MAR-2-05 CO:R:C:V 733814 NL
J.K. MacGregor, Counsel
Kraft General Foods Canada Inc.
95 Moatfield Drive
Don Mills, Ontario M3B 3L6
Canada
RE: Country of Origin Marking - Instant Coffee; Substantial
Transformation.
Dear Mr. MacGregor:
This is in response to your letter of September 10, 1990, in
which you request a ruling concerning the country of origin
marking requirements applicable to instant (soluble) coffee
produced in Canada and imported to the U.S.
FACTS:
Kraft General Foods Canada Inc. (Kraft), purchases green
coffee beans (usually from Brazil) on the open commodity market.
The green beans are shipped to Canada where they are roasted,
ground, and percolated into a liquid coffee extract. The extract
is concentrated by evaporation and dehydrated into a fine powder.
The powder is then milled, exposed to steam to produce the final
instant (soluble) coffee product, and packaged into jars.
Production of decaffeinated soluble coffee consists of the same
steps, except that the green beans are decaffeinated using the
carbon dioxide process. Sample jars of coffee have been
submitted which are branded "President's Choice" and marked
"Product of Canada".
Kraft requests a ruling that the production of instant
coffee in Canada from green beans originating in Brazil and other
countries effects a substantial transformation, such that the
soluble coffee may be marked as a product of Canada. The Chief,
National Import Specialist Branch 1, New York Seaport, in a
memorandum dated September 24, 1990, agrees with Kraft's
position. The National Import Specialist is of the opinion that
the manufacturing in Canada resulted in a product with a
different name, character, and use than the green coffee beans.
Although no cost data was submitted by Kraft, the National Import
Specialist concluded that the processing in Canada yielded the
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major portion of the value of the instant coffee.
ISSUE:
Does the production of instant (soluble) coffee in Canada
effect a substantial transformation of green coffee beans
imported to Canada from Brazil and elsewhere?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin imported into the U.S. shall be marked in a conspicuous
place as legibly, indelibly, and permanently as the nature of the
article (or 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.
Part 134, Customs Regulations (19 U.S.C. 1304), implements
the country of origin marking requirements and exceptions of 19
U.S.C. 1304. Under Part 134, an article is considered a product
of the country in which it was manufactured, produced, or grown,
unless thereafter further work or material added to the article
in another country effects a substantial transformation, making
the latter the country of origin. 19 CFR 134.1(b). A
substantial transformation is said to occur if, after
manufacture, an article has a new name, character, or use, within
the principle of the case of United States v. Gibson-Thomsen Co.,
Inc., 27 CCPA 267 (C.A.D. 98)(1940).
The manufacture of instant (soluble) coffee starting from
green coffee beans is, in our opinion, a substantial
manufacturing operation which results in an article having a
different character and use. It follows that as imported into
the U.S. the retail containers of instant coffee would properly
be marked to indicate that the coffee is a product of Canada.
With respect to the "name, character, or use" test, we find
that the processing of the green coffee results in instant coffee
having a new character and use. (There is also a slight change
in the name of the product: coffee beans to instant coffee.) The
character of the product is changed is one from a fresh article
generally sold at wholesale to a processed retail product. The
two are considered separate commercial goods sold to different
markets. From an article having the shape of a fresh bean the
processing yields a product altogether different in appearance
and handling requirements. As manufactured and packaged, the
instant coffee is well preserved for extended shelf life.
Although the product remains coffee, the green beans might be
devoted to a number of markets and purposes, while the finished
instant coffee is fully dedicated to retail use by consumers who
prefer this particular form of the product. For these reasons we
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find that the processing in Canada of the green coffee beans
results in an article having both a new character and a new use,
and the substantial transformation test is satisfied.
Although Customs has not previously ruled on this precise
question, recent rulings have considered the substantial
transformation of other food products. In determining whether
various food articles are substantially transformed by additional
processing, Customs has examined whether the processing resulted
in only minor changes which packaged or preserved the product or
made the product more suitable for consumption, or whether it
actually created a new article which was fundamentally different.
For example, in HQ 731763 (May 17, 1989), Customs ruled that
shrimp which was cooked, peeled, deveined, and frozen after
importation did not lose its fundamental character and was not
substantially transformed. The same result was reached in HQ
729365 (June 2, 1985, published as C.S.D. 86-26) concerning
broccoli which was cut, blanched, packaged, and frozen. By
contrast, in HQ 733162 (November 5, 1990), we ruled that U.S.
origin crabmeat would acquire a new country of origin if fully
shelled on a foreign-flag vessel. We reasoned that once shelled,
the crabmeat became an entirely separate product with a new
character and use. Applying this reasoning to the instant case,
we find that the processing of green coffee beans in Canada
constitutes not minor, but substantial processing resulting in
the creation of a new and fundamentally different product,
instant coffee.
In addition, substantial guidance is found in the opinion of
the Court of International Trade in Koru North America v. United
States, 701 F. Supp. 229 (CIT 1988). The court in Koru
considered processing similar in degree to the conversion of
green coffee beans into instant coffee, and concluded that the
processing of beheaded, de-tailed, and eviscerated New Zealand
Hoki fish into individually quick frozen fish fillets was a
substantial transformation. This latter processing in Korea
consisted of skinning, boning, trimming, glazing, refreezing and
packaging. The court based its determination largely on the fact
that the processing vastly changed the fish's character. In this
regard, the court noted that while the fish arrive in Korea with
the look of a whole fish, when they leave they no longer possess
the essential shape of the fish. The court also noted that the
fillets are considered discrete commercial goods which are sold
in separate areas and markets. The fact that the products also
have different tariff classifications was found to be additional
evidence of substantial transformation.
The processing of the green coffee beans is at least as time
consuming, and certainly utilizes production machinery which is
more complex, than that considered in Koru. Although no data has
been provided, we also have little doubt that the processing of
the beans is relatively more expensive. As in Koru, in this case
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the processing changes the essential shape and character of the
green coffee beans and results in a new product, instant coffee,
which is sold in separate markets. Thus the rationale in the
Koru opinion also supports a finding that the processing of the
green coffee beans - a more extensive operation than the fish
processing in Koru - effects a substantial transformation.
It is noted that the Koru court distinguished the earlier
finding of substantial transformation in National Juice Products
Ass'n v. United States, 628 F. Supp. 978 (CIT 1986). In National
Juice, the production of the retail product (orange juice
concentrate) occurred in one country, and was found not to have
been substantially transformed after importation into the U.S.
Rather, the concentrate merely was enhanced by the addition of
water and other ingredients deemed insignificant. Thus the
processed retail product was substantially complete prior to
importation and further processing, and for marking and other
Customs purposes was unchanged. If in National Juice the
imported product was fresh oranges, which were then processed
into concentrate, the result would likely be the one reached in
Koru and here.
HOLDING:
The manufacture of instant or soluble coffee from green
coffee beans effects a substantial transformation of the latter.
As imported into the U.S. the retail containers of "President's
Choice" instant coffee are properly marked as products of Canada.
Sincerely,
John Durant
Director, Commercial
Rulings Division