HQ 0555064 - Duty-Free Treatment of Propanil under the CBI - United States International Trade Commision Rulings

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HQ 555064

March 29, 1990

CLA-2 CO:R:CV:V 555064 BJO

CATEGORY: CLASSIFICATION

John P. Tebeau, Esq.
Heron, Burchette, Ruckert & Rothwell
Suite 700
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007

RE: Duty-Free Treatment of Propanil under the CBI

Dear Mr. Tebeau:

This is in response to your letter of June 24, 1988, on behalf of Retzloff Delta Company, in which you request a ruling under the Caribbean Basin Economic Recovery Act (CBERA)(19 U.S.C. 2701-2706) that "technical propanil" produced in Costa Rica in the course of manufacture of propanil-4 is a substantially transformed constituent material. We regret our delay in responding to your request.

FACTS:

Propanil-4, which is a herbicide for rice, will be manufactured in Guatemala by Agrotran, S.A., ("Processor") from chemicals of other than Guatemalan origin. The processor states that the manufacture will be done in two stages: first, manufacture of the active ~ngredient, which is in the form of a solid, and second, formulation of the propanil-4. The first stage involves the reaction of 3-4 dichloroaniline with propionic radical to yield technical propanil and water (which is removed). The processor states that the reaction time is approximately 30 to 40 hours, and that the technical propanil is a solid, crystallized material at room temperature, has a melting point of 203~F to 212~F, is insoluble in water, is not flammable, and has a specific gravity of 1.36 to 1.40.

In the second stage, the processor formulates the propanil. This step is required because in its solid condition, the propanil cannot be used as a herbicide (i.e., cannot be sprayed). Formulation requires the melting of the propanil, and mixing it
in a 5,000 gallon stainless steel mixer with solvents and emulsifiers. The processor more specifically describes this process as follows:

"Propanil is solid at room temperature and must be melted in a steam bath at about 205~F in order to make it easy to handle through the transfer lines. The quantity of the solvents and the active ingredient (Propanil) to be charged to the mixer are previously calculated to make a 4-pound per gallon formulation. The four products [the solvents, mesityl oxide, isophorone, and tenneco 500-100, and the active ingredient, propanil] are mixed with continuous agitation for about four hours.

A laboratory evaluation of the adequate blend of anionic and non-ionic emulsifiers follows. When the ratio to guarantee final product within specifications is determined, the addition of the emulsifiers is very carefully done in the mixer. By thoroughly mixing all ingredients during four hours, the final product as per specifications is achieved."

After this formulation procedure is completed, a laboratory assay by gas chromatography is done to ensure compliance of the product with specifications, and the product is transferred to storage drums, tank trucks, or tank cars. When formulated as described, propanil is liquid at room temperature, has a flash point of 95~F, and is emulsifiable in water, as well as dispersable in ketones, alcohols, and chlorinated hydrocarbons.

ISSUE:

Whether technical propanil, produced as described above, is a substantially transformed constituent material of propanil-4 for purposes of the CBERA.

LAW AND ANALYSIS.

Under the CBERA, eligible articles the growth, product, or manufacture of a beneficiary country ("BC") which are imported directly to the U.S. from a BC qualify for duty-free treatment, provided the sum of (1) the cost or value of materials produced in a BC or two or more BC's, plus (2) the direct costs of processing operations performed in a BC or countries is not less than 35% of the appraised value of the article at the time it is entered. See 19 U.S.C. 2703(a)(1).

Where materials used in the production of the article are not the growth, product, or manufacture of a CBEPA BC, their cost or value may be counted toward the 35% value-content requirement only if they undergo a double substantial transformation in a BC. See 19 CFR 10.196. That is, the cost or value of the chemicals imported into Guatemala may be counted toward the 35% value- content minimum if they are substantially transformed into an intermediate article of commerce, which is itself substantially transformed into the final product, propanil-4.

A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." The Torrington Co. v. United States, 3 CAFC 158, 167, 764 F.2d 1563, 1568 (1985).

In T.D. 78-168 (HQ 049575, dated June 12, 1978), 12 Cust. Bull. 353 (1978), we ruled that the formulation of the herbicide diuron wettable powder by mixing technical diuron with various agents (e.g., anticaking, wetting and dispersing materials) did not substantially transform the technical diuron for GSP purposes. The evidence in that case indicated that although technical diuron, the purported intermediate article, was not commercially usable as a herbicide until formulated, and that mixing technical diuron with the various agents caused a change in the diuron's physical composition, the formulation did not result in any chemical change.

We find that T.D. 78-168 is controlling here. Technical propanil does undergo a change in its physical characteristics as a result of the formulation; principally, from a solid to a liquid. However, no evidence of any chemical change as a result of the formulation process has been presented. The active ingredient of the final product remains propanil, and the formulation process appears to be no more than the relatively minor last step necessary to finish the product for its intended use. See T.D. 86-7, 20 Cust. Bull. 7 (1986). The formulation process does not appear to result in a change in name, for the processor refers to the article in its submission as propanil both before and after formulation. In sum, we do not find that the materials imported into Guatemala have undergone the requisite double substantial transformation. While the chemicals may be substantially transformed into technical propanil, the technical propanil is not thereafter substantially transformed as a result of being formulated.

T.D. 78-168 was issued in response to an American manufacturer's petition requesting that Customs withdraw the GSP duty-free treatment accorded diuron wettable powder manufactured in israel. In its petition, the American manufacturer asserted that the purported intermediate, technical diuron, although not commercially usable until formulated, was "already effective as a herbicide." 12 Cust. Bull. at 356. You state that this distinguishes T.D. 78-168 from the instant case, because technical propanil is not effective as a herbicide until formulated.

It appears that the technical diuron in T.D. 78-160 was described as "effective as a herbicide" because no further chemical changes were necessary to create a herbicide, although it was necessary to alter its physical composition to allow the product to be used with spraying equipment. In the same sense, the technical propanil, which contains the active ingredient necessary to its character as a herbicide, and which is not further chemically altered, is "effective as a herbicide," although not commercially usable until formulated. We do not find, therefore, that T.D. 78-168 can be distinguished on this basis.

CONCLUSION:

Technical propanil, which is produced in the manufacture of propanil-4 as described above, is not a substantially transformed constituent material of the propanil-4 for purposes of the CBERA. Accordingly, the cost or value of materials imported into Guatemala and used in the production of the technical propanil, if not the growth, product or manufacture of any other CBERA BC or the U.S., may not be included toward the CBERA 35% value- content requirement.

Sincerely,

John Durant, Director
Commercial Rulings Division

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