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HQ 563081





November 1, 2004

MAR-05 RR:CR:SM 563081 NL

CATEGORY: MARKING

Mr. Peter Thorpe, Assistant Secretary
Regulatory Affairs & Compliance Dept.
E&J Gallo Winery
P.O. Box 1130
Modesto, CA 95353-1130

RE: Country of Origin Marking of Blended Brandy; Substantial Transformation

Dear Mr. Thorpe:

This is in reply to your letter dated July 27, 2004, in which you request a binding ruling on behalf of E&J Gallo Winery (Gallo). The requested ruling concerns the country of origin of brandy produced by Gallo in the U.S. from blended foreign and domestic materials.

FACTS:

Gallo is importing grape-based undenatured ethyl alcohol of an alcoholic strength between 70 and 80 percent from Australia. It is considering importing similar goods from other countries. The Australian or other alcohol would be used by Gallo to produce brandy. After importation into the U.S. these precursor materials are reduced to 50 percent alcohol by volume and stored in oak barrels for over two years. Domestically-produced ethyl alcohols are processed and stored in the same manner.

Following processing and barrel aging, the foreign and domestic materials are blended together. As necessary, the alcoholic content is further reduced and the blend is carbon clarified. Further blending with other matured brandies and small amounts of wine may take place. This product in turn may undergo further carbon clarification and rough filtration. Sweeteners, flavors or caramel may be added. The resulting product undergoes cold stabilization and polish filtration, followed by a final proof reduction to 40 percent alcohol (80 proof). The product is finally analyzed and tested before bottling.

Gallo represents that the product meets the BATF standards for “brandy” pursuant to 27 CFR 5.22, and believes it would be classified in subheading 2208.20.40 of the Harmonized Tariff Schedule of the United States (HTSUS).

ISSUE:

Does the foreign ethyl alcohol undergo substantial transformation in the U.S. so as to be excepted from the country of origin marking requirements of Section 304 of the Tariff Act of 1930, as amended?

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 C.F.R. 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 C.F.R. §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. 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. United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98)(1940).

CBP finds there is precedent to support a finding that the Australian or other foreign-origin grape-based denatured alcohol undergoes substantial transformation when used by Gallo in the production of brandy. In HRL 562468 (October 4, 2002), CBP held that there had been a substantial transformation of grain neutral alcohol into vodka when grain neutral alcohol was imported into Sweden and subjected to a production process similar to that utilized in the case under consideration. For example, 192 proof grain neutral alcohol was filtered through a charcoal system and blended with Swedish spring water, thereby producing vodka of 80 proof. We held that the grain neutral alcohol was substantially transformed into a product that has a new name (vodka and flavored vodka), character (comprised of 64 percent water, 35 percent alcohol and 1 percent flavoring), and use (alcoholic beverage intended purely for human consumption). We further demonstrated the occurrence of a substantial transformation by contrasting the wide variety of uses for which 192 proof grain neutral alcohol is initially suited (mouthwashes, chemicals, varnishes, etc.), with the more limited scope of usage of the alcohol after it has been subsumed into vodka (beverage intended solely for human consumption).

In this case the grape-based undenatured ethyl alcohol of high alcohol content is converted into a different article of commerce – brandy. Specifically, the ethyl alcohol, with its initial capacity to be utilized as the primary component in numerous products, is subsumed into a product with a new name (brandy), character (flavor of brandy with 40 percent alcohol) and use (an alcoholic beverage intended solely for human consumption). Thus, the undenatured ethyl alcohol is substantially transformed after importation into the United States.

Section 134.35, CBP Regulations (19 CFR 134.35), implementing the principle of U.S. v. Gibson-Thomsen Co., Inc., provides that an article used in the U.S. in manufacture which results in an article having a name, character, or use differing from that of the imported article will be considered substantially transformed, and therefore the manufacturer or processor in the U.S. who converts or combines the imported article into the different article will be considered the ultimate purchaser of the imported article within the contemplation of 19 U.S.C. §1304(a). Accordingly, the article shall be excepted from marking. Only the outermost container of the imported article shall be marked to indicate the country of origin of the article. By application of 19 CFR 134.35, the undenatured ethyl alcohol is excepted from country of origin marking when used to produce brandy in the U.S., and Gallo is considered the ultimate purchaser of the imported alcohol for purposes of country of origin marking.

HOLDING:

Undenatured grape-based ethyl alcohol of between 70 and 80 percent alcohol content is substantially transformed when used in the U.S. to produce brandy in the manner described above. Therefore, the brandy made from it is excepted from the country of origin marking requirements of section 304 of the Tariff Act of 1930 as amended, and Part 134, CBP Regulations, and only the outermost container of the undenatured grape-based ethyl alcohol is required to be marked until it reaches the ultimate purchaser, Gallo.

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

Sincerely,

Myles B. Harmon
Director, Commercial Rulings Division

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