CLA-02 RR:CR:SM 562708 EAC
Mr. Joe Hamby
Director
Tri-Marine International, Inc.
150 West 7th Street, Suite 205
San Pedro, CA 90731
RE: Eligibility of tuna products for preferential treatment under the AGOA;
substantial transformation; double substantial transformation; canned tuna; tuna loins; country of origin; Mauritius
Dear Mr. Hamby:
This is in response to your letter dated February 6, 2003, submitted on behalf of Tri-Marine International, Inc. (“Tri-Marine”), requesting a binding ruling on the eligibility of tuna loins and canned tuna for preferential treatment under the African Growth and Opportunity Act (“AGOA”).
FACTS:
Tri-Marine intends to purchase and import tuna loins and canned tuna into the United States from Princes Tuna, Ltd. (“Princes”), located in Mauritius. You state that some of the “raw” tuna for these products is supplied by fishing vessels operating under the flags of Mauritius, Namibia, and South Africa. These vessels catch tuna on the high seas as well as within the territorial waters of Mauritius, Namibia, and South Africa. The remaining tuna is supplied by vessels that operate under the flags of nations that are not designated as beneficiary countries under the AGOA. You indicate that Princes maintains detailed procurement records which specify the quantities of tuna supplied by beneficiary and non-beneficiary countries, however, such information has not been provided with the present ruling request.
Subsequent to catching the tuna, the fishing vessels freeze the fish and deliver the frozen merchandise in a frozen and whole state to Prince’s processing plant located in Mauritius. You describe the processing operations for the two products as follows:
Fishing vessels deliver frozen tuna directly to the commercial
port in Port Louis, Mauritius for unloading. Princes transports
the fish by truck to its plant. Tuna is sorted by species and
size and then placed in cold storage facilities at the plant.
Except for being frozen, the tuna is in its natural state, i.e.,
whole and round, until it is removed from the cold storage
for processing.
From cold storage, tuna of the same size and species are
loaded into metal trays which are placed on metal racks.
Large fish are cut into sections if they are too large for the
trays. The racks are wheeled into large processing chambers
and the chambers are sealed. Once sealed a combination
of water, steam, and air is introduced into the chamber to first
thaw, then cook and then cool the tuna. This process is
controlled by a computer program using a variety of sensors
in the processing chamber and probes in the tuna. These
chambers are called “TCC’s” for thaw, cook, cool. The
automated process thaws, cooks and cools the tuna to
prescribed temperatures.
During this process the tuna changes in many ways,
including texture, temperature, moisture and oil content,
taste, smell, appearance and chemistry.
From the TCC, the tuna on racks is wheeled into a temperature controlled holding room where it is chilled and moisturized with
a misty fog to help loosen the skin of the tuna for easy removal
during the cleaning process.
From the cooling room the baskets of tuna are unloaded from
the cooking racks. Heads and tails are manually removed
before the fish is passed to cleaners to manually remove the
fins, viscera and skin.
After deskinning, the fish is passed by conveyor to cleaners
who manually remove the red meat, bones and any remaining
skin from the tuna. What is left is cleaned tuna loins and
pieces. The tuna is inspected for any cleaning defects prior
to being released for further processing. Its appearance at
this point very different from the whole fish, whether cooked
or raw.
LOINS – Cleaned cooked tuna to be packed as loins is then
placed in bags up to a predetermined weight. Bags are
weighed and passed through a metal detector, then closed
with a metal clip and packed in cartons for freezing and
storage prior to shipment in refrigerated containers.
Samples of the cleaned cooked tuna are taken prior to
packing into bags to test the loin product for moisture, bacteria,
salt and histamine content.
CANS – Cleaned cooked tuna to be processed into canned
tuna is placed into a mechanical filler that fills can automatically
with a specific quantity of clean tuna. Cans are inspected
after filling. They then move by a single file conveyor to a
condiment filler where water, salt, and/or other flavors are
added according to the requirement of the customer.
Filled cans are inspected and the can liquid adjusted prior
to being fed into the automatic can sealing machinery where
ends are mechanically attached and hermetically sealed.
After sealing, the cans are washed and the seals are
inspected. The cans are then loaded into large baskets
for transfer to the autoclaves for retorting. The retorting
process literally cooks the tuna again, this time in order
to eliminate all bacteria which makes the canned product
shelf stable. The canned product, once properly retorted,
is safe for human consumption.
The cans are removed from the retorts and allowed to
cool overnight. They are then unloaded from the retort
baskets and transferred by single file conveyor to the labeling machines. The cans roll down an inclined can track across
the labeling machine which applies a glued label to each can.
The cans are then inspected and passed by conveyor to an
assembly area for packing into multi-can packs, cartons and
shrink wrap, as necessary.
The canned tuna, after being labeled and cased, is then
ready for shipment. Shipment is usually by 20 foot dry
container.
ISSUES:
Whether the tuna loins are eligible for preferential tariff treatment under the AGOA.
Whether the canned tuna is eligible for preferential tariff treatment under the AGOA.
LAW AND ANALYSIS:
Title I of the Trade and Development Act of 2000, Pub. L. 106-200, 114 Stat. 251, May 18, 2000, referred to as the African Growth and Opportunity Act (“AGOA”), seeks to promote trade opportunities between the U.S. and the countries of sub-Saharan Africa. The AGOA provides for the extension of duty-free treatment under the GSP to non-textile articles normally excluded from GSP duty-free treatment that are not import sensitive; and the entry of specific textile and apparel articles free of duty. In order to implement the AGOA, Customs issued Interim Regulations in T.D. 00-67, 65 Fed. Reg. 59668, which became effective October 1, 2000.
Mauritius was designated as a beneficiary sub-Saharan African country (“BSAC”) under AGOA by Presidential Proclamation 7350, dated October 2, 2000 (65 Fed. Reg. 59321).
With respect to the proper tariff classifications for the products under consideration, in New York Ruling Letter (“NY”) J81280, dated March 11, 2003 (issued to Tri-Marine), Customs advised that, based upon the information presented to that office, the tuna loins and canned tuna are classifiable in various provisions of subheading 1604.14, Harmonized Tariff Schedule of the United States (HTSUS).
As to whether the products qualify as “AGOA eligible” goods, we note that General Note 16(b), HTSUS, provides that for articles provided for in a provision for which a rate of duty appears in the "Special" subcolumn followed by the symbol "D" in chapters 1 through 97 of the tariff schedule, the goods are designated to be eligible articles for duty-free treatment from countries designated as beneficiary countries under the African Growth and Opportunity Act (AGOA), if imported directly into the customs territory of the United States and provided that such good: (i) is the growth, product or manufacture of a designated beneficiary
sub-Saharan African country enumerated in subdivision (a) of this
note, and
(ii) the sum of—
the cost or value of the materials produced in one or more designated beneficiary Sub-Saharan African countries, plus
the direct costs of processing operations performed in the designated beneficiary sub-Saharan African country or any two or more designated beneficiary sub-Saharan countries that are members of the same association of countries which is treated as one country under section 507(a)2 of the 1974 Act,
is not less than 35 percent of the appraised value of such articles at the time it is entered. If the cost or value of the materials produced in the customs territory of the United States is included with respect to an eligible article, an amount not to exceed 15 percent of the appraised value of such article at the time it is entered that is attributed to such United States cost or value may be applied toward determining the percentage referred to in clause (ii)(b) above. No article or material of a designated beneficiary sub-Saharan African country shall be eligible to such duty-free treatment by virtue of having merely undergone simple combining or packing operations, or mere dilution with water or mere dilution with another substance that does not materially alter the characteristics of the article.
Applying the guidance set forth in General Note 16(b), HTSUS, we note that, based on the tariff classifications of the tuna products set forth in NY J81280, the products mentioned above are eligible to receive the special “D” rate of duty and are, therefore, eligible to receive preferential treatment under the AGOA, provided that the additional requirements of the program are met. We further note that Tri-Marine has indicated that the tuna loins and canned tuna will be imported directly into the Customs territory of the United States.
Therefore, there are two remaining issues that must be resolved in order to determine whether the tuna loins or canned tuna may be eligible for preferential treatment under the AGOA. The first issue is whether the tuna loins or canned tuna are considered to be the growth, product or manufacture of Mauritius. The second issue is whether the value of the tuna may be applied toward satisfaction of the 35 percent value-content requirement of the AGOA.
The tuna products will be considered to be “products of” Mauritius if they are either wholly the growth, product, or manufacture of Mauritius or new or different articles of commerce that are grown, produced or manufactured in Mauritius. See, 19 CFR 10.176(a). In Koru North America v. United States, 12 CIT 1120, 701 F.Supp. 229 (CIT 1988), a country of origin marking case, the court held that the country of origin of fish caught on the high seas is determined by the flag of the catching vessel. However, if the fish is later substantially transformed in another country, then such other country will be the country of origin of the fish, within the meaning of the marking statute. Koru at 1125. In Koru, fish beheaded, de-tailed, eviscerated and frozen on board the capturing vessel was later substantially transformed into a product of Korea by the processing necessary to make it into individually quick frozen fillets. In Korea, the fish was "thawed, skinned, boned, trimmed, glazed, refrozen and packaged for exportation to the United States." In finding a substantial transformation, the court noted that when the fish arrived in Korea, it had the look of whole fish, "albeit without heads, tails or viscera" whereas the fish exported from Korea no longer possessed "the essential shape of the fish" having been "trimmed of jagged edges, fat lines and impurities, glazed to preserve [its] moisture ... frozen ... and finally, packaged." Also significant was the fact that the fillets were considered discrete commercial goods and were sold in separate areas and markets. The court found that such changes went to the fundamental nature and character of the fish, transforming the fish and creating a new article of commerce.
In the present case, Tri-Marine has indicated that “the processing plant will buy tuna from fishing vessels of different national flags,” and that the tuna will be imported into Mauritius in its “natural state,” meaning whole and in frozen form. Therefore, applying Koru, it is our opinion that tuna caught under the flag of Mauritius, and the tuna loins and canned tuna derived therefrom, are considered to be products of Mauritius.
Additionally, based upon the processing operations described above, it is our opinion that tuna caught under the flags of “foreign nations” (nations other than Mauritius) is substantially transformed into a product of Mauritius when converted into tuna loins, and may, therefore, be considered a product of Mauritius for purposes of the AGOA. The substantial transformation of raw tuna into tuna loins is evident, as it appears that the processing operations described in this case are more significant than those set forth in Koru. In this case, for example, the raw tuna are merely frozen aboard the catching vessel. The tuna are then thawed, skinned, beheaded, de-tailed, eviscerated, de-boned, trimmed, cooked, and packaged as tuna loins entirely within Mauritius. As a result of these operations, the tuna loins no longer have the essential shape of a fish and are made available for separate markets. These changes have altered the fundamental character of the tuna, thereby creating a new article of commerce.
With respect to the canned tuna, the general rule is that the country in which fish was prepared for consumption and packed in cans is the country of origin. See, William Camp Co. v. United States, 24 CCPA 142 (1936) (holding limited to fish products). Although the Court of Customs and Patent Appeals in the William Camp case did not explicitly apply the substantial transformation principle, the holding suggests that the court considered the conversion of freshly caught fish into the preserved, canned product to be a substantial transformation. However, it should be noted that the William Camp case does not suggest that merely canning tuna within a nation will effect a substantial transformation of the canned product. Rather, as in the instant case, William Camp implies that entirely processing raw tuna for consumption through significant operations, and then subsequently canning the processed tuna product within the same country, will, in its entirety, be considered as effecting a substantial transformation in the canned product.
Koru remains useful in cases where fish may have been caught and partially processed aboard a catching vessel of Country A, but completed and canned within Country B. The critical element in such a case is the extent of the processing, beyond mere canning operations, that occurs in Country B and whether such processing has effected a substantial transformation of the fish.
In the instant case, Tri-Marine indicates that raw tuna is processed for consumption and subsequently canned entirely within Mauritius. Therefore, applying William Camp, the totality of the circumstances indicates that the processing described has effected a substantial transformation of the canned product. Consequently, the new article of commerce (canned tuna) may be considered a product of Mauritius for purposes of preferential treatment under the AGOA whether the catching vessel that supplies the raw tuna operates under the flag of Mauritius or that of a foreign nation.
Therefore, the final issue we must consider in this case is whether the value of the raw tuna may be applied toward satisfaction of the 35 percent value-content requirement of the AGOA. Accordingly, the facts offered by Tri-Marine present several scenarios we must consider with respect to this issue:
Whether the value of the raw tuna may be applied toward satisfaction of the 35 percent value-content requirement of the AGOA when the fish is caught by a vessel operating under the flag of Mauritius.
Whether the value of the raw tuna may be applied toward satisfaction of the 35 percent value-content requirement of the AGOA when the fish is caught by vessels operating under the flags of either South Africa or Namibia (on the high seas or in the territorial waters of these nations).
Whether the value of the raw tuna may be applied toward satisfaction of the 35 percent value-content requirement of the AGOA when the fish is caught (on the high seas) by vessels operating under the flags of nations which are not eligible to receive preferential tariff treatment under the AGOA.
In situations in which the product under consideration is not wholly the
growth, product or manufacture of a BSAC, the cost or value of materials which are imported into the beneficiary country from a non-BSAC to be used in the article, as here, may be included in the 35 percent value-content computation only if the imported materials undergo a double substantial transformation in the beneficiary country. That is, the imported tuna must be substantially transformed in Mauritius into a new and different intermediate article of commerce, which is then used in the production of the final articles, tuna loins and canned tuna. See, 19 CFR 10.177(a). However, the cost or value of materials produced in one or more designated beneficiary sub-Saharan African countries may be applied toward satisfaction of the 35 percent value-content requirement. See, 19 CFR 10.178a(d)(4)(ii).
In regard to the first scenario set forth above, tuna harvested under the flag of Mauritius will be considered to be wholly the growth or product of Mauritius; therefore, the cost or value of this tuna may be applied toward satisfaction of the 35 percent value-content requirement for both the tuna loins and canned tuna.
With respect to the second scenario, South Africa and Namibia are designated BSAC’s. See, General Note 16(a), HTSUS. Therefore, in accordance with 19 CFR 10.178a(d)(4)(ii), the value of tuna harvested under the flag of either beneficiary country may be applied toward satisfaction of the 35 percent value-content requirement for both the tuna loins and canned tuna.
The third scenario, where tuna is harvested on the high seas under the flag of a non-BSAC, requires that the raw tuna undergo a double substantial transformation before the value of the raw tuna may be applied toward satisfaction of the 35 percent value-content requirement of the AGOA.
A substantial transformation results when a new and different article emerges from the processing having a distinctive name, character or use. United States v. Gibson-Thomsen Co., Inc., 27 CCPA 269 (1940). If the manufacturing or combining process is a minor one which leaves the identity of the imported article intact, a substantial transformation has not occurred. See, Uniroyal Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (CIT 1982). Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See C.S.D. 80-111, C.S.D. 85-25, 19 Cust. Bull. 544 (1985). and C.S.D. 90-97. The question of whether a product is an intermediate article of commerce in the context of the double substantial transformation standard was considered by the court in Azteca Mill Co. v. United States, 703 F. Supp. 949 (CIT 1988). The case involved U.S.-grown corn that was manufactured into corn flour products used in making corn chips, taco shells, tortillas, and tamales in Mexico. The court concluded that the "imported corn flour products are prepared in an essentially continuous process, so that the products resulting from the various procedures are not articles of commerce but rather materials in process, advancing toward the finished product." The court looked at the lack of purchases and sales of the product as a factor.
We will apply the double substantial transformation principles set forth above to consideration of the canned tuna production process. You maintain that the double substantial transformation requirement is satisfied when the raw tuna is made into canned tuna. In this regard, we note that the canned tuna is cleaned and cooked in essentially the same manner as the tuna loins. The apparent difference between the two products is that the latter product is subject to a canning process, a process that entails placing the cleaned and cooked tuna into mechanical fillers that automatically deposit a certain amount of tuna into each can. The cans are then filled with liquid, sealed, washed, inspected and retorted.
Applying the principles of William Camp, the country of origin of the canned tuna for purposes of the marking statute is Mauritius because the tuna will undergo a substantial transformation when cleaned, cooked, and canned within Mauritius. However, Customs has consistently held that merely canning goods in a country will not effect a substantial transformation of the canned good into a product of that country. See, for example, Headquarters Ruling Letter (“HRL”) 733865, dated April 15, 1991 (packing prepared tuna loins into cans constitutes mere packing, and does not effect a substantial transformation of the tuna; however, cutting, trimming, preserving the tuna, and canning the product, taken together, effects a substantial transformation of the fish products into a product of the country where canned); NY F88538, dated July 13, 2000 (blanched and frozen crabmeat of Chinese or Vietnamese origin is not substantially transformed into a product of the U.S. as a result of being canned and pasteurized within the U.S.).
Therefore, canned tuna derived from “non-originating tuna” (supplied by countries not designated as beneficiary countries under the AGOA) is considered to be a product of Mauritius for purposes of the marking statute. However, the value of the non-originating tuna may not be applied toward satisfaction of the 35 percent value-content requirement of the AGOA because raw tuna will not undergo the requisite double substantial transformation when cleaned, cooked, and canned.
HOLDING: Based upon the information submitted, we are of the opinion that:
For purposes of the “product of” requirement of the AGOA, tuna loins and canned tuna produced in Mauritius as described above are considered to be products of Mauritius.
For purposes of the 35 percent value-content requirement of the AGOA, the cost or value of raw tuna supplied by a vessel operating under the flag of a BSAC (Mauritius, Namibia, and South Africa, in this case) may be applied toward satisfaction of the 35 percent value-content requirement. Therefore, assuming that the 35 percent value-content and imported directly requirements are met for the products derived from this raw tuna, such products will be eligible for preferential duty treatment under the AGOA. However, the value of raw tuna supplied by vessels operating under the flag of a non-BSAC may not be applied toward satisfaction of the 35 percent value-content requirement of the AGOA because such tuna does not undergo the requisite double substantial transformation when processed into canned tuna.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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,
Myles Harmon, Director
Commercial Rulings Division