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HQ 557919

August 26, 1994

CLA-2 CO:R:C:S 557919 WAS


Mr. M.J. Muirhead
Divad Enterprises Ltd.
3 Barton Rd.
Heretaunga, Wellington
New Zealand

RE: De-Boning of Frozen Carcass Beef in American Samoa; General Note 3(a)(iv), HTSUS; insular possession; substantial transformation

Dear Mr. Muirhead:

This is in reference to your letter of April 13, 1994, requesting a ruling concerning the eligibility of frozen bone-beef carcass from New Zealand which is de-boned in American Samoa for duty-free treatment under General Note 3(a)(iv), Harmonized Tariff Schedule of the United States (HTSUS).


You state that U.S. Department of Agriculture (USDA) inspected and approved bone-in beef carcasses will be shipped from New Zealand to Pago Pago, American Samoa where they will be de-boned in a USDA approved and bonded facility and boxed for shipment to the U.S.


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


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).

With regard to the question of whether the bone-beef carcasses from New Zealand undergo a substantial transformation when they are de-boned in American Samoa, we find relevant the decision in Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), a country of origin marking case involving imported shoe uppers. In Uniroyal, the court considered whether the addition of an outsole in the U.S. to imported uppers lasted in Indonesia effected a substantial transformation of the uppers. In Uniroyal, the court described the imported upper, which resembled a moccasin, and the process of attaching the outsole to the upper. The court concluded that a substantial transformation of the upper had not occurred since the attachment of the outsole to the upper was a minor manufacturing or combining process which left the identity of the upper intact. The upper was described as a substantially complete shoe and the manufacturing process taking place in the U.S. required only a small fraction of the time and cost involved in producing the upper. Furthermore, in Uniroyal, the court examined the facts presented and determined that the completed upper was the very essence of the completed shoe.

The concept of the "very essence" of a product was again applied by the court in National Juice Products v. United States, 628 F. Supp. 978, 10 CIT 48 (CIT 1986), where the court determined that imported frozen concentrated orange juice was not substantially transformed in the U.S. when it was domestically processed into retail orange juice products. In National Juice Products, the first level of production, which was performed abroad, involved reducing fresh oranges to manufacturing concentrate. The oranges were first tested for solid content and then run through an extractor and transferred to an evaporator, where the juice was reduced to approximately fourteen percent of its original volume and cooled. During this process, the essential oils and flavoring ingredients present in the juice also evaporated. The end result was a viscous substance with a brix level of approximately 65 degrees. As the oils and flavoring ingredients were lost during this process, the manufacturing concentrate did not have the characteristic flavor of oranges. The second level of production, which was performed in the U.S., involved blending the manufacturing concentrate with other ingredients (primarily water) to create an end product of either frozen concentrated orange juice or reconstituted orange juice. This process involved mixing the manufacturing concentrate with purified and dechlorinated water, orange essences, orange oil, and, in some instances, fresh juice.

In National Juice Products, the court addressed each of the factors -- name, character and use -- in finding that no substantial transformation occurred in the production of retail orange juice products from manufacturing concentrate. The court found that the change in name from "concentrated orange juice for manufacturing" to "frozen concentrated orange juice" and "orange juice from concentrate" is not significant to a finding of substantial transformation. Instead, the court stated that these names "merely refer to the same product, orange juice, at different stages of production." Id. at 989.

The court agreed with Customs that the imported manufacturing concentrate "imparts the essential character to the juice and makes it orange juice. . . [and thus], as in Uniroyal, the imported product is the very essence of the retail product." The court found that the retail product in this case was essentially the juice concentrate derived in substantial part from foreign grown, harvested, and processed oranges. Although the addition of the water, orange essences, and oils to the orange juice concentrate made it suitable for retail sale, according to the court, this did not change the fundamental character or use of the product, it was still essentially the product of the juice of oranges.

In HRL 557577 dated May 16, 1994, Customs held that leaf tobacco which is hand-stripped in a Caribbean Basin Economic Recovery Act (CBERA) beneficiary country does not undergo a substantial transformation into a "product of" that beneficiary country. We stated in this case that the operations performed in the beneficiary country which included cleaning, conditioning the tobacco, hand-stripping, drying, etc. did not change the fundamental character or use of the tobacco in its exported condition. We have also held in HRL 729365 dated June 25, 1986, that imported broccoli was not considered substantially transformed when it was further processed by cutting, blanching, packaging and freezing. The pre-processed broccoli was found to not lose its fundamental character and identity as a result of the processing operations that were performed. In addition, in HRL 731472 dated June 23, 1988, published as C.S.D. 88-19, Customs held that the peeling and deveining of shrimp did not change the name, character, or use of the shrimp, and, thus, did not constitute a substantial transformation. In that ruling, it was stated that the deveining and shelling operations did not significantly change the products' intended use, which is dictated primarily by the very nature of the product itself -- raw shrimp. It was also noted that peeling and deveining operations often are performed by many consumers in their own kitchen. In addition, in HRL 555684 dated January 18, 1991, Customs held that cheese is not substantially transformed when it undergoes processing from block cheese to grated cheese. In that ruling, it was stated that not only can grated cheese be created from raw cheese by consumers in their home, but, more importantly, the change of the cheese from raw to grated is only minor and does not change the fundamental character of the cheese. We view the de-boning and other operations performed on the bone-in beef carcass as analogous to those operations described in the above-cases in which we held that a substantial transformation did not result.

As in Uniroyal and National Juice Products, and consistent with the above-cited cases, it is our determination that 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. The operations performed in American Samoa which include de-boning and packaging, do not change the fundamental character or use of the beef in its exported condition. Although the de-boning process may remove the bones and repackage the beef, it does not alter the essential character of the beef. It is raw beef which is exported into American Samoa and raw beef which is imported into the U.S. Accordingly, we do not believe that the operations performed in American Samoa constitute a substantial transformation of the beef into a new and different article of commerce with a new name, character or use.


On the basis of the information submitted, 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 Headnote 3(a)(iv), HTSUS. Therefore, the de-boned beef from American Samoa will not be entitled to duty-free entry into the U.S.


John Durant, Director

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