HQ 0555182 - Duty-free treatment of high fructose syrup under the CBERA.Substantial transformation;sugar;cane molasses. - United States International Trade Commision Rulings

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HQ 555182
June 6, 1990

CLA-2 CO:R:C 555182 CW

CATEGORY: CLASSIFICATION

Mr. Medford Alexander
Nadav, Inc.
11901 Ambleside Drive
Potomac, Maryland 20854

RE: Duty-free treatment of high fructose syrup under the CBERA.Substantial transformation;sugar;cane molasses.

Dear Mr. Alexander:

This is in response to your letter of October 4, 1988, requesting a ruling on the eligibility of high fructose syrup for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701-2706). We regret the delay in responding to your request.

FACTS:

You state that a plant will be constructed in the Bahamas to manufacture high fructose syrup and ethanol from cane molasses. (Your ruling request relates only to the syrup). Approximately 75 to 80 percent of the cane molasses from which the high fructose syrup is made is sourced from CBERA designated beneficiary countries (BC's), while the remainder is sourced from non-BC's, other than the U.S. The first step in the manufacture of the syrup consists of pretreating the cane molasses by an operation described as the "enzymatic inversion of the sucrose content of the cane molasses to glucose and fructose." The next step involves the chromatographic separation of the pretreated molasses into a non-sugar fraction and a reducing sugars fraction. Finally, the glucose in the reducing sugars fraction is isomerized to fructose. The resultant product will be in the form of a liquid or dry powder, and will have the properties and specification of 55 percent high fructose corn syrup.

ISSUE:

Whether the high fructose syrup produced in the Bahamas is entitled to duty-free treatment under the CBERA.

LAW AND ANALYSIS:

Under the CBERA, eligible articles the growth, product, or manufacture of a BC which are imported directly to the U.S. from a BC qualify for duty-free treatment, provided the sum of (1) the cost or value of materials produced in a BC or BC's, plus (2) the direct costs of processing operations performed in a BC or BC's, is not less than 35 percent of the appraised value of the article at the time it is entered. See section 10.195(a), Customs Regulations (19 CFR 10.195(a)).

An article is considered to be the growth, product, or manufacture of a BC if it is produced exclusively from materials which are wholly the growth, product, or manufacture of a BC or BC's, or, if the article consists of materials imported into a BC from a non-BC, those materials are substantially transformed in the BC in the production of the article. See 19 CFR 10.195(a). Similarly, the cost or value of materials which are used in the production of the article may be counted toward the 35 percent value-content requirement if they are either wholly the growth, product, or manufacture of a BC or BC's, or have been substantially transformed in a BC or BC's into a new or different article of commerce, which is itself substantially transformed in the production of the final article. See section 10.196(a), Customs Regulations (19 CFR 10.196(a)).

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).

The Bahamas is a BC. See General Note 3(c)(v)(A), Harmonized Tariff Schedule of the United States (HTSUS). Moreover, the high fructose syrup to be imported appears to be properly classifiable under subheading 1702.60.00, HTSUS, which is a CBERA eligible provision. ("Other fructose and fructose syrup, containing in the dry state more than 50 percent by weight of fructose.")

As the high fructose syrup in this case will be made from cane molasses sourced, in part (approximately 20-25 percent), from non-BC's, the syrup will be considered to be the "product of" the Bahamas only if the non-BC molasses are substantially transformed in the Bahamas into a new or different article of commerce. We find that this requirement clearly is satisfied here. The pretreatment of the cane molasses by the enzymatic inversion process, the chromatographic separation of the
pretreated molasses into non sugar and reducing sugar fractions, and the isomerization of glucose to fructose in the reducing sugar fraction, results in a product (high fructose syrup) with a new name and significantly different characteristics from the cane molasses from which it is made. Moreover, the processing operations in the Bahamas transforms cane molasses, which is a multifunctional product, into a distinct article of commerce suitable for specific uses.

Finally, there appears to be no question that the high fructose syrup will meet the CBERA 35 percent value-content requirement. The cost or value of the cane molasses originating in BC's, which you state comprises approximately 75 to 80 percent of the molasses used to produce the syrup, may be counted toward the 35 percent minimum, as may the direct processing costs incurred in the Bahamas.

For your information, we are enclosing a copy of the Customs Regulations relating to the CBERA (19 CFR 10.191-10.198).

HOLDING:

Based on the information provided, high fructose syrup produced in the Bahamas will be entitled to duty-free treatment under the CBERA, assuming that it is imported directly to the U.S. and that the 35 percent value-content requirement is satisfied.

Sincerely,

John Durant

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