Jan 25 CBP Bulletin Proposes to Modify Rulings on Bonded Warehouses

In the January 25, 2012 issue of the U.S. Customs and Border Protection Bulletin (Vol. 46, No. 5), CBP proposes to correct the reasoning in two rulings and similar treatment on whether the blending of frozen broccoli and mixing of wine in a CBP bonded warehouse is a permissible manipulation under 19 USC 1562. The holdings of these two rulings are not proposed to change.

Comments on Proposed Modifications Due February 24

CBP states that before taking these actions, consideration will be given to any written comments received by February 24, 2012. In addition, any party who has received a ruling or decision on the merchandise that is subject to the proposed modifications, or any party involved with a substantially identical transaction, should advise CBP by the date that written comments on the proposed ruling are due. (An importer's failure to advise CBP of such rulings, decisions, or substantially identical transactions may raise issues of reasonable care on the part of the importer or its agents for importations subsequent to the effective date of the final decision in this notice.)

CBP Correctly Ruled Blended Broccoli & Mixed Wine Were Impermissible Mnfr

CBP is proposing to modify HQ 228508 (frozen broccoli) and HQ H046995 (wine), and any rulings on these products that may exist but have not been specifically identified. CBP is also proposing to revoke any treatment it has previously accorded to substantially identical transactions.

In HQ 228508 (September 1999), CBP correctly held that the blending of frozen broccoli florets and stalks was an impermissible manufacture in a CBP bonded warehouse. In HQ H046995 (February 2009), CBP also correctly held that the addition of salt to drinking wine (to make cooking wine) was an impermissible manufacture in a CBP bonded warehouse.

But Incorrectly Used "Substantial Transformation" Instead of "Low Threshold" Test

However, in both rulings, CBP incorrectly used and referenced the “substantial transformation” analysis of Ferrostaal Metals Corp. v. U.S. (1987), in determining whether an action would constitute ‘manufacture’ for purposes of 19 USC 1562. The rulings should have clearly been based on Tropicana Products, Inc. v. U.S. (1992), which determined that that the “substantial transformation” test (a ‘high’ threshold test) was inapplicable for 19 USC 1562 determinations of ‘manufacture’ and instead a “low threshold” test should be used.

(Tropicana had reasoned that substantial transformation, as stringently required in classification, country of origin, GSP, and drawback cases, would negate the intent of Congress to permit only very minor or rudimentary manipulations in CBP bonded warehouses (e.g., cleaning, sorting, and repacking).)

Now Proposes to Modify Rulings to State Mixing is Impermissible via "Low Threshold" Test

As a result, CBP is proposing to issue HQ H140895 and HQ H141855 to modify HQ 228508 and HQ H046995, in order to more clearly state that the mixing of frozen broccoli florets with broccoli stalks, or the mixing of salt in drinking wine (to make cooking wine) in a CBP bonded warehouse was an impermissible manufacture under the “low threshold” standard.