MAR-2 CO:R:C:V 734076 GRV
Steven B. Zisser, Esq.
Stein Shostak Shostak & O'Hara
3580 Wilshire Blvd., Suite 1240
Los Angeles, California 90010-2597
RE: Country of origin marking of Meat/Sauce/Seasoning Mixes
made by blending foreign and domestic ingredients together
in a Foreign Trade Zone for entry into the U.S. 19 U.S.C.
81c; Hawaiian Independent Refinery; C.S.D. 83-48; 19 CFR
134.1(b); 134.35; substantial transformation; C.S.D. 82-152;
710586; 733207; 733945
Dear Mr. Zisser:
This is in response to your letter of October 22, 1990, to
the Area Director of Customs, New York Seaport, on behalf of
Case-Swayne Co., Inc., requesting a ruling regarding the classi-
fication and country of origin marking of meat/sauce/seasoning
mixes blended in a foreign trade zone (FTZ) and entered into the
U.S. You also request that we confirm that the domestic status
ingredients do not lose their domestic identity after processing
in the foreign trade zone. Although the Area Director issued you
a classification ruling in this matter on November 16, 1990, your
letter was forwarded to this office for a direct reply concerning
the outstanding issues you raise.
FACTS:
Foreign tomato powder--imported in bulk 55 lb. boxes from
Spain, Portugal, Morocco or Switzerland--will be admitted into a
U.S. foreign trade zone (FTZ) as nonprivileged foreign merchan-
dise and variously mixed and blended with specific quantities of
dry ingredients of U.S. origin--admitted into the FTZ as domestic
merchandise--to make three different commercial products:
(1) dry taco meat mix; (2) dry red chili sauce mix; and (3) dry
taco seasoning mix. The dry taco meat mix consists of tomato
powder, rolled oats, salt, and seasonings and spices. The dry
red chili mix consists of tomato powder, starch and gums, salt,
seasonings and spices, and paprika. The dry taco seasoning mix
consists of tomato powder, salt, dehydrated onion, seasonings and
spices, and flour. By weight, the tomato powder will constitute
approximately 6%-23% of the various mixtures. No cost figures
were submitted. The ingredients will be combined into 1000-1300
lb. batches, which will then be packaged into individual plastic
bags, with 12-60 bags being packaged into a corrugated box.
ISSUE:
Whether the foreign tomato powder is substantially trans-
formed when mixed/blended with specific quantities of domestic
ingredients to make seasoning mixes, so that the seasoning mixes
do not have to be marked when withdrawn from the foreign trade
zone for entry into the customs territory of the U.S.
LAW AND ANALYSIS:
19 U.S.C. 81c provides, in part, that:
[f]oreign and domestic merchandise of every description,
except such as is prohibited by law, may, without being
subject to the customs laws of the United States, except
as otherwise provided in this chapter, be brought into a
zone ..., and be exported, destroyed, or sent into
customs territory of the United States therefrom, ...but
when foreign merchandise is so sent from a zone into
customs territory of the United States it shall be
subject to the laws and regulations of the United States
affecting imported merchandise.... (Emphasis supplied).
Thus, merchandise is generally not subject to the customs
laws while in a foreign trade zone (FTZ), unless the Foreign
Trade Zones Act authorizes their application. However, once
merchandise is withdrawn from a FTZ and entered into the customs
territory of the U.S., it becomes subject to the customs laws and
regulations of the U.S. Foreign merchandise in a zone is not
subject to duty until it actually enters the Customs territory of
the U.S. Hawaiian Independent Refinery v. United States, C.D.
4777, 81 Cust.Ct. 117, 460 F.Supp. 1249 (1978).
The marking statute, 304 of the 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 manner as to indicate to the ultimate
purchaser the English name of the country of origin of the
article. (Emphasis supplied). Part 134, Customs Regulations
(19 CFR Part 134), implements the country of origin marking
requirements and exceptions of 19 U.S.C. 1304.
Customs has determined that articles brought to the U.S. and
admitted into a FTZ are not subject to the requirements of 19
U.S.C. 1304 at that time. C.S.D. 83-48, 17 Cust.Bull. 819
(1983). In that case, Customs found that canned foodstuffs may
be brought to the U.S. for admission into a FTZ without the cans
having been marked with their country of origin at the time of
admission thereto.
However, merchandise processed in a FTZ must be marked to
indicate its country of origin at the time it is withdrawn from
the zone and brought into the customs territory for consumption,
unless the article is substantially transformed in the FTZ. See,
Headquarters Ruling Letter (HRL) 710586 dated June 25, 1979. In
that case, piece goods were imported into a FTZ for production--
by cutting, sewing, and finishing--into finished terry towels.
Customs determined that the country of origin marking require-
ments of 19 U.S.C. 1304 were not applicable to the finished
towels because the processing constituted a substantial transfor-
mation. As such, at the time of their withdrawal from the FTZ
the towels were considered products of the U.S., within the
meaning of 19 CFR 134.1(e), and no foreign country of origin
marking requirements applied.
Thus, the issue of whether the seasoning mixes must be
marked to indicate the country of origin of the tomato powder,
pursuant to 19 U.S.C. 1304, at the time they are withdrawn from
the zone, hinges on whether the tomato powder is substantially
transformed in the FTZ by the addition of the various domestic
ingredients.
The primary purpose of the country of origin marking statute
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., 27
CCPA 297, 302, C.A.D. 104 (1940).
The country of origin for marking purposes is defined at
134.1(b), Customs Regulations (19 CFR 134.1(b)), to mean 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 Part 134. The concept of what
constitutes a substantial transformation is explained at 134.35,
Customs Regulations (19 CFR 134.35), which provides, in relevant
part, that:
[a]n article 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, will be within the
principle of the decision in the case of United States v.
Gibson-Thomsen Co., Inc., 27 CCPA 267 (1940). Under this
principle, the manufacturer or processor in the U.S. who
converts or combines the imported article into the different
article will be considered the "ultimate purchaser" of the
imported article within the contemplation of [the marking
statute], and the article shall be excepted from marking.
Thus, a substantial transformation occurs when articles lose
their identity and become new articles having a new name,
character, or use. National Juice Products Association v. United
States, 10 CIT 48, 628 F.Supp. 978 (1986), Koru North America v.
United States, 12 CIT 1120, 701 F.Supp. 229 (1988). The question
of when a substantial transformation occurs for marking purposes
is a question of fact, to be addressed on a case by case basis.
Uniroyal Inc. v. United States, 3 CIT 220, 542 F.Supp. 1026
(1982), aff'd, 1 Fed.Cir. 21, 702 F.2d 1022 (1983).
In HRL 733207 dated November 21, 1990, foreign and U.S. raw
botanical ingredients were variously blended together in the U.S.
to create aromatic products denominated "Potpourri." Relying on
two previous rulings which reasoned that extensive processing
could effect a substantial transformation of foreign ingredients,
we determined that the production of the potpourri in the U.S.,
according to formula, substantially transformed the imported
constituent materials into a product of the U.S. See, HRLs
553120 dated September 28, 1984, and 723312 dated November 22,
1983.
These "blending/mixing" rulings serve to show that where
different ingredients are combined/mixed together, according to a
designated recipe/formula, a new and different commercial article
can be created; such processing constituting a substantial trans-
formation. Cf., HRL 733945 dated March 26, 1991 (although the
blending and mixing of two separate groups of ingredients to
form a cream haircolor preparation was held to substantially
transform the ingredients, cautionary language was included to
distinguish other types of combining/blending operations).
Accordingly, as the imported tomato powder here is blended with
other ingredients according to a designated recipe, we follow the
findings in the above referenced rulings to find in this case
that the foreign tomato powder is substantially transformed in
the FTZ and need not be marked when entered into the customs
territory of the U.S.
Regarding the issue of whether merchandise with domestic
zone status and merchandise with non-privileged zone status can
be mixed and blended without either losing its respective zone
status, as the nonprivileged foreign tomato powder will be mixed
in proportions fixed by weight percentages with the domestic
ingredients (oats, salt, paprika, flour, dehydrated onion,
starch and gums, and seasonings and spices), and records will be
kept to provide verification of that statement, we see no reason
to prevent the application of the principles of C.S.D. 82-152
(copy enclosed) to the situation.
HOLDING:
As the foreign tomato powder will be admitted into a FTZ,
pursuant to 19 U.S.C. 81c, it is not subject to the customs laws
of the U.S., which includes the country of origin marking laws.
Further, as the foreign tomato powder will be substantially
transformed in the FTZ when it is blended with certain other
domestic origin ingredients, the resultant meat/sauce/seasoning
mixes also will not be subject to country of origin marking
requirements of 19 U.S.C. 1304, when subsequently entered into
the Customs territory of the U.S.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosure