CLA-2 CO:R:C:S 556704 WAW
Mr. Robert J. Karpiuk
Southside Foods, Inc.
632 Northside St.
Ann Arbor, MI 48105
RE: Request for Reconsideration of Headquarters Ruling Letter
555982; orange juice; CBERA; substantial transformation
Dear Mr. Karpiuk:
This is in response to your letter dated May 6, 1992,
requesting reconsideration of Headquarters Ruling Letter (HRL)
555982 dated August 2, 1991. We held in HRL 555982 that the
blending of non-beneficiary country (BC) orange juice with Belizian
orange juice and the subsequent evaporation and chilling to produce
frozen juice concentrate, did not result in a substantial
transformation of the non-BC juice into a "product of" Belize. As
a result, we concluded that the concentrate made in whole or in
part from non-BC juice was not entitled to duty-free treatment
under the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C.
2701-2706) when imported into the U.S.
FACTS:
As you previously stated in HRL 555982, you plan to produce
frozen concentrated orange juice (FCOJ) in Belize from Belizian
raw fruit and non-BC orange juice. You state that the FCOJ will
be produced in the following manner: (1) the juice will be
extracted from the Belizian fruit in Belize; (2) Belizian juice
and non-BC juice will be combined; (3) water will be evaportated
from the juice at a rate of 10,000 pounds per hour with a thermally
accelerated short time evaporator (TASTE); (4) the FCOJ will be
packaged into retail and bulk packages; (5) the FCOJ will be frozen
to minus 20 degrees Fahrenheit; and (6) the FCOJ will be shipped
to the U.S.
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. 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).
The courts have relied on various criteria to determine
whether a substantial transformation results in a particular case.
In Uniroyal Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026
(1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983), a country of origin
marking case involving imported shoe uppers, the court considered
whether the addition of an outsole in the U.S. to imported uppers
lasted in Indonesia effected a substantial transformation of the
uppers. The court described the imported upper, which resembled
a moccasin, and the process of attaching the outsole to the upper.
The court concluded that a substantial transformation of the upper
had not occurred since the attachment of the outsole to the upper
was a minor manufacturing or combining process which left the
identity of the upper intact. The upper was described as a
substantially completed shoe and the manufacturing process which
took place in the U.S. required only a small fraction of the time
and cost involved in producing the upper.
Furthermore, in Uniroyal, the court examined the facts
presented and determined that the completed upper was the very
essence of the completed shoe. The concept of the "very essence"
of a product was applied in National Juice Products v. United
States, 628 F. Supp. 978, 10 CIT 48 (CIT 1986), where the Court of
International Trade upheld Customs' determination that orange juice
concentrate is not substantially transformed when it is imported
into the U.S. and processed into retail orange juice products. The
orange juice concentrate at issue in that case was mixed with
orange essences and oils, purified and dechlorinated water, and was
either packaged in cans and frozen or pasteurized and packaged in
liquid form. Customs found, and the court agreed, that such
processing did not change the fundamental character of the orange
juice concentrate, and that "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." Thus, as in
Uniroyal, the court in National Juice found that the "very essence"
of the retail product was imparted prior to importation.
To find a substantial transformation in the instant case, it
is necessary to find that the blending of the non-BC orange juice
and Belizian orange juice and the subsequent processing of the
orange juice into frozen concentrated orange juice changes the
orange juice imported into Belize into a new and different article
of commerce, and that such processing is considered substantial.
We find that the processing in Belize of non-BC orange juice
does not create a new and different article of commerce. First,
we do not place much weight on the fact that the name frozen
concentrated orange juice is different than the name fresh orange
juice. In our opinion, these names merely refer to the same
product at different stages of production. In Superior Wire v.
United States, 11 CIT 608, 669 F. Supp. 472 (CIT 1987), aff'd, 867
F.2d 1409 (Fed. Cir. 1989), the court held that for VRA purposes,
wire rod drawn into wire was not substantially transformed into a
product of Canada. In determining that there was no significant
change in use or character, the court found that the operations
performed on the wire rod were minor rather than substantial and
concluded that the "wire rod and wire may be viewed as different
stages of the same product." Id., 867 F.2d 1414.
In addition, we believe that in the instant case, it is the
juice which imparts the essential character to the final product
- FCOJ. The "very essence" of the final product is imparted prior
to the evaporation of water from the juice and subsequent freezing
operation. We are of the opinion that the processing performed in
Belize, while necessary to create frozen orange juice concentrate
from orange juice, does not change the fundamental character of the
juice.
Customs has stated that the most important stage in the
production of orange juice concentrate is the growing of the
oranges themselves. See HRL 728557 dated January 10, 1986. It is
the oranges which provide orange juice concentrate and orange juice
made from concentrate with its particular taste and character. We
have previously held in HRL 554486 dated March 26, 1987, that FCOJ
produced at a processing facility in Belize from a blend of fruit
purchased from Belizian and non-BC growers is a new and different
article of commerce when compared to the oranges of non-BC origin
from which the concentrate would, in part, be made. Thus, the
frozen concentrate which was produced from both Belizian and non-
BC fruit was considered to be a "product of" Belize. However, we
also determined that the oranges of non-BC origin could not be
counted toward the 35% value-content requirement, because the
creation of frozen concentrated orange juice from juice which had
been extracted from both Belizian and non-BC fruit did not
constitute a second substantial transformation of the imported
fruit. The second stage of production in HRL 554486, involving the
process of creating frozen orange juice concentrate from orange
juice extracted from fruit, is similar to the facts in the instant
case.
Furthermore, Customs has held that the mere mixing or blending
of two substances in a BC, not involving a chemical reaction and
without additional processing, does not result in a "product of"
that BC. For instance, Customs held in HRL 554161 dated July 3,
1986, that a simple mixing of two types of orange juice
concentrate, one of which is not from a beneficiary country does
not constitute a substantial transformation of the substances into
a new and different article of commerce. See HRL 554161 dated July
3, 1986. See also 19 CFR 10.195(a)(2)(i) (articles which have
undergone only a simple combining or packaging operation in BC,
such as the addition of anti-caking agents, preservatives, wetting
agents, etc., are precluded from duty-free treatment under the
CBERA); HRL 555947 dated April 11, 1991 (blending in Panama of 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).
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 could 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.
Although you cite Shell Oil Company of Canada, Ltd. v. United
States, 27 CCPA 94 (1939), in support of your position that the
FCOJ produced in Belize is entitled to duty-free treatment under
the CBERA, we do not find this case relevant since it is an
"American Goods Returned" case and does not involve the issue of
substantial transformation. Likewise, we find that C.S.D. 86-8,
which you cite in support of your position, is not applicable in
the instant case. In T.D. 86-8 (1986), beverage grade ethanol from
a non-BC country (190 proof) was imported into a BC where it was
transformed into motor fuel ethanol (199 plus proof) through
azeotropic distillation. We found in that case that the removal
of water through the azeotropic distillation process was
significant enough to create a new and different article of
commerce - the 199 plus proof ethyl alcohol. However, section 423
of the Tax Reform Act of 1986 represented a decision to
legislatively overrule Customs' decision in C.S.D. 86-8 holding
that azeotropic distillation is a substantial transformation that
warrants duty-free treatment under CBERA. See 21 Cust. Bull. 32
(January 14, 1987).
In sum, based upon our review of the arguments presented, it
remains our opinion that the blending of non-BC juice with Belizian
juice in Belize and the subsequent processing into FCOJ do not
result in a substantial transformation of the non-BC juice into a
"product of" Belize.
HOLDING:
The blending of the non-BC juice with Belizian juice and the
subsequent evaporation and chilling to produce frozen juice
concentrate, do 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 Rulings Division