CLA-2 CO:R:C:S 555947 WAW
Mr. Edwin C. Jones
Citrus, Inc.
305 W. Broad St.
Groveland, FL 34736
RE: Eligibility of orange juice concentrate from Panama for
duty-free treatment under the CBERA; substantial
transformation; blending; 711651; 554161; 544195
Dear Mr. Jones:
This is in response to your letter dated March 14, 1991,
requesting a ruling on the eligibility of orange juice
concentrate from Panama for duty-free treatment under the
Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701-
2706).
FACTS:
You state that oranges, grown in Panama, will be processed
there into orange juice concentrate. The juice is first
extracted from the oranges. Next, the juice is processed through
an evaporator to produce concentrated orange juice. During the
evaporation process of the orange juice in Panama, the oil and
essences are removed and later added back. The resulting orange
juice concentrate has a brix-acid ratio which is too low for the
concentrate to meet the Grade A standards set by the United
States Department of Agriculture. Thus, the Panamanian orange
juice concentrate is blended in Panama with another concentrate
of non-CBERA origin so that the finished blend will be of a
quality that will be acceptable for retail consumption in the
U.S. In most instances, the orange juice concentrate of non-
CBERA origin is the only source of concentrate which has the
required high brix-acid ratio. (Brix is a scale for measuring the
concentration of the solids in an orange juice product).
ISSUE:
Whether the orange juice concentrate composed of orange
juice concentrate from Panama which is mixed with orange juice
concentrate of non-CBERA origin 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 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)).
As stated in General Note 3(c)(V)(A), Harmonized Tariff
Schedule of the United States Annotated (HTSUSA), Panama is a BC
for CBERA purposes. In addition, frozen orange juice concentrate
is classified under subheading 2009.11.00, HTSUSA, which provides
for fruit juices (including grape must) and vegetable juices,
unfermented and not containing added spirit, whether or not
containing added sugar or other sweetening matter: Orange juice,
which is a CBERA eligible provision. Accordingly, if the orange
juice concentrate is considered a "product of" Panama and the 35%
value-content minimum is met, the orange juice concentrate will
be entitled to duty-free treatment under the CBERA.
Where an article is produced from materials imported into a
BDC from non-BDC's, as in this case, the article is considered a
"product of" the BDC 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).
To find a substantial transformation in this case, it is
necessary to conclude that the blending of the non-BC orange
juice concentrate with the Panamanian orange juice concentrate in
Panama changes the orange juice concentrate into a new and
different article of commerce with a new name, character, or use.
Generally, Customs has held that the mere mixing of two
substances in a BC, not involving a chemical reaction and
without additional processing, does not result in a product of
that BDC. See 19 CFR 10.195(a)(2)(i) (articles which have
undergone only a simple combining or packaging operation in a BC,
such as the addition of anti-caking agents, preservatives,
wetting agents, etc., are precluded from duty-free treatment
under the CBERA). Similarly, in HRL 554161 dated July 3, 1986,
Customs held that the simple mixing of equal amounts of two types
of orange juice concentrates, only one of which was from a BC,
did not constitute a substantial transformation of the substances
into a new and different article of commerce.
In addition, Customs has previously held that a mere
dilution does not constitute a substantial transformation, nor
does a reduction in the brix level of orange juice concentrate.
In HRL 711651 dated November 5, 1979, Customs stated that the
country of origin of orange juice concentrate would not be
changed merely because the orange juice became less concentrated
in Canada. In that case, we held that reducing the brix would
not constitute a substantial transformation because the
concentrate is still considered to be the same product - orange
juice concentrate.
However, in HRL 544195 dated February 26, 1990, we stated
that although the addition of non-BC gelling agent to ethanol
produced in St. Kitts may not constitute a substantial
transformation, the ethanol, which constituted over 95% of the
content of the products and the largest percentage of its value,
is the result of a substantial manufacturing operation in St.
Kitts from cane grown in St. Kitts. Therefore, we held that the
de minimis amounts of non-BC material included in the products
should not preclude their duty-free treatment under the CBERA.
In the instant case, the blending of the non-BC orange juice
concentrate with the Panamanian concentrate in Panama does not
result in a substantial transformation of the non-BC concentrate
into a product of Panama. Although the addition of the orange
juice concentrate with high brix-acid ratio from the non-BC may
make the final product taste more like fresh orange juice, it
does not significantly change the orange juice into a different
article. In addition, based on the information submitted, there
is no evidence that the amount of non-BC orange juice
concentrate is de minimis in terms of content and value as
compared to the percentage of the Panamanian concentrate.
Therefore, as the Panamanian orange juice concentrate is merely
mixed with non-BDC orange juice concentrate to produce orange
juice with a high brix-acid ratio, the resulting product does not
undergo a substantial transformation and would not be entitled to
duty-free treatment under the CBERA.
HOLDING:
Because the mere blending in Panama of the non-BC orange
juice concentrate with Panamanian concentrate does not result in
a substantial transformation of the non-BC concentrate into a
product of Panama, the blended product is not entitled to duty-
free treatment under the CBERA when imported into the U.S.
Sincerely,
John Durant, Director
Commercial Rulings Division