OT:RR:CTF:VS H264967 AJR

Port Director
U.S. Customs & Border Protection
Protest & Control
1100 Raymond Blvd., Suite 402
Newark, NY 07102

RE: Application for Further Review of Protest 4601-15-100231; U.S.-Israel FTA; tuna

Dear Port Director:

This is in response to the Application for Further Review of Protest 4601-15-100231 timely filed by counsel on behalf of Galil Importing Corp. (“Galil”), regarding the eligibility of certain tuna imports for preferential tariff treatment under the U.S.-Israel Free Trade Agreement (“IFTA”).

FACTS:

This case involves kosher canned solid white tuna in oil (“kosher canned tuna”) that was entered into the United States from Israel on January 19, 2014, under subheading 1604.14.1099, Harmonized Tariff Schedule of the United States (“HTSUS”). According to Galil, the subject entry was processed from whole skipjack tuna, which was caught by fishing vessels from Thailand in the high seas. The whole skipjack tuna was frozen on board and delivered to processing plants in Thailand. In Thailand, the processer thawed; butchered; steam cooked; cooled; cleaned; and, manually removed the heads, tails, viscera and fins, and skin of the tuna. Then the red meat, bones, and remaining skin were removed from the tuna, and the remaining tuna loins were packed into bags, frozen, and shipped to Filtuna Industries Ltd. (“Filtuna”) in Israel. In Israel, the tuna loins were defrosted, cut into small pieces (chunks), and cleaned to remove any excess skin, bones, blood insects, and parasites that were not removed in Thailand. The tuna chunks were packed in cans with water, salt, and oil via a conveyer belt, and the cans were mechanically sealed, washed, and inspected. The filled cans were then transferred to an autoclave, where they were retorted under steam pressure to sterilize the product. Lastly, the filled cans of kosher tuna were labeled and shipped to the United States.

Along with the above mentioned processing, kosher certification procedures were followed throughout the processes in Thailand and Israel, in order to ensure the requisite kosher standards for the product. According to Galil, the kosher body office in Israel sent a Rabbi to Thailand to supervise the kosher process and to certify that: the fish was actually tuna and not un-koshered fish; the equipment was thoroughly cleaned to prevent introduction of non-kosher materials; the Rabbi, himself, turned on the steam during the precooking process; and, the steam used for koshered materials was not the same steam used for un-koshered materials. In Israel, the kosher certification process used by Filatuna was similar to the process in Thailand, with the Rabbi certifying the inspection, cleaning, and canning processes, while also certifying that the salt and oil were kosher, and turning on the steam for the retorting process rather than the precooking process.

On March 19, 2014, Customs and Border Protection (“CBP”) issued a Request for Information (CBP Form 28) to Galil requesting documentation to substantiate the origin of the kosher canned tuna at issue. On April 25, 2014, CBP proposed a Notice of Action (CBP Form 29) to rate advance the entry because the documentation submitted by Galil was in a foreign language without translation, and appeared to show that the kosher canned tuna only underwent canning and sterilization in Israel. On July 8, 2014, CBP issued a Notice of Action (CBP Form 29), rate advancing the entry because the documentation did not substantiate the 35% direct costs of processing in Israel required under General Note (“GN”) 8, HTSUS.

Galil argues that the subject kosher tuna is eligible for preferential tariff treatment under the IFTA because the kosher certification procedures and operations performed in Israel substantially transformed the tuna loins into products of Israel, namely the kosher canned tuna. In support, Galil submitted a diagram of the Filatuna canning plant, an article from the Examiner.com discussing an incident where a parasite was found in a can of tuna, and a price calculation for the kosher canned tuna indicating the direct costs of processing in Israel at 45.55% for the kosher tuna canned with olive oil, and at 53% for the kosher tuna canned with vegetable oil.

ISSUE:

Whether the imported kosher canned tuna is an originating good eligible for duty-free treatment under the IFTA?

LAW AND ANALYSIS:

Section 3 of the United States-Israel Free Trade Area Implementation Act of 1985 (Pub. Law No. 99-47) enacted the IFTA and the accompanying Statement of Administrative Action (“SAA”) submitted by the President to Congress on April 29, 1985, into U.S. law. See House Document 99-61.

Under the IFTA, articles which are the growth, product, or manufacture of Israel, including foreign articles substantially transformed into new or different articles of commerce in Israel, may qualify for duty-free treatment if the goods are imported directly into the customs territory of the United States and the sum of the cost or value of materials produced in Israel, plus the direct costs of the processing operations performed in Israel, is equal to, or greater than, 35% of the appraised value of the article at the time of entry into the United States. See GN 8, HTSUS.

In addition, the SAA notes that, “[t]he country of origin requirements are intended to be like those currently applied by the United States under the Caribbean Basin Initiative [now known as the Caribbean Basin Economic Recovery Act (“CBERA”)].” To this extent, consistent with CBP’s interpretation of “materials produced” under the Generalized System of Preferences (19 U.S.C. §§ 2461-66) and the CBERA (19 U.S.C. §§ 2701-06), if an article is produced or assembled from materials which are imported into Israel, the cost or value of those materials may be counted toward the 35% value-content minimum as “materials produced in Israel” only if they are subjected to a double substantial transformation in Israel.

The initial question regarding eligibility of the kosher canned tuna for preferential duty treatment under the IFTA is whether the finished products imported into the United States are “products of” Israel. The kosher canned tuna is processed in Israel from tuna loins that originate from Thailand. Therefore, in order for the kosher canned tuna to be considered products of Israel, those tuna loins imported into Israel must undergo a substantial transformation as a result of the operations performed in Israel.

The country of origin of fish caught on the high seas is determined by the flag of the catching vessel, unless the fish is later substantially transformed in another country. See Koru North America v. United States, 701 F.Supp. 229, 230 - 234 (CIT 1988) (holding that tuna caught by non-Korean vessels and delivered to Korea without heads, tails, or viscera were substantially transformed in Korea because the skinning, boning, trimming, and processing in Korea changed the mostly whole, fish-shaped tuna into frozen tuna fillets that lacked the essential shape of a fish).

In Headquarters Ruling Letter (“HQ”) H232882, dated November 9, 2012, whole tuna was cooked, cleaned, and processed into frozen tuna loins in Thailand, and then delivered to Morocco, where the tuna loins were packed in cans with oil. CBP held that the process in Morocco was not a substantial transformation and that the canned tuna was a product of Thailand. See also HQ 562708, dated June 13, 2003 (noting that CBP has consistently held that merely canning goods in a country will not effect a substantial transformation of the canned good into a product of that country); and, HQ 733865, dated April 15, 1991.

In this case, whole tuna was caught by vessels from Thailand and then cooked, cleaned, and processed into frozen tuna loins in Thailand. Therefore, pursuant to Koru, there is no question that the frozen tuna loins packed in bags were a product of Thailand. Nonetheless, Galil maintains that the tuna loins were substantially transformed in Israel because the additional inspection and kosher supervision required to certify the canned tuna as “kosher” went beyond mere canning operations. That is, Galil claims that the tuna loins were substantially transformed into a new and different article of commerce (kosher canned tuna) in Israel because of the kosher supervision, inspection, and canning operations in Israel.

As discussed in the cases cited above, the process of cooking, cleaning, inspecting, and removing parts from whole tuna, leaving tuna loins, is considered a substantial transformation. That is, once the whole tuna is transformed in this manner into tuna loins, operations such as canning the tuna with ingredients, will not suffice as a separate substantial transformation. Moreover, we note that HQ 562708, which involved whole, raw tuna that was first processed into tuna loins and then processed into canned tuna, all within the same country, specifically indicated that the process from whole tuna to tuna loins to canned tuna was essentially continuous and that the cleaning and cooking processes performed was basically the same during both the tuna loins processing and canning operations. See also Azteca Mill Co. v. United States, 703 F. Supp. 949 (CIT 1988).

In this case, we note that the kosher supervision and certification procedures, and cooking (precooking or retorting) that were performed in addition to the canning operations in Israel, were also similarly performed in addition to the processing in Thailand. Similar to HQ 562708, the kosher supervision and certification procedures, and cooking process were essentially continuous and performed in a consistent manner throughout the operations in Thailand and Israel, representing an advancement of the product from start to finish. In the same way that canning, cleaning, and cooking operations did not substantially transform tuna loins that were already cleaned and cooked in the same manner before canning, we find that canning, kosher supervising and certifying, and cooking in Israel did not substantially transform the Thailand-processed tuna loins. To the extent that the kosher canned tuna was a product of Thailand, there is no need to consider whether the value-content requirement was met. Accordingly, we find that the imported kosher canned tuna was not originating under GN 8, HTSUS, and therefore not eligible for duty-free treatment under the IFTA.

HOLDING: The imported kosher canned tuna, processed as described above, was not an originating good eligible for duty-free treatment under the IFTA. The imported kosher canned tuna was not substantially transformed by the process described in Israel.

In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 26 and 29), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.


Sincerely,

Myles B. Harmon, Director
Commercial & Trade Facilitation Division