Koru North America v. United States
12 Ct. Int'l Trade 1120, 12 C.I.T. 1120, 701 F. Supp. 229 (1988)
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Rule of Law:
For country of origin marking purposes, processing that creates a new article with a new name, character, or use constitutes a substantial transformation, making the country of processing the new country of origin. Absent such transformation, the origin of fish caught in a nation's Exclusive Economic Zone (EEZ) is determined by the flag of the catching vessel, not the nation controlling the EEZ.
Facts:
- New Zealand Hoki fish were caught within New Zealand's Exclusive Economic Zone (EEZ).
- The fish were caught by vessels chartered by Fletcher Fishing, Ltd., a New Zealand company, but the vessels flew the flags of New Zealand, Japan, and the Soviet Union.
- Aboard the vessels, the fish were beheaded, de-tailed, eviscerated, and frozen.
- The fish were then landed in New Zealand, where they were inspected and certified as being of New Zealand origin by the New Zealand Ministry of Agriculture and Fisheries.
- The frozen, headed and gutted fish were then shipped to South Korea for further processing.
- In South Korea, the fish were thawed, skinned, boned, trimmed, glazed, refrozen, and packaged into individually quick-frozen (IQF) fillets.
- Koru North America imported the fillets into the United States in cartons marked "Product of New Zealand."
Procedural Posture:
- The United States Customs Service determined that Hoki fillets imported by Koru North America were improperly marked as a 'Product of New Zealand.'
- Customs issued a Notice of Redelivery, effectively excluding the merchandise from entry into the United States.
- Koru North America sued the United States in the U.S. Court of International Trade to contest the exclusion and the Notice of Redelivery.
- Both plaintiff Koru North America and defendant United States filed cross-motions for partial summary judgment.
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Issue:
Does processing headed and gutted fish into skinned, boned, and individually quick-frozen fillets in a second country constitute a substantial transformation, thereby changing the country of origin for customs marking purposes?
Opinions:
Majority - Tsoucalas, Judge
Yes, processing headed and gutted fish into skinned, boned, and individually quick-frozen fillets constitutes a substantial transformation, changing the country of origin to the country where the processing occurred. The court applied the "name, character or use" test. The product's name changed from "headed and gutted" Hoki to "individually quick-frozen (IQF) fillets." The character was fundamentally altered from a whole fish form (minus head and viscera) into a processed retail product with no skin, bones, or essential fish shape. This processing created a new article of commerce. The court also held in the alternative that had no substantial transformation occurred, the country of origin would be determined by the flags of the catching vessels (Soviet Union, Japan, and New Zealand), not by the location of the catch within New Zealand's EEZ, because an EEZ does not confer sovereignty but only preferential resource rights.
Analysis:
This case provides a clear application of the "name, character, or use" test for substantial transformation, particularly within the context of food processing and global supply chains. It establishes that extensive processing which turns a raw or semi-processed material into a finished consumer product is sufficient to change the country of origin for customs purposes. The decision also significantly clarifies that a nation's Exclusive Economic Zone (EEZ) is not its sovereign territory for origin determination, reinforcing the traditional maritime "law of the flag" principle for products derived from the high seas.
