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HQ 556704


January 26, 1993

CLA-2 CO:R:C:S 556704 WAW

CATEGORY: CLASSIFICATION

Mr. Robert J. Karpiuk
Southside Foods, Inc.
632 Northside St.
Ann Arbor, MI 48105

RE: Request for Reconsideration of Headquarters Ruling Letter 555982; orange juice; CBERA; substantial transformation

Dear Mr. Karpiuk:

This is in response to your letter dated May 6, 1992, requesting reconsideration of Headquarters Ruling Letter (HRL) 555982 dated August 2, 1991. We held in HRL 555982 that the blending of non-beneficiary country (BC) orange juice with Belizian orange juice and the subsequent evaporation and chilling to produce frozen juice concentrate, did not result in a substantial transformation of the non-BC juice into a "product of" Belize. As a result, we concluded that the concentrate made in whole or in part from non-BC juice was not entitled to duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701-2706) when imported into the U.S.

FACTS:

As you previously stated in HRL 555982, you plan to produce frozen concentrated orange juice (FCOJ) in Belize from Belizian raw fruit and non-BC orange juice. You state that the FCOJ will be produced in the following manner: (1) the juice will be extracted from the Belizian fruit in Belize; (2) Belizian juice and non-BC juice will be combined; (3) water will be evaportated from the juice at a rate of 10,000 pounds per hour with a thermally accelerated short time evaporator (TASTE); (4) the FCOJ will be packaged into retail and bulk packages; (5) the FCOJ will be frozen to minus 20 degrees Fahrenheit; and (6) the FCOJ will be shipped to the U.S.

ISSUE:

Whether the frozen juice concentrate produced in Belize 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), Belize 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 juice concentrate is considered a "product of" Belize and the 35% value- content minimum is met, the juice concentrate will be entitled to duty-free treatment under the CBERA.

Where an article is produced from materials imported into a BC from non-BC's, as in this case, the article is considered a "product of" the BC 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).

The courts have relied on various criteria to determine whether a substantial transformation results in a particular case. In Uniroyal Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983), a country of origin marking case involving imported shoe uppers, the court considered whether the addition of an outsole in the U.S. to imported uppers lasted in Indonesia effected a substantial transformation of the uppers. The court described the imported upper, which resembled a moccasin, and the process of attaching the outsole to the upper. The court concluded that a substantial transformation of the upper had not occurred since the attachment of the outsole to the upper was a minor manufacturing or combining process which left the identity of the upper intact. The upper was described as a substantially completed shoe and the manufacturing process which took place in the U.S. required only a small fraction of the time and cost involved in producing the upper.

Furthermore, in Uniroyal, the court examined the facts presented and determined that the completed upper was the very essence of the completed shoe. The concept of the "very essence" of a product was applied in National Juice Products v. United States, 628 F. Supp. 978, 10 CIT 48 (CIT 1986), where the Court of International Trade upheld Customs' determination that orange juice concentrate is not substantially transformed when it is imported into the U.S. and processed into retail orange juice products. The orange juice concentrate at issue in that case was mixed with orange essences and oils, purified and dechlorinated water, and was either packaged in cans and frozen or pasteurized and packaged in liquid form. Customs found, and the court agreed, that such processing did not change the fundamental character of the orange juice concentrate, and that "the retail product in this case is essentially the juice concentrate derived in substantial part from . . . oranges. The addition of water, orange essences and oils to the concentrate, while making it suitable for retail sale does not change the fundamental character of the product, it is still essentially the product of the juice of oranges." Thus, as in Uniroyal, the court in National Juice found that the "very essence" of the retail product was imparted prior to importation.

To find a substantial transformation in the instant case, it is necessary to find that the blending of the non-BC orange juice and Belizian orange juice and the subsequent processing of the orange juice into frozen concentrated orange juice changes the orange juice imported into Belize into a new and different article of commerce, and that such processing is considered substantial.

We find that the processing in Belize of non-BC orange juice does not create a new and different article of commerce. First, we do not place much weight on the fact that the name frozen concentrated orange juice is different than the name fresh orange juice. In our opinion, these names merely refer to the same product at different stages of production. In Superior Wire v. United States, 11 CIT 608, 669 F. Supp. 472 (CIT 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989), the court held that for VRA purposes, wire rod drawn into wire was not substantially transformed into a product of Canada. In determining that there was no significant change in use or character, the court found that the operations performed on the wire rod were minor rather than substantial and concluded that the "wire rod and wire may be viewed as different stages of the same product." Id., 867 F.2d 1414.

In addition, we believe that in the instant case, it is the juice which imparts the essential character to the final product - FCOJ. The "very essence" of the final product is imparted prior to the evaporation of water from the juice and subsequent freezing operation. We are of the opinion that the processing performed in Belize, while necessary to create frozen orange juice concentrate from orange juice, does not change the fundamental character of the juice.

Customs has stated that the most important stage in the production of orange juice concentrate is the growing of the oranges themselves. See HRL 728557 dated January 10, 1986. It is the oranges which provide orange juice concentrate and orange juice made from concentrate with its particular taste and character. We have previously held in HRL 554486 dated March 26, 1987, that FCOJ produced at a processing facility in Belize from a blend of fruit purchased from Belizian and non-BC growers is a new and different article of commerce when compared to the oranges of non-BC origin from which the concentrate would, in part, be made. Thus, the frozen concentrate which was produced from both Belizian and non- BC fruit was considered to be a "product of" Belize. However, we also determined that the oranges of non-BC origin could not be counted toward the 35% value-content requirement, because the creation of frozen concentrated orange juice from juice which had been extracted from both Belizian and non-BC fruit did not constitute a second substantial transformation of the imported fruit. The second stage of production in HRL 554486, involving the process of creating frozen orange juice concentrate from orange juice extracted from fruit, is similar to the facts in the instant case.

Furthermore, Customs has held that the mere mixing or blending of two substances in a BC, not involving a chemical reaction and without additional processing, does not result in a "product of" that BC. For instance, Customs held in HRL 554161 dated July 3, 1986, that a simple mixing of two types of orange juice concentrate, one of which is not from a beneficiary country does not constitute a substantial transformation of the substances into a new and different article of commerce. See HRL 554161 dated July 3, 1986. See also 19 CFR 10.195(a)(2)(i) (articles which have undergone only a simple combining or packaging operation in BC, such as the addition of anti-caking agents, preservatives, wetting agents, etc., are precluded from duty-free treatment under the CBERA); HRL 555947 dated April 11, 1991 (blending in Panama of 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).

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 could 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.

Although you cite Shell Oil Company of Canada, Ltd. v. United States, 27 CCPA 94 (1939), in support of your position that the FCOJ produced in Belize is entitled to duty-free treatment under the CBERA, we do not find this case relevant since it is an "American Goods Returned" case and does not involve the issue of substantial transformation. Likewise, we find that C.S.D. 86-8, which you cite in support of your position, is not applicable in the instant case. In T.D. 86-8 (1986), beverage grade ethanol from a non-BC country (190 proof) was imported into a BC where it was transformed into motor fuel ethanol (199 plus proof) through azeotropic distillation. We found in that case that the removal of water through the azeotropic distillation process was significant enough to create a new and different article of commerce - the 199 plus proof ethyl alcohol. However, section 423 of the Tax Reform Act of 1986 represented a decision to legislatively overrule Customs' decision in C.S.D. 86-8 holding that azeotropic distillation is a substantial transformation that warrants duty-free treatment under CBERA. See 21 Cust. Bull. 32 (January 14, 1987).

In sum, based upon our review of the arguments presented, it remains our opinion that the blending of non-BC juice with Belizian juice in Belize and the subsequent processing into FCOJ do not result in a substantial transformation of the non-BC juice into a "product of" Belize.

HOLDING:

The blending of the non-BC juice with Belizian juice and the subsequent evaporation and chilling to produce frozen juice concentrate, do not result in a substantial transformation of the non-BC juice into a "product of" Belize, and, as a result, the concentrate made in whole or in part from non-BC juice is not entitled to duty-free treatment under the CBERA when imported into the U.S.

Sincerely,

John Durant, Director

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