VES-3 CO:R:P:C 109504 PH
Robert L. McGeorge, Esq.
919 Eighteenth Street NW.
Seventh Floor
Washington, D.C. 20006
RE: Applicability of 46 U.S.C. App. 883 to transportation of
crab parts from Alaska to South Korea where they are processed
and then transported to California
Dear Mr. McGeorge:
This in response to your letter of April 26, 1988, in which
you request a ruling confirming your opinion that 46 U.S.C. App.
883 would not require the use of coastwise-qualified vessels for
the transportation of certain crab parts from Alaska to South
Korea and South Korea to California when the crab parts are
processed in South Korea.
FACTS:
A corporation, 75 percent of the stock of which would be held
by your client and other United States citizens and the remainder
of which would be held by a Korean processor of crab products,
would buy fresh Snow Crab from Alaskan fishermen who would deliv-
er their catch to the corporation's permanently moored United
States-flag primary processing barge at Dutch Harbor, Alaska. On
this barge, "ocean run bulk crab" would be created by boiling the
crab, removing the heads and bodies, and freezing and glazing the
crab parts with seawater into 85 to 90 pound blocks. Your client
would also purchase ocean run bulk crab, processed in the same
manner, from other independent primary processors in Dutch
Harbor.
The ocean run bulk crab described above, that processed by
the corporation and that purchased by your client, would be sold,
at current market prices, to the Korean processor of crab prod-
ucts. Your client would use United States-flag, non-coastwise-
qualified vessels to transport the ocean run bulk crab from Dutch
Harbor to Pusan, South Korea.
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Upon arrival of the ocean run bulk crab at Pusan, it would be
transported to the Korean processor's plants outside that city
for processing under normal delivery and Korean Customs proce-
dures (i.e., it would not be transported, stored or processed
under any special Korean in-bond procedures). Initially, the
Korean processor would--
thaw or partially thaw and clean the frozen crab parts;
remove all traces of the seawater glaze;
remove any broken pieces of shell, impurities, or
foreign matter;
trim off any remaining body parts (i.e., those parts of
the heads and bodies remaining after the "rough cut" at
the Dutch Harbor processing plants);
remove gurry (blood and internal organs) and gills; and
grade the arms, legs, and claws.
The Korean processor would then process the crab parts into
the following "restaurant-grade" products:
1. "Single Cuts," consisting of medium-large crab legs
and arms with claws attached which are frozen and
glazed with fresh water and then packed in 25 pound
plastic bags and boxes.
2. "Snap-n-Eat," consisting of medium-sized crab legs
and arms with claws attached the shells of which are
scored with several parallel cuts (to make them easier
and safer to crack) before they are frozen and glazed
with fresh water and then packed in 25 pound plastic
bags and boxes.
3. "Jumbo Claws and Arms," consisting of the largest
crab arms with claws attached the shells of which are
scored with several parallel cuts (to make them easier
and safer to crack) before they are frozen and glazed
with fresh water and then packed in 25 pound plastic
bags and boxes.
4. "Cocktail Claws," consisting of claws which have
been removed from the arms and have had a portion of
the shell removed (leaving only enough shell at the
upper end of the claw for the consumer to hold the claw
while biting off the exposed meat) before they are fro-
zen and glazed with fresh water and then packed in 20
pound plastic bags and boxes.
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5. "Extracted Crab Meat," consisting of crab meat
removed from arms, legs, and claws and graded as fancy
meat and salad meat before being frozen and glazed with
fresh water into five pound blocks which are packed,
six to a case, in plastic bags.
On average the restaurant-grade crab products described above
sell for approximately 20 percent more than the ocean run bulk
crab from which they were created, excluding transportation
costs.
You state that the Korean processor intends to sell a
substantial portion of its processed restaurant-grade crab
products in Korea, Japan, and, perhaps, other Asian countries.
It also anticipates selling a substantial portion of these
products in the United States. It would not know the ultimate
destination of any of these products until it receives specific
orders from its buyers.
The Korean processor also intends to process at the same
plant ocean run bulk crab caught in non-United States waters, to
commingle the United States and non-United States ocean run bulk
crab, and to ship the commingled restaurant-grade crab products
to the United States when it receives orders from United States
buyers.
The Korean processor intends to ship the restaurant-grade
crab products which are purchased by United States buyers from
Pusan to Los Angeles, California, in non-coastwise-qualified
vessels. Los Angeles would serve as a distribution center for
shipments to various inland destinations throughout the United
States.
You state that the restaurant-grade crab products would be
labeled as "Products of Korea" in compliance with United States
country of origin marking requirements (19 U.S.C. 1304). They
are to be entered as dutiable "foreign articles" pursuant to
Schedule 8, Part 1 of the Tariff Schedules of the United States
(TSUS).
Two alternative operations, which vary from the above
described operation, are being considered. In one of these
alternative operations, the primary processing barge would not be
operated by the corporation and your client would obtain all of
its ocean run bulk crab from independent primary processors in
Dutch Harbor. In the other of these alternative operations, your
client would purchase and operate the primary processing barge
and obtain additional supplies of ocean run bulk crab from inde-
pendent primary processors in Dutch Harbor. All other aspects of
the operations would be conducted as described in the above
described operation.
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ISSUE:
May crabs caught by United States-flag vessels which are
boiled, have their heads and bodies removed, and are frozen and
glazed with sea water on a United States-flag processing vessel
in the United States be transported in non-coastwise-qualified
vessels from Alaska to South Korea and South Korea to California
when the crab parts are processed in South Korea by: (1) being
thawed or partially thawed and cleaned; (2) having the sea water
glaze removed; (3) having the gurry and gills removed; (4) being
graded, sorted, and treated by having their shells scored, having
part of their shells removed, or having the meat extracted; and
(5) being frozen, glazed with fresh water, and packed?
LAW AND ANALYSIS:
Section 27 of the Act of June 5, 1920, as amended (41 Stat.
999; 46 U.S.C. App. 883, often called the Jones Act), provides
that:
No merchandise shall be transported by water, or by
land and water, on penalty of forfeiture of the mer-
chandise (or a monetary amount up to the value thereof
...), between points in the United States ... embraced
within the coastwise laws, either directly or via a
foreign port, or for any part of the transportation, in
any other vessel than a vessel built in and documented
under the laws of the United States and owned by
persons who are citizens of the United States ....
Section 4.80b(a), Customs Regulations (19 CFR 4.80b(a)),
promulgated under the authority of 46 U.S.C. App. 883, provides
that:
... merchandise is not transported coastwise if at an
intermediate port or place other than a coastwise point
(that is at a foreign port or place, or at a port or
place in a territory or possession of the United States
not subject to the coastwise laws), it is manufactured
or processed into a new and different product, and the
new and different product thereafter is transported to
a coastwise point.
In American Maritime Association v. Blumenthal, 590 F. 2d
1156 (1978), cert. den. 441 U.S. 943, the United States Court of
Appeals, District of Columbia, considered whether Alaska crude
oil could be transported by non-coastwise-qualified vessels from
Alaska to the United States Virgin Islands (a non-coastwise
point) and there refined and then transported onward to a point
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in the continental United States. The Court held that the oil
could be so transported because the continuity of the transpor-
tation was broken because the products of the crude oil trans-
ported after refining were "quite different" from the crude oil
transported to the Virgin Islands, "i.e., [they were] products
which are physically, chemically, and usefully different from the
original crude oil." (590 F. 2d 1156, at 1162, 1163.) In a
footnote which is relevant to the issue under consideration, the
Court stated:
... The issue is not whether the whole of a particular
substance is more or less than its parts, but whether
after a refining or manufacturing process which, for
example, breaks the substance down into constituent
elements or combines it with other elements to create
new substances, the product remains largely the same in
such respects as form, composition, value or function.
In a complex physical world in which matter is
constantly being transformed into other forms, appel-
lants' simplistic argument concerning the identity of
physical "matter" after a refining process [i.e., that
the process of refining oil is insignificant because it
merely "separates ... molecules according to their
boiling points" and leaves the fundamental physical
"matter of the oil the same] would prove too much. It
would compel the conclusion that because of the innu-
merable forms which matter may take, no degree of
transformation of one good into another changes the
essential nature of that good and its by-products. For
practical and commercial purposes, however, this is not
correct. In commercial usage, for example, sea water
is not the same as the hydrogen, oxygen, and various
chemicals and minerals into which it can be broken
down, and a soft drink bottled for sale is not the
"same" as the water, sweeteners, and other substances
from which it is made. Of course, the opposite argu-
ment can also be taken too far; that even the slightest
alteration of a substance (for example, perhaps, the
mere bottling of spring water) effects a "new and
different product."
Thus the precise point at which a substance
subjected to an altering process becomes "different"
eludes simple definition; attempts at a universal de-
scription would lead into metaphysical realms which a
court should fear to enter. But we submit that along a
spectrum of possible change for any particular item,
there exists a point--determinable perhaps only through
experience and subject to change through time and
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circumstances--at which that item, when altered in some
substantial respect, becomes new and different. The
fact, for example, that the oil in the present case may
increase little in market value after processing ... is
not dispositive, because value is only one of the con-
siderations that a court must make in determining if a
product has changed through processing. Common sense
and experience--the best guides to courts--will aid the
determination of the point at which substantial change
has occurred in particular cases. [Emphasis in
original.] [Footnote 37, 590 F. 2d 1156, at 1163.]
Customs has issued a number of rulings on where, "on [the]
spectrum of possible change for any particular item," the item is
manufactured or processed into a new and different product so
that the continuity of what would otherwise be considered coast-
wise transportation of that item via a non-coastwise point is
broken. As you state, we have held that partially milled rice
transported in a foreign-flag vessel from California to the
Virgin Islands where it is fumigated, cleaned and polished by
friction, passed through an aspirator to remove all dust and
small particles, graded to separate broken and unbroken kernels,
coated with glucose and talc, cleaned again, and "fortified" with
niacin, thiamin, iron, and other minerals and then transported to
Puerto Rico (Puerto Rico is embraced within the coastwise laws)
is not considered to have been transported in violation of 46
U.S.C. App. 883 "because the continuity of the overall transpor-
tation from California to Puerto Rico is deemed broken in the
Virgin Islands" (Treasury Decision (T.D.) 56272(2)). We have
held that where rough or unsurfaced lumber is transported from
the United States, without any intention that it be returned to a
specific United States market, to Canada where it is planed,
trimmed, graded, and packaged, the subsequent transportation of
any of the packaged lumber by foreign-flag vessel to a coastwise
point is not in violation of 46 U.S.C. App. 883 "because the con-
tinuity of the overall transportation is deemed broken in Canada"
(T.D. 56320(2)). We have held that the blending of oil with
other oils which results in a product with different sulphur con-
tent, specific gravity, pour point, and viscosity than the oils
which were blended is a manufacture or processing into a new and
different product, within the meaning of 19 CFR 4.80b(a) (see
rulings dated November 16, 1982 (105804), October 19, 1984
(107071), and September 30, 1985 (107912)).
As you are aware, we have also ruled on the application of
this principle to the transportation and processing of crab. Our
ruling dated September 12, 1980 (104859, see also cases identi-
fied as 104955/104859 and 105021), concerned the transportation
of King Crab clusters from Alaska to Vancouver, British Columbia,
where the crabs would be processed from clusters, which are half
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a crab body with legs and claws attached, into sections, which
are individual legs or claws with the body trimmed, or freely of-
fered for sale while kept in frozen storage in Canada. It was
anticipated that one-third to one-half of the crabs would be sold
in Canada, although the entire cargo was to be entered through
Canadian Customs and was to be subject to Canadian Customs du-
ties. Following the criteria set forth in the AMA v. Blumenthal
decision, we held that the crab sections would not be considered
new and different products, within the meaning of 19 CFR
4.80b(a), and that the fact of entry of the entire cargo of crab
through Canadian Customs and payment of Canadian Customs duties
would not be considered to break the continuity of transportation
of the crab.
In a ruling of October 27, 1981 (105319), we held, with
regard to the transportation of Alaska King Crab from Alaska to
Vancouver where it was to be sold and/or processed and then some
or all of it was to be transported onward to the United States,
that:
1. The cleaning, trimming, sorting, segmenting,
glazing and packaging of frozen crab parts does not
create a new and different product within the meaning
of 19 CFR 4.80b(a).
2. The removal of crab meat from frozen crab parts and
the subsequent sorting, packing, cooking, canning and
packing of cans into cartons does create a new and dif-
ferent product within the meaning of 19 CFR 4.80b(a).
In a memorandum dated June 7, 1983 (106093, see also letter
dated December 11, 1987 (623279, from the Director, Regulatory
Procedures and Penalties Division)), we ruled again on the trans-
portation and processing of crab. This memorandum concerned
Alaska King Crab which had been caught in Alaskan waters by Unit-
ed States-flag catching vessels and processed on a United States-
flag processing vessel. This processing consisted of cracking
the crabs, removing the heads and shell portions, and boiling,
freezing, and packing the remaining claw and leg portions. These
crab parts were transported by a Korean-flag vessel to Japan
where they were delivered to a Japanese bonded warehouse in which
they could not be commingled with other merchandise. While in
the warehouse, the shoulder parts of the crab parts were removed
under the supervision of Japanese Customs. After removal of a
small portion of the crab for sale in Japan for market testing
purposes, the crab parts were packaged for export to the United
States. The portion of the original shipment of crab parts
arriving in Japan repackaged for export to the United States was
90.1 percent. In our memorandum we concluded that the processing
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of the crab performed in Japan was not sufficient to result in a
new and different product, within the meaning of 19 CFR 4.80b(a).
We also concluded that the sale of the crab parts in Japan did
not break the continuity of the transportation of the crab parts
between United States coastwise points (i.e., that they did not
enter the commerce of Japan or lose their identity as a product
of the United States).
Essentially, in the case under consideration, the crabs are
caught, they are boiled, their heads and bodies are removed, and
they are frozen and glazed with sea water in the United States.
In South Korea, the crab parts are thawed or partially thawed and
cleaned, the sea water glaze is removed, the gurry and gills are
removed, they are graded, sorted, and treated by having their
shells scored, having part of their shells removed, or having the
meat extracted, and this final product is frozen, glazed with
fresh water, and packed.
You contend that this is closely analogous to the rice
processing ruling (T.D. 56272(2)) and that a ruling that the pro-
cessing of the crab parts in South Korea results in a new and
different product is also supported by the lumber processing rul-
ing (T.D. 56320(2)) and the oil blending rulings. All of these
cases are discussed above.
It is not clear to us that, in view of the guidance provided
by the Court in AMA v. Blumenthal, the two T.D.'s would be decid-
ed now in the same way as they were decided in 1964, before AMA
v. Blumenthal. In this regard, we take particular note of the
statement by the Court in footnote 37 of that decision that the
determination of the point at which an item is manufactured into
a new and different item is "subject to change through time and
circumstances." We also are not certain that the oil blending
cases were correctly decided and are in the process of
reconsidering those cases at this time.
We believe that the case under consideration is most closely
analogous to the crab processing rulings described above. The
processing in this case is similar to that in the October 27,
1981, ruling in which the crab parts were not canned. We held,
in that case, that the processing did not result in a new and
different product, within the meaning of 19 CFR 4.80b(a). This
holding is not inconsistent with the other crab processing prece-
dents discussed above. We conclude that the "restaurant-grade"
crab products resulting from the processing in South Korea are
not "new and different products," within the meaning of 19 CFR
4.80b(a), or "quite different," within the meaning of AMA v.
Blumenthal, from the ocean run bulk crab transported from Alaska
to South Korea. Use of either of the two alternative methods of
operation which you describe would not affect this conclusion.
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The facts that the crab parts are entered and delivered under
normal South Korean Customs procedures, that they may be commin-
gled with non-United States origin ocean run bulk crab, and that
a substantial portion of the processed restaurant-grade crab
products is to be sold in Korea, Japan, and/or other Asian coun-
tries relate to the intent to have the crab parts enter into the
commerce of South Korea and lose their identity as products of
the United States. You do not state exactly what proportion of
the restaurant-grade crab products processed from ocean run bulk
crab originating from the United States is to be returned to the
United States but you do state that the South Korean processor
anticipates that it would be a substantial proportion. That
being the case, we conclude that the continuity of the transpor-
tation of the crab parts from Alaska to Los Angeles is not broken
as a result of the above factors (see the crab rulings discussed
above, particularly the ruling of September 12, 1980, as modified
on September 16, 1980; see also our ruling dated November 20,
1979 (104277), 34 Op. Att'y Gen. 355 (1924), and 32 Op. Att'y
Gen. 350 (1920)).
The fact that the South Korean processor may choose to mark
the restaurant-grade crab products as "Products of Korea" does
not establish that they must be so marked for country of origin
marking purposes under 19 U.S.C. 1304. We have consulted with
the office in Customs which is responsible for that requirement
and it is not clear that restaurant-grade crab products processed
as described in this case in South Korea from United States-
origin ocean run bulk crab and returned to the United States
would be required to be so marked. Even if they were required to
be so marked, the criterion for country of origin marking in such
a case, "substantial transformation" (see 19 CFR 134.1(b)), is
not necessarily the same as the criterion used for determining
the applicability of the coastwise laws to the transportation in
this case, "manufacture or processing into a new and different
product."
Finally, we fail to see the relevance of the fact that the
restaurant-grade crab products returned to the United States will
be entered as dutiable articles pursuant to Schedule 8, Part 1,
TSUS (Schedule 8, Part 1 concerns articles exported from the
United States and returned), to the application of the coastwise
laws to the transportation involved in this case.
HOLDING:
Crabs caught by United States-flag vessels which are boiled,
have their heads and bodies removed, and are frozen and glazed
with sea water on a United States-flag processing vessel in the
United States may not be transported in non-coastwise-qualified
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vessels from Alaska to South Korea and South Korea to California
when the crab parts are processed in South Korea by: (1) being
thawed or partially thawed and cleaned; (2) having the sea water
glaze removed; (3) having the gurry and gills removed; (4) being
graded, sorted, and treated by having their shells scored, having
part of their shells removed, or having the meat extracted; and
(5) being frozen, glazed with fresh water, and packed - because
such processing is not considered to be a manufacture or
processing into a new and different product which breaks the
continuity of the transportation between coastwise points.
Sincerely,
John E. Elkins
Acting Director, Regulatory
Procedures and Penalties Division