MAR 2-O5 CO:R:C:V 731472 LR
Mr. William D. Chauvin
Executive Director
American Shrimp Processors Association
P.O. Box 50774
New Orleans, Louisiana 70150
Re: Country of Origin Marking Requirements for Shrimp Processed
in the U.S. by Shelling and Deveining
Dear Mr. Chauvin:
This ruling is in further response to our letter dated
May 16, 1988, stating our position that the peeling of imported
shrimp does not constitute a substantial transformation. We
advised you that a ruling would follow.
BACKGROUND:
On April 13, 1988, the Customs Service seized certain
foreign shrimp that had been repacked into boxes that labeled the
shrimp as a product of the U.S. In some cases, the shrimp was
merely repacked from one box to another. In other cases, the
shrimp was also deveined and peeled. Though never the subject of
a formal ruling, Customs specifically advised numerous processors
who are members of your association, as well as the National
Marine Fisheries Service (NMFS) as early as 1984, that containers
of imported shrimp must be marked to indicate the foreign country
of origin of the shrimp. Although the position of the Customs
Service has remained constant, i.e. that the mere repacking or
repacking along with deveining and/or peeling is not a substan-
tial transformation and that country of origin marking is
required, it has come to our attention that the NMFS advised
shrimp repackers that such labeling was not required. The
purpose of this ruling is to clarify any misunderstandings that
may have resulted. While your letter addresses only shelling,
the letter from the NMFS addresses both shelling and deveining.
Our ruling, which covers both shelling and deveining, will be
published in the Customs Bulletin, a publication that is widely
disseminated to members of the importing community.
- 2 -
FACTS:
The imported product is green headless frozen shrimp (i.e.,
shrimp which has been headed). After importation, the shrimp is
thawed, sorted, iced, peeled, deveined, iced and packaged. The
peeling and deveining (removal of the intestinal tract) is done
either by automated or semi-automated machinery. The domestic
processing results in some weight loss which increases the
remaining per pound product cost. (For example, we are told
that a processor normally yields 80 percent of the original
weight after peeling 70-90 count size Chinese white shell-on
shrimp. By virtue of the weight loss alone, this increases the
price per pound from $2.00 to $2.50. After adding the cost of
processing and profit, the product is sold for $3.10). Although
not specifically stated, it would appear that the removal of the
shell from larger imported shrimp would result in a greater
percentage yield of the original weight and would result in a
smaller percentage increase in price.
ISSUE:
Whether containers of imported shrimp must be marked to
indicate the country of origin after the shrimp has been deveined
and peeled in the U.S.
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), requires that, unless excepted, every article of foreign
origin or its container must be legibly, permanently, and
conspicuously marked to indicate the country of origin to an
ultimate purchaser in the United States. 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 C.C.P.A. 297, 302, C.A.D. 104
(1940) (quoted in Globemaster, Inc. v. United States, 68 Cust.
Ct. 77, 79-80, 340 F. Supp. 975-76 (1972) and National Juice
Products Association v. United States, 10 CIT ___, 628 F. Supp.
978 (1986).
The regulations implementing the statute are set forth in
Part 134, Customs Regulations (19 CFR Part 134). Under 19 CFR
134.1(d), the ultimate purchaser is generally the last person in
the U.S. who will receive the article in the form in which it was
imported. If an imported article is further manufactured in the
- 3 -
U.S. and the manufacturing process is merely a minor one which
leaves the identity of the imported article intact, pursuant
to 19 CFR 134.1(d)(2), the consumer or user of the article who
obtains the article after the processing, will be regarded as
the ultimate purchaser.
Foreign natural products (such as shrimp) are on the so-
called J-list and are excepted from individual marking require-
ments (19 U.S.C. 1304(a)(3)(J) and 19 CFR 134.33). However, the
outermost container in which the article ordinarily reaches the
ultimate purchaser is required to be marked to indicate the
origin of its contents. As provided in 19 CFR 134.25, if the
imported J-list product will be repacked prior to sale to the
ultimate purchaser, the importer must certify to Customs that he
will properly mark the new package or alternatively notify the
repacker of the obligation to mark the new package. The certi-
fication procedures, which are for the purpose of ensuring that
despite the repacking, the ultimate purchaser will be advised of
the country of origin, apply to imported J-list articles proces-
sed and repacked after importation unless the articles are sub-
stantially transformed prior to repacking. Absent a substantial
transformation, the consumer or other recipient of the shrimp is
considered the ultimate purchaser and is entitled to be informed
of the country of origin of the shrimp.
In order for a substantial transformation to be found, an
article having a new name, character and use must emerge from
the processing. See United States v. Gibson-Thomsen Co, Inc,
27 C.C.P.A. 267, C.A.D. 98 (1940). The issue before the Customs
Court in that case was whether hairbrushes and toothbrushes
manufactured in the U.S. by inserting bristles into wooden
handles imported from Japan were required to be marked as pro-
ducts of Japan. After careful examination of the statute and its
legislative history, the court concluded that Congress had not
intended the marking requirements to continue to apply to an
imported article which is used in the U.S. as a material in the
manufacture of a new article having a new name, character and
use, and which consequently loses its separate identity in the
finished product.
This decision was followed and quoted extensively in Grafton
Spools, Ltd. v. United States, 45 Cust. Ct. 16, 22, C.D. 2190
(1960), in which empty metal spools imported from England and
wrapped in the U.S. with inked ribbons to create typewriter
ribbons and business machine ribbons were found to have lost
their identity in the finished product. The court observed that
- 4 -
what the ribbon manufacturers were selling were ribbons, which of
course had to be wound on a spool, but it was the ribbon and not
the spool which the manufacturer's customers were interested in
purchasing.
A more recent court decision on the issue of country of
origin marking is Uniroyal Inc. v. United States, 3 C.I.T. 220,
542 F. Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed Cir. 1983).
In this case the merchandise before the Court of International
Trade consisted of "footwear uppers consisting of complete shoes
except for an outsole...," manufactured in Indonesia and imported
into the U.S. where a pre-shaped rubber outsole was affixed and
the complete shoe was sold to retailers. The question was
whether the addition of the outsoles substantially transformed
the uppers so that the uppers did not have to be individually
marked as a product of Indonesia.
After carefully examining both the imported upper and the
finished shoe, the court concluded that the imported upper did
not lose its distinct identity in the finished shoe and to the
contrary, was the very essence of the completed shoe. This was
so even though the imported upper could not be sold to or worn
by consumers without the heavy rubber outsole being attached and
even though following attachment of the rubber outsole the shoe
was called by a different name, a deck shoe, rather than an upper
or a moccasin.
In the most recent court decision involving a country of
origin marking question, National Juice Products Association v.
United States, supra, the Court of International Trade upheld
Customs determination that imported orange juice concentrate is
not substantially transformed when it is domestically processed
into retail orange juice products. In that case, the orange
concentrate was mixed with water, orange essences, orange oil
and in some cases, fresh juice and either packaged in cans and
frozen or pasteurized, chilled and packed in liquid form.
Customs found, and the court agreed, that the domestic processing
did not produce an article with a new name, character or use
because the essential character of the final product was imparted
by the imported concentrate and not the domestic processing. The
court stated "the retail product in this case is essentially the
juice concentrate derived in substantial part from foreign grown,
harvested and processed oranges. The addition of water, orange
essences and oils to the concentrate, while making it suitable
for retail sale does not change the fundamental character of the
product, it is still essentially the product of the juice or
oranges."
- 5 -
The court found that since the U.S. processing did not
constitute a substantial transformation, the retail packages of
juice had to be marked to indicate the country of origin of the
imported concentrate. See also HQ 729365, dated June 25, 1986
(imported broccoli is not substantially transformed when it is
processed in the U.S. by cutting, blanching, packaging and
freezing; the imported broccoli does not lose its fundamental
character and identity and the repacked broccoli is subject to
the requirements of 19 U.S.C. 1304).
Applying the principles set forth in the above precedents
to the facts in this case, we are of the opinion that the
shelling and deveining of foreign shrimp does not constitute a
substantial transformation. First, the processing does not
result in a change of name that is material. While the imported
product may be known simply as frozen shrimp whereas the pro-
cessed product may described as "peeled and deveined" frozen
shrimp, both products have essentially the same name - frozen
shrimp. Such a minor name change is not enough to warrant a
finding of substantial transformation.
More importantly, the character of the imported product is
not changed by peeling and deveining. Both before and after
peeling and deveining, the product is still basically the same,
i.e., raw frozen shrimp. The quality and size of the product
is attributable to the imported product and not the domestic
processing. While the peeling and deveining changes the
physical appearance of the shrimp to a certain degree and renders
the product ready for eating, in our opinion, the change is minor
and does not fundamentally change the character of the imported
product. Just as the imported orange juice concentrate in
National Juice, the imported raw broccoli in HQ 729365 and the
imported upper in Uniroyal, imparted the essential character to
the final product, we believe that in this case the imported
shrimp similarly imparts the essential character to the final
product.
Finally, the shelling and deveining operations do not
significantly change the product's intended use, which we believe
is dictated primarily by the very nature of the product itself
(as raw shrimp) and by its size. These criteria are already
determined at the time of importation. The purchaser of frozen
raw shrimp has already decided that he would like to purchase raw
shrimp, that the product will be frozen, and that the raw shrimp
will be a particular size. Whether or not the purchaser would
also like the added convenience of having it deveined and shelled
at the time of purchase is but one factor to consider. We note
that peeling and deveining is often performed by many consumers
in their own kitchens.
- 6 -
We are not persuaded by the argument that the processing
changes the use of the imported product since peeled shrimp
cannot be utilized for any of the shell-on presentations, e.g.
"boil and peel", and "tail-on cocktail" dishes. Although the
peeling may limit some of the uses of the imported product, this
limitation does not equate with substantial transformation. In
each of the cases cited above, where the U.S. processing did not
effect a substantial transformation, the processed product could
no longer be used for certain presentations. For example, after
water was added to the orange juice concentrate it could no
longer be sold as a frozen concentrated product; nonetheless, it
is clear that the addition of water does not effect a substantial
transformation. Similarly, after the imported broccoli was cut
and frozen, it could no longer be used as broccoli spears.
Nonetheless, it was held that both the imported and processed
products had essentially the same use.
Based on the above considerations, we find that the peeling
and deveining of shrimp does not change the name, character or
use of the imported product and thus, does not constitute a
substantial transformation. To the contrary, the domestic
manufacturing processing is merely a minor one which leaves the
identity of the imported article intact. Therefore, the consumer
or user of the shrimp who obtains it after the processing is
regarded as the ultimate purchaser within the meaning of 19
U.S.C. 1304 and 19 CFR 134.1(d). As such, the repacked shrimp
must be labeled to reflect the country of origin of the shrimp.
To say that a consumer is not entitled to know the origin of the
shrimp by virtue of the peeling and deveining operations would,
in our opinion, render the marking statute meaningless.
HOLDING:
Foreign shrimp which is processed in the U.S. by peeling,
deveining and repacking is not substantially transformed.
Therefore, the repacked shrimp is subject to the country of
origin marking requirements of 19 U.S.C. 1304 and 19 CFR Part 134
and the repacked product must be labeled to indicate the country
of origin of the shrimp. In addition, the importer of such
shrimp is subject to the certification requirements set forth in
19 CFR 134.25.
Sincerely,
John Durant, Director
Commercial Rulings Division
CO:R:C:V:LRODBART:gcf 6/22/88 final:gcf 6/23/88
Mr. William D. Chauvin
Executive Director
American Shrimp Processors
Association
P.O. Box 50774
New Orleans, LA 70150