HQ 558791 - Reconsideration of HRL 557919; Eligibility of de-boned frozen carcass beef for duty-free treatment under General Note 3(a)(iv), HTSUS; insular possession; substantial transformation - United States International Trade Commision Rulings

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HQ 558791

January 27, 1995

CLA-2 CO:R:C:S 558791 WAS

CATEGORY: CLASSIFICATION

Mr. M..J. Muirhead
37 Mnotukaraka Pt.
R.D. Porirua
Wellington
New Zealand

RE: Reconsideration of HRL 557919; Eligibility of de-boned frozen carcass beef for duty-free treatment under General Note 3(a)(iv), HTSUS; insular possession; substantial transformation

Dear Mr. Muirhead:

This is in response to your letter dated December 9, 1994, requesting that Customs reconsider its position in Headquarters Ruling Letter (HRL) 557919, which was issued to you on August 26, 1994, in which we denied duty-free treatment for de-boned beef carcass from American Samoa under General Note 3(a)(iv), Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

As previously stated in HRL 557919, bone-in beef carcasses will be shipped from New Zealand to Pago Pago, American Samoa where they will be de-boned in a United States Department of Agriculture approved and bonded facility and boxed prior to shipment to the U.S.

ISSUE:

Whether the de-boned beef carcass will be entitled to duty-free treatment under General Note 3(a)(iv), HTSUS, when imported into the U.S. LAW AND ANALYSIS:

General Note 3(a)(iv), HTSUS, provides that goods imported from a U.S. insular possession may enter the customs territory of the U.S. free of duty if the goods:

(1) are the growth or product of the possession;

(2) do not contain foreign materials which represent more than 70 percent of the goods' total value (or more than 50 percent with respect to textile and apparel articles subject to textile agreements, and other goods described in section 213(b) of the Caribbean Basin Economic Recovery Act) (CBERA); and

(3) come directly to the customs territory of the U.S. from the possession.

Customs has ruled that American Samoa is a U.S. insular possession for purposes of General Note 3(a)(iv), HTSUS. See Headquarters Ruling Letter (HRL) 557713 dated April 5, 1994.

To qualify for duty-free treatment under this program, an article must first be considered a "product of" a U.S. insular possession. Where an article is produced from materials imported into a U.S. insular possession, it is considered to be a "product of" the possession only if the imported materials are substantially transformed there into a new and different article of commerce. 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).

In HRL 557919, we held that the operations performed in American Samoa do not result in a substantial transformation of the beef into a new and different article of commerce with a new name, character or use. We stated that consistent with the court's holding in Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982) and National Juice Products v. United States, 628 F. Supp. 978, 10 CIT 48 (CIT 1986), and with prior Customs rulings, the very "essence" of the final product in the instant case is imparted by the bone-beef carcasses, prior to any additional processes performed in the beneficiary country. We further stated that the operations performed in American Samoa which include de-boning and packaging for shipment to the U.S., do not change the fundamental character or use of the beef in its exported condition. We found that although the de-boning process may remove the bones and prepare the beef for shipment to the U.S., it does not alter the essential character of the beef. We concluded that it is raw beef which is exported into American Samoa and raw beef which is imported into the U.S. Thus, we held that the beef carcass which is de-boned in American Samoa is not substantially transformed into an article which is the manufacture or product of American Samoa for purposes of General Note 3(a)(iv), HTSUS, and is not entitled to duty-free treatment under this provision.

You state that "bone-in beef cannot be used in its original form for manufacturing of boneless finished goods," and therefore, a substantial transformation results from the processing in American Samoa. However, as the court found in National Juice Products, although the addition of the water, orange essences, and oils to the orange juice concentrate made it suitable for retail sale, this did not change the fundamental character or use of the product, it was still essentially the product of the juice of oranges. The court found that manufacturing juice concentrate was not substantially transformed when processed into retail orange juice products. Similarly, in Uniroyal, the court found that although the shoe could not be worn without the attachment of the imported upper to the outsole, the upper was described, in its condition as exported, as a substantially complete shoe. The court stated that the upper, in its condition as exported, was the very "essence" of the completed shoe and is readily recognizable as a distinct item apart from the outsole to which it is attached. Thus, the court concluded that the attachment of the outsole to the upper did not constitute a substantial transformation since this operation was a minor manufacturing or combining process which left the identity of the imported upper intact.

We are of the opinion that, although the de-boning process removes the bones from the beef in order to facilitate the manufacture of boneless finished goods, the very "essence" of the final product in the instant case is imparted by the imported bone-beef carcasses, prior to any additional processes performed in the beneficiary country. Although you state that the de-boning operation performed in American Samoa results in reducing the weight of the product by approximately 50 percent, removing all but approximately 10 percent of visible fat, and preparing the meat into a form suitable for grinding, we believe that this process does not alter the fundamental character or use of the beef which is imported into American Samoa. Accordingly, we find that the operations performed in American Samoa do not result in a substantial transformation of the beef into a new and different article of commerce with a new name, character or use. Thus, as the bone-in beef carcasses do not undergo a substantial transformation in American Samoa, the de-boned beef is not considered to be "the growth or product of the possession," as required in General Note 3(a)(iv), HTSUS.

HOLDING:

Upon reconsideration of the information submitted, we are of the opinion that the beef carcass from New Zealand which is shipped to American Samoa for a de-boning process is not substantially transformed into an article which is the manufacture or product of American Samoa for purposes of General Note 3(a)(iv), HTSUS. Therefore, the de-boned beef from American Samoa will not be entitled to duty-free entry into the U.S. Accordingly, HRL 557919 is hereby affirmed.

Sincerely,

John Durant, Director

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