United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 2004 HQ Rulings > HQ 087779 - HQ 116088 > HQ 114983

Previous Ruling Next Ruling
HQ 114983

---

July 19, 2000

Rolf Marshall, Esq.
Preston, Gates, Ellis & Rouvelas Meeds LLP 1735 New York Avenue, N.W.
Suite 500
Washington, DC 20006-5209

RE: Coastwise transportation; 46 U.S.C. App. 883; 19 CFR 4.80b(a)

Dear Mr. Marshall:

This is in response to your ruling request of March 3, 2000 on behalf of Pendleton Flour Mills (“Pendleton”). In response to our requests for additional information, you made additional submissions of March 14, 2000, March 17, 2000, and April 13, 2000.

FACTS:

You describe some of the pertinent facts as follows:

The subject of this request is the use of a non-coastwise-qualified vessel for a segment of the proposed movement of grain products purchased in the contiguous United States to Hawaii via an intermediate non-coastwise point at which the products are processed in a manner that is sufficient to produce new and different products under recognized grain industry and United States government standard classifications. Only these new and different products would be subsequently transported from that intermediate point to Hawaii.

The merchandise initially being transported in the proposed transaction will consist of two classes of “field run” Hard Red wheat (Hard Red Winter wheat and Hard Red Spring wheat) and two subclasses of “field run” Soft White wheat (Soft White Wheat and White Club Wheat). [footnote omitted.]

Two classes of Hard Red wheat (Hard Red Winter and Hard Red Spring), segregated and stored to preserve identity by class and by protein percentages, will be purchased from Montana farm storage or country grain elevators. These wheat products will be transported by land, first to a rail shipping elevator in Sweetgrass, Montana, and then by rail to an export facility in Vancouver, B.C. Throughout this phase of the transportation, the products’ separate and distinct identities will be preserved by class and protein percentages, employing separate trucks and rail cars by product and segregated storage at the respective elevators and at the export facility.

Two subclasses of Soft White wheat (Soft White Wheat and White Club Wheat), segregated and stored to preserve identity by class and by protein percentages, will be purchased from Eastern Washington farm storage or country grain elevators. These products will be shipped by rail to the designated export facility in Vancouver, B.C., crossing the U.S.-Canada border at either Blaine, Washington, or Eastport, Idaho, depending on the rail carrier used. As with the Hard Red products discussed above, these products’ separate and distinct identities will be preserved by class and protein percentages throughout this transportation, employing separate trucks and rail cars by product and segregated storage at the respective elevators and at the export facility.

As a direct result of processing at that intermediate, non-coastwise point, the wheat products transported to that point would be transformed into new and different products (U.S. No. 1 Mixed Wheat and U.S. No. 1 Western White Wheat) based on applicable industry and U.S. Government standards.

ISSUE:

Whether the proposed blending operations would result in the creation of new and different products within the scope of 19 CFR 4.80b(a) so as to render inapplicable the prohibition of 46 U.S.C. App. 883?

LAW AND ANALYSIS:

Generally, the coastwise laws prohibit the transportation of passengers or merchandise between points in the United States embraced within the coastwise laws in any vessel other than a vessel built in, documented under the laws of, and owned by citizens of the United States. A vessel that is built in, documented under the laws of, and owned by citizens of the United States, and which obtains a coastwise endorsement from the U.S. Coast Guard, is referred to as "coastwise-qualified."

The coastwise laws generally apply to points in the territorial sea, which is defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline.

46 U.S.C. App. 883, the coastwise merchandise statute often called the “Jones Act,” provides in part that no merchandise shall be transported between points in the United States embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in, documented under the laws of, and owned by citizens of the United States. Equipment and supplies of the transporting vessel are not considered “merchandise” for this purpose.

19 CFR 4.80b(a) provides as follows:

§ 4.80b Coastwise transportation of merchandise.

(a) Effect of manufacturing or processing at intermediate port or place. A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at a point embraced within the coastwise laws (“coastwise point”) is unladen at another coastwise point, regardless of the origin or ultimate destination of the merchandise. However, merchandise is not transported coastwise if at an intermediate port or place other than a coastwise point (that is at a foreign port or place, or at a port or place in a territory or possession of the United States not subject to the coastwise laws), it is manufactured or processed into a new and different product, and the new and different product thereafter is transported to a coastwise point.

In Ruling 112895 dated February 2, 1994, we stated:

In its analysis, the Customs Service has adopted for most cases standards established by the American Society for Testing Materials (ASTM), for such standards represent industry-developed criteria for characterizing fuel oils. The Customs Service will generally consider fuel oils of different ASTM grades as different products. Consequently, fuel oil that is loaded at a coastwise point, blended at a foreign port or place, and unloaded at another coastwise point must change ASTM grade to be considered a “new and different” product for purposes of the coastwise laws.

In Ruling 114476 dated November 2, 1998, we stated:
any animal laded in Hawaii, processed in Canada as described herein to the extent that the beef cattle industry recognizes it as being one of the above-listed products other than that which was laded in Hawaii, is considered a “new and different product” within the meaning of § 4.80b(a), Customs Regulations. Consequently, the use of a non-coastwise-qualified vessel for the waterborne segment of the transportation in question is not violative of 46 U.S.C. App. § 883.

The submitted documentation indicates the following.

Pendleton proposes to blend hard red winter wheat and hard red spring wheat with the result being mixed wheat (“the first blending operation”). It also proposes to blend soft white wheat and white club wheat with the result being western white wheat (“the second blending operation”).

There are eight classes of wheat per the U.S. Department of Agriculture – durum wheat, hard red spring wheat, hard red winter wheat, soft red winter wheat, hard white wheat, soft white wheat, unclassed wheat, and mixed wheat. (Alternatively, there are six classes of wheat, in addition to an unclassed category and a mixed wheat category.) Three of the classes are divided into subclasses, e.g., soft white wheat is divided into three subclasses – soft white wheat, white club wheat, and western white wheat.

In this case, the name of the class (“soft white wheat”) is the same as the name of one of the three subclasses (“soft white wheat,” “white club wheat,” and “western white wheat”).

Thus, the blending of the hard red winter wheat and the hard red spring wheat (both of which are separate classes) results in a different class of wheat, i.e., mixed wheat.

The blending of soft white wheat and white club wheat (both of which are subclasses of soft white wheat) results in western white wheat, which is the third subclass of soft white wheat.

In support of your claim that new and different products are produced as a result of the two blending operations, you assert the following.

You state that “[t]he differences in the products by name based upon official USDA/FGIS [U.S. Department of Agriculture/Federal Grain Inspection Service] and industry product categorization are self-evident.” In one blending operation, the hard red winter wheat when blended with the hard red spring wheat becomes mixed wheat; the mixed wheat is a different class of wheat from the two types of wheat used in the blending. In the second blending operation, the soft white wheat when blended with the white club wheat becomes western white wheat; western white wheat is a different subclass of wheat from the two wheats used in the operation. Therefore, after the blending, the two wheats have different names. Further, one of the resultant wheats is a different class of wheat from each of the two wheats used in the blending, while the second resultant wheat is a different subclass of wheat from the two wheats used in the blending. With respect to the difference between “class” and “subclass,” you state that “[c]lass and subclass are given equal weight when differentiating wheat products under the USDA/FGIS classification scheme. For example, the FGIS Grain Inspection Handbook requires that when denoting class on a certificate for a grain lot, for those classes where a subclass exists, the entry must be by subclass, not class. [Excerpt from USDA/FGIS Handbook omitted.] In practical terms, subclass may also have as significant an impact on use as does class, particularly where, as in the case of the subclasses of Soft White at issue here, the subclasses differ distinctly in a property that greatly impacts the baking products that may be produced commercially using flours made from those wheats.”

You also state: “Each class and subclass of wheat is further divided into five numerical grades and U.S. Sample Grade, resulting in a total of 6 different products based on grade as a rule they look to the product generally – smell, foreign matter mixed in with the grain itself, etc. – as opposed to the biological make-up of the kernels themselves. In addition to the six government grades [our documentation] includes ‘Field Run’ which in effect is ‘un-graded’ grain as it comes from the field or elevator.” In your submission of March 17, 2000, you state: “ ’Field Run’ is an industry term referring to wheat as it comes from the field or silo, prior to being inspected and assigned a grade under the USDA/FGIS system Grade is determined in large part by the amount of foreign matter in the wheat at the time of inspection (e.g., animal filth, stones, glass, dirt, as well as non-wheat grains, such as barley). Field Run wheat, such as depicted as the starting points for the changes in product is marketed as such only in the first stage of the process – its class is well established, but until subjected to some form of grading (even if only unofficial grading at the silo) its grade is indeterminate In terms of grade alone, the express purpose of the processing to be undergone at the non-coastwise point in the present request is to ensure the product to be shipped [after processing] is U.S. No. 1 Grade.” You state that 68% of the cost of the processing is for cleaning, which relates to the grade of the wheat. After the processing operations at issue here, the resultant two wheats will be Grade 1, the best or highest grade. You state that, in general, notwithstanding Pendleton’s contract with its suppliers for No 1 Grade wheat (prior to processing), approximately two-thirds of such wheat is found to be at a grade other than Grade 1 (e.g., Grade 2, 3, 4, or 5) prior to its processing.

In summary with respect to the grade of the wheat, you state that field run hard red winter wheat and field run hard red spring wheat (both of potentially various grades) are blended with the result being U.S. No. 1 grade mixed wheat. You further advise that field run soft white wheat and field run white club wheat (both of potentially various grades) are blended with the result being U.S. No. 1 grade western white wheat.

You state additionally that “[f]or each of the two product lines that are the subject of this Request, the value of the end product – Mixed Wheat and Western White Wheat – is different from the value of either of the products that went into its making.” The documentation submitted indicates the following values per metric ton: hard red winter wheat - $148.84; hard red spring wheat - $145.49; the resultant mixed wheat - $151.91; and soft white wheat - $114.61; white club wheat - $177.03; and the resultant western white wheat - $149.72. With respect to the second blending operation, you state: “ while the dollar value of the end product in the case of the soft white wheat product line is actually lower than that of one of the products that went into its making, the commercial utility of the end product is actually higher because it allows the end user to produce baked goods at a more competitive price compared to the price had they used only that higher cost product.”

With respect to the uses of the pertinent wheats you have provided the following information.

Hard red winter wheat is used for: general batter, biscuits, crackers, pancakes, and thin crust pizza. Hard red spring wheat is used for: bagels, kaiser rolls, hearth bread, and chewy pizza crust. The mixed wheat, which is created by the blend of the hard red winter wheat and the hard red spring wheat, is used for: white pan bread, dinner rolls, french bread, sourdough bread, and deep dish pizza crust.

Soft white wheat (the subclass) is used for: cookies, frying batters. pretzels, crackers, ice cream cones, pie crust, and donuts. White club wheat is used for: high quality cakes, wafers, and specialty cookies. The western white wheat, which is created by the blend of the soft white wheat and the white club wheat, is used for: steam buns, tempura batter, sponge cake, and Asian-style noodles.

We have referred this matter to the Laboratories and Scientific Services Division of the Office of Field Operations for its input and advice. That office has thoroughly researched and considered the issue as to whether the processing of the wheat in Canada (the first blending operation and the second blending operation, as described above) results in the creation of new and different products. The Laboratories and Scientific Services Division made the following findings. The protein content of the flour made from wheat plays the most important role in determining the final product that the flour will be used to produce. The class of wheat is also important in determining the usage of flour made from wheat. The subclass of wheat is a materially less important factor in determining use. The grade of the wheat is important for pricing purposes, but not for usage. Because the field run wheat is not graded until after blending in Canada, the U.S. (unblended) wheat and the blended wheat cannot be compared on the basis of grade. Flour is sold to bakers and other producers based on the final usage, rather than on the basis of its wheat class.

Based upon its research and consideration of the submitted materials and information put forth at the oral conference, the Laboratories and Scientific Services Division has expressed the following opinions:

With respect to the first blending operation, the protein contents of the unblended wheats and the blended wheat are within one percent of each other. The two wheats to be blended (hard red winter and hard red spring) are very similar with respect to protein content, milling and baking characteristics, and certain uses. The characteristics of the blended product (mixed wheat) will be between the characteristics of the two wheats to be blended. Therefore, the blended product (mixed wheat) is very similar in physical characteristics and baking characteristics to the hard red spring wheat and the hard red winter wheat. Accordingly, the blended product (mixed wheat) would not be a new and different product from the wheats to be blended (hard red winter wheat and hard red spring wheat).

With respect to the second blending operation, the protein contents of the unblended wheats and the blended wheat are within one percent of each other. Based upon this fact, together with the fact that the two wheats to be blended and the blended wheat are all in the same class of wheat (they are different subclasses with the same class), the blended product (western white wheat) would not be a new and different product from the wheats to be blended (soft white wheat and white club wheat).

After a consideration of the evidence of record, it is our determination that the two wheats to be created as a result of the processing (mixed wheat and western white wheat) would not be new and different products within the meaning of 19 CFR 4.80b(a) from the wheats before the processing.

Accordingly, such processing would not render inapplicable the prohibition of 46 U.S.C. App. 883.

HOLDING:

Under the facts presented, the processing of the wheat in Canada (the first blending operation and the second blending operation, as described above) would not result in the creation of new and different products for the purpose of 19 CFR 4.80b(a). Accordingly, such processing would not render inapplicable the prohibition of 46 U.S.C. App. 883.

Sincerely,

Acting Chief,
Entry Procedures and Carriers Branch

Previous Ruling Next Ruling