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HQ 555947


April 11, 1991

CLA-2 CO:R:C:S 555947 WAW

CATEGORY: CLASSIFICATION

Mr. Edwin C. Jones
Citrus, Inc.
305 W. Broad St.
Groveland, FL 34736

RE: Eligibility of orange juice concentrate from Panama for duty-free treatment under the CBERA; substantial transformation; blending; 711651; 554161; 544195

Dear Mr. Jones:

This is in response to your letter dated March 14, 1991, requesting a ruling on the eligibility of orange juice concentrate from Panama for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701- 2706).

FACTS:

You state that oranges, grown in Panama, will be processed there into orange juice concentrate. The juice is first extracted from the oranges. Next, the juice is processed through an evaporator to produce concentrated orange juice. During the evaporation process of the orange juice in Panama, the oil and essences are removed and later added back. The resulting orange juice concentrate has a brix-acid ratio which is too low for the concentrate to meet the Grade A standards set by the United States Department of Agriculture. Thus, the Panamanian orange juice concentrate is blended in Panama with another concentrate of non-CBERA origin so that the finished blend will be of a quality that will be acceptable for retail consumption in the U.S. In most instances, the orange juice concentrate of non- CBERA origin is the only source of concentrate which has the required high brix-acid ratio. (Brix is a scale for measuring the concentration of the solids in an orange juice product).

ISSUE:

Whether the orange juice concentrate composed of orange juice concentrate from Panama which is mixed with orange juice concentrate of non-CBERA origin is entitled to duty-free treatment under the CBERA when imported into the U.S.

LAW AND ANALYSIS:

Under the CBERA, eligible articles the growth, product or manufacture of designated beneficiary countries (BC's) may receive duty-free treatment if such articles are imported directly to the U.S. from a BC, and if the sum of (1) the cost or value of the materials produced in a BC or BC's, plus (2) the direct cost of processing operations performed in a BC or BC's, is not less than 35% of the appraised value of the article at the time it is entered into the U.S. See 19 U.S.C. 2703(a). The cost or value of materials produced in the U.S. may be applied toward the 35% value-content minimum in an amount not to exceed 15% of the imported article's appraised value. See section 10.195(c), Customs Regulations (19 CFR 10.195(c)).

As stated in General Note 3(c)(V)(A), Harmonized Tariff Schedule of the United States Annotated (HTSUSA), Panama is a BC for CBERA purposes. In addition, frozen orange juice concentrate is classified under subheading 2009.11.00, HTSUSA, which provides for fruit juices (including grape must) and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other sweetening matter: Orange juice, which is a CBERA eligible provision. Accordingly, if the orange juice concentrate is considered a "product of" Panama and the 35% value-content minimum is met, the orange juice concentrate will be entitled to duty-free treatment under the CBERA.

Where an article is produced from materials imported into a BDC from non-BDC's, as in this case, the article is considered a "product of" the BDC only if those materials are substantially transformed into a new and different article of commerce. See 19 CFR 10.195(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).

To find a substantial transformation in this case, it is necessary to conclude that the blending of the non-BC orange juice concentrate with the Panamanian orange juice concentrate in Panama changes the orange juice concentrate into a new and different article of commerce with a new name, character, or use.

Generally, Customs has held that the mere mixing of two substances in a BC, not involving a chemical reaction and without additional processing, does not result in a product of that BDC. See 19 CFR 10.195(a)(2)(i) (articles which have undergone only a simple combining or packaging operation in a BC, such as the addition of anti-caking agents, preservatives, wetting agents, etc., are precluded from duty-free treatment under the CBERA). Similarly, in HRL 554161 dated July 3, 1986, Customs held that the simple mixing of equal amounts of two types of orange juice concentrates, only one of which was from a BC, did not constitute a substantial transformation of the substances into a new and different article of commerce.

In addition, Customs has previously held that a mere dilution does not constitute a substantial transformation, nor does a reduction in the brix level of orange juice concentrate. In HRL 711651 dated November 5, 1979, Customs stated that the country of origin of orange juice concentrate would not be changed merely because the orange juice became less concentrated in Canada. In that case, we held that reducing the brix would not constitute a substantial transformation because the concentrate is still considered to be the same product - orange juice concentrate.

However, in HRL 544195 dated February 26, 1990, we stated that although the addition of non-BC gelling agent to ethanol produced in St. Kitts may not constitute a substantial transformation, the ethanol, which constituted over 95% of the content of the products and the largest percentage of its value, is the result of a substantial manufacturing operation in St. Kitts from cane grown in St. Kitts. Therefore, we held that the de minimis amounts of non-BC material included in the products should not preclude their duty-free treatment under the CBERA.

In the instant case, the blending of the non-BC orange juice concentrate with the Panamanian concentrate in Panama does not result in a substantial transformation of the non-BC concentrate into a product of Panama. Although the addition of the orange juice concentrate with high brix-acid ratio from the non-BC may make the final product taste more like fresh orange juice, it does not significantly change the orange juice into a different article. In addition, based on the information submitted, there is no evidence that the amount of non-BC orange juice concentrate is de minimis in terms of content and value as compared to the percentage of the Panamanian concentrate. Therefore, as the Panamanian orange juice concentrate is merely mixed with non-BDC orange juice concentrate to produce orange juice with a high brix-acid ratio, the resulting product does not undergo a substantial transformation and would not be entitled to duty-free treatment under the CBERA.

HOLDING:

Because the mere blending in Panama of the non-BC orange juice concentrate with Panamanian concentrate does not result in a substantial transformation of the non-BC concentrate into a product of Panama, the blended product is not entitled to duty- free treatment under the CBERA when imported into the U.S.

Sincerely,


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