CLA-2 CO:R:C:S 555982 WAW
Mr. Robert J. Karpiuk
Southside Foods
632 Northside Street
Ann Arbor, MI 48105
RE: Eligibility of orange juice and grapefruit juice concentrate
from Belize for duty-free treatment under the CBERA;
substantial transformation; 554486
Dear Mr. Karpiuk:
This is in response to your letters dated March 21, and July
2, 1991, requesting a ruling on the eligibility of frozen orange
juice and grapefruit juice concentrate from Belize for duty-free
treatment under the Caribbean Basin Economic Recovery Act (CBERA)
(19 U.S.C. 2701-2706).
FACTS:
You state that you plan to produce frozen orange juice and
grapefruit juice concentrate in Belize from raw fruit and/or
juice originating in Belize as well as other countries in the
surrounding area. In Belize, the juice will be extracted from
the fruit, Belizian juice and non-BC juice will be combined,
water will be evaporated from the juice at a rate of
approximately 10,000 pounds per hour, the juice concentrate will
be frozen to 20 degrees Fahrenheit, and finally the frozen juice
concentrate will be packaged in retail and bulk containers for
exportation to the U.S. and Great Britain.
It is your position that the processes performed in Belize
(evaporation of water and the freezing process) are legitimate
manufacturing processes which would render your product eligible
for duty-free treatment under the CBERA.
ISSUE:
Whether the frozen juice concentrate produced in Belize 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), Belize 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. Frozen grapefruit juice
concentrate is classified under subheading 2009.20.40, HTSUSA,
which also is a CBERA eligible provision. Accordingly, if the
juice concentrate is considered a "product of" Belize and the 35%
value-content minimum is met, the juice concentrate 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).
In Headquarters Ruling Letter (HRL) 554486 dated March 26,
1987, copy enclosed, Customs held that, for purposes of the CBERA
"product of" requirement, a new and different article of commerce
resulted from the processing of oranges into frozen orange juice
concentrate. In that case, frozen concentrated orange juice was
produced at a processing facility in Belize from a blend of fruit
purchased from Belizian and Mexican growers in a ratio of
approximately 3 to 1 (3 Belizian oranges for every one Mexican
orange).
Consistent with the holding in HRL 554486, the frozen
concentrate in the instant case made from Belizian and non-BC
fruit would be considered a "product of" Belize. Accordingly,
if the direct costs of processing plus the BC material costs
(e.g., fruit grown in a BC such as Belize and the Honduras)
represent at least 35% of the product's appraised value, the
concentrate made in Belize from fruit would be entitled to duty-
free treatment under the CBERA. Examples of direct costs of
processing are enumerated in section 10.197, Customs Regulations
(19 CFR 10.197).
As you state that at least 35% of the total amount of fruit
that you intend to use in the manufacture of the frozen juice
concentrate will be of Belizian origin, it appears that the
concentrate made in Belize from fruit will satisfy the CBERA 35%
value-content requirement.
As an alternative to importing fruit into Belize, you state
that you may import juice which will be blended with Belizian
juice and subsequently evaporated and chilled to produce the
final product. Again, the issue presented is whether the
concentrate made from Belizian and non-BC juice is considered a
"product of" Belize for purposes of the CBERA.
Customs has previously considered the question of whether
orange juice at one stage of production is substantially
transformed (i.e., undergoes a change in name, character, or use)
when it is processed leading to another stage of production. In
National Juice Products Assoc. v. United States, 628 F. Supp. 978
(CIT 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 imported 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 in the U.S. 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 juice 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 it suitable for retail sale does not change the
fundamental character of the product, it is still essentially the
product of the juice of oranges."
In National Juice Products, the court applied the "name,
character, or use" test in finding that no substantial
transformation occurred in the production of retail orange juice
products from manufacturing concentrate. With regard to the
plaintiff's argument that the name change from "concentrated
orange juice for manufacturing" to "frozen concentrated orange
juice" and "orange juice from concentrate" was significant, the
court agreed with Customs' determination that these names,
derived from the FDA's standards of identity, "merely refer to
the same product, orange juice, at different stages of
production." Accordingly, the change in name in the instant case
from orange juice to frozen concentrated orange juice is not
considered persuasive evidence of a substantial transformation.
You also argue that a difference in tariff classification
between the juice and the frozen concentrate is indicative of a
substantial transformation. The Court of International Trade has
held that a change in tariff classification is not dispositive,
although it may be supportive of a substantial transformation.
See Belcrest Linens v. United States, 741 F.2d 1368 (1984). It
is Customs position that the tariff classification change in this
case is not indicative of a substantial transformation as the
change from orange juice to frozen orange juice concentrate is
relatively minor and does not result in an article which is
fundamentally different in character and use from the purported
intermediate article.
Most important, however, is the fact that the evaporation of
the juice and subsequent freezing does not change the fundamental
character of the imported juice. The juice is the essential
ingredient in making the final product. The juice is the product
derived directly from fresh oranges. Without this ingredient,
there would be no final product that looked or tasted like fresh
orange juice. Although the operations performed in Belize
attempt to achieve a uniform retail product and may in fact
improve the taste of the orange juice, we believe that it is the
imported juice which imparts the essential character to the final
product and makes it orange juice. The processing performed in
Belize, while necessary to produce a saleable retail product,
does not change its fundamental character.
Based on the foregoing analysis, it is our opinion that the
imported non-BC juice does not become a "product of" Belize since
the juice is not substantially transformed into a new or
different article of commerce when processed into frozen
concentrate. Therefore, the concentrate made in whole or in part
from non-BC juice is not entitled to duty-free treatment under
the CBERA when imported into the U.S.
We have enclosed for your information a copy of the Customs
Regulations relating to the CBERA (19 CFR 10.191-10.198).
HOLDING:
The processing in Belize of BC and non-BC fruit into frozen
juice concentrate results in a substantial transformation of the
non-BC fruit into a product of Belize. Therefore, if the direct
costs of processing plus the BC material costs represent at least
35% of the product's appraised value, the juice concentrate will
be entitled to duty-free treatment under the CBERA, assuming it
is imported directly to the U.S.
However, the blending of the non-BC juice with Belizian
juice and the subsequent evaporation and chilling to produce
frozen juice concentrate, does not result in a substantial
transformation of the non-BC juice into a "product of" Belize,
and, as a result, the concentrate made in whole or in part from
non-BC juice is not entitled to duty-free treatment under the
CBERA when imported into the U.S.
Sincerely,
John Durant, Director
Commercial Ruling Division
Enclosures