DRA-4-OT:RR:CTF:ER H046995 BAS
James C. Alberdi, President
A.J. Arango, Inc.
1516 E. 8th Avenue
Tampa, Florida 33605
RE: Class 8 Bonded Warehouse
Dear Mr. Alberdi: This is in response to your letter, dated October 27, 2008, on behalf of Vigo Import Co. (Vigo) for a binding ruling on whether Vigo may add salt to drinking wine to transform it into cooking wine in a Class 8 Bonded Warehouse prior to withdrawal for consumption. Your request was forwarded to our office by New York CBP. We have reviewed your ruling request and have made the following decision.
FACTS:
Vigo proposes to import drinking wine in 1000 liter plastic totes and add salt to the wine to transform it into cooking wine. The proposal states that after the addition of the salt, the wine will contain greater than 1.5 grams of salt per 100 milliliters of wine making it unfit for consumption as a beverage.
Information submitted on January 6, 2009 by electronic mail, stated that the value of the drinking wine prior to the addition of the salt is $810.00 per 1000 liter tote. The value of the salt added per 1000 litre tote is $4.25.
The drinking wine is to be imported in 1000 liter plastic totes featuring large screw top openings. The necessary salt would be added to each tote transforming the wine into “cooking wine”. After this is done the totes would be labeled as “cooking wine” and a U.S. Customs entry would then be made under the appropriate classification for cooking wine. The product would then be moved to Vigo’s warehouse for further packaging.
ISSUE:
Whether the proposed operation is a permissible manipulation under title 19 U.S.C. § 1562?
LAW AND ANALYSIS:
Whether Vigo may add salt to its drinking wine in a bonded warehouse rests upon whether the mixing or blending is a permissible manipulation under title 19 U.S.C. § 1562. If the process of adding, mixing or blending (“blending”) constitutes a manufacture, it is not permitted in a bonded warehouse under 19 U.S.C. §1562.
19 U.S.C. §1562 provides that imported “merchandise may [with Customs permission and supervision] be cleaned, sorted, repacked, or otherwise changed in condition, but not manufactured, in bonded warehouses established for that purpose . . ..” Manufacture requires that a substantial transformation has taken place. “Substantial transformation is a concept of major importance in administering the customs and trade laws.” Tropicana Products, Inc. v. U.S., 789 F. Supp. 1154, 1157, no.4 (CIT 1992). In order for there to be a substantial transformation, “there must be transformation” such that “a new and different article must emerge, ‘having a distinctive name, character, or use.’ The criteria of name character and use continue to determine when substantial transformation has occurred ***.” Ferrostal Metals Corp. V. United States, 11 CIT 470, 664 F. Supp. 535 (1987). See also Torrington Co. V. United States, 3 CAFC (T) 105, 741 F.2d 11563 (1985) and cases cited; Axteca Milling Co. V. United States, 12 CIT 1153, 703 F. Supp. 949 (1988), aff’d, 8 CAFC ----(T), 890 F.2d 1150 (1989).” Id.1157.
In Tropicana Products, Tropicana argued, “that its bonded warehouse operations will not result in a ‘substantial transformation’ of the imported merchandise and therefore will not constitute a ‘manufacture’ in its bonded warehouse.” Tropicana at 1157. In Tropicana, the court held, that “[t]o interpret ‘manufacturing’--an expressly prohibited manipulation under §1562--as requiring a high threshold of transformation (viz. a substantial transformation as stringently required in country of original and drawback cases), would negate the evident legislative intent of the statute to permit only very minor or rudimentary manipulations in bonded warehouses--akin to the exemplars (cleaning, sorting and repacking).” Id., at 1158. “Hence,” the court found, “in the context of §1562, the prohibited manipulation, manufacturing, may be contravened at a relatively low threshold of ‘transformation.’"
In Tropicana, where the blending of orange juice concentrates to achieve desired Brix to acid ratios changed the fundamental character of the imported unblended concentrate, the court concluded that the blending operation was not a permitted manipulation. As noted in HQ 225490, dated October 24, 1994, the court
“analyzed the exemplars in the statute.” Clearly, “blending” was not one of the listed terms. Blending “was not analogous to ‘cleaning, sorting, or repacking,’ so that the phrase “or otherwise changed in condition,” did not apply.” Likewise “pouring” salt into drinking wine is not cleaning, sorting or repacking as contemplated by the exemplars.
In HQ 228508, September 9, 1999, we held that the mixing of imported broccoli florets and stalks in a bonded warehouse would be considered a manufacture and not a mere manipulation and was therefore not permitted under 19 U.S.C. § 1562. In HQ 228508, the proposed operation involved blending totes of broccoli florets and broccoli stalks. The broccoli florets and the broccoli stalks were to be blended on a 40%/60% basis, and then placed in totes containing the blend, for export. There were essentially three steps to the process: 1. The opening of the tote containers; 2. The blending of the florets and the stalks; 3. The repackaging of the blended mixture known in the industry as “broccoli cuts.” In finding that the mixing of the florets and stalks was a manufacture, we reasoned that although, the broccoli remained broccoli, the nature of the merchandise had changed. The broccoli florets were no longer solely broccoli florets. The broccoli stalks were no longer solely broccoli stalks. After processing the blend became known in the industry and in the marketplace as “broccoli cuts.” The price of the new merchandise was significantly different. The 60% broccoli stalk content was priced at one-hundred percent more than it was when it was sold as part of a stalks-only tote. The 40% floret content was priced at 50% less than it was when marketed in a tote containing florets only. This substantial increase in overall price for “broccoli cuts,” represented a significant indication that there was a new product, and that it was recognized as such, by both the broccoli industry and by the public. The blended broccoli cuts had taken on a new name, a new price, and a new character, albeit the three products are still for eating.
The Tropicana Court stressed that the merchandise must not be otherwise changed in “condition” as stated in the statute. In the case of the broccoli, the merchandise did in fact, change condition. The mixing of the more expensive florets, with the less expensive stalks, in a 40%-60% mix, produced a new product, at a new price. The mixing/blending was not performed for a decorative purpose. It was performed for marketing and for profit purpose. There are those who would prefer to eat florets and stalks mixed rather than just stalks or just florets. Further, a tote of florets only costs two hundred percent, on average, more than a tote of stalks only. A mix or blend of florets and stalks costs nearly 100% more that a tote of stalks only, but nearly 100% of a tote of florets only. The company and the market perceive a difference in the product and attraction to it and in its relative cost. Accordingly, in HQ 228508 we found this processing to be the kind of change in condition section 1562 considered to be a manufacture and not a mere manipulation.
Likewise in the instant case, we find that the addition of the salt to the drinking was the kind of change in condition that would be considered a manufacture and not a mere manipulation pursuant to 19 U.S.C. § 1562. The transformation as with the change in character, need not be complex and intricate, it need only substantially change the character, nature and/or name of the article. Tropicana at 1157. In the case of the cooking wine while the only change is that salt is added to the drinking wine, it changes the character of the wine as well as its name. Once the salt is added to the wine, it is no longer fit for drinking and its name its character is changed from drinking wine to cooking wine. While the value of the product does not change significantly, the purpose and marketing of the product completely changes. Therefore the addition of salt to the wine goes beyond the permissible operations allowed by 19 U.S. C. § 1562.
HOLDING:
Based on the above determinations, we conclude that the addition of approximately 1.5 grams of salt per 100 milliliters of wine to transform drinking wine to cooking wine constitutes a manufacture and therefore Vigo’s proposed operations go beyond the permissible operations allowed by 19 U.S. C. 1562.
Sincerely,
William G. Rosoff,
Chief
Entry Process and Duty Refunds Branch