AZTECA MILL. CO. v. US, Court No. 83-08-01137.

• Decision Date: 20 December 1988
• Docket Number: Court No. 83-08-01137.
• Citation: 703 F. Supp. 949
• Parties: AZTECA MILLING CO., Plaintiff, v. The UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

703 F. Supp. 949

AZTECA MILLING CO., Plaintiff, v. The UNITED STATES, Defendant.

Court No. 83-08-01137.

United States Court of International Trade.

December 20, 1988.

Sheldon & Mak, Steve B. Lehat, Pasadena, Cal., for plaintiff.

John R. Bolton, Asst. Atty. Gen., Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office (Michael P. Maxwell, New York City, at trial and Al J. Daniels, Jr. on the brief), for defendant.

MEMORANDUM OPINION AND ORDER

RE, Chief Judge:

The question presented in this case pertains to the proper classification, for customs duty purposes, of ten entries of certain prepared corn flour products imported from Mexico. The Customs Service classified the merchandise as "cereal breakfast foods and similar cereal preparations, by whatever name known, processed further than milling," under item 182.30 of the Tariff Schedules of the United States (TSUS), as modified by T.D. 68/9, and assessed duty at 2.5 percent ad valorem.

Plaintiff protests the classification and claims that the merchandise was entitled to entry free of duty under item A182.30, TSUS, as modified, pursuant to General Headnote 3(c)(ii), TSUS, under the Generalized System of Preferences (GSP).

The pertinent tariff provisions provide as follows:

Classified under:

Schedule 1, Part 15, Subpart B:

182.30 Cereal breakfast foods and similar cereal preparations, by whatever name known, processed further than milling ... 2.5% ad val.

Claimed under: ^*

A182.30 Cereal breakfast foods and similar cereal preparations, by whatever name known, processed further than milling..... Free

Under the GSP provision, a designated product may enter the United States duty-free from a beneficiary developing country (BDC):

if the sum of (A) the cost or value of the materials produced in the beneficiary developing country ... plus (B) the direct costs of processing operations performed in such beneficiary developing country ... is not less than 35 percent of the appraised value of such article at the time of its entry into the customs territory of the United States.

19 U.S.C. § 2463(b)(2); see General Headnote 3(c)(ii), TSUS (1982). Pursuant to the authority conferred upon the Secretary of the Treasury to "prescribe such regulations as may be necessary to carry out this subsection," 19 U.S.C. § 2463(b)(2), the Customs Service promulgated 19 C.F.R. § 10.177(a) which provides in part:

(a) "Produced in the beneficiary developing country" defined. For purposes of §§ 10.171 through 10.178, the words "produced in the beneficiary developing country" refer to the constituent materials of which the eligible article is composed which are either:

(1) Wholly the growth, product, or manufacture of the beneficiary developing country; or

(2) Substantially transformed in the beneficiary developing country into a new and different article of commerce.

Id. Accordingly, to be entitled to duty free treatment, plaintiff must establish that the value of the corn grown in the United States, used to make the prepared corn flour products, may properly be included as part of "the cost or value of the materials produced" in Mexico, which, added to the costs of processing, must equal 35 percent of the appraised value of the imported merchandise. In order to establish this, pursuant to 19 C.F.R. § 10.177(a), plaintiff must show that the corn was "substantially transformed ... into a new and different article of commerce," while in Mexico.

Both parties have stipulated that if the value of the United States-grown corn is counted toward the 35 percent value-added requirement, the imported corn flour would be entitled to duty-free entry under the GSP. Hence, the question presented is whether the United States-grown corn is "substantially transformed ... into a new and different article of commerce" in Mexico prior to being used to make the imported prepared corn flour products.

After an examination of the merchandise, relevant case law, and the testimony of record, it is the determination of the court that the plaintiff has not overcome the presumption of correctness that attaches to the government's classification. See 28 U.S.C. § 2639(a)(1) (1982). Plaintiff has not shown that the imported merchandise is entitled to entry free of duty under item A182.30, TSUS, in accordance with the GSP. Accordingly, the court holds that the merchandise was correctly classified under item 182.30, TSUS.

The imported corn flour products, which are used for making corn chips, taco shells, tortillas, and tamales are produced by plaintiff in Mexico under a patented process from corn grown in the United States. The corn is removed from the cob, cleaned, weighed, and then cooked in vats with lime for 40 minutes to one hour. The cooked corn, which traditionally is called nixtamal, is then steeped for approximately one hour. Afterward, it is washed to eliminate excess lime and loose hulls. The resulting corn product, traditionally called masa, is ground in a hammer mill, and then flash dried in approximately 15 seconds. The dried product is cooled and then sifted into flour. This dry prepared corn flour is imported into the United States, and, subsequently, is mixed with water to produce masa which is used to make a variety of products.

The traditional process for producing nixtamal and masa, which was originated by the Aztec Indians, differs in certain ways from plaintiff's patented process for producing prepared corn flour. For example, under the traditional method the steeping period is much longer, taking at least 8 hours, often longer, and the nixtamal is stone ground rather than hammer milled. Under the traditional process the nixtamal has a moisture content of approximately 50 percent while under plaintiff's patented process the content is approximately 35 percent. Nixtamal and masa are highly perishable products which spoil in 24 hours when preservatives are not added.

It is uncontroverted that the corn used in processing the prepared corn flour products was grown in the United States and cannot be considered "wholly the growth, product or manufacture of the beneficiary developing country." Therefore, to prevail, plaintiff must prove that the United States-grown corn was "substantially transformed in the beneficiary developing country into a new and different article of commerce," and that this "new and different article of commerce" was in turn substantially transformed into the imported corn flour products.

As this court held in The Torrington Co. v. United States, 8 CIT 150, 596 F.Supp. 1083 (1984), aff'd, 764 F.2d 1563 (Fed.Cir. 1985):

It is not enough to transform substantially the non-BDC constituent materials into the final article, as the material utilized to produce the final article would remain non-BDC material. There must first be a substantial transformation of the non-BDC material into a new and different article of commerce which becomes "materials produced," and these materials produced in the BDC must then be substantially transformed into a new and different article of commerce.

8 CIT at 153, 596 F.Supp. at 1086; see Torrington, 764 F.2d at 1567-68. Hence, to meet the 35 percent value-added requirement, there must be at least two substantial transformations of the original non-BDC material. In determining whether the United States-grown corn fulfills the requirement of substantial transformation, it is essential that the court not only determine whether the requisite substantial transformations have taken place, but also whether the intermediate articles were "articles of commerce." See Torrington, 764 F.2d at 1568-70.

Plaintiff contends that, in its patented process of making prepared corn flour products from United States-grown corn, the corn is substantially transformed into three distinct intermediate products, thus qualifying the imported merchandise for duty-free entry. According to plaintiff the intermediate products produced from the corn, which are "nixtamal," "tamale masa," and "tamale flour," are distinct articles of commerce.

In support of its claim, plaintiff called two witnesses, Mr. Jose DeLeon and Mr. Ezequiel de Jesus Montemayor, and presented numerous exhibits. Mr. DeLeon is a regional sales manager for plaintiff, serving the western section of the United States and Canada. Mr. Montemayor is technical subdirector for Gruma Corporation, located in Monterrey, Mexico, which is the parent company of plaintiff. During the time in question, he was directly involved in the development and production of the imported corn flour products.

The first intermediate product which plaintiff contends is produced is "nixtamal." Mr. Montemayor testified that the term "nixtamal" has various meanings depending on the context but generally it is corn "which has been cooked, or cooked and washed, or cooked and steeped and washed." He stated that nixtamal produced under plaintiff's process comes into existence after the corn is cooked in lime and water, at which point the nixtamal possesses a water content of 35 to 40 percent. He explained that this nixtamal is not consumed or "eatable," stating "it can be eaten but it is not an appetized sic product.... it will not appeal with the consumer. The product ... that has appeal to the consumer, will have a higher moisture content." Mr. Montemayor stated that the nixtamal produced by traditional methods, which is sold to consumers in supermarkets, has a higher moisture content than the nixtamal produced by plaintiff's patented process.

Mr. DeLeon testified that a product called nixtamal or hominy is bought and sold in various parts of the United States. He indicated that it is either cooked and consumed, for example, in soups, or ground into masa by its purchasers. He testified that it is highly perishable, lasting no more than 24 hours before spoiling.

Both Mr. DeLeon and Mr. Montemayor testified that the plaintiff does not buy or sell the nixtamal produced by its patented process or the type produced through...