HQ 734076

September 10, 1991

MAR-2 CO:R:C:V 734076 GRV

CATEGORY: MARKING

Steven B. Zisser, Esq.

Stein Shostak Shostak & O\'Hara

3580 Wilshire Blvd., Suite 1240

Los Angeles, California 90010-2597

RE: Country of origin marking of Meat/Sauce/Seasoning Mixes

made by blending foreign and domestic ingredients together

in a Foreign Trade Zone for entry into the U.S. 19 U.S.C.

81c; Hawaiian Independent Refinery; C.S.D. 83-48; 19 CFR

134.1(b); 134.35; substantial transformation; C.S.D. 82-152;

710586; 733207; 733945

Dear Mr. Zisser:

This is in response to your letter of October 22, 1990, to

the Area Director of Customs, New York Seaport, on behalf of

Case-Swayne Co., Inc., requesting a ruling regarding the classi-

fication and country of origin marking of meat/sauce/seasoning

mixes blended in a foreign trade zone (FTZ) and entered into the

U.S. You also request that we confirm that the domestic status

ingredients do not lose their domestic identity after processing

in the foreign trade zone. Although the Area Director issued you

a classification ruling in this matter on November 16, 1990, your

letter was forwarded to this office for a direct reply concerning

the outstanding issues you raise.

FACTS:

Foreign tomato powder\--imported in bulk 55 lb. boxes from

Spain, Portugal, Morocco or Switzerland\--will be admitted into a

U.S. foreign trade zone (FTZ) as nonprivileged foreign merchan-

dise and variously mixed and blended with specific quantities of

dry ingredients of U.S. origin\--admitted into the FTZ as domestic

merchandise\--to make three different commercial products:

\(1\) dry taco meat mix; (2) dry red chili sauce mix; and (3) dry

taco seasoning mix. The dry taco meat mix consists of tomato

powder, rolled oats, salt, and seasonings and spices. The dry

red chili mix consists of tomato powder, starch and gums, salt,

seasonings and spices, and paprika. The dry taco seasoning mix

consists of tomato powder, salt, dehydrated onion, seasonings and

spices, and flour. By weight, the tomato powder will constitute

approximately 6%-23% of the various mixtures. No cost figures

were submitted. The ingredients will be combined into 1000-1300

lb. batches, which will then be packaged into individual plastic

bags, with 12-60 bags being packaged into a corrugated box.

ISSUE:

Whether the foreign tomato powder is substantially trans-

formed when mixed/blended with specific quantities of domestic

ingredients to make seasoning mixes, so that the seasoning mixes

do not have to be marked when withdrawn from the foreign trade

zone for entry into the customs territory of the U.S.

LAW AND ANALYSIS:

19 U.S.C. 81c provides, in part, that:

\[f\]oreign and domestic merchandise of every description,

except such as is prohibited by law, may, without being

subject to the customs laws of the United States, except

as otherwise provided in this chapter, be brought into a

zone \..., and be exported, destroyed, or sent into

customs territory of the United States therefrom, \...but

when foreign merchandise is so sent from a zone into

customs territory of the United States it shall be

subject to the laws and regulations of the United States

affecting imported merchandise\.... (Emphasis supplied).

Thus, merchandise is generally not subject to the customs

laws while in a foreign trade zone (FTZ), unless the Foreign

Trade Zones Act authorizes their application. However, once

merchandise is withdrawn from a FTZ and entered into the customs

territory of the U.S., it becomes subject to the customs laws and

regulations of the U.S. Foreign merchandise in a zone is not

subject to duty until it actually enters the Customs territory of

the U.S. Hawaiian Independent Refinery v. United States, C.D.

4777, 81 Cust.Ct. 117, 460 F.Supp. 1249 (1978).

The marking statute, 304 of the Tariff Act of 1930, as

amended (19 U.S.C. 1304), provides that, unless excepted, every

article of foreign origin (or its container) imported into the

U.S. shall be marked in a conspicuous place as legibly, indelibly

and permanently as the nature of the article (or its container)

will permit in such manner as to indicate to the ultimate

purchaser the English name of the country of origin of the

article. (Emphasis supplied). Part 134, Customs Regulations

(19 CFR Part 134), implements the country of origin marking

requirements and exceptions of 19 U.S.C. 1304.

Customs has determined that articles brought to the U.S. and

admitted into a FTZ are not subject to the requirements of 19

U.S.C. 1304 at that time. C.S.D. 83-48, 17 Cust.Bull. 819

(1983). In that case, Customs found that canned foodstuffs may

be brought to the U.S. for admission into a FTZ without the cans

having been marked with their country of origin at the time of

admission thereto.

However, merchandise processed in a FTZ must be marked to

indicate its country of origin at the time it is withdrawn from

the zone and brought into the customs territory for consumption,

unless the article is substantially transformed in the FTZ. See,

Headquarters Ruling Letter (HRL) 710586 dated June 25, 1979. In

that case, piece goods were imported into a FTZ for production\--

by cutting, sewing, and finishing\--into finished terry towels.

Customs determined that the country of origin marking require-

ments of 19 U.S.C. 1304 were not applicable to the finished

towels because the processing constituted a substantial transfor-

mation. As such, at the time of their withdrawal from the FTZ

the towels were considered products of the U.S., within the

meaning of 19 CFR 134.1(e), and no foreign country of origin

marking requirements applied.

Thus, the issue of whether the seasoning mixes must be

marked to indicate the country of origin of the tomato powder,

pursuant to 19 U.S.C. 1304, at the time they are withdrawn from

the zone, hinges on whether the tomato powder is substantially

transformed in the FTZ by the addition of the various domestic

ingredients.

The primary purpose of the country of origin marking statute

is to \"mark the goods so that at the time of purchase the

ultimate purchaser may, by knowing where the goods were produced,

be able to buy or refuse to buy them, if such marking should

influence his will.\" United States v. Friedlaender & Co., 27

CCPA 297, 302, C.A.D. 104 (1940).

The country of origin for marking purposes is defined at

134.1(b), Customs Regulations (19 CFR 134.1(b)), to mean the

country of manufacture, production, or growth of any article of

foreign origin entering the U.S. Further work or material added

to an article in another country must effect a substantial

transformation in order to render such other country the \"country

of origin\" within the meaning of Part 134. The concept of what

constitutes a substantial transformation is explained at 134.35,

Customs Regulations (19 CFR 134.35), which provides, in relevant

part, that:

\[a\]n article used in the U.S. in manufacture which results

in an article having a name, character, or use differing

from that of the imported article, will be within the

principle of the decision in the case of United States v.

Gibson-Thomsen Co., Inc., 27 CCPA 267 (1940). Under this

principle, the manufacturer or processor in the U.S. who

converts or combines the imported article into the different

article will be considered the \"ultimate purchaser\" of the

imported article within the contemplation of \[the marking

statute\], and the article shall be excepted from marking.

Thus, a substantial transformation occurs when articles lose

their identity and become new articles having a new name,

character, or use. National Juice Products Association v. United

States, 10 CIT 48, 628 F.Supp. 978 (1986), Koru North America v.

United States, 12 CIT 1120, 701 F.Supp. 229 (1988). The question

of when a substantial transformation occurs for marking purposes

is a question of fact, to be addressed on a case by case basis.

Uniroyal Inc. v. United States, 3 CIT 220, 542 F.Supp. 1026

(1982), aff\'d, 1 Fed.Cir. 21, 702 F.2d 1022 (1983).

In HRL 733207 dated November 21, 1990, foreign and U.S. raw

botanical ingredients were variously blended together in the U.S.

to create aromatic products denominated \"Potpourri.\" Relying on

two previous rulings which reasoned that extensive processing

could effect a substantial transformation of foreign ingredients,

we determined that the production of the potpourri in the U.S.,

according to formula, substantially transformed the imported

constituent materials into a product of the U.S. See, HRLs

553120 dated September 28, 1984, and 723312 dated November 22,

1983\.

These \"blending/mixing\" rulings serve to show that where

different ingredients are combined/mixed together, according to a

designated recipe/formula, a new and different commercial article

can be created; such processing constituting a substantial trans-

formation. Cf., HRL 733945 dated March 26, 1991 (although the

blending and mixing of two separate groups of ingredients to

form a cream haircolor preparation was held to substantially

transform the ingredients, cautionary language was included to

distinguish other types of combining/blending operations).

Accordingly, as the imported tomato powder here is blended with

other ingredients according to a designated recipe, we follow the

findings in the above referenced rulings to find in this case

that the foreign tomato powder is substantially transformed in

the FTZ and need not be marked when entered into the customs

territory of the U.S.

Regarding the issue of whether merchandise with domestic

zone status and merchandise with non-privileged zone status can

be mixed and blended without either losing its respective zone

status, as the nonprivileged foreign tomato powder will be mixed

in proportions fixed by weight percentages with the domestic

ingredients (oats, salt, paprika, flour, dehydrated onion,

starch and gums, and seasonings and spices), and records will be

kept to provide verification of that statement, we see no reason

to prevent the application of the principles of C.S.D. 82-152

(copy enclosed) to the situation.

HOLDING:

As the foreign tomato powder will be admitted into a FTZ,

pursuant to 19 U.S.C. 81c, it is not subject to the customs laws

of the U.S., which includes the country of origin marking laws.

Further, as the foreign tomato powder will be substantially

transformed in the FTZ when it is blended with certain other

domestic origin ingredients, the resultant meat/sauce/seasoning

mixes also will not be subject to country of origin marking

requirements of 19 U.S.C. 1304, when subsequently entered into

the Customs territory of the U.S.

Sincerely,

John Durant, Director

Commercial Rulings Division

Enclosure