hyshield.”