HQ 0112423 - Coastwise Trade; Processing of Fish; New and Different Product; 46 U.S.C. App. 883 - United States International Trade Commision Rulings

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HQ 112423

September 1, 1992

VES-3-06/07-CO:R:IT:C 112423 GEV

CATEGORY: CARRIER

Terrence B. Price
Secretary Treasurer
Robert Landweer & Co., Inc.
911 Western Avenue, Suite 208
Seattle, Washington 98104

RE: Coastwise Trade; Processing of Fish; New and Different Product; 46 U.S.C. App. 883

Dear Mr. Price:

This is in response to your fax dated August 12, 1992, requesting a ruling regarding the applicability of 46 U.S.C. App. 883 to a fish processing operation. Our ruling on this matter is set forth below.

FACTS:

Yellowfin sole are caught by a United States-flag fishing vessel in the Exclusive Economic Zone (EEZ) of the United States off Alaska and delivered by the catching vessel to Dutch Harbor, Alaska. At Dutch Harbor the fish are loaded on board a vessel not qualified to engage in the coastwise trade. The condition of the fish at the time of departure from Dutch Harbor is that they are headed and gutted whole fish.

The fish are then transported by the non-coastwise-qualified vessel from Dutch Harbor to China where they are further processed. This further processing involves the following: (1) the fish are thawed; (2) the fish are skinned, boned and cut into fillets; (3) the fillets are graded as to size and then frozen; and (4) the fillets are then placed in boxes marked as to grade.

After completion of the above processing the fish will be returned to the United States. This return shipment will be accomplished by a non-coastwise-qualified vessel.

ISSUE:

Whether the transportation of headed and gutted whole fish, by a non-coastwise-qualified vessel, from Alaska to China where the fish are thawed, skinned, boned, filleted, graded as to size, frozen and boxed according to grade, is sufficient to create a "new and different product" within the meaning of 19 CFR 4.80b(a) so that the subsequent transportation of the processed fish to the United States by a non-coastwise-qualified vessel is not in violation of 46 U.S.C. App. 883.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, section 883 (the merchandise coastwise law often called the "Jones Act") prohibits the transportation of merchandise between United States coastwise points, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States.

In interpreting section 883, Customs has ruled that a point in United States territorial waters is a point in the United States embraced within the coastwise laws. The territorial waters of the United States consist of the territorial sea, defined as the belt, 3 nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ.

Section 4.80b(a), Customs Regulations (19 CFR 4.80b(a)), provides, in part, that:

A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at a point embraced within the coastwise laws ("coastwise point") is unladen at another coastwise point, regardless of the origin or ultimate destination of the merchandise. However, merchandise is not transported coastwise if at an intermediate port or place other than a coastwise point (that is, at a foreign port or place, or at a port or place in a territory or posses- sion of the U.S. not subject to the coastwise laws), it is manufactured or processed into a new and different pro- product, and the new and different product thereafter is transported to a coastwise point. (emphasis added)

In applying section 4.80b(a), Customs has held that merchandise manufactured or processed into a new and different product must be landed and processed at an intermediate port or place other than a coastwise point. The manufacturing or processing may not take place on board a vessel.

Section 4.80b was promulgated subsequent to the case of American Maritime Association v. Blumenthal, 590 F.2d 1156 (1978), wherein the U.S. Court of Appeals, District of Columbia, considered whether Alaska crude oil could be transported by non- coastwise-qualified vessels from Alaska to the U.S. Virgin Islands (a non-coastwise point) where it was refined and then transported to a point in the continental United States. The court stated (590 F.2d 1156, at 1161) that the "central issue, therefore, is whether the 'merchandise' (crude oil) transported from Valdez to St. Croix by Hess is so similar to the 'merchandise' (refined oil products) subsequently shipped from St. Croix to the continental United States that the processing at St. Croix fails to interrupt an essentially single voyage of the oil from Valdez, Alaska to the East Coast." (See also, footnote 38, 590 F.2d 1156, at 1163, referring to letter rulings of the Customs Service on this issue. The court, in this footnote, noted that "[i]n these rulings the degree to which a product has been altered by processing at the point of transshipment has generally been dispositive of whether the continuity of its transportation has been broken at that point...")

The court in Blumenthal held that the transportation in that case did not violate 46 U.S.C. App. 883. The rationale for this holding was that the continuity of the transportation was broken because the products of the crude oil transported after refining were "quite different" from the crude oil transported to the U.S. Virgin Islands, "i.e., [they were] products which are physically, chemically, and usefully different from the original crude oil." (590 F.2d 1156, at 1162, 1163) In a footnote which is relevant to the issue under consideration, the Court, in pertinent part, stated:

...The issue is not whether the whole of a particular substance is more or less than its parts, but whether after a refining or manufacturing process which, for example, breaks the substance down into constituent elements or combines it with other elements to create new substances, the product remains largely the same in such respects as form, composition, value or function.

Customs has issued a number of rulings where a particular item has been manufactured or processed into a new and different product so that the continuity of what otherwise would be considered coastwise transportation of that item via a non- coastwise point is broken (see Treasury Decision (T.D.) 56272(2) regarding the transportation of processed rice; T.D. 56320(2)
regarding the transportation of processed lumber; and T.D. 91-32 regarding the transportation of blended fuel oils). We have also ruled on the applicability of 19 CFR 4.80b(a) to the transportation and processing of crab (see rulings 104859, 105021, 105319, 106093, 108294, 109504 and 109703).

In regard to the processing of fish, however, we find the court's decision in Koru North America v. United States, 701 F.Supp. 229 (CIT 1988) to be instructive. The foreign processing operations conducted in that case and the one now under consideration are practically identical. The fish in Koru North America were caught within New Zealand's EEZ by vessels flying the flags of New Zealand, Japan and the former Soviet Union. The fish were beheaded, detailed, eviscerated and frozen aboard the vessels within New Zealand's EEZ, then offloaded in New Zealand. The fish were subsequently shipped to Korea for further processing which consisted of thawing, skinning, boning, trimming, glazing, refreezing and packaging for exportation to the United States.

At issue in the above case was whether this further processing in Korea effected a substantial transformation of the fish so that the country of origin should have been marked as Korea for purposes of 19 U.S.C. 1304, as opposed to the country of the flag of the catching vessel (the latter principle has long been Customs position regarding the country of origin of fish caught on the high seas, see Proctor & Gamble Mfg. v. United States, 60 Treas. Dec. 356, T.D. 45099 (1931), affirmed CCPA 415, C.A.D. 3488, cert. denied, 287 U.S. 629, 53 S.Ct. 82, 77 L.Ed. 546 (1932)).

The court held that the processing in Korea did effect a substantial transformation. Koru North America, 701 F.Supp. 229, at 235. The court reached this holding in view of the fact that the name of the product changed from "headed and gutted fish" to "individually quick-frozen fillets." Id. Moreover, the court identified changes that "go to the fundamental nature and character of the fish..." Id. Such changes included a change in the shape, marketing and tariff classification of the fish resulting from the processing.

It should be noted that Customs position, in cases such as the one under consideration where the respective tariff classifications of the merchandise to be processed and the merchandise which is processed may be different, is not controlling but should be considered, as should, of course, a common-sense consideration of the merchandise transported (see ruling 109504; Koru North America, 701 F.Supp. 229, at 235, and cases cited therein).

In regard to the case at hand, the "central issue", to paraphrase the Court in Blumenthal, is "whether the 'merchandise' [headed and gutted whole fish] transported from [Alaska] to [China] ... is so similar to the 'merchandise' [the thawed, skinned, boned, filleted, graded and boxed fish] subsequently shipped from [China] to [the United States] that the processing at [China] fails to interrupt an essentially single voyage of the [headed and gutted whole fish] from [Alaska] to [other United States points]. If the [headed and gutted fish] and [their] by- products are deemed to constitute a single element of 'merchandise,' then the same 'merchandise' travels between [Alaska] and [other United States points]--i.e., between two 'points in the United States'--and is subjected throughout that voyage to the prohibitions of the Jones Act. If, on the other hand, the processing at [China] effects such a substantial metamorphosis of the [headed and gutted whole fish] that an essentially different 'merchandise' is transported on the second leg of the trip than on the first, the 'single' voyage from [Alaska] to [other United States points] is severed at [China]." (590 F.2d 1156, at 1161)

On the basis of the above rulings and the authorities discussed therein, we conclude that the processing in China of the headed and gutted whole fish by thawing, skinning, boning, filleting, grading, freezing and boxing is sufficient to result in a new and different product within the meaning of section 4.80b(a), Customs Regulations. Accordingly, the transportation of the fish on non-coastwise-qualified vessels from Alaska to China and/or from China to the United States would not violate 46 U.S.C. App. 883.

Parenthetically, we note that in view of the court's decision in Koru North America discussed above, China would be considered the country of origin of the processed fish for purposes of 19 U.S.C. 1304 and should be so marked in accordance with that statute and the Customs Regulations promulgated pursuant thereto (i.e., Part 134, Customs Regulations (19 CFR Part 134)).

HOLDING:

The transportation of headed and gutted whole fish, by a non-coastwise-qualified vessel, from Alaska to China where the fish are thawed, skinned, boned, filleted, graded as to size, frozen and boxed according to grade, is sufficient to create a "new and different product" within the meaning of 19 CFR 4.80b(a) so that the subsequent transportation of the processed fish back to the United States by a non-coastwise-qualified vessel is not in violation of 46 U.S.C. App. 883.

Sincerely,

Stuart P. Seidel

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