CLA-2 CO:R:C:V 555609 KCC
Mr. Oscar H. Francois
Intersol Limited
P.O. Box 698
Port of Spain, Trinidad
RE: CBERA treatment for Petroleum Jelly.Substantial
transformation; blending; liquidizing; solidifying; 555524;
value-content
Dear Mr. Francois:
This is in response to your letter dated March 6, 1990,
requesting a ruling that petroleum jelly imported from Trinidad
and Tobago is entitled to duty-free treatment under the Caribbean
Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701-2706). We
regret the delay in responding.
FACTS:
You state that the petroleum jelly will be produced in
Trinidad and Tobago from components of Trinidad and Tobago and
U.S. origin. The manufacturing process involves a blending
operation in a stainless steel jacketed kettle fitted with a
lightening mixer. First, snow white petrolatum is added to the
kettle and heated (to approximately 75-80 degrees Celsius) until
it reaches a liquid form. Then amber petrolatum and 120-125 MP
wax are added, melted and blended into the liquid mixture.
Thereafter, drakeol 9 Lt. mineral oil, aloe oil extract #102, and
D&C green #6 are blended into the liquid mixture. After the
appropriate amount of blending is accomplished, the temperature
of the mixture is reduced to 45-50 degrees Celsius. The mixture
is then filled into retail containers, capped, labeled, and
packaged into outers and seal outers. Upon completion of these
operations, the petroleum jelly will be shipped to the U.S.
You have provided the following cost information concerning
the manufacture (per 100 units) of the two sizes of petroleum
jelly:
4 oz. U.S. Trinidad
Jars 58.9000 -------
Caps 27.1000 -------
Labels (front & back) ------- 9.4000
Snow White Petrolatum 40.9803 -------
Amber Petrolatum 2.3633 -------
120-125 MP Wax 1.4329 -------
Drakeol 9 Lt. Mineral Oil 5.5995 -------
Aloe Oil Extract #102 3.6398 -------
D&C Green #6 .0930 -------
Labor ------- 40.0000
140.1088 49.4000
Total: $189.5088
8 oz. U.S. Trinidad
Jars 81.7000 -------
Caps 40.5200 -------
Labels (front & back) ------- 10.8000
Snow White Petrolatum 82.3128 -------
Amber Petrolatum 4.7462 -------
120-125 MP Wax 2.8785 -------
Drakeol 9 Lt. Mineral Oil 11.3241 -------
Aloe Oil Extract #102 7.3140 -------
D&C Green #6 .1870 -------
Labor ------- 50.0000
230.9826 60.8000
Total: $291.7826
ISSUE:
Whether the petroleum jelly is entitled to duty-free
treatment under the CBERA when imported into the U.S.
LAW AND ANALYSIS:
Under the CBERA, eligible articles the growth, product or
manufacture of designated beneficiary countries (BC's) may
receive duty-free treatment if such articles are imported
directly to the U.S. from a BC, and if the sum of (1) the cost or
value of the materials produced in a BC or BC's, plus (2) the
direct cost of processing operations performed in a BC or BC's,
is not less that 35% of the appraised value of the article at the
time it is entered into the U.S. See, 19 U.S.C. 2703(a). The
cost or value of materials produced in the U.S. may be applied
toward the 35% value-content minimum in an amount not to exceed
15% of the imported article's appraised value. See, section
10.195(c), Customs Regulations (19 CFR 10.195(c)).
Trinidad and Tobago is a BC. See, General Note 3(c)(v)(A),
Harmonized Tariff Schedule of the United States (HTSUS).
According to New York Ruling Letter 840760 dated June 2, 1989,
white petroleum jelly with aloe vera is classified under
subheading 3004.90.6090, HTSUS, which provides for medicaments
consisting of mixed or unmixed products for therapeutic or
prophylactic uses, put up in measured doses or in forms or
packings for retail sale, which is a CBERA eligible provision.
Accordingly, if the petroleum jelly is considered a "product of"
Trinidad and Tobago and the 35% value-content minimum is met, the
petroleum jelly will be entitled to duty-free treatment under the
CBERA.
Where an article is produced from materials imported into a
BC from non-BC's, as in this case, the article is considered a
"product of" the BC only if those materials are substantially
transformed into a new and different article of commerce. See,
19 CFR 10.195(a). A substantial transformation occurs when an
article emerges from a process with a new name, character, or use
different from that possessed by the article prior to processing.
See, Texas Instruments, Inc. v. United States, 69 CCPA 152, 681
F.2d 778 (1982).
We find that blending the various materials, while
maintaining a certain temperature, into a liquidized mixture,
reducing the temperature until the desired consistency is
achieved, and then packaging for retail sale results in a
substantial transformation of the imported materials into a new
and different article of commerce--petroleum jelly with aloe
vera-- which is different in name, character, and use from the
separate materials. Each material loses its separate identity
when it is combined with the others, liquified and then
solidified to create the final product which has its own distinct
commercial and physical identity. See, Headquarters Ruling
Letter (HRL) 555524 dated April 10, 1990 (combining ingredients
with water, boiling the mixture, packaging and quickly freezing
the product results in a substantial transformation into a
"product of" a BC).
With respect to the 35% value-content requirement, the cost
information you have provided indicates that the sum of the
labor costs incurred in Trinidad and Tobago, the cost of the
Trinidad and Tobago labels, and the cost of the U.S. origin
products (subject to the 15% cap) would represent 41.07% of the
cost to manufacture the 4 oz. size of petroleum jelly and 35.84%
of the total cost of the 8 oz. size. However, without a more
detailed breakdown of the "cost of labor," we are unable to state
definitively that the CBERA value requirement will be met.
Concerning labor costs, section 10.197(a)(1), Customs Regulations
(19 CFR 10.197(a)(1)), provides that direct processing costs
include "all actual labor costs involved in the growth,
production, manufacture, or assembly of the specific merchandise,
including, fringe benefits, on the job training, and the cost of
engineering, supervisory, quality control, and similar
personnel."
We are enclosing for your information a copy of the Customs
Regulations relating to the CBERA (19 CFR 10.191-10.198). We
are also enclosing a copy of HRL 555379 dated May 6, 1989, which
discusses in some detail those costs which are and are not
considered direct processing costs.
HOLDING:
The petroleum jelly manufactured in Trinidad and Tobago is
considered a "product of" a BC for purposes of CBERA. Therefore,
assuming that it is imported directly to the U.S., and the 35%
value-content requirement is satisfied, the petroleum jelly will
be entitled to duty-free treatment under the CBERA.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosures