CLA-2 RR:TC:SM 559542 MLR
Wesley K. Caine, Esq.
Stewart and Stewart
2100 M Street, N.W.
Washington, D.C. 20037
RE: Country of Origin Marking for Acrolein; Chemical;
Germany; Substantial Transformation; Ultimate Purchaser
Dear Mr. Caine:
This is in reference to your letter of October 31, 1995,
requesting a ruling on behalf of Baker Performance Chemicals
Incorporated ("Baker") concerning the country of origin
marking for acrolein from Germany.
FACTS:
It is stated that acrolein is a highly toxic substance
which has numerous industrial applications, including use as
a bactericide or as a scavenger in oil field operations, and
as an aquatic herbicide in irrigation systems. Baker states
that it is required to identify itself as the "producer,"
pursuant to section 156.10 of the Environmental Protection
Agency ("EPA") regulations (40 CFR 156.10), when it supplies
the substance as a pesticide for commercial use. The label
approved by the EPA for application to retail containers
reads "Manufactured by: Baker Performance Chemicals
Incorporated 3920 Essex Lane, Houston Texas 77027."
Baker imports the acrolein in 5000-gallon containers
marked as originating in Germany. After importation at the
Port of Houston, the acrolein is transferred into 20,000-gallon railcars for shipment to California where it is again
transferred into 350-gallon "skid tanks" and/or 55-gallon
cylinders while maintaining the substance under a
pressurized "nitrogen blanket." It is stated that in order
to use acrolein as a pesticide, it is necessary to subject
the substance to the pressure of a "nitrogen blanket," which
pressure must be maintained as the substance is released
from the container. The containers used are designed to
withstand 100 lbs/psi of nitrogen pressure and to permit
continuous injection of that gas into the container as the
contents are ejected at the application site. These
simultaneous flows are stated to be possible by two valves
on the container, each of which interconnects with other
application apparatus. One connects to the nitrogen supply
and permits the gas to be introduced at an appropriately
controlled and constant pressure; the other connects with
discharge apparatus through which the pesticide is released
and applied. It is stated that the substance may only be
used on site as a commercial pesticide if it is prepared in
accordance with EPA regulations by producers holding
appropriate registrations and registered establishments.
Baker states that it provides a pesticide service, not
strictly the pesticide substance, to its two large customer
groups, oil field operators and irrigation districts. In
the case of the oil field operators, Baker states that they
never take possession of the product. Baker also states
that it does not itemize and distinguish between the product
and the application service, similar to a lawn care service.
In regard to the second customer group, the irrigation
districts, it is stated that while irrigation districts
handle the product and physically apply the substance at the
site, Baker retains some control because the customer may
only use it in strict accordance with regular training and
with Baker's application equipment. Baker states that it
only charges a single price for the overall service, and it
retains ownership of the empty containers since they must be
handled and cleaned according to EPA regulations. Baker's
other customers, constituting approximately one percent, use
rodenticides, and like the irrigation customers, Baker
trains these customers and provides and owns the application
equipment, including the containers.
A meeting was held at the Office of Regulations &
Rulings, and supplemental information was submitted on April
18, 1996. In its supplemental information, Baker claims
that it remains legally responsible for handling the empty
containers after the acrolein is consumed. Baker also
analyzes the application site and performs numerous tests
that include water and weed infestation analyses. On
request, Baker monitors the product's dissipation to ensure
that it does not reach sensitive areas where toxicity
becomes a threat, and, additionally, Baker normally
communicates with governmental authorities, on behalf of the
irrigation customers, when application issues arise or when
use variances must be requested. It is further stated that
Baker maintains a 24-hour service to provide guidance, and
Baker assumes responsibility for responding to emergencies
resulting from accidental releases and equipment failures.
Baker also conducts research projects in conjunction with
government agencies on behalf of the irrigation customers to
ensure the product's continued safe use.
ISSUES:
I. Whether the acrolein is substantially transformed in the
U.S.
II. Whether Baker is the ultimate purchaser of the
imported acrolein.
LAW AND ANALYSIS:
The marking statute, section 304, Tariff Act of 1930, as
amended (19 U.S.C. 1304), provides that, unless excepted,
every article of foreign origin (or its container) imported
into the U.S. shall be marked in a conspicuous place as
legibly, indelibly and permanently as the nature of the
article (or its container) will permit, in such a manner as
to indicate to the ultimate purchaser in the U.S. the
English name of the country of origin of the article.
Congressional intent in enacting 19 U.S.C. 1304 was "that
the ultimate purchaser should be able to know by an
inspection of the marking on the imported goods the country
of which the goods is the product. The evident purpose is
to mark the goods so that at the time of purchase the
ultimate purchaser may, by knowing where the goods were
produced, be able to buy or refuse to buy them, if such
marking should influence his will." United States v.
Friedlaender & Co. Inc., 27 CCPA 297, 302, C.A.D. 104
(1940). Part 134, Customs Regulations (19 CFR Part 134)
implements the country of origin marking requirements and
exceptions of 19 U.S.C. 1304.
I. Substantial Transformation
Section 134.1(b), Customs Regulations {19 CFR 134.1(b)},
defines "country of origin" as the country of manufacture,
production or growth of any article of foreign origin
entering the U.S. Further work or material added to an
article in another country must effect a substantial
transformation in order to render such other country the
"country of origin" within the meaning of the marking laws
and regulations. For country of origin marking purposes, a
substantial transformation of an imported article occurs
when it is used in the U.S. in manufacture, which results in
an article having a name, character, or use differing from
that of the imported article. See 19 CFR 134.35.
Baker claims that it substantially transforms the
imported acrolein. A change in name is suggested since
"acrolein" is imported, and either "pesticide" products,
i.e., "herbicides," "fungicides," and rodenticides," or a
"scavenger" are produced for oil field applications.
Furthermore, it is suggested that such a name change is
evident because the produced pesticide is subject to EPA's
"pesticide programs" regulations set forth at 40 CFR Chap.
1, subchap. E.
A change in character is claimed because acrolein is
toxic and dangerous to handle, and cannot be used as a
pesticide, on site, without appropriate containerization and
dedicated application apparatus. Therefore, it is stated
that the substance must be safely encased within a container
that facilitates application, akin to a cigarette lighter
consisting of a plastic container filled with highly
flammable butane. Accordingly, it is suggested that in
addition to containing toxic contents, the container
facilitates two separate flows, integrates with other
apparatus, and becomes part of a much greater whole.
Furthermore, it is noted that 40 CFR 152.3(r) distinguishes
between mere containers for transportation and "packaging"
used to contain pesticides for distribution, consumption, or
use. Therefore, it is suggested that there is a major
change in character when bulk acrolein is subsequently
combined with Baker's specially designed container.
Vandergrift & Co. v. United States, 59 Cust. Ct. 438, C.D.
3181 (1967), is cited as support where markers composed of
plastic cartridges containing ink, wadding, and a tip were
not regarded as ink per se, but the ink and container formed
a new article, i.e., a "marker," with its own name and
dedicated use.
A change in use is suggested because acrolein has
numerous potential uses, primarily in organic synthesis, or
to produce cattle feed, pharmaceuticals, perfumes, and
Baker's pesticides. However, since the substance may only
be used on site as a commercial pesticide if it is prepared
in accordance with EPA regulations, and once the products
are prepared and labeled they are dedicated exclusively to
pesticide use pursuant to 7 U.S.C. 136j(a)(2)(G) which
states that it is unlawful "to use any registered pesticide
in a manner inconsistent with its labeling," Baker argues
that the legal character of pesticides is different from
that of bulk acrolein.
Another argument that the acrolein is substantially
transformed in the U.S., is based on Ferrostaal Metals Corp.
v. United States, 664 F. Supp. 535, 664 (CIT 1987), where
the value added was a relevant factor in finding that
certain steel was substantially transformed. The
recognition of a value added test in Superior Wire v. United
States., 669 F. Supp. 472, 478 (CIT 1987), aff'd, 867 F.2d
1409 (Fed. Cir. 1989), is also noted.
Customs has addressed the manipulation of herbicides in
numerous rulings. In Headquarters Ruling Letter (HRL)
734558 dated July 22, 1992, Customs did not find a
substantial transformation when herbicide intended for use
on field corn was exported in bulk to France where it was
encapsulated into a water-soluble film, since the operation
did not change the chemical composition but only facilitated
its use. See also HRL 556616 dated June 16, 1992. In HRL
555064 dated March 29, 1990, Customs also determined that
the formulation of propanil-4, a herbicide for rice, from
technical propanil did not constitute a substantial
transformation for purposes of the Caribbean Basin Economic
Recovery Act. This decision was based on T.D. 78-168, 12
Cust. Bull. 353 (1978), which held that the formulation of
the herbicide diuron wettable powder by mixing technical
diuron with various agents was not a substantial
transformation for purposes of the Generalized System of
Preferences. These findings are also consistent with
National Juice Products Association v. United States, 628 F.
Supp. 978 (CIT 1986), where the court found that imported
manufacturing orange juice concentrate was the very essence
of frozen concentrate orange juice and reconstituted orange
juice. The court noted that the addition of water, orange
essence and oils to the concentrate, while making it
suitable for retail sale, did not change the fundamental
character of the imported product, and therefore, was not a
substantial transformation.
Accordingly, based on these cases which involved the
manipulation of the form of the herbicide, but still did not
find a substantial transformation, it is our opinion that
Baker does not substantially transform the imported
acrolein. In regard to the name change, we note that the
label approved by the EPA, while referring to the registered
name of "Magnacide H Herbicide," also refers to "(Acrolein,
Inhibited)." Furthermore, a change in the name of a product
is the weakest evidence of a substantial transformation.
Uniroyal, Inc. v. United States, 542 F. Supp. 1026 (CIT
1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983).
In regard to a change in character, we note that the
label approved by the EPA warns that the product is still a
"poison." Additionally, the label shows acrolein as the
main ingredient of Magnacide, with the addition of inert
ingredients, which indicates that there is no change in
chemical composition, particularly relevant in the rulings
cited above. In regard to Vandergrift, this case concerned
the classification of the markers and not their country of
origin. Furthermore, even if we were to rely on this case,
the court only recognized a change in name from ink-impregnated wadding, a felt tip, and a plastic cartridge or
case to a marker.
Regarding a change in use, while acrolein is stated to
be used to produce cattle feed, pharmaceuticals, and
perfumes, and, therefore, in these instances may be regarded
as an ingredient, we do not find a change in use from the
imported acrolein to the containerized acrolein used for
pesticide purposes. The label refers to "Acrolein,
Inhibited," and the word "inhibit" in a chemistry context
means "to decrease the rate of action of or to stop a
chemical reaction." The Random House Dictionary of the
English Language, (Unabridged ed. 1973). This is the main
reason why the imported acrolein is stated to be subjected
to the pressure of a "nitrogen blanket." Furthermore, while
the EPA regulations may suggest that Baker is the producer,
these regulations do not use the criteria required for
determining the country of origin of an article under 19
U.S.C. 1304.
Additionally, in regard to the value added in the U.S.,
while Superior Wire treated the cost added, amount of labor,
and capital investment as a cross-check in substantial
transformation cases, the Court of International Trade has
also stated in numerous cases that the name, character and
use test is entitled to continued adherence in view of its
affirmance in recent opinions by the appellate court, and to
avoid "ludicrous results," should generally be determinative
of the country of origin of imported articles. See
Ferrostaal 664 F. Supp. at 538; and National Hand Tool Corp.
v. United States, 16 CIT 308, 312 (1992), aff'd, 989 F.2d
1201 (Fed. Cir. 1993). Accordingly, it is our opinion that
the imported acrolein is not substantially transformed in
the U.S.
II. Ultimate Purchaser
The "ultimate purchaser," under 19 U.S.C. 1304, is
defined in 19 CFR 134.1(d) as generally the last person in
the U.S. who will receive the article in the form in which
it was imported. Section 134.35, Customs Regulations (19
CFR 134.35), provides that the manufacturer or processor in
the U.S. who converts or combines the imported article into
a different article having a name, character, or use, will
be considered the "ultimate purchaser." As detailed above,
we have found that Baker does not substantially transform
the imported acrolein into a new and different article.
Nevertheless, for the following reasons, Baker claims that
it is the ultimate purchaser of the imported acrolein
because it is providing a service, and, therefore, the
acrolein does not have to be marked as a German product when
the substance is provided to its customers.
Baker claims that if a product were sold, rather than a
service, Baker's customers would have to comply with the
handling requirements of the EPA regulations, rather than
Baker assuming the legal responsibilities. As support for
the claim that Baker is the ultimate purchaser of the
acrolein, Baker cites C.S.D. 90-42, where Customs held that
a restaurant operator was the "ultimate purchaser" of
imported shrimp served to customers in restaurant
operations, and, therefore, the customers were not required
to know the country of origin of the shrimp even though they
were the "ultimate user."
In HRL 725743 dated July 11, 1984, Customs considered
honey imported in bulk drums, which was repacked into
individual serving size pouches and then packed into cases
of 200 or more pouches for sale to institutions such as
restaurants. It was held that the ultimate purchaser was
the institutional buyer, rather than the patron who used the
honey, and, therefore, the individual pouches did not have
to be marked with the honey's country of origin.
Similarly, in HRL 734232 dated November 20, 1991, Customs
considered a pharmaceutical drug from Italy, which was
packaged in ampoules for intravenous use and only dispensed
by doctors and nurses. The ultimate purchaser was
determined to be the hospital pharmacy and, therefore, it
was appropriate if only the 5-pack packages of ampoules
repacked for the pharmacy was marked. In HRL 734524 dated
July 30, 1992, Customs found an airline to be the ultimate
purchaser of frozen meals served to passengers.
A. Oil Field Operators
In this case, it is stated that the oil field operators
never take possession of the product, and the analogy of a
lawn service is suggested. Under this scenario, the oil
field operators are not receiving the article in the form in
which it was imported. In fact, the oil field operators do
not have any physical contact with the imported article
because Baker will be applying the product for the oil
operator, unlike the airline passenger who sees and eats the
food, or the hospital scenario where the drug will be
injected into the patient. Therefore, the oil field
operators will be even further removed from the imported
product than the airline passenger or the hospital patient.
Furthermore, in the airline and hospital rulings, the
purchasing decision was for the airline transportation and
not the food, or the hospital or doctor and not the drug.
Accordingly, in those scenarios, the user was purchasing a
service. Similarly, in this case, we find that it is clear
that Baker is providing a service and, therefore, Baker is
the "ultimate purchaser" of the imported acrolein.
B. Irrigation Districts and Others
In regard to the irrigation districts and other Baker
customers, they physically receive the acrolein which has
not been substantially transformed in the U.S., and then
they apply the substance themselves after training is
provided by Baker. The empty containers are then returned
to Baker. Here, as well, Baker claims that it is the
ultimate purchaser of the acrolein and that it is providing
a service to the irrigation districts. As support that
Baker is selling a service rather than a product, Baker
states that it is responsible for meeting the EPA
guidelines, and that the irrigation customers never assume
these legal responsibilities. Furthermore, Baker states
that it provides training on how to handle the product, and
it analyzes the site and performs tests and assumes
responsibility for responding to emergencies resulting from
accidental release and equipment failure. Additionally, it
is stated that the irrigation customers pay a single price,
and the customer does not have the option of purchasing only
the acrolein.
In this case, it is our opinion that sufficient evidence
has been presented to indicate that Baker is providing more
of a service than just a product. The container provided to
the customer is a necessary aspect in the use of the
substance, and Baker retains ownership of the containers and
provides training to its customers. However, it is our
opinion that the overriding factor in determining that Baker
is providing a service is that Baker analyzes the site and
performs tests and any follow-up studies concerning the
effect of the acrolein on the environment. Similar to HRL
734232, where the patient is provided the drug based upon
the doctor's assessment of the patient, Baker only makes a
recommendation and agrees to supply the acrolein on site
after it performs analyses and tests of the site.
Additionally, the interaction between Baker and its customer
gives the customer the opportunity to determine the country
of origin of the acrolein. Therefore, similar to the
situation where the airline is considered the ultimate
purchaser of airline meals or the hospital pharmacy is the
ultimate purchaser of the drugs, we find that Baker is the
"ultimate purchaser" of the acrolein and that the containers
used at the customer's site do not require marking.
HOLDING:
Based upon the information provided, it is our opinion
that the imported acrolein is not substantially transformed
in the U.S. However, it is our opinion that Baker is
supplying a service, and, therefore, is the "ultimate
purchaser" of the acrolein. Accordingly, the containers
used at the customer's site do not require marking.
A copy of this ruling letter should be attached to the
entry documents filed at the time the goods are entered. If
the documents have been filed without a copy, this ruling
should be brought to the attention of the Customs officer
handling the transaction.
Sincerely,
John Durant, Director
Tariff Classification Appeals
Division