Application for Further Review of Protest 2809-20-107150; U.S. – Israeli Free Trade Agreement; Tahini; Double Substantial Transformation

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection
HQ H317062 May 21, 2021 OT:RR:CTF:VS H317062 CMR CATEGORY: Classification Agriculture and Prepared Products Center of Excellence and Expertise U.S. Customs and Border Protection JFK International Airport, Building 77 Team BBF - Agriculture & Prepared Products Center Jamaica, NY 11430 Attn: Michelle Akalski RE: Application for Further Review of Protest 2809-20-107150; U.S. – Israeli Free Trade Agreement; Tahini; Double Substantial Transformation Dear Center Director: This is in response to the Application for Further Review (AFR) of Protest 2809-20-107150, timely filed by Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt, LLP, on behalf of their client, Segev Food International Inc., against your decision to deny preferential tariff treatment under the United States – Israel Free Trade Area Implementation Act of 1985 (hereinafter, ILFTA) to one entry of tahini produced in Israel. The AFR, asserting pursuant to 19 C.F.R. § 174.24(b), that this protest involves questions of fact which have not been ruled upon by the Commissioner of Customs and Border Protection (CBP) or his designee or by the Customs courts, was properly approved. This office has taken into consideration the information presented in the protest packet; our discussion with the importer’s counsel on April 13, 2021, and counsel’s arguments set forth in a supplemental submission, dated May 13, 2021. FACTS: The tahini is produced in Israel from raw sesame seeds, in their shells, which are purchased from an Israeli supplier; however, the sesame seeds are grown in Uganda. In Israel, the sesame seeds are cleaned and hulled (i.e., chaffed and de-shelled), and then roasted. The roasting involves the use of seven roasting ovens and takes nearly two hours. The roasting process reduces the moisture content of the sesame seeds from 23 percent to less than 1 percent. After roasting, the sesame seeds are ground by specialized industrial grinding machines (both a coarse grinder followed by a fine grinder) into finished tahini. The finished tahini is then packaged, labeled and exported to the United States from Israel. The tahini was entered and preferential tariff treatment under the ILFTA was claimed. However, the claim for preferential tariff treatment was denied because, although the tahini is a product of Israel, it fails to meet the requisite value-added requirement of the ILFTA, i.e., that not less than 35 percent of the appraised value of the entered tahini be attributable to the sum of the cost or value of Israeli materials plus the direct costs of processing operations performed in Israel. Importer’s counsel asserts that the value of the raw sesame seeds may be counted toward the 35 percent value requirement as he asserts that the seeds undergo a double substantial transformation during the processing operations in Israel. Counsel asserts that the cleaning, hulling and roasting of the sesame seeds results in an intermediate article of commerce and thus, a double substantial transformation occurs to the sesame seeds. ISSUE: Whether the raw sesame seeds processed as described above are subject to a double substantial transformation in Israel so that the value of the raw sesame seeds may be considered in calculating the Israeli value content for purposes of meeting the 35 percent value content requirement of the ILFTA. LAW AND ANALYSIS: In order to qualify for preferential tariff treatment under the ILFTA, goods must meet certain requirements set forth in General Note (GN) 8, HTSUS. GN 8(b) provides, in pertinent part: For purposes of this note, goods imported into the customs territory of the United States are eligible for treatment as "products of Israel" only if— each article is the growth, product or manufacture of Israel or is a new or different article of commerce that has been grown, produced or manufactured in Israel; each article is imported directly from Israel (or directly from the West Bank, the Gaza Strip or a qualifying industrial zone as defined in general note 3(a)(v)(G) to the tariff schedule) into the customs territory of the United States; and the sum of— the cost or value of the materials produced in Israel, and including the cost or value of materials produced in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, plus the direct costs of processing operations performed in Israel, and including the direct costs of processing operations performed in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, is not less than 35 percent of the appraised value of each article at the time it is entered. In this case, there is no dispute that the tahini is a product of Israel that is imported directly from Israel to the United States. The issue is whether the production processes which occur in Israel added to Israeli material inputs is at least 35 percent of the appraised value of the tahini. Both CBP and the importer agree that in order to meet the 35 percent value requirement, the value of the sesame seeds would need to be included in the calculation. However, the value of the sesame seeds may be included in the required value calculation only if the sesame seeds undergo a double substantial transformation in Israel. They do not. While counsel argues that cleaning, hulling and roasting the sesame seeds creates an intermediary article of commerce, such processes do not result in a substantial transformation and the origin of the roasted sesame seeds remains Uganda, i.e., the origin of the raw sesame seeds. See Treasury Decision (T.D.) 85-158, 50 Fed. Reg. 37842, wherein the U.S. Customs Service (the predecessor of CBP), found that pistachio nuts were not substantially transformed into a new and different article of commerce by virtue of roasting or other similar incidental processing. Customs found that there was no change in the commercial designation or identity, in the fundamental character, or commercial use of the pistachio nuts. See also, Headquarters Ruling Letter (HQ) 730058, dated June 2, 1987. Although T.D. 85-158 involved the roasting of pistachio nuts, it applies equally to sesame seeds. The sesame seeds become a product of Israel when they are processed from raw sesame seeds to paste, or tahini. See HQ H559965, dated January 24, 1997, for the concept that the entire processing of raw peanuts into peanut butter constitutes one substantial transformation. Importer’s counsel submits the subject sesame seed should be treated as coffee beans are for purposes of determining origin. However, these are completely different agricultural commodities with different considerations. As such, a comparison of the change from green coffee beans to roasted coffee beans to the sesame seeds at issue is not appropriate. More appropriate and applicable are the rulings involving nuts discussed herein. Further, counsel asserts that a substantial transformation for purposes of the marking statute, 19 U.S.C. § 1304, is distinguishable from a substantial transformation for purposes of a free trade agreement. This is not true. The United States has many free trade agreements, including Israel, Morocco, Bahrain, Jordan, and Oman, that utilize the substantial transformation test with no different results from those considered for purposes of marking, to determine if the "product of" requirement has been met. The language of the ILFTA, previously cited, uses the language of substantial transformation in GN 8(b)(i) by requiring an article to be “a new or different article of commerce that has been grown, produced or manufactured in Israel.” In HQ H291700, dated November 30, 2018, CBP states: An article is considered to be a “product of” Israel if it is made entirely of materials originating there or, if made from materials imported into Israel, they are substantially transformed into a new or different article of commerce. The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character or use, different from that possessed by the article prior to processing. See Texas Instruments Inc. v. United States, 69 C.C.P.A. 151 (1982). This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). Finally, counsel urges that we consider whether the roasting of the sesame seeds in Israel is a complex and meaningful operation. Based on the time it takes to accomplish the roasting and the use of seven ovens, counsel urges CBP to find this operation complex and meaningful enough to equate to a substantial transformation for purposes of finding a double substantial transformation. We cannot. With the exception of coffee, CBP has consistently held that roasting and processing similar to roasting is not a substantial transformation. See, N008056, dated March 16, 2007 (shelled cashews roasted and canned is not a substantial transformation); and G89921, dated June 12, 2001 (dried beans and chickpeas rehydrated, blanched, canned, covered with hot (180° F) brine, sealed, cooked in a rotary cooker for over 15 minutes at 260° F, cooled, labeled, and packed did not undergo a substantial transformation). And, while counsel points to the reduction in moisture content due to the length of the roasting process, as previously noted, we have also held that drying is not a substantial transformation. Based on the above analysis, the cost or value of the imported raw sesame seeds cannot be used towards the calculation of the required 35 percent Israeli content in order to qualify for preferential tariff treatment under the ILFTA because the sesame seeds do not undergo a double substantial transformation in Israel. HOLDING: Protest 2809-20-107150 should be denied. In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System (CROSS) at https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution. Sincerely, For Craig T. Clark, Director Commercial and Trade Facilitation Division