CLA-2 CO:R:C:S 557919 WAS
Mr. M.J. Muirhead
Divad Enterprises Ltd.
3 Barton Rd.
Heretaunga, Wellington
New Zealand
Re: De-Boning of Frozen Carcass Beef in American Samoa; General Note 3(a)(iv), HTSUS; insular possession; substantial transformation
Dear Mr. Muirhead:
This is in reference to your letter of April 13, 1994,
requesting a ruling concerning the eligibility of frozen bone-beef carcass from New Zealand which is de-boned in American Samoa
for duty-free treatment under General Note 3(a)(iv), Harmonized
Tariff Schedule of the United States (HTSUS).
FACTS:
You state that U.S. Department of Agriculture (USDA)
inspected and approved bone-in beef carcasses will be shipped
from New Zealand to Pago Pago, American Samoa where they will be
de-boned in a USDA approved and bonded facility and boxed for
shipment to the U.S.
ISSUE:
Whether the de-boned beef carcass will be entitled to duty-free treatment under General Headnote 3(a)(iv), HTSUS, when
imported into the U.S.
LAW AND ANALYSIS:
General Note 3(a)(iv), HTSUS, provides that goods imported
from a U.S. insular possession may enter the customs territory of
the U.S. free of duty if the goods:
(1) are the growth or product of the possession;
(2) do not contain foreign materials which represent more
than 70 percent of the goods' total value (or more than
50 percent with respect to textile and apparel articles
subject to textile agreements, and other goods
described in section 213(b) of the Caribbean Basin
Economic Recovery Act) (CBERA); and
(3) come directly to the customs territory of the U.S. from
the possession.
Customs has ruled that American Samoa is a U.S. insular
possession for purposes of General Note 3(a)(iv), HTSUS. See
Headquarters Ruling Letter (HRL) 557713 dated April 5, 1994.
To qualify for duty-free treatment under this program, an
article must first be considered a "product of" a U.S. insular
possession. Where an article is produced from materials imported
into a U.S. insular possession, it is considered to be a "product
of" the possession only if the imported materials are
substantially transformed there into a new and different article
of commerce. A substantial transformation occurs when an article
emerges from a process with a new name, character, or use
different from that possessed by the article prior to processing.
See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681
F.2d 778 (1982).
With regard to the question of whether the bone-beef
carcasses from New Zealand undergo a substantial transformation
when they are de-boned in American Samoa, we find relevant the
decision in Uniroyal, Inc. v. United States, 3 CIT 220, 542 F.
Supp. 1026 (1982), a country of origin marking case involving
imported shoe uppers. In Uniroyal, the court considered whether
the addition of an outsole in the U.S. to imported uppers lasted
in Indonesia effected a substantial transformation of the uppers.
In Uniroyal, the court described the imported upper, which
resembled a moccasin, and the process of attaching the outsole to
the upper. The court concluded that a substantial transformation
of the upper had not occurred since the attachment of the outsole
to the upper was a minor manufacturing or combining process which
left the identity of the upper intact. The upper was described
as a substantially complete shoe and the manufacturing process
taking place in the U.S. required only a small fraction of the
time and cost involved in producing the upper. Furthermore, in
Uniroyal, the court examined the facts presented and determined
that the completed upper was the very essence of the completed
shoe.
The concept of the "very essence" of a product was again
applied by the court in National Juice Products v. United States,
628 F. Supp. 978, 10 CIT 48 (CIT 1986), where the court
determined that imported frozen concentrated orange juice was not
substantially transformed in the U.S. when it was domestically
processed into retail orange juice products. In National Juice
Products, the first level of production, which was performed
abroad, involved reducing fresh oranges to manufacturing
concentrate. The oranges were first tested for solid content and
then run through an extractor and transferred to an evaporator,
where the juice was reduced to approximately fourteen percent of
its original volume and cooled. During this process, the
essential oils and flavoring ingredients present in the juice
also evaporated. The end result was a viscous substance with a
brix level of approximately 65 degrees. As the oils and
flavoring ingredients were lost during this process, the
manufacturing concentrate did not have the characteristic flavor
of oranges. The second level of production, which was performed
in the U.S., involved blending the manufacturing concentrate with
other ingredients (primarily water) to create an end product of
either frozen concentrated orange juice or reconstituted orange
juice. This process involved mixing the manufacturing
concentrate with purified and dechlorinated water, orange
essences, orange oil, and, in some instances, fresh juice.
In National Juice Products, the court addressed each of the
factors -- name, character and use -- in finding that no
substantial transformation occurred in the production of retail
orange juice products from manufacturing concentrate. The court
found that the change in name from "concentrated orange juice for
manufacturing" to "frozen concentrated orange juice" and "orange
juice from concentrate" is not significant to a finding of
substantial transformation. Instead, the court stated that these
names "merely refer to the same product, orange juice, at
different stages of production." Id. at 989.
The court agreed with Customs that the imported
manufacturing concentrate "imparts the essential character to the
juice and makes it orange juice. . . [and thus], as in Uniroyal,
the imported product is the very essence of the retail product."
The court found that the retail product in this case was
essentially the juice concentrate derived in substantial part
from foreign grown, harvested, and processed oranges. Although
the addition of the water, orange essences, and oils to the
orange juice concentrate made it suitable for retail sale,
according to the court, this did not change the fundamental
character or use of the product, it was still essentially the
product of the juice of oranges.
In HRL 557577 dated May 16, 1994, Customs held that leaf
tobacco which is hand-stripped in a Caribbean Basin Economic
Recovery Act (CBERA) beneficiary country does not undergo a
substantial transformation into a "product of" that beneficiary
country. We stated in this case that the operations performed in
the beneficiary country which included cleaning, conditioning the
tobacco, hand-stripping, drying, etc. did not change the
fundamental character or use of the tobacco in its exported
condition. We have also held in HRL 729365 dated June 25, 1986,
that imported broccoli was not considered substantially
transformed when it was further processed by cutting, blanching,
packaging and freezing. The pre-processed broccoli was found to
not lose its fundamental character and identity as a result of
the processing operations that were performed. In addition, in
HRL 731472 dated June 23, 1988, published as C.S.D. 88-19,
Customs held that the peeling and deveining of shrimp did not
change the name, character, or use of the shrimp, and, thus, did
not constitute a substantial transformation. In that ruling, it
was stated that the deveining and shelling operations did not
significantly change the products' intended use, which is
dictated primarily by the very nature of the product itself --
raw shrimp. It was also noted that peeling and deveining
operations often are performed by many consumers in their own
kitchen. In addition, in HRL 555684 dated January 18, 1991,
Customs held that cheese is not substantially transformed when it
undergoes processing from block cheese to grated cheese. In that
ruling, it was stated that not only can grated cheese be created
from raw cheese by consumers in their home, but, more
importantly, the change of the cheese from raw to grated is only
minor and does not change the fundamental character of the
cheese. We view the de-boning and other operations performed on
the bone-in beef carcass as analogous to those operations
described in the above-cases in which we held that a substantial
transformation did not result.
As in Uniroyal and National Juice Products, and consistent
with the above-cited cases, it is our determination that the very
"essence" of the final product in the instant case is imparted by
the bone-beef carcasses, prior to any additional processes
performed in the beneficiary country. The operations performed
in American Samoa which include de-boning and packaging, do not
change the fundamental character or use of the beef in its
exported condition. Although the de-boning process may remove
the bones and repackage the beef, it does not alter the essential
character of the beef. It is raw beef which is exported into
American Samoa and raw beef which is imported into the U.S.
Accordingly, we do not believe that the operations performed in
American Samoa constitute a substantial transformation of the
beef into a new and different article of commerce with a new
name, character or use.
HOLDING:
On the basis of the information submitted, the beef carcass
which is de-boned in American Samoa is not substantially
transformed into an article which is the manufacture or product
of American Samoa for purposes of General Headnote 3(a)(iv), HTSUS. Therefore, the de-boned beef from American Samoa will not
be entitled to duty-free entry into the U.S.
Sincerely,
John Durant, Director
Commercial Rulings Division