WAR-3-01-RR:CTF:EPD: H140895 TT
Port Director of Customs
Attn: Eugenio Garza, Jr.
P.O. Box 3130
Laredo, TX 78044
RE: Modification of HQ 228508; Request for Internal Advice concerning manufacture or manipulation of merchandise in a bonded warehouse; 19 U.S.C. §1562; broccoli.
Dear Sir:
This letter is in reference to Headquarters Ruling HQ 228508, dated September 9, 1999, concerning the permissibility of mixing totes of broccoli florets and stalks in a Customs and Border Protection (“CBP”) bonded warehouse. In that ruling, CBP found the action to be a manufacture and thus, impermissible in the CBP bonded warehouse. We have reviewed HQ 228508 and found some of the analysis to be incorrectly applied. However, the error in analysis does not change the holding. For the reasons set forth below, we hereby modify HQ 228508 to reflect the proper analysis.
Pursuant to Section 625(c)(1), Tariff Act of 1930 (19 U.S.C. § 1625(c)(1)), as amended by Section 623 of Title VI, notice proposing to modify HQ 228508 and HQ H046995 was published on January 25, 2012, in Volume 46, Number 5, of the Customs Bulletin. CBP received one comment in response to that notice supporting the modification of that ruling.
FACTS:
In HQ 228508, we described the facts as follows. 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 operation in a bonded warehouse.
The proposed operation is sought by Sun Harvest Foods, Inc. (“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 portion of the broccoli, the floret, is preferred by consumers and hence, it is the more expensive portion of the vegetable. In contrast, the bottom portion of the broccoli, the stalk, is the least expensive portion of the vegetable. SHF has submitted invoices showing the cost, per pound, of florets, stalks, and a 40-60% mixture of florets and stalks.
According to SHF’s invoices, one pound of mixed broccoli composed of 40% floret and 60% stalk costs approximately half as much as a pound of only florets, and twice as much as a pound of only stalks. The precooked and frozen broccoli has been classified under the Harmonized Tariff Schedule of the United States (“HTSUS”) 0710.80.97.24. SHF proposes to take totes of florets and totes of stalks in a Customs and Border Protection (“CBP”) bonded warehouse and blend them together to create totes of mixed florets and stalks.
ISSUE:
Whether the proposed operation of mixing totes of broccoli florets and broccoli stalks in a bonded warehouse is a permissible manipulation under 19 U.S.C. §1562.
LAW AND ANALYSIS:
Whether SHF may mix its imported broccoli florets and stalks in a bonded warehouse is contingent on whether the mixing is a permissible manipulation under 19 U.S.C. § 1562. If this process constitutes a manufacture, it is not permitted in a bonded warehouse under Section 1562.
The statute, in 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” for purposes of 19 U.S.C. § 1562 does not require a substantial transformation, instead “a low threshold of ‘transformation’” satisfies the meaning of ‘manufactured’ for bonded warehouses purposes. Tropicana Products, Inc. v. U.S., 16 C.I.T. 155, 160 (1992). In Tropicana, the Court of International Trade (“CIT”) looked at the meaning of “manufacture” in 19 U.S.C. § 1562 and distinguished it from the meaning of “manufacture” when used in the context of drawback, classification, and a
country of origin analysis. Id. (“the criterion of whether goods have been ‘manufactured’ serves different purposes under different statutes, particularly § 1562 on the one hand and statutes concerned with country-of-origin marking, Generalized System of Preferences and drawback on the other. . .”). The CIT determined that:
To 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 origin 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 160. Therefore, the analysis to determine whether a procedure constitutes a “manufacture” for purposes of 19 U.S.C. § 1562 is a “low threshold.” Id.
In Tropicana, the CIT held that the process of diluting concentrated orange juice by adding water to be a manufacture for purposes of 19 U.S.C. § 1562. 16 C.I.T. at 162. SHF argues that its bonded warehouse operations will not result in a ‘substantial transformation’ of the imported merchandise and therefore, it will not constitute a “manufacture” in its bonded warehouse. However, SHF’s proposed operations of mixing totes of florets and stalks creates a new product, at a vastly different price, and thus, constitutes a manufacture.
SHF’s proposed procedure involves mixing totes of broccoli florets and stalks. The broccoli florets and stalks will be blended together to create totes composed of 40% florets and 60% stalks. There are three main steps to SHF’s proposed process: 1) the opening of the tote containers; 2) the blending of the florets and stalks; and 3) the repackaging of the blended mixture. Although, the broccoli remains broccoli, the nature of the merchandise has significantly 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.” This new name given to this product demonstrates that there is a significant difference between totes of solely stalks or florets.
Additionally, the price of this new merchandise, broccoli cuts, is considerably different than the price of totes of stalks or totes of florets. This new product is priced twice as much as a stalks-only tote and half as much as a florets-only tote. This substantial difference in price for broccoli cuts, indicates there is a new product and that it is recognized as such, by not only the broccoli industry, but also, the public. The blended broccoli cuts have taken on a new name and price.
In Tropicana, where the blending of orange juice concentrates to achieve a desired Brix to acid ratios changed the fundamental character of the imported unblended concentrate, the CIT concluded that the blending operation was not a permitted manipulation. The CIT “analyzed the exemplars in the statute” and “blending” was not one of the permissible listed terms. The Court also held that, Tropicana’s blending “was not. . . analogous to. . . [§ 1562’s language of] ‘cleaned, sorted, repacked,’ and that therefore, it was “not within the scope of [§ 1562’s] ‘otherwise changed in condition.” Tropicana, 161 C.I.T. at 162. Tropicana’s analysis is applicable to this case.
The process of blending and diluting the orange juice concentrate in Tropicana was highly sophisticated and calibrated. While in the present case, the blending process is not as intricate, we must consider the sophistication of the process in question in relation to the sophistication of the merchandise itself. The manufacture and sale of orange juice concentrate is a highly complex trade. Broccoli, however, is fundamentally more basic. When dealing with a basic product such as broccoli, with only three forms (florets, stalks, and a broccoli cuts), the distinctiveness of each form is reflected by a substantial variance in the price. Thus, the process of transforming broccoli into a different form need not be complex and intricate to be deemed a manufacture.
According to the blending description provided by SHF, it appears that the broccoli will change substantially. The blending of the more expensive florets with the less expensive stalks, in a 40%-60% mix, produces a new product at a new price. This mixing is not performed for a decorative purpose. It appears to be performed for a marketing and a profit-building purpose. Further, on average, a tote of florets costs two hundred percent more than a tote of stalks. A mix of florets and stalks costs nearly 100% more that a tote of stalks, but nearly half as much as a tote of florets. This demonstrates that both SHF and consumers perceive a difference in these products, whether it is totes of florets, stalks, or cuts. Thus, we find that the operation described 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 CBP bonded warehouse.
EFFECT ON OTHER RULINGS:
In accordance with the above analysis, HQ 228508, dated September 9, 1999, is hereby MODIFIED.
In accordance with 19 U.S.C. § 1625(c), this ruling will become effective 60 days after publication in the Customs Bulletin.
Sincerely,
Myles B. Harmon
Director
Commercial and Trade Facilitation Division