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HQ 562998

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May 21, 2004

MAR-2-05 RR:CR:SM 562998 EAC

CATEGORY: MARKING

Mr. Peter W. Klestadt
Mr. Andrew B. Schroth
Mr. Harold I. Loring
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP 399 Park Avenue
25th Floor
New York, NY 10022-4877

RE: Country of origin of shrimp; shrimp hatching and grow-out operations; substantial transformation

Dear Messrs. Klestadt, Schroth, and Loring:

This is in response to your letter, dated March 1, 2004, requesting a ruling on behalf of Standard Seafood de Venezuela C.A. (hereinafter “Standard Seafood”), pertaining to the country of origin marking requirements applicable to shrimp that is grown and processed in two countries.

FACTS:

It is stated that Standard Seafood performs shrimp “hatching” and “grow-out” operations in two foreign countries. In the first country (hereinafter referred to as “Country A”), shrimp eggs are fertilized and deposited into a hatchery by adult shrimp. The eggs hatch into larva referred to as “Nauplii” that are visually similar to aquatic spiders. During the second larval stage, the larvae are referred to as “Zoeae” and contain feather-like appendages and elongated bodies. During the third larval stage, the larvae are referred to as “Myses” and contain some of the characteristics of adult shrimp. It is the Myses that develop into post-larval shrimp.

We are informed that the post-larval shrimp are only approximately one-quarter inch in size. However, you state that post-larval shrimp are able to swim “right side up” and otherwise possess the characteristics of adult shrimp. At this point in the shrimp’s life cycle, only a grow-out stage remains before the shrimp reach a commercially suitable size. Regarding such grow-out operations, you advise that when the gills of the post-larval shrimp become branched (approximately 25 days from the date of hatching), the shrimp are packed into airtight bags filled with seawater and shipped to a second country (hereinafter referred to as “Country B”) where such grow-out will occur.

After arrival in Country B, the post-larval shrimp are unpacked and acclimated in tanks for several hours before transfer to grow-out ponds. The grow-out ponds are located within estuaries and contain brackish, low-salinity water. The shrimp increase in size within the ponds for three months until they reach commercially suitable size. Upon reaching such a stage, some of the shrimp are harvested, chilled to expiration, washed, frozen, and packed for shipment to the United States. The remaining shrimp that are not harvested are shipped back to Country A to mature and reproduce.

We have been advised that upon entry into the United States, the shrimp have only undergone cleaning, freezing, packing, and sorting operations. As such, the shrimp still have heads and veins and are not otherwise processed prior to entry.

A more specific description of the processes undertaken to hatch and grow the shrimp to maturity, as set forth in the above-referenced letter, follows.

The Hatchery (Country A)

The first step in the larval rearing process is to allow the sub-adult organisms to sexually mature in order to have the necessary broodstock. Sexual maturation is induced by placing the sub-adult animals into maturation tanks. Maturation tanks are described as concrete tanks that are painted black inside and out. The tanks are located in a room with black curtains that are designed to regulate the amount of natural light coming into the room. Fluorescent lights are used to supplement the natural light that does enter the room. Water is mechanically filtered, heated, and cooled as needed to maintain oceanic quality seawater. This water is pumped into the tanks. A 50 percent rate of exchange is maintained every 24 hours. The shrimp are placed into the maturation tanks at a very low density, which is described as less than one shrimp per square meter.

The shrimp receive food that is designed to facilitate the development of their sexual organs. Examples of such food include Artemia Biomass (adult enriched brine shrimp), Polychaete Worms (bloodworms), squid, and dry concentrated feed (e.g., vitamins, minerals, algae).

Shrimp are selectively chosen for their reproduction potential. As the shrimp mature, selected animals are marked with an eyestalk numbered band that allows technicians to monitor reproductive performance and yields. Unsuited shrimp are weaned out of the tanks.

Sexually mature female adults either mate or are artificially inseminated. After testing to ensure that the female shrimp have been impregnated, such shrimp are transferred to a spawning tank where their tag numbers are recorded. The water in the spawning tanks undergoes further filtration and is treated with ethylenediamine tetra-acetic acid. The water is also heated and the salinity reduced from normal seawater strength of 37 ppt to 32 ppt. The spawning room is darkened and the females are removed four hours later, having spawned.

Thereafter, the spawning tanks are stirred with a special instrument every four hours for the next 12 hours. Mixing prevents clumping and ensures that the hatching envelope is properly formed and that individual eggs receive adequate oxygen. Approximately 24 hours after spawning, the eggs hatch into larvae (referred to as “Nauplii 1”) which are harvested. Harvesting is accomplished by introducing a small stream of water into the tank thereby creating an overflow. The overflow is released through an opening where a light attracts the Nauplii and a fine screen collects the microscopic animals.

In approximately 24 to 36 hours, the Nauplii 1 will progress through 4 additional life stages until they become “Nauplii 5.” During this time period, the Nauplii are rinsed with pure filtered seawater. The Nauplii 5 are stocked in larval rearing tanks. Upon being stocked in such tanks, the Nauplii 5 are disinfected with an iodine solution and transported to larval rearing tanks.

Approximately 12 hours after the Nauplii are stocked into the larval rearing tanks, the tanks are filled to 25 percent of their capacity with live micro-algae. The Nauplii 5 thereafter advance to the next larval stage and are referred to as “Protozoea 1” (described as “Zoeae” above) or “Z1.” In approximately 72 hours, the Z1 advance to a Z3 larval stage. At this time, the live micro-algae sustenance is supplemented with freeze dried algae and other dried feeds.

The Z3 advance to the next larval stage, referred to as “Mysis 1.” The larvae will progress through three mysis stages, each lasting approximately 24 hours. It is stated that, after the mysis stages, the final and most important metamorphosis occurs during which the larvae become shrimp. Depending on shrimp species and hatchery conditions, the small shrimp remain in the hatchery for 10 to 25 days prior to shipment to grow-out farms. During this time, the shrimp’s gills become more fully branched and the animals further develop to a stage where they are better able to withstand changes in water temperature and salinity as well as the stress associated with shipping and introduction to a new pond environment. With respect to the actual transport of the shrimp from the hatchery in the first country to the grow-out farm in the second country, we are informed that the shrimp will be packed in airtight bags filled with cold, oxygen-saturated water. The bags will be put into plastic crates and air-shipped to Country B.

The Grow-out Farm (Country B)

Upon arrival at the grow-out farms, a technician will unpack the bags and transfer the shrimp to a 500-liter tank that is filled with water from the actual pond where the shrimp will be stocked. Under normal circumstances, the shrimp are acclimated in such tanks for approximately 2 to 4 hours prior to introduction into the ponds.

For the next 90 to 100 days, the shrimp will be fed concentrated dry feed in accordance with a graduated feed table that tracks their weight. After 30 days, water in the ponds will be exchanged at a daily rate of 3 to 12 percent. Weight samples will be taken and recorded on a weekly basis and the shrimp’s health will be otherwise monitored during the entire period.

After the shrimp reach commercially suitable size, which is stated to be between 12 and 20 grams, the water is drained from the ponds with a harvest pump and dewatering device. The shrimp are thereafter harvested, iced, and transported to the packing plant. At the packing plant, the shrimp are washed, graded by size, and frozen for export to the United States.

ISSUE:

For marking purposes, what is the country of origin of the shrimp when imported into the United States?

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930 (19 U.S.C. §1304), provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. §1304 was that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. “The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will.” United States v. Friedlander & Co., 27 C.C.P.A. 297 at 302 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. §1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines “country of origin” as the country of manufacture, production or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of the marking laws and regulations. The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98)(1940), provides that an article used in manufacture which results in an article having a name, character, or use differing from that of the constituent article will be considered substantially transformed and, as a result, the manufacturer or processor will be considered the ultimate purchaser of the constituent materials. In such circumstances, the imported article is excepted from marking and only the outermost container is required to be marked. See, 19 CFR 134.35(a).

In Koru North America v. United States, 12 CIT 1120, 701 F.Supp. 229 (CIT 1988), a country of origin marking case, the court held that the country of origin of fish caught on the high seas is determined by the flag of the catching vessel. However, if the fish is later substantially transformed in another country, then such other country will be the country of origin of the fish, within the meaning of the marking statute. Koru at 1125. In Koru, fish beheaded, de-tailed, eviscerated and frozen on board the capturing vessel was later substantially transformed into a product of Korea by the processing necessary to make it into individually quick frozen fillets.

In Korea, the fish was "thawed, skinned, boned, trimmed, glazed, refrozen and packaged for exportation to the United States." In finding that a substantial transformation had occurred, the court noted that when the fish arrived in Korea, it had the look of whole fish, "albeit without heads, tails or viscera" whereas the fish exported from Korea no longer possessed "the essential shape of the fish" having been "trimmed of jagged edges, fat lines and impurities, glazed to preserve [its] moisture ... frozen ... and finally, packaged." Also significant was the fact that the fillets were considered discrete commercial goods and were sold in separate areas and markets. The court found that such changes went to the fundamental nature and character of the fish, transforming the fish and creating a new article of commerce.

In Headquarters Ruling Letter (“HRL”) 561395 dated February 11, 2000, U.S. Customs and Border Protection (“CBP”) considered a case which is analogous in certain respects to the instant case. In HRL 561395, fully grown, impregnated crawfish of U.S. origin were exported to Guyana. In Guyana, the crawfish were “seeded” into rice ponds where they nested for 4 to 6 months before producing eggs. Thereafter, the eggs hatched and the infant crawfish were grown to maturity. After reaching maturity, the entire crawfish crop, including the U.S.-origin females, were harvested and transferred to a processing facility within Guyana. At the processing facility, the crawfish were inspected, graded for size, cleaned, boiled and sterilized by freezing. The crawfish were then de-headed, peeled, deveined, inspected, weighed, packaged, vacuum-sealed, shaped, checked for leaks, quick-frozen, packed into cartons, and shipped to a frozen warehouse for storage.

In finding that the country of origin of the crawfish in HRL 561395 was Guyana, CBP noted that the imported crawfish were comprised of two separate groups which were commingled during harvest. The first group consisted of the fully-grown, impregnated crawfish of U.S. origin that had been exported to Guyana. The second group consisted of the crawfish that were hatched and grown to maturity entirely within Guyana. With respect to the latter group, it was clear that the country of origin of such crawfish was Guyana, where the organisms were wholly grown and processed. The crawfish of U.S. origin, on the other hand, were substantially transformed into a product of Guyana through the processing that occurred in that country. Regarding this substantial transformation, it was stated that:

With regard to the instant case, prior to processing operations performed in Guyana, the exported article is a live product of the animal kingdom: an impregnated female crawfish exported for and used as agricultural breeding stock. As a result of all the operations performed (i.e., harvesting, inspecting, size-grading, cleaning, boiling, sterilizing, heading, peeling, deveining, weighing, packaging, vacuum-sealing and freezing), the live breeding stock is substantially transformed into an article with a new name, character and use – a food product.

Though HRL 561395 is instructive for our purposes, it may be distinguished from the instant case in two key respects. First, commingling is not an issue in the instant case because, as stated above, all of the shrimp in this case are hatched in Country A and shipped to Country B where they are grown to a commercially suitable size prior to export to the United States. Secondly, and of greater importance for our purposes, the extent of the processing which occurs in Country B in this case is less extensive than that which occurred in Guyana in HRL 561395.

We note that CBP has considered a number of cases pertaining to the processing and substantial transformation of various seafood products. See, for example, HRL 560904 dated June 22, 1998 (frozen, cooked crawfish from China were not substantially transformed when re-cooked, beheaded, peeled and de-veined within the United States); HRL 560322 dated March 19, 1997 (processing foreign-origin crab by cleaning to remove marine growth and gills, glazing with ice, and sorting by size and color, does not substantially transform the crab); HRL 731763 dated May 17, 1989 (peeling, deveining, cooking, freezing, and repacking imported shrimp does not substantially transform the shrimp into a product of the United States); and HRL 731472 dated June 23, 1988 (peeling, deveining and repacking foreign-origin shrimp does not substantially transform the shrimp into a product of the United States).

Also relevant to the present case is Customs Service Decision (C.S.D.) 89-112, dated July 11, 1989. In C.S.D. 89-112, fertilized ostrich eggs from South Africa were exported to England where they were incubated and hatched before shipment to the United States. In holding that the ostriches were products of South Africa upon entry into the United States, we noted that the processing in England was “a natural biological consequence of the initial fertilization of the eggs in South Africa and not a process so substantial as to transform them into new and different articles of commerce."

Applying the foregoing to the instant case, it is our opinion that the shrimp in the instant case remain a product of Country A when imported into the United States from Country B. In making this determination, we note that the essential character of the shrimp is imparted by the activities which occur in Country A. For example, within Country A, shrimp eggs are fertilized either through natural mating processes or artificial insemination. After hatching, the resulting larval shrimp advance through numerous life stages until they become post-larval organisms that are considered to be shrimp, albeit in miniature. Upon shipment to Country B, the organisms look and swim like fully-developed shrimp. Similar to our analysis in C.S.D. 89-112, we find that the actual grow-out operations performed within Country B are only a natural biological consequence of that which occurs in Country A. Moreover, as illustrated above, merely washing, grading by size and freezing the shrimp after harvest does not effect a substantial transformation in shrimp processed in this manner.

HOLDING:

Based upon the specific facts of this case, we find that the shrimp are not substantially transformed within Country B when subjected to grow-out operations within that country. Therefore, when imported into the United States, the country of origin of the shrimp for marking purposes will be Country A.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.

Sincerely,

Myles B. Harmon, Director

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