WAR-3-01-RR:CR:DR: 228508 BJB
Port Director of Customs
Attn: Eugenio Garza, Jr.
P.O. Box 3130
Laredo, TX 78044
RE: Request for Internal Advice concerning manufacture or manipulation of merchandise in a bonded warehouse; 19 U.S.C. §1562; Tropicana Products, Inc. v. United States, 789 F. Supp. 1154 (CIT 1992); broccoli.
Dear Sir:
This office has received the above-referenced request for internal advice as provided for under Customs Regulations. We have considered your request and have made the following decision.
FACTS:
On January 22, 1999, the Port of Laredo, Texas submitted a request for internal advice to the Entry Procedures and Carriers Branch. This request was later forwarded to the Duty and Refund Determination Branch on June 30, 1999. You have requested advice concerning a proposed manipulation in a bonded warehouse.
The proposed manipulation is sought by Sun Harvest Foods (“SHF”). SHF purchases and sells frozen vegetables, in particular, frozen broccoli. Frozen Broccoli is generally packaged for import in large plastic sacks called “totes.” The totes generally contain broccoli cut in the following forms: florets, stalks, and mixed florets and stalks. The top part, or “floret” appears to be the choice, or at least, the more expensive portion of the vegetable. The stalk or bottom part of the plant is the least expensive portion of the vegetable. SHF has submitted invoices showing the cost, per pound, for florets, stalks, and a 40-60% mixture of florets and stalks. SHF has expressed concerned over the release of the exact cost/pricing figures for its precooked and frozen broccoli. SHF has however, provided the following information:
According to the invoices provided by SHF, a pound of 40% (florets) and 60% (stalks) mixture costs approximately half as much per pound as a pound of florets, and 100% more per pound than a pound of stalks. The precooked and frozen broccoli has been classified under HTSUS 0710.80.97.24. SHF proposes to take totes of florets and totes of stalks in a bonded warehouse and mix them together.
ISSUE:
Whether the proposed operation is a permissible manipulation under title 19 U.S.C. §1562.
LAW AND ANALYSIS:
Whether SHF may mix or blend its imported florets and stalks in a bonded warehouse rests upon whether the mixing or blending is a permissible manipulation under section 1562. If this process of mixing or blending (“blending”) constitutes a manufacture, it is not permitted in a bonded warehouse under 19 U.S.C. §1562.
19 U.S.C. §1562 provides that imported “merchandise may [with Customs permission and supervision] be cleaned, sorted, repacked, or otherwise changed in condition, but not manufactured, in bonded warehouses established for that purpose . . ..” Manufacture requires that a substantial transformation has taken place. “Substantial transformation is a concept of major importance in administering the customs and trade laws.” Tropicana Products, Inc. v. U.S., 789 F. Supp. 1154, 1157, no.4 (CIT 1992). In order for there to be a substantial transformation, “there must be transformation” such that “a new and different article must emerge, ‘having a distinctive name, character, or use.’ The criteria of name character and use continue to determine when substantial transformation has occurred ***.” Ferrostal Metals Corp. V. United States 11 CIT 470, 664 F. Supp. 535 (1987). See also Torrington Co. V. United States, 3 CAFC (T) 105, 741 F.2d 11563 (1985) and cases cited; Axteca Milling Co. V. United States, 12 CIT 1153, 703 F. Supp. 949 (1988), aff’d, 8 CAFC ----(T), 890 F.2d 1150 (1989).” Id.1157.
As SHF argues here, so argued Tropicana Products, Inc., supra., 1157, “that its bonded warehouse operations will not result in a ‘substantial transformation’ of the imported merchandise and therefore will not constitute a ‘manufacture’ in its bonded warehouse.” In Tropicana, the court held, that “[t]o interpret ‘manufacturing’--an expressly prohibited manipulation under §1562--as requiring a high threshold of transformation (viz. a substantial transformation as stringently required in country of original and drawback cases), would negate the evident legislative intent of the statute to permit only very minor or rudimentary manipulations in bonded warehouses--akin to the exemplars (cleaning, sorting and repacking).”id., at 1158. “Hence,” the court found, “in the context of §1562, the prohibited manipulation, manufacturing, may be contravened at a relatively low threshold of ‘transformation.’”id.
SHF’s proposed operation involves blending totes of broccoli florets and broccoli stalks. The broccoli florets and the broccoli stalks will be blended on a 40%/60% basis, and then placed in totes containing the blend, for export. There are essentially three steps to SHF’s proposed process: 1. The opening of the tote containers; 2. The blending of the florets and the stalks; 3. The repackaging of the blended mixture known in the industry as “broccoli cuts.” Although, the broccoli remains broccoli, the nature of the merchandise has changed. The broccoli florets are no longer solely broccoli florets. The broccoli stalks are no longer solely broccoli stalks. The blend is now known in the industry and in the marketplace as “broccoli cuts.” The price of the new merchandise is significantly different. The 60% broccoli stalk content is now priced at one-hundred percent more than it was when it was sold as part of a stalks-only tote. The 40% floret content is now priced at 50% less than it was when marketed in a tote containing florets only. This substantial increase in overall price for “broccoli cuts,” represents a significant indication that there is a new product, and that it is recognized as such, by both the broccoli industry and by the public. The blended broccoli cuts have taken on a new name, a new price, and a new character, albeit the three products are still for eating.
In Tropicana, where the blending of orange juice concentrates to achieve desired Brix to acid ratios changed the fundamental character of the imported unblended concentrate, the court concluded that the blending operation was not a permitted manipulation. As noted in HQ Ruling 225490, the court, “analyzed the exemplars in the statute.” Clearly, “blending” was not one of the listed terms. Blending “was not analogous to ‘cleaning, sorting, or repacking,’ so that the phrase “or otherwise changed in condition,” did not apply.” (HQ225490). The situation is analogous and applicable in this case. The processes of blending and dilution performed upon the orange juice concentrate in Tropicana, were highly sophisticated and calibrated. In the present case, the blending process is substantially less so. It is necessary however, to consider, the sophistication of the process in relationship to the sophistication of the article in question. Orange juice concentrate manufacture and sales is a highly complex trade. Broccoli, in this case however, appears to be fundamentally more basic. When dealing with a basic product such as broccoli, with three forms, florets, stalks, and a blend called cuts, each has its own distinct character, use, and name. The distinctiveness of each is reflected by a substantial variance in the price. Moreover, the transformation as with the change in character, need not be complex and intricate, it need only substantially change the character, nature and/or name of the article.
The Tropicana Court stressed that the merchandise must not be otherwise changed in “condition” as stated in the statute. From the description of the blending or mixing description received from you, it appears that the merchandise in fact, does change condition. The mixing of the more expensive florets, with the less expensive stalks, in a 40%-60% mix, produces a new product, at a new price. The mixing/blending is not performed for a decorative purpose. It appears to be performed for a marketing and for profit purpose. There are those who would prefer to eat florets and stalks mixed rather than just stalks or just florets. Further, a tote of florets only costs two hundred percent, on average, more than a tote of stalks only. A mix or blend of florets and stalks costs nearly 100% more that a tote of stalks only, but nearly 100% of a tote of florets only. The company and the market perceive a difference in the product and attraction to it and in its relative cost. We find this processing to be the kind of change in condition section 1562 considered to be a manufacture and not a mere manipulation. Thus, in accordance with section 1562 and the Tropicana holding, we find that the processing describe above, would result in a manufacture of the subject merchandise and is therefore not permitted under 19 U.S.C. §1562.
HOLDING:
The blending of broccoli florets and stalks described above is considered to be a manufacture under 19 U.S.C. § 1562, for the purposes of admitting the subject merchandise to a bonded warehouse. Insofar as the blending of broccoli, florets and stalks, constitutes a manufacture, it is as such, not eligible for admission into a bonded warehouse under these circumstances.
This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and to the public via the Customs Ruling Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels 60 days from the date of this decision.
Sincerely,
John Durant, Director
Commercial Rulings Division