By Andrew S. Boutros, John R. Schleppenbach, and Craig B. Simonsen

Seyfarth Synopsis:  U.S. Customs & Border Protection recently issued a Final Determination that the coffee roasting process “substantially transforms” raw coffee for purposes of country-of-origin determinations and U.S. Government “Buy American” regulations. This clear new guidance should help corporations and their executives avoid civil, administrative, and criminal legal exposure as President Trump fulfills a campaign promise to crack down on illegal trade.

In a significant ruling that sent a jolt of caffeine through the coffee industry, U.S. Customs and Border Protection (CBP), Department of Homeland Security, issued a Notice of Final Determination (HQ H291135), on November 15, 2017, holding that the country where raw green coffee beans are roasted is the country of origin of the roasted coffee for purposes of U.S. Government procurement regulations.  82 Fed. Reg. 55388 (November 21, 2017).

Specifically, CBP’s determination addressed the important question of whether raw green coffee beans are “substantially transformed” by the roasting process for purposes of United States Government procurement.  CBP issues country of origin advisory rulings and final determinations as to whether an article is or would be a product of a designated country or instrumentality for the purpose of granting waivers of certain “Buy American” requirements under U.S. law for products offered for sale to the United States Government.

In issuing its Determination, CBP relied on the rule of origin, at 19 U.S.C. § 2518(4)(B)(ii), which provides that in “the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed.”  In addition, CBP also referred to 48 CFR § 25.003 of the Federal Acquisition Regulations, which defines “U.S.-made end product” as:

An article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.

In addition, the Notice further observed that “for more than 30 years, CBP has recognized that roasting green coffee beans substantially transforms the beans into a new and different article of commerce.  See Headquarters Ruling Letter (HQ) 733563, dated June 24, 1991, citing HQ 070395, dated June 6, 1983; HQ 722980, dated October 17, 1983; HQ 722360, dated June 6, 1984; and, HQ 725641, dated July 25, 1984.”

The Notice resolved that “based upon the facts presented, CBP has concluded . . . that Canada or the United States, i.e., the country where the raw green coffee beans are roasted, is the country of origin of the roasted coffee for purposes of U.S. Government procurement.” (Emphasis added).

According to the Notice, any party-at-interest, as defined in 19 CFR § 177.22(d), may seek judicial review of the Final Determination before the Court of International Trade, by December 21, 2017.

As we have written earlier this year in both Bloomberg BNA’s White Collar Crime Report, 12 WCR 410 (May 2017) as well as a Firm Management Alert (April 2017), the current Administration has vowed to combat unfair trade practices.  Indeed, fulfilling early campaign promises, President Donald J. Trump issued two Executive Orders on March 31, 2017 on the subject, with one such Executive Order directing the Attorney General to “ensure that Federal prosecutors accord a high priority to prosecuting significant offenses related to violations of trade laws.” The same Executive Order also directs the Secretary of Homeland Security, through the Commissioner of CBP, to “develop and implement a strategy and plan for combating violations of United States trade and customs laws.”

With new clear guidance from CBP as to how coffee (and by implication, potentially other) country-of-origin determinations should be made both at the border and after entry into the United States, Notice of  Final Determination (HQ H291135) makes it less likely that employers and companies in the coffee or other related industries will violate federal law that makes it a crime for any person or company to receive, conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of imported merchandise knowing the merchandise to have been imported into the United States contrary to law.

Indeed, although we have been predicting that criminal and other enforcement actions involving trade, customs, antidumping duties, and countervailing duties practices will likely be on the rise over the next several years, Notice of Final Determination (HQ H291135) draws a bright line that should help companies and employers to steer clear of false or fraudulent actions that could give rise to liability, whether civil, administrative, or even criminal.

Those with questions about any of these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team or International Employment Law Team.