MAR-2-05 CO:R:C:V 733814 NL

J.K. MacGregor, Counsel
Kraft General Foods Canada Inc.
95 Moatfield Drive
Don Mills, Ontario M3B 3L6
Canada

RE: Country of Origin Marking - Instant Coffee; Substantial Transformation.

Dear Mr. MacGregor:

This is in response to your letter of September 10, 1990, in which you request a ruling concerning the country of origin marking requirements applicable to instant (soluble) coffee produced in Canada and imported to the U.S.

FACTS:

Kraft General Foods Canada Inc. (Kraft), purchases green coffee beans (usually from Brazil) on the open commodity market. The green beans are shipped to Canada where they are roasted, ground, and percolated into a liquid coffee extract. The extract is concentrated by evaporation and dehydrated into a fine powder. The powder is then milled, exposed to steam to produce the final instant (soluble) coffee product, and packaged into jars. Production of decaffeinated soluble coffee consists of the same steps, except that the green beans are decaffeinated using the carbon dioxide process. Sample jars of coffee have been submitted which are branded "President's Choice" and marked "Product of Canada".

Kraft requests a ruling that the production of instant coffee in Canada from green beans originating in Brazil and other countries effects a substantial transformation, such that the soluble coffee may be marked as a product of Canada. The Chief, National Import Specialist Branch 1, New York Seaport, in a memorandum dated September 24, 1990, agrees with Kraft's position. The National Import Specialist is of the opinion that the manufacturing in Canada resulted in a product with a different name, character, and use than the green coffee beans. Although no cost data was submitted by Kraft, the National Import Specialist concluded that the processing in Canada yielded the -2-

major portion of the value of the instant coffee.

ISSUE:

Does the production of instant (soluble) coffee in Canada effect a substantial transformation of green coffee beans imported to Canada from Brazil and elsewhere?

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article.

Part 134, Customs Regulations (19 U.S.C. 1304), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Under Part 134, an article is considered a product of the country in which it was manufactured, produced, or grown, unless thereafter further work or material added to the article in another country effects a substantial transformation, making the latter the country of origin. 19 CFR 134.1(b). A substantial transformation is said to occur if, after manufacture, an article has a new name, character, or use, within the principle of the case of United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267 (C.A.D. 98)(1940).

The manufacture of instant (soluble) coffee starting from green coffee beans is, in our opinion, a substantial manufacturing operation which results in an article having a different character and use. It follows that as imported into the U.S. the retail containers of instant coffee would properly be marked to indicate that the coffee is a product of Canada.

With respect to the "name, character, or use" test, we find that the processing of the green coffee results in instant coffee having a new character and use. (There is also a slight change in the name of the product: coffee beans to instant coffee.) The character of the product is changed is one from a fresh article generally sold at wholesale to a processed retail product. The two are considered separate commercial goods sold to different markets. From an article having the shape of a fresh bean the processing yields a product altogether different in appearance and handling requirements. As manufactured and packaged, the instant coffee is well preserved for extended shelf life. Although the product remains coffee, the green beans might be devoted to a number of markets and purposes, while the finished instant coffee is fully dedicated to retail use by consumers who prefer this particular form of the product. For these reasons we -3-

find that the processing in Canada of the green coffee beans results in an article having both a new character and a new use, and the substantial transformation test is satisfied.

Although Customs has not previously ruled on this precise question, recent rulings have considered the substantial transformation of other food products. In determining whether various food articles are substantially transformed by additional processing, Customs has examined whether the processing resulted in only minor changes which packaged or preserved the product or made the product more suitable for consumption, or whether it actually created a new article which was fundamentally different. For example, in HQ 731763 (May 17, 1989), Customs ruled that shrimp which was cooked, peeled, deveined, and frozen after importation did not lose its fundamental character and was not substantially transformed. The same result was reached in HQ 729365 (June 2, 1985, published as C.S.D. 86-26) concerning broccoli which was cut, blanched, packaged, and frozen. By contrast, in HQ 733162 (November 5, 1990), we ruled that U.S. origin crabmeat would acquire a new country of origin if fully shelled on a foreign-flag vessel. We reasoned that once shelled, the crabmeat became an entirely separate product with a new character and use. Applying this reasoning to the instant case, we find that the processing of green coffee beans in Canada constitutes not minor, but substantial processing resulting in the creation of a new and fundamentally different product, instant coffee.

In addition, substantial guidance is found in the opinion of the Court of International Trade in Koru North America v. United States, 701 F. Supp. 229 (CIT 1988). The court in Koru considered processing similar in degree to the conversion of green coffee beans into instant coffee, and concluded that the processing of beheaded, de-tailed, and eviscerated New Zealand Hoki fish into individually quick frozen fish fillets was a substantial transformation. This latter processing in Korea consisted of skinning, boning, trimming, glazing, refreezing and packaging. The court based its determination largely on the fact that the processing vastly changed the fish's character. In this regard, the court noted that while the fish arrive in Korea with the look of a whole fish, when they leave they no longer possess the essential shape of the fish. The court also noted that the fillets are considered discrete commercial goods which are sold in separate areas and markets. The fact that the products also have different tariff classifications was found to be additional evidence of substantial transformation.

The processing of the green coffee beans is at least as time consuming, and certainly utilizes production machinery which is more complex, than that considered in Koru. Although no data has been provided, we also have little doubt that the processing of the beans is relatively more expensive. As in Koru, in this case -4-

the processing changes the essential shape and character of the green coffee beans and results in a new product, instant coffee, which is sold in separate markets. Thus the rationale in the Koru opinion also supports a finding that the processing of the green coffee beans - a more extensive operation than the fish processing in Koru - effects a substantial transformation.

It is noted that the Koru court distinguished the earlier finding of substantial transformation in National Juice Products Ass'n v. United States, 628 F. Supp. 978 (CIT 1986). In National Juice, the production of the retail product (orange juice concentrate) occurred in one country, and was found not to have been substantially transformed after importation into the U.S. Rather, the concentrate merely was enhanced by the addition of water and other ingredients deemed insignificant. Thus the processed retail product was substantially complete prior to importation and further processing, and for marking and other Customs purposes was unchanged. If in National Juice the imported product was fresh oranges, which were then processed into concentrate, the result would likely be the one reached in Koru and here.

HOLDING:

The manufacture of instant or soluble coffee from green coffee beans effects a substantial transformation of the latter. As imported into the U.S. the retail containers of "President's Choice" instant coffee are properly marked as products of Canada.

Sincerely,

John Durant
Director, Commercial
Rulings Division