CLA-2 CO:R:CV:V 555064 BJO
John P. Tebeau, Esq.
Heron, Burchette, Ruckert & Rothwell
Suite 700
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
RE: Duty-Free Treatment of Propanil under the CBI
Dear Mr. Tebeau:
This is in response to your letter of June 24, 1988, on
behalf of Retzloff Delta Company, in which you request a ruling
under the Caribbean Basin Economic Recovery Act (CBERA)(19 U.S.C.
2701-2706) that "technical propanil" produced in Costa Rica in
the course of manufacture of propanil-4 is a substantially
transformed constituent material. We regret our delay in
responding to your request.
FACTS:
Propanil-4, which is a herbicide for rice, will be
manufactured in Guatemala by Agrotran, S.A., ("Processor") from
chemicals of other than Guatemalan origin. The processor states
that the manufacture will be done in two stages: first,
manufacture of the active ~ngredient, which is in the form of a
solid, and second, formulation of the propanil-4. The first
stage involves the reaction of 3-4 dichloroaniline with propionic
radical to yield technical propanil and water (which is removed).
The processor states that the reaction time is approximately 30
to 40 hours, and that the technical propanil is a solid,
crystallized material at room temperature, has a melting point of
203~F to 212~F, is insoluble in water, is not flammable, and has
a specific gravity of 1.36 to 1.40.
In the second stage, the processor formulates the propanil.
This step is required because in its solid condition, the
propanil cannot be used as a herbicide (i.e., cannot be sprayed).
Formulation requires the melting of the propanil, and mixing it
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in a 5,000 gallon stainless steel mixer with solvents and
emulsifiers. The processor more specifically describes this
process as follows:
"Propanil is solid at room temperature and must be melted in
a steam bath at about 205~F in order to make it easy to
handle through the transfer lines. The quantity of the
solvents and the active ingredient (Propanil) to be charged
to the mixer are previously calculated to make a 4-pound per
gallon formulation. The four products [the solvents,
mesityl oxide, isophorone, and tenneco 500-100, and the
active ingredient, propanil] are mixed with continuous
agitation for about four hours.
A laboratory evaluation of the adequate blend of anionic
and non-ionic emulsifiers follows. When the ratio to
guarantee final product within specifications is determined,
the addition of the emulsifiers is very carefully done in
the mixer. By thoroughly mixing all ingredients during four
hours, the final product as per specifications is achieved."
After this formulation procedure is completed, a laboratory assay
by gas chromatography is done to ensure compliance of the product
with specifications, and the product is transferred to storage
drums, tank trucks, or tank cars. When formulated as described,
propanil is liquid at room temperature, has a flash point of
95~F, and is emulsifiable in water, as well as dispersable in
ketones, alcohols, and chlorinated hydrocarbons.
ISSUE:
Whether technical propanil, produced as described above, is
a substantially transformed constituent material of propanil-4
for purposes of the CBERA.
LAW AND ANALYSIS.
Under the CBERA, eligible articles the growth, product, or
manufacture of a beneficiary country ("BC") which are imported
directly to the U.S. from a BC qualify for duty-free treatment,
provided the sum of (1) the cost or value of materials produced
in a BC or two or more BC's, plus (2) the direct costs of
processing operations performed in a BC or countries is not less
than 35% of the appraised value of the article at the time it is
entered. See 19 U.S.C. 2703(a)(1).
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Where materials used in the production of the article are
not the growth, product, or manufacture of a CBEPA BC, their cost
or value may be counted toward the 35% value-content requirement
only if they undergo a double substantial transformation in a BC.
See 19 CFR 10.196. That is, the cost or value of the chemicals
imported into Guatemala may be counted toward the 35% value-
content minimum if they are substantially transformed into an
intermediate article of commerce, which is itself substantially
transformed into the final product, propanil-4.
A substantial transformation occurs "when an article emerges
from a manufacturing process with a name, character, or use which
differs from those of the original material subjected to the
process." The Torrington Co. v. United States, 3 CAFC 158,
167, 764 F.2d 1563, 1568 (1985).
In T.D. 78-168 (HQ 049575, dated June 12, 1978), 12 Cust.
Bull. 353 (1978), we ruled that the formulation of the herbicide
diuron wettable powder by mixing technical diuron with various
agents (e.g., anticaking, wetting and dispersing materials) did
not substantially transform the technical diuron for GSP
purposes. The evidence in that case indicated that although
technical diuron, the purported intermediate article, was not
commercially usable as a herbicide until formulated, and that mixing
technical diuron with the various agents caused a change
in the diuron's physical composition, the formulation did not
result in any chemical change.
We find that T.D. 78-168 is controlling here. Technical
propanil does undergo a change in its physical characteristics
as a result of the formulation; principally, from a solid to a
liquid. However, no evidence of any chemical change as a result
of the formulation process has been presented. The active
ingredient of the final product remains propanil, and the
formulation process appears to be no more than the relatively
minor last step necessary to finish the product for its intended
use. See T.D. 86-7, 20 Cust. Bull. 7 (1986). The formulation
process does not appear to result in a change in name, for the
processor refers to the article in its submission as propanil
both before and after formulation. In sum, we do not find that
the materials imported into Guatemala have undergone the
requisite double substantial transformation. While the chemicals
may be substantially transformed into technical propanil, the
technical propanil is not thereafter substantially transformed as
a result of being formulated.
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T.D. 78-168 was issued in response to an American
manufacturer's petition requesting that Customs withdraw the GSP
duty-free treatment accorded diuron wettable powder manufactured
in israel. In its petition, the American manufacturer asserted
that the purported intermediate, technical diuron, although not
commercially usable until formulated, was "already effective as a
herbicide." 12 Cust. Bull. at 356. You state that this
distinguishes T.D. 78-168 from the instant case, because
technical propanil is not effective as a herbicide until
formulated.
It appears that the technical diuron in T.D. 78-160 was
described as "effective as a herbicide" because no further
chemical changes were necessary to create a herbicide, although
it was necessary to alter its physical composition to allow the
product to be used with spraying equipment. In the same sense,
the technical propanil, which contains the active ingredient
necessary to its character as a herbicide, and which is not
further chemically altered, is "effective as a herbicide,"
although not commercially usable until formulated. We do not
find, therefore, that T.D. 78-168 can be distinguished on this
basis.
CONCLUSION:
Technical propanil, which is produced in the manufacture of
propanil-4 as described above, is not a substantially transformed
constituent material of the propanil-4 for purposes of the CBERA.
Accordingly, the cost or value of materials imported into
Guatemala and used in the production of the technical propanil,
if not the growth, product or manufacture of any other CBERA BC
or the U.S., may not be included toward the CBERA 35% value-
content requirement.
Sincerely,
John Durant, Director
Commercial Rulings Division