CLA-2 CO:R:C:S 557192 MLR
Mr. T. H. Mitchell
Traffic Manager
Lancaster Leaf
198 West Liberty Street
P.O. Box 897
Lancaster, PA 17803
RE: Eligibility of hand-stripped leaf tobacco for duty-free
treatment under the Caribbean Basin Economic Recovery Act
(CBERA)
Dear Mr. Mitchell:
This is in response to your letter dated March 11, 1993,
requesting a ruling on the eligibility of hand-stripped leaf
tobacco from a designated beneficiary country ("BC") for duty-
free treatment under the Caribbean Basin Economic Recovery Act
(CBERA) (19 U.S.C. 2701-2706).
FACTS:
Lancaster Leaf Tobacco Company plans to purchase leaf
tobaccos such as French Paraguay dark aircured tobacco, at an
approximate cost of $.56 per pound, Free on Board European port.
This tobacco will be shipped to a BC (possibly the Dominican
Republic, Nicaragua, or Honduras) to be hand-stripped at an
approximate cost of $.35 per pound. In a letter dated June 29,
1993, you describe the hand-stripping process. The leaf of
tobacco is conditioned by applying moisture to make it pliable.
Workers then carefully hand-strip the lamina (the portion of the
leaf that is not stem) from the large center stem of the leaf.
It is stated that this transforms the original leaf into a form
which can be readily used in the manufacture of a chewing tobacco
product. Hand-stripping is stated to produce a superior raw
material because more stem can be removed with far less damage to
the lamina than can be done by machine threshing. It is also
mentioned that approximately one hundred laborers will be
employed in the hand-stripping processing of the tobacco
contained in each forty foot ocean container (approximately
40,000 pounds). After the hand-stripping process, the tobacco
will be imported into the U.S. for resale.
You also state that the leaf tobacco shipped to the BC is
classifiable under subheading 2401.10, Harmonized Tariff Schedule
of the United States (HTSUS), and the hand-stripped tobacco is
classifiable under subheading 2401.20, HTSUS.
ISSUE:
Whether the leaf tobacco which is hand-stripped in a BC is
substantially transformed into a "product of" the BC for purposes
of the CBERA.
LAW AND ANALYSIS:
Under the CBERA, eligible articles the growth, product, or
manufacture of a BC, which are imported directly to the U.S. from
a BC, qualify for duty-free treatment, provided the sum of
(1) the cost or value of materials produced in a BC or two or
more BC's, plus (2) the direct costs of processing operations
performed in a BC or BC's is not less than 35 percent of the
appraised value of the article at the time it is entered into the
U.S. 19 U.S.C. 2703(a)(1).
As stated in General Note 3(c)(v)(A), HTSUS, the Dominican
Republic, Nicaragua, and Honduras are designated as BC's under
the CBERA. In addition, it appears that the hand-stripped
tobacco leaf is classifiable in subheading 2104.20, HTSUS.
Although you did not provide the exact eight digit subheading,
all of categories under Heading 2104 are CBERA-eligible
provisions. Therefore, the tobacco will receive duty-free
treatment if it is considered to be the "product of" a BC, the 35
percent value-content minimum is met, and the tobacco is
"imported directly" into the U.S.
Under the Customs Regulations implementing the CBERA, an
eligible article may be considered a "product of" a BC if it is
either wholly the growth, product, or manufacture of a
beneficiary country, or a new or different article of commerce
which has been grown, produced, or manufactured in the BC. See
19 CFR 10.195. Accordingly, where materials are imported into a
BC from a non-BC, as in this case, those materials must be
substantially transformed into a new and different article of
commerce, a "product of" the BC. The cost or value of those
materials may be included in calculating the 35 percent value-
content requirement only if they undergo a "double substantial
transformation" in the BC. See 19 CFR 196(a); Azteca Milling Co.
v. United States, 703 F. Supp. 949 (CIT 1988), aff'd 890 F.2d
1150 (Fed. Cir. 1989).
The test for determining whether a substantial
transformation has occurred is whether 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, 156, 681 F.2d
778, 782 (1982).
In Headquarters Ruling Letter (HRL) 553120 dated September
28, 1984, we held that cigar leaf tobacco processed into cigar
scrap tobacco in the Dominican Republic qualified for duty-free
treatment under the Caribbean Basin Initiative (CBI). Some of
the operations performed included: placing cigar leaf tobacco of
Dominican and foreign origin in a vacudyne machine which adds
moisture to the tobacco leaves; blending tobacco of various
grades; placing the tobacco leaves in sweat boxes for up to two
weeks under high temperature and moisture to reduce the nicotine;
mellowing the tobacco; creating certain chemical changes to
reduce objectionable elements; cutting the tobacco leaves into
particles; stemming the tobacco pieces; running the tobacco
pieces through a series of threshers and separators to strip the
lamina of the tobacco particles off the stem and separate the
lamina from the stem by means of air suction; running the tobacco
pieces over vibrating screens to remove fine particles
detrimental to cigar manufacture; and placing the tobacco pieces
in drying chambers to reduce the moisture content from
approximately 25 percent to 13 to 15 percent necessary for cigar
manufacturing.
It was stated in HRL 553120, that because some of the leaf
tobacco used in the production of the cigar scrap tobacco was
grown in Europe and/or the Far East, the cigar scrap tobacco was
not wholly the growth, product, or manufacture of the Dominican
Republic; therefore, to be eligible for CBI treatment the non-
Dominican leaf tobacco had to be substantially transformed into a
new or different article of commerce by virtue of its conversion
into scrap tobacco. The eleven distinct steps, especially the
reduction of nicotine, mellowing of the tobacco, and chemical
changes, supplemented with frequent quality control tests,
various machines and other equipment used in the manufacturing
process which required some degree of technical skill on the part
of the Dominican workers, and the significant amount of time
required for the entire production process, were important
factors in determining that the Dominican processing was a
substantial manufacturing operation. See also HRL 553825 dated
February 4, 1986.
In the instant case, the leaf tobacco is only conditioned by
applying moisture to make it pliable, and hand-stripped in a BC.
The hand-stripping process involves removing the lamina (the
portion of the leaf that is not stem) from the large center stem
of the leaf. This does not involve such operations as in HRL
553120 (i.e., chemical changes, reduction of nicotine, etc.),
which were determined to be important in finding that the tobacco
substantially transformed. Therefore, we find that the hand-
stripped tobacco in this instance is not substantially
transformed into a product of a BC, and will not qualify for the
duty exemption under the CBERA when imported into the U.S.
HOLDING:
Based on the information submitted, we find that the leaf
tobacco which is hand-stripped in a BC is not substantially
transformed into a "product of" a BC. Therefore, the hand-
stripped tobacco will not qualify for duty-free treatment under
the CBERA when imported into the U.S.
Sincerely,
John Durant, Director