CLA-2 CO:R:C:S 555684 SER
Mr. N.P. Parro
Parro Y Asociados
1047 San Isidro, Argentina
RE: Eligibility for duty-free treatment under the CBI of grated
cheese from Panama
Dear Mr. Parro:
This is in reference to your letter of June 13, 1990, faxed
to the Regional Commissioner of Customs, South Central Region,
concerning the eligibility for duty-free treatment under the
Caribbean Basin Initiative (CBI)(19 U.S.C. 2701-2706) of cheese
from Panama. Your letter was forwarded to this office for the
preparation of a response.
FACTS:
The limited information provided with your submission
indicates that you are planning to produce grated cheese in
Panama from raw cheese imported from Argentina. You state that
the packaging materials also will be produced in Panama from
materials imported from the U.S., consisting of aluminum and
"special" papers and board. The final product will consist of
42.5 grams of packaged cheese, which will be shipped to the U.S.
The process is stated to include machining, weighing, packing,
inspecting, etc. Although you list estimated direct costs of
processing, including such items as supervisor costs, rent, etc.,
no further breakdown of these costs was provided. You estimate
that the includable material and direct processing costs
represent 35.176% of the full value of the cheese.
ISSUE:
Whether the grated cheese produced in Panama will be
entitled to duty-free treatment under the CBI.
LAW AND ANALYSIS:
Under the CBI, eligible articles the growth, product, or
manufacture of designated beneficiary countries (BC's), may enter
the U.S. free of duty if such articles are imported directly to
the U.S. from the BC, and if the sum of 1) the cost or value of
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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
than 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)).
Panama is a BC, see General Headnote 3(c)(v)(A), Harmonized
Tariff Schedule of the United States Annotated (HTSUSA), and the
merchandise at issue is classified in a HTSUSA provision which is
CBI eligible. Assuming the grated cheese will be imported
directly to the U.S. from Panama, the merchandise will receive
duty-free treatment if it is the growth, product, or manufacture
of Panama, and the 35% value-content requirement is met.
For an article to be considered the growth, product or
manufacture of a BC, it must either be made entirely of materials
originating in a BC or, if made of materials from a non-BC, those
materials must be substantially transformed into a new or
different article of commerce. 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. Texas Instruments, Inc. v. United States,
69 CCPA 152, 681 F.2d 778 (1982).
In National Juice Products Association v. U.S., 10 CIT 48,
628 F.Supp. 978 (1986) the court upheld a Customs determination
that imported orange juice concentrate is not substantially
transformed when it is domestically processed into retail orange
juice products. In that case, the concentrate was mixed with
water, orange essences, orange oil and in some cases fresh juice
and either packaged in cans and frozen or pasteurized, chilled
and packed in liquid form. Customs found, and the court agreed,
that the further processing of the juice did not produce an
article with a new name, character or use because the essential
character of the final product was imparted by the basic
ingredient, the orange concentrate. The court stated "the
retail product in this case is essentially the juice concentrate
derived in substantial part from . . . oranges. The addition of
water, orange essences and oils to the concentrate, while making
if suitable for retail sale does not change the fundamental
character of the product, it is still essentially the product of
the juice or oranges."
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We held in Headquarters Ruling Letter (HRL) 729365 dated
June 25, 1986, that imported broccoli was not considered
substantially transformed when it was further processed by
cutting, blanching, packaging and freezing. The pre-processed
broccoli was found to not lose its fundamental character and
identity. In addition, in HRL 731472 dated June 23, 1988,
published as C.S.D. 88-10, Customs held that the peeling and
deveining of shrimp did not change the name, character, or use of
the shrimp and, thus, did not constitute a substantial
transformation. In that ruling it was stated that the deveining
and shelling operations did not significantly change the
product's intended use, which is dictated primarily by the very
nature of the product itself-- raw shrimp. It was also noted
that peeling and deveining operations often are performed by many
consumers in their own kitchens.
Consistent with the rationales stated above, it is our
position that the cheese is not substantially transformed when it
undergoes the processing from raw cheese to grated cheese. Not
only can grated cheese can be created from raw cheese by
consumers in their home, but, more importantly, the change of the
cheese from raw to grated is only minor and does not change the
fundamental character of the cheese.
HOLDING:
The raw cheese, imported into Panama does not undergo a
substantial transformation when processed into the grated
cheese. Therefore, it is not a "product of" Panama and is not
entitled to receive duty-free treatment under CBI.
Sincerely,
John Durant, Director
Commercial Rulings Division