HQ 0556235 - Eligibility of hard candy from Mexico for duty-free treatment under the Generalized System of Preferences; Superior Wire, National Juice Products - United States International Trade Commision Rulings

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HQ 556235

December 24, 1991
CLA-2 CO:R:C:S 556235 SER

CATEGORY: CLASSIFICATION

S. Richard Shostak
Stein, Shostak, Shostak & O'Hara
3580 Wilshire Blvd.
Suite 1240
Los Angeles, CA 90010-2597

RE: Eligibility of hard candy from Mexico for duty-free treatment under the Generalized System of Preferences; Superior Wire, National Juice Products

Dear Mr. Shostak:

This is in reference to your letter of August 26, 1991, on behalf of Glico Foods U.S.A. Corp. (Glico), concerning the eligibility of hard rock candy from Mexico for duty-free treatment under the Generalized System of Preferences (GSP)(19 U.S.C. 2461-2466).

FACTS:

Granulated bulk sugar is shipped to Mexico, where it is cooked with water at 180 degrees in a jacketed cooker with a high speed agitator, resulting in a product referred to as "sugar syrup." Corn syrup is then added to the sugar syrup and both are cooked in a jacketed cooker at 190 degrees, resulting in a product referred to as "combination syrup." Finally, the combination syrup is cooked in a vacuum cooker and then undergoes cooling, flavoring and coloring, pulling, kneading, forming, and packaging. These processes produce the final product--hard candy.

ISSUE:

Whether the materials imported into Mexico and used in the production of the hard candy are subjected to a double substantial transformation, thereby permitting their cost or value to be included in the 35% value-content calculation.

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product, or manufacture of a designated beneficiary developing country (BDC), which are imported directly into the U.S., qualify for duty-free treatment if the sum of 1) the cost or value of then-2-
materials produced in the BDC plus 2) the direct costs involved in processing the eligible article in the BDC is at least 35% of the article's appraised value at the time it is entered into the U.S. See 19 U.S.C. 2463(b).

As stated in General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States Annotated (HTSUSA), Mexico is a designated BDC. In addition, the hard candy is classified in subheading 1704.90.20, HTSUSA, which is a GSP-eligible provision.

If an article is produced or assembled from materials which are imported into the BDC, the cost or value of those materials may be counted toward the 35% value-content minimum only if they undergo a double substantial transformation in the BDC. See section 10.177, Customs Regulations (19 CFR 10.177). Azteca Milling Co. v. United States, 703 F.Supp. 949 (CIT 1988), aff'd 890 F.2d 1150 (Fed. Cir. 1989). That is, the cost or value of materials imported into Mexico may be included in the 35% calculation only if they are substantially transformed in Mexico into a new and different intermediate article of commerce, which, itself, is substantially transformed in the production of the final article--the hard candy.

A substantial transformation occurs when a new and different article of commerce emerges from a process with a new name, character or use different from that possessed by the article prior to processing. Texas Instruments Incorporated v. United States, 69 CCPA 152, 681 F.2d 778, 782.

It is your position that three substantial transformations occur in the process of creating the hard candy. You contend that the processing of the bulk granulated sugar into sugar syrup is the first substantial transformation, followed by the transformation of the sugar syrup and corn syrup into combination syrup, and the transformation of the combination syrup into the hard candy.

It is our opinion that the granulated sugar is subjected to a double substantial transformation in Mexico during the production of the hard candy. We are not persuaded that the processing of the granulated sugar into sugar syrup constitutes a substantial transformation inasmuch as the essential character of both is sugar. See, National Juice Products Association v. U.S., 10 CIT 48, 628 F.Supp. 978 (1986), where the court upheld Customs determination of no substantial transformation of orange juice concentrate on the grounds that the mixing of water, orange essences and oils to the concentrate did not change the essential character of the basic ingredient, orange juice concentrate. On the other hand we do believe that adding corn syrup to the sugar syrup and cooking the mixture results in a product (combination syrup) which clearly has a different name, character, and usen-3-
than the granulated sugar from which it, in part, is made. We have previously held that processing which transforms a multifunctional product into one suited for a more specific uses is indicative of a substantial transformation. See, Headquarters Ruling Letter (HRL) 555247 dated January 11, 1990. In this case, the bulk sugar has numerous uses while the combination syrup has much more limited uses. Moreover, in addition to the name change, the fundamental character and consistency of the combination syrup is different from the granulated sugar.

The processing of the combination syrup into hard candy by cooking, cooling, flavoring, coloring, pulling, kneading and forming also results in a new and different article with a new name, character, and use. Customs and the courts have held that a manufacturing process which results in a transition from a producer's good to a consumer's good is indicative of a substantial transformation. Midwest Industries v. U.S., 313 F.Supp. 951 (Cust. Ct. 1970), HRL 555614 dated October 9, 1990. The combination syrup clearly undergoes a transition from a producer's good to a consumer's good in the manufacture of the hard candy.

HOLDING:

The manufacture of the hard candy in Mexico, whereby bulk granulated sugar is transformed from sugar into combination syrup and then into the hardy candy, constitutes a double substantial transformation. Therefore, the cost or value of the sugar may be included in the GSP 35% value-content requirement.

Sincerely,

John Durant, Director
Commercial Rulings Division

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