RESTRICTEDWORLD TRADE
ORGANIZATIONG/RO/W/80
8 April 2002
(02-1797)
Committee on Rules of Origin Original:  English
CHAPTERS 1-24 (AGRICULTURAL PRODUCTS AND FISH)
Submission by New Zealand
The following submission, dated 22 March 2002, has been received from the Permanent
Mission of New Zealand.
_______________
New Zealand’s Technical Contribution on Dairy Issues
New Zealand’s position
New Zealand’s position is that the process description in issues 16, 17, 18, 19 and 22 of
Chapters 1-24 (Agricultural Products) of the Integrated Negotiating Text (INT) is the last substantial
transformation for the purposes of Article 9(1)(b) 1 of the WTO Agreement on Rules of Origin (ARO).
We are of the view that dairy processing should be recognized as origin conferring when it
can be demonstrated that a new and different product with changed utility has emerged.  Liberal rules
of origin as opposed to conservative rules are cons istent with the trade liberalizing thrust in the
Uruguay Round Agreement on Rules of Origi n, which established the Harmonization Work
Programme.
The Chapter Note proposed for dairy that “confer originating status on dairy products
obtained as a result of recombination or reconstitution and dairy products obtained from recombined
or reconstituted materials” reflects New Zealand’s view.
Our approach is also consistent with Codex General Standard for Labelling of Prepackaged
food (Codex Stan 1-1985, Rev 1-1991 section 4.5)2 which defines the country of origin as the country
where the nature of the product is changed.
There are also important economic and developmental justifications for recognizing that dairy
processing confers origin.  Milk processing in another country is often a logical response to
availability problems in developing countries in particular.
                                                     
1  Article 9(1)(b) provides: Rules of origin should provide for the country to be determined as the origin of a
particular good to be either the country where the good has been wholly obtained or when more than one
country is concerned in the production of a good, the country where the last subs tantial transformation has
been carried out;
2 Codex Stan 1-1985, Rev 1-1991 section 4.5.2: “When a food undergoes processing in a second country which
changes its nature, the country in which the processing is performed shall be considered to be the country of
origin for the purposes of labelling.”G/RO/W/80
Page 2
Chapters 1-24 – product-specific issues 16, 17, 18, 19, 22
ISSUE No. 16: OBTAINING COFFEE CREAMER
OPTION A: Yes
Obtaining coffee creamer fully reflects last substantial transformation. In the manufacture of coffee
creamer, the starting material is skimmed milk powder (possibly also from other dairy ingredients).
Milk fat, water, emulsifiers and stabilisers are added in accordance with specifications. The product is
sterilized at a specific temperature, then cooled before putting into packages.  The final product has a
specific use and is intended to be consumed by putting into coffee.
OPTION B: Yes, provided that : Coffee creamer is obtained from liquid milk of heading 04.01.
OPTION C: No
The origin of coffee creamer is the country in which the liquid milk is obtained in its natural or
unprocessed state.
Relevant HS Code:
Ex 04.02 (a)
Process  and consistency with article 9(1)(b) and INT
The process of obtaining coffee is consistent with option A as set out in the INT.  That is,
milk fat, water, emulsifiers and stabilisers are a dded to skimmed milk powder (SMP).  The product is
then sterilized at a specific temperature, then co oled before putting into packages.  The final product
has a specific use and is markedly different in composition and character from the raw material.
This is consistent with article 9(1)(b) in that a considerable substantial transformation has
taken place. Therefore where the manufacture of coffee creamer involves two or more countries origin
should be conferred where the coffee creamer is obtained, that is where the last substantial
transformation has taken place.
ISSUE No. 17: PRODUCTION OF RECONSTITUTED MILK
OPTION A: Yes
Production of reconstituted milk fully reflects last substantial transformation.
Milk is reconstituted from two main ingredients which are anhydrous (no moisture), whereas the end
product is hydrous (rich in moisture), i.e. the essential nature of the product is changed considerably.
Its physical composition and functional properties are diametrically opposed to those of its
components.   The production process is relatively complex and has to be carried out in a specially
equipped facility.  The processes are as follows :
- Reconstitution of the milk powder;
- Addition of milk fat;
- Stirring of the mixture;
- Homogenization, pasteurization, boiling.
Consequently, reconstituted milk originates in the country where the reconstituting processes are
carried out using products of the same heading.G/RO/W/80
Page 3
OPTION B: No
The production of reconstituted milk does not reflect last substantial transformation.
The process for reconstituting milk is not a particularly complex one and, above all, the product
obtained has no specially different characteristics compared with the products used, since it is also
milk.
The origin criteria proposed for the product differ, on e would retain origin of the liquid milk, the other
would confer origin of the milk powder or condensed milk, from which it is produced.
Relevant HS Code:
ex 04.02 (b)
Process
First,  the main ingredient, whether it is SMP or whole milk powder (WMP) is mostly
anhydrous (that is free of moisture), while the end product is hydrous ( that is rich in moisture).  Thus,
the essential nature of the product has been changed considerably.
Second, the physical composition and functional properties of the finished product are
markedly different from the components.  For example SMP in particular keeps for much longer than
liquid and is not easily spoiled by bacteria, enzymes and exposure to direct sunlight.  If stored
properly SMP can be stored for three years while at the same time maintaining its lactose, milk
proteins and mineral levels.
The addition of milk fat is also a complex process and alters considerably the original raw
materials that went into making the final product.  The addition of milk fat is usually known as
recombination.
This process involves:
- milk fat being added and then high agitation of the mixture
- homogenisation and pasteurisation
- heat treatment if for local consumption
- other specific treatments if intended for the manufacture of other dairy products such as butter,
cheese and condensed
Consistency with Article 9(1)(b) and INT
Consistent with option A, the production of reconstituted milk fully reflects the last
substantial transformation.  The changes in properties illustrate that a substantial transformation has
taken place not only in terms of the structure and appearance but also in terms of the milk’s functionalproperties.  This is consistent with article 9(1)(b) because there has been a substantial change from the
milk powder to liquid form, and also a substantial transformation of the functional properties of the
milk.
Option A of Issue 17 is fully consistent with the process outlined above and recognises that
the essential nature of the milk powder has been changed.  Furthermore reconstitution and
recombination often takes place using expensive technical equipment.  This may comprise liquid
converters, volumetric feed cylinders, large capacity silos, separating tanks, aseptic tanks, buffers,
filters and high power pumps.
Option B of Issue 17 gives an inaccurate representation of the process of producing
reconstituted milk.  First the process for reconstituting milk as outlined immediately above is aG/RO/W/80
Page 4
particularly complex one and alters considerably the characteristics compared with the original
ingredients. To suggest that SMP or WMP is the same as liquid milk ignores the changes that occur
both of the chemical structure and functional properties.
ISSUE No. 18: OBTAINING OF CONDENSED MILK
OPTION A: Yes
Obtaining condensed milk is considered to reflect last substantial transformation.  The process (or
processes) for obtaining condensed milk from liquid milk or, by reversibility, from skimmed milk
powder or from anhydrous milk fats to which sugar or sweetening matter may or may not have been
added, is a complex one which results in a product that is completely different from the products used.
The origin of condensed milk is the country where it is produced.
OPTION C: No
Neither removal of the water contained in milk nor the addition of sugar or other sweetening matter in
any way alters the milk molecule.  The origin of the milk is the country where the liquid milk is
obtained in its natural or unprocessed state.
Relevant HS Code:
ex 04.02 (c)
Process
There are two types of condensed milk – unsweetened (evaporated) and sweetened.
Unsweetened condensed milk ( also called double concentrated milk) is made from WMP, SMP or
recombined milk.  In this regard sweetened condens ed milk is concentrated milk to which sugar has
been added.  As with evaporated milk, sweetened condensed milk can be made from WMP or SMP
and recombined using SMP and AMF.
It is possible to substitute vegetable oil for AMF in the manufacture of sweetened and
unsweetened condensed milk.  This is common practise in some countries where the price of
vegetable oil is well under half the price of AMF.  Vegetable oil based sweetened and evaporated
condensed milk are known as “semi-dairy” products and are often referred to as “filled”, “imitation”
or “substitute” dairy products.
Consistency with article 9(1)(b) and INT
With respect to milk fat-based sweetened and ev aporated milks,  New Zealand’s view is that
origin is transferred when:
- Fresh liquid milk is manufactured into sweetened condensed milk
and/or
- evaporated milk and; SMP and AMF are recombined into condensed milk.
The essential characters of sweetened and evaporated milks are notably different than for the
constituents products (ie the ingredients).  This is especially so for sweetened condensed milk, which
has very high sugar content of approximately 45 per cent; with the balance consisting of 8 per cent fat,
20 per cent solids non-fat and 27 per cent water.
The description of the process outlined immediately above is more accurately depicted by the
process described in option A of this issue.  That is the process involved is a complex one which
results in a product that is completely different from the materials used.G/RO/W/80
Page 5
ISSUE No. 19: OBTAINING OF MILK POWDER
OPTION A: Yes
Here a solid product is obtained by removing the water contained in liquid milk.  The method of
removal is drying of the liquid milk.  The functional properties of the end product (skimmed milk
powder or whole milk powder) are a key element to be taken into account when determining
substantial transformation.  Milk powder is solid and usually anhydrous; it is richer in proteins
(skimmed milk powder) and in fats (whole milk powder) than ordinary fresh milk.  In addition, it can
be kept for far longer than fresh milk - particularly skimmed milk powder which will keep for three
years if conserved under the correct conditions.  Consequently, the obtaining of milk powder fully
reflects last substantial transformation.
OPTION B: No
Partial or total removal of the water in milk in no  way alters the milk molecule.  The origin of the
milk is the country in which the liquid milk is obtained in its natural or unprocessed state.
Process
In New Zealand all manufacture of SMP and WMP is made using the spray-dry process.3
There are two stages involved in spray drying.  In the first stage, pre-treated milk is evaporated,
reducing the moisture in the milk.  In the second stage, the concentrated milk is pumped to a drying
tower for final drying.  This stage can be broken down into three phases
1. Dispersion of the concentrate into very fine droplets
2. Mixing of the finely dispersed concentrate into a stream of hot air which evaporates the water.
3. Separation of the dry milk particles from the drying air.
The product of these processes is milk powder which is solid (cf its previous liquid state) and
anhydrous.  For SMP these processes increase the protein content and for WMP increase fat content.
Furthermore as a result of these processes SMP and WMP can be kept for much longer than fresh
milk.
Consistency with article 9(1)(b) and INT
The process of obtaining milk powder explained above is clearly the last substantial
transformation.  The process is fully consistent with option A of Issue 19.  The process meets all the
characteristics provided for option A, i.e. 
- drying of liquid milk
- milk powder is solid and usually anhydrous
- is richer in proteins (SMP) and in  fats (WMP) than ordinary fresh milk
- can be kept for far longer than fresh milk
Option B suggests that the obtaining of milk powder by drying in no way alters the milk
molecule.  The use of the term milk molecule is mi sleading because it implies that such a thing as a
milk molecule exists.  Milk is made up of fractions (lactose, protein ash, moisture, fat) minerals
                                                     
3 The manufacturing processes for SMP and WMP differ only slightly in that, in the production of SMP
the milk is clarified in conjunction with fat separation while for WMP the milk is not clarified.G/RO/W/80
Page 6
(calcium, sodium, potassium iron), and amino acids (lysine, leucine isoleucine) that because of their
molecular size can be split out through various processes for example, through separation,
standardisation, drying and ultra-filtration.
The process of changing milk into powder invo lves taking whole milk at about 3.5 per cent
fat, separating it and standardising to the appropriate fat level depending on whether you want SMP or
WMP and then drying it.  The separation and standardisation steps are also key changes to the
composition of the milk as well as drying to remove moisture which concentrates up the solids ratio.
As a result of these processes the chemical nature of the milk is altered considerably.  The suggestion
that the obtaining of milk powder does not alter the chemical nature of milk is inaccurate.
It is not clear why the molecular composition of a particular product is used as a principle in
determining origin.  The focus of Article 9(1)( b) of the Agreement on Rules of Origin is not whether
the molecule of a particular product has been altered but whether a particular good has undergone a
substantial transformation.
ISSUE No. 22: OBTAINING OF PROCESSED CHEESE
OPTION A: Yes.
Obtaining of processed cheese from other cheese classified in the same heading fully reflects last
substantial transformation.  The constituents of the mixtures (one or more varieties of cheese and one
or more of the following : cream or other dairy products, salt, spices, flavouring, colouring) are
chosen to give the desired flavour and colour, and are then blended with emulsifying salts, usually di-
or trisodium citrate or tetrapotassium diphosphate, and water.  The mix is heated to 80 - 85(C for five
to eight minutes in a batch cooker, or extrusion-cooked in an equivalent process.  The cheese is then
formed into portions or slices before packaging.
OPTION B: No
The process for obtaining processed cheese is a simple one which consists, purely and simply, of
mixing various sorts of cheese and melting them by means of heat or emulsifiers.
Process
Natural cheese is comminuted and then mixed with the emulsifying salts and other ingredients
such as milk solids, milk powder,  whey powder, coprecipitates, cream, butter or butter oil, and in
some instances previously processed cheese.
Processed  cheeses can also contain ingredients such as meat, fish, crustaceans, herbs, spices
vegetables, fruits, nuts and vitamins.  Other additives such as preservatives, colouring and flavouring
agents, binders, and salt and water complete the list of the ingredients.
This mix is then heated and melted which allows the emulsification of the raw ingredients.
The emulsifying salt plays an integral part in the melting of the cheeses.  In the absence of theemulsifying salt, heating the cheese causes the fat to separate from the protein producing a cheesewhich is inedible.
Emulsifying salts are added to negate this effect by binding calcium which is present in
casein.  Typical emulsifying fats used in this process such as (trisodium pyrophosphate (Na
3HP 2O7),G/RO/W/80
Page 7
tetrasodium pyrophosphate (Na 4P2O7)  pentasodium tripolyphosphate (Na 5P3O10 ) have very strong
calcium-binding properties and lead to the production of hard processed cheese.
As a result of the melting and emulsifying processes the natural cheeses loses many
characteristics and in essence is a different product.  For example the curd granule junction
patterns and the original fat globule membra nes are destroyed.  New features are also
prominent such as the formation of insol uble calcium phosphates a nd the disintegration of
large fat globules into smaller droplets.
Consistency with article 9(1)(b) and INT
The process of obtaining processed cheese is consistent with option A of Issue 20.  This is
clearly the last substantial transformation.  As outlined immediately above this process is very
complex and relies heavily on the chemical properties of emulsifying salts.
It is not simply a matter of melting cheese. Option A of this issue most accurately illustrates
the processes involved in obtaining process cheese, that is:
- The constituents of the mixtures are chosen to give the desired flavour and colour,
- Once constituents are determined, these are blended with emulsifying salts, usually di- or trisodium
citrate or tetrapotassium diphosphate, and water.
- The mix is heated to 80 - 85 °C for five to eight minutes in a batch cooker, or extrusion-cooked in an
equivalent process.
We would conclude that the obtaining of processed cheese from other cheese classified in the
same heading fully reflects last substantial transformation.
Option B in comparison gives an inaccurate description of what occurs in the production of
processed cheese.  The process for obtaining processed cheese is not a simple one and does not
consist of simply mixing various sorts of cheese a nd melting them by means of heat or emulsifiers.
During the mixing and melting of natural cheese, the original state of the natural cheese
undergoes a substantial change both structurally and chemically.  In fact melting cheese by
emulsifiers is misleading and inaccurate because emulsification involves the stabilisation and
formation of fat and is not melting.
__________