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HQ 555762


February 25, 1991
CLA-2 CO:R:C:V 555762 SER

CATEGORY: CLASSIFICATION

Mr. Alan Ballweg
EuroJuice
36 Rue de Clichy
75009 Paris, France

RE: Eligibility of orange juice concentrate from Grenada for duty-free treatment under the CBI, 554486, substantial transformation

Dear Mr. Ballweg:

This is in reference to your fax transmission of October 19, 1990, concerning the eligibility of orange juice concentrate from Grenada for duty-free treatment under the Caribbean Basin Initiative (CBI) (19 U.S.C. 2701-2706).

FACTS:

You state that oranges, purchased in Venezuela, will be processed into orange juice concentrate in Grenada. In Grenada, the oranges will be sorted, washed, and prepared for extraction of the juice. After extraction, the juice would then be thermally concentrated, frozen, packed, and shipped to the U.S.

In the alternative, if this is not considered to be a "substantial transformation", you inquire as to whether the CBI requirements may be met by processing oranges from both CBI and non-CBI countries, in a 35% CBI, to 65% non-CBI proportion.

ISSUE:

Is the orange juice concentrate eligible for duty-free treatment under the CBI?

LAW AND ANALYSIS:

Under the CBI, eligible articles the growth, product or manufacture of designated beneficiary countries (BC's), may enter the U.S. free of duty if such articles are imported directly to the U.S. from the 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). n

As stated in General Note 3(c)(v)(A) of the Harmonized Tariff Schedule of the United States Annotated (HTSUSA), Grenada is a BC for CBI purposes. In addition, the orange juice concentrate is classified in subheading 2009.11.00, HTSUSA, which is a CBI eligible provision.

If an article is comprised of materials that are imported into the BC, the cost or value of those materials may be included in calculating the 35% value-content requirement only if they undergo a "double substantial transformation" in the BC. See section 10.196(a), Customs Regulations (19 CFR 10.196(a)). Azteca Milling Co. v. United States, 703 F.Supp. 949 (CIT 1988), aff'd 890 F.2d 1150 (Fed. Cir. 1989). Therefore, the oranges from Venezuela must undergo a double substantial transformation for their value to be included in the 35% value-content calculation.

The test for determining whether a substantial transformation occurs is whether an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. Texas Instruments, Inc. v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982).

In Headquarters Ruling Letter (HRL) 554486 dated March 26, 1987, Customs held that a new and different article of commerce resulted from the processing of oranges into frozen orange juice concentrate, but that the processing did not constitute the requisite double substantial transformation. The facts at issue here are identical to the facts of HRL 554486 and, thus, your process would also not meet the double substantial transformation requirement. Therefore, the cost or value of the oranges from Venezuela cannot be used in the 35% value-content requirement.

Since the process you describe creates a new and different article, the frozen concentrate would be considered a "product of" Grenada. Therefore, if the direct costs of processing plus any BC material costs (e.g., oranges from a BC) represent at least 35% of the appraised value, the concentrate made in this manner would be entitled to duty-free treatment under CBI. The direct costs of processing are enumerated in section 10.197, Customs Regulations (19 CFR 10.197). Enclosed is a copy of the Customs Regulations relating to the CBI (19 CFR 10.191-10.198).n

HOLDING:

The Venezuelan oranges processed in Grenada into frozen orange juice concentrate do not undergo a double substantial transformation, and, as a result, their cost or value may not be included in the CBI 35% value-content calculation. Since the production of orange juice concentrate from oranges would render the concentrate a "product of" Grenada, if the direct costs of processing plus any BC material costs represent at least 35% of the appraised value, this product would be entitled to duty-free treatment under the CBI.

Sincerely,

John Durant, Director
Commercial Rulings Division

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