HQ 112423: Coastwise Trade; Processing of Fish; New and Different Product; 46 U.S.C. App. 883

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 112423

                        September 1, 1992

VES-3-06/07-CO:R:IT:C 112423 GEV

CATEGORY:  Carriers

Terrence B. Price
Secretary Treasurer
Robert Landweer & Co., Inc.
911 Western Avenue, Suite 208
Seattle, Washington 98104

RE:  Coastwise Trade; Processing of Fish; New and Different
     Product; 46 U.S.C. App. 883

Dear Mr. Price:

     This is in response to your fax dated August 12, 1992,
requesting a ruling regarding the applicability of 46 U.S.C. App.
883 to a fish processing operation.  Our ruling on this matter is
set forth below.

FACTS:

     Yellowfin sole are caught by a United States-flag fishing
vessel in the Exclusive Economic Zone (EEZ) of the United States
off Alaska and delivered by the catching vessel to Dutch Harbor,
Alaska.  At Dutch Harbor the fish are loaded on board a vessel
not qualified to engage in the coastwise trade.  The condition of
the fish at the time of departure from Dutch Harbor is that they
are headed and gutted whole fish.

     The fish are then transported by the non-coastwise-qualified
vessel from Dutch Harbor to China where they are further
processed.  This further processing involves the following:  (1)
the fish are thawed; (2) the fish are skinned, boned and cut into
fillets; (3) the fillets are graded as to size and then frozen;
and (4) the fillets are then placed in boxes marked as to grade.

     After completion of the above processing the fish will be
returned to the United States.  This return shipment will be
accomplished by a non-coastwise-qualified vessel.
n                             - 2 -

ISSUE:

     Whether the transportation of headed and gutted whole fish,
by a non-coastwise-qualified vessel, from Alaska to China where
the fish are thawed, skinned, boned, filleted, graded as to size,
frozen and boxed according to grade, is sufficient to create a
"new and different product" within the meaning of 19 CFR 4.80b(a)
so that the subsequent transportation of the processed fish to
the United States by a non-coastwise-qualified vessel is not in
violation of 46 U.S.C. App. 883.

LAW AND ANALYSIS:

     Title 46, United States Code Appendix, section 883 (the
merchandise coastwise law often called the "Jones Act") prohibits
the transportation of merchandise between United States coastwise
points, either directly or via a foreign port, or for any part of
the transportation, in any vessel other than a vessel built in
and documented under the laws of the United States and owned by
persons who are citizens of the United States.

     In interpreting section 883, Customs has ruled that a point
in United States territorial waters is a point in the United
States embraced within the coastwise laws.  The territorial
waters of the United States consist of the territorial sea,
defined as the belt, 3 nautical miles wide, seaward of the
territorial sea baseline, and to points located in internal
waters, landward of the territorial sea baseline, in cases where
the baseline and the coastline differ.

     Section 4.80b(a), Customs Regulations (19 CFR 4.80b(a)),
provides, in part, that:

          A coastwise transportation of merchandise
          takes place, within the meaning of the
          coastwise laws, when merchandise laden at
          a point embraced within the coastwise laws
          ("coastwise point") is unladen at another 
          coastwise point, regardless of the origin
          or ultimate destination of the merchandise.
          However, merchandise is not transported 
          coastwise if at an intermediate port or
          place other than a coastwise point (that
          is, at a foreign port or place, or at a 
          port or place in a territory or posses-
          sion of the U.S. not subject to the
          coastwise laws), it is manufactured or 
          processed into a new and different pro-
          product, and the new and different product
          thereafter is transported to a coastwise
          point.  (emphasis added)
     
                              - 3 -

     In applying section 4.80b(a), Customs has held that
merchandise manufactured or processed into a new and different
product must be landed and processed at an intermediate port or
place other than a coastwise point.  The manufacturing or
processing may not take place on board a vessel.

     Section 4.80b was promulgated subsequent to the case of
American Maritime Association v. Blumenthal, 590 F.2d 1156
(1978), wherein the U.S. Court of Appeals, District of Columbia,
considered whether Alaska crude oil could be transported by non-
coastwise-qualified vessels from Alaska to the U.S. Virgin
Islands (a non-coastwise point) where it was refined and then
transported to a point in the continental United States.  The
court stated (590 F.2d 1156, at 1161) that the "central issue,
therefore, is whether the 'merchandise' (crude oil) transported
from Valdez to St. Croix by Hess is so similar to the
'merchandise' (refined oil products) subsequently shipped from
St. Croix to the continental United States that the processing at
St. Croix fails to interrupt an essentially single voyage of the
oil from Valdez, Alaska to the East Coast."  (See also, footnote
38, 590 F.2d 1156, at 1163, referring to letter rulings of the
Customs Service on this issue.  The court, in this footnote,
noted that "[i]n these rulings the degree to which a product has
been altered by processing at the point of transshipment has
generally been dispositive of whether the continuity of its
transportation has been broken at that point...")

     The court in Blumenthal held that the transportation in that
case did not violate 46 U.S.C. App. 883.  The rationale for this
holding was that the continuity of the transportation was broken
because the products of the crude oil transported after refining
were "quite different" from the crude oil transported to the U.S.
Virgin Islands, "i.e., [they were] products which are physically,
chemically, and usefully different from the original crude oil."
(590 F.2d 1156, at 1162, 1163)  In a footnote which is relevant
to the issue under consideration, the Court, in pertinent part,
stated:

          ...The issue is not whether the whole of a particular
          substance is more or less than its parts, but whether
          after a refining or manufacturing process which, for
          example, breaks the substance down into constituent
          elements or combines it with other elements to create
          new substances, the product remains largely the same in
          such respects as form, composition, value or function.

     Customs has issued a number of rulings where a particular
item has been manufactured or processed into a new and different
product so that the continuity of what otherwise would be
considered coastwise transportation of that item via a non-
coastwise point is broken (see Treasury Decision (T.D.) 56272(2)
regarding the transportation of processed rice; T.D. 56320(2) 
                              - 4 -

regarding the transportation of processed lumber; and T.D. 91-32
regarding the transportation of blended fuel oils).  We have also
ruled on the applicability of 19 CFR 4.80b(a) to the
transportation and processing of crab (see rulings 104859,
105021, 105319, 106093, 108294, 109504 and 109703).

     In regard to the processing of fish, however, we find the
court's decision in Koru North America v. United States, 701
F.Supp. 229 (CIT 1988) to be instructive.  The foreign processing
operations conducted in that case and the one now under
consideration are practically identical.  The fish in Koru North
America were caught within New Zealand's EEZ by vessels flying
the flags of New Zealand, Japan and the former Soviet Union.  The
fish were beheaded, detailed, eviscerated and frozen aboard the
vessels within New Zealand's EEZ, then offloaded in New Zealand. 
The fish were subsequently shipped to Korea for further
processing which consisted of thawing, skinning, boning,
trimming, glazing, refreezing and packaging for exportation to
the United States.  

     At issue in the above case was whether this further
processing in Korea effected a substantial transformation of the
fish so that the country of origin should have been marked as
Korea for purposes of 19 U.S.C. 1304, as opposed to the country
of the flag of the catching vessel (the latter principle has long
been Customs position regarding the country of origin of fish
caught on the high seas, see Proctor & Gamble Mfg. v. United
States, 60 Treas. Dec. 356, T.D. 45099 (1931), affirmed CCPA 415,
C.A.D. 3488, cert. denied, 287 U.S. 629, 53 S.Ct. 82, 77 L.Ed.
546 (1932)).

     The court held that the processing in Korea did effect a
substantial transformation.  Koru North America, 701 F.Supp. 229,
at 235.  The court reached this holding in view of the fact that
the name of the product changed from "headed and gutted fish" to
"individually quick-frozen fillets."  Id.  Moreover, the court
identified changes that "go to the fundamental nature and
character of the fish..."  Id.  Such changes included a change in
the shape, marketing and tariff classification of the fish
resulting from the processing.  

     It should be noted that Customs position, in cases such as
the one under consideration where the respective tariff
classifications of the merchandise to be processed and the
merchandise which is processed may be different, is not
controlling but should be considered, as should, of course, a
common-sense consideration of the merchandise transported (see
ruling 109504; Koru North America, 701 F.Supp. 229, at 235, and
cases cited therein).
n                             - 5 -
             
     In regard to the case at hand, the "central issue", to
paraphrase the Court in Blumenthal, is "whether the 'merchandise'
[headed and gutted whole fish] transported from [Alaska] to
[China] ... is so similar to the 'merchandise' [the thawed,
skinned, boned, filleted, graded and boxed fish] subsequently
shipped from [China] to [the United States] that the processing
at [China] fails to interrupt an essentially single voyage of the
[headed and gutted whole fish] from [Alaska] to [other United
States points].  If the [headed and gutted fish] and [their] by-
products are deemed to constitute a single element of
'merchandise,' then the same 'merchandise' travels between
[Alaska] and [other United States points]--i.e., between two
'points in the United States'--and is subjected throughout that
voyage to the prohibitions of the Jones Act.  If, on the other
hand, the processing at [China] effects such a substantial
metamorphosis of the [headed and gutted whole fish] that an
essentially different 'merchandise' is transported on the second
leg of the trip than on the first, the 'single' voyage from
[Alaska] to [other United States points] is severed at [China]." 
(590 F.2d 1156, at 1161)

     On the basis of the above rulings and the authorities
discussed therein, we conclude that the processing in China of
the headed and gutted whole fish by thawing, skinning, boning,
filleting, grading, freezing and boxing is sufficient to result
in a new and different product within the meaning of section
4.80b(a), Customs Regulations.  Accordingly, the transportation
of the fish on non-coastwise-qualified vessels from Alaska to
China and/or from China to the United States would not violate 46
U.S.C. App. 883.

     Parenthetically, we note that in view of the court's
decision in Koru North America discussed above, China would be
considered the country of origin of the processed fish for
purposes of 19 U.S.C. 1304 and should be so marked in accordance
with that statute and the Customs Regulations promulgated
pursuant thereto (i.e., Part 134, Customs Regulations (19 CFR
Part 134)).
n                             - 6 -

HOLDING:

     The transportation of headed and gutted whole fish, by a
non-coastwise-qualified vessel, from Alaska to China where the
fish are thawed, skinned, boned, filleted, graded as to size,
frozen and boxed according to grade, is sufficient to create a
"new and different product" within the meaning of 19 CFR 4.80b(a)
so that the subsequent transportation of the processed fish back
to the United States by a non-coastwise-qualified vessel is not
in violation of 46 U.S.C. App. 883.

                                   Sincerely,




                                   Stuart P. Seidel
                                   Director, International Trade
                                   Compliance Division