VES-3/3-07-RR:IT:EC 116230 GOB
Jeanne M. Grasso, Esq.
600 New Hampshire Ave., N.W.
Washington, DC 20037
RE: Coastwise Trade; Oil Blending; 46 U.S.C. App. § 883; 19 CFR 4.80b(a); New and Different Product
Dear Ms. Grasso:
This letter is with respect to your letter of May 12, 2004 on behalf of Shell Trading (US) Company.
You describe the pertinent facts as follows:
The Company proposes to transport, aboard a foreign-flag vessel, four different U.S.-origin blendstocks from various U.S. Gulf Coast (“USGC”) ports to the BORCO terminal at Freeport, Bahamas for blending with foreign-origin components. The blending operations in BORCO would result in three different final products meeting the ASTM D 396-02 Standard Specification for Fuel Oils (“ASTM 396”) for Grade No. 6 fuel oil. Three of the four U.S.-origin blendstocks (Vacuum Tower Bottoms (“VTB”), High Sulfur Fuel Oil (“HSFO”), and Medium Sulfur Fuel Oil (“MSFO”) do not meet the ASTM 396 standard specifications for any grade of fuel oil because the viscosity is out of the ASTM 396 range for fuel oils. This is significant because the viscosity of the heavier grades of industrial and bunker fuel oils, which constitute the final products here, “is of major importance, so that adequate preheating facilities can be provided to permit them to be pumped to the burner and to provide good atomization.” See ASTM 396 at p. 5.
One of the four U.S.-origin blendstocks, the Low Sulfur Slurry (“LSS”), will meet the ASTM 396 standard specification for No. 4 or No. 5 fuel oil depending on its viscosity, but after blending operations in BORCO, it would be transformed into a No. 6 fuel oil prior to its return to the United States.
After blending in BORCO, the final products would be transported from BORCO to the U.S. East Coast aboard foreign-flag vessels. Upon arrival in the United States, the blended products would be sold as fuel oils meeting the ASTM 396 standard specifications for No. 6 fuel oil. The specifications of the four blendstocks exported from the United States and the three finished products created by the blending operation at BORCO are provided . . .
You state that there are three different factual scenarios for the transportation to the Bahamas: 1. one blendstock would be transported on a single vessel; 2. two or more blendstocks would be transported on a single vessel in segregated tanks; and 3. two or more of the blendstocks would be commingled in the same tank prior to departure from the U.S.
Whether the proposed blending operations would result in the creation of a “new and different product” within the meaning of 19 CFR § 4.80b(a) so as to render inapplicable the prohibition against non-coastwise-qualified vessels set forth in 46 U.S.C. App. § 883.
LAW AND ANALYSIS:
Generally, the coastwise laws prohibit the transportation of passengers or merchandise between points in the United States embraced within the coastwise laws in any vessel other than a vessel built in, documented under the laws of, and owned by citizens of the United States. A vessel that is built in, documented under the laws of, and owned by citizens of the United States, and which obtains a coastwise endorsement from the U.S. Coast Guard, is referred to as "coastwise-qualified."
The coastwise laws generally apply to points in the territorial sea, which is defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline.
Title 46, United States Code, Section 883 (46 U.S.C. App. § 883), the coastwise merchandise statute often called the “Jones Act,” provides in part that no merchandise shall be transported between points in the United States embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in, documented under the laws of, and owned by citizens of the United States. Equipment and supplies of the transporting vessel are not considered “merchandise” for this purpose.
19 CFR 4.80b(a) provides as follows:
§ 4.80b Coastwise transportation of merchandise.
(a) Effect of manufacturing or processing at intermediate port or place. 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 possession of the United States not subject to the coastwise laws), it is manufactured or processed into a new and different product, and the new and different product thereafter is transported to a coastwise point.
In Ruling 112895 dated February 2, 1994, we stated:
In its analysis, the Customs Service has adopted for most cases standards established by the American Society for Testing Materials (ASTM), for such standards represent industry-developed criteria for characterizing fuel oils. The Customs Service will generally consider fuel oils of different ASTM grades as different products. Consequently, fuel oil that is loaded at a coastwise point, blended at a foreign port or place, and unloaded at another coastwise point must change ASTM grade to be considered a “new and different” product for purposes of the coastwise laws.
We have referred this matter to Customs and Border Protection’s Laboratories & Scientific Services (LSS), Office of Information and Technology, for its review. LSS has determined that the fuel oils blended in the Bahamas are new and different products from the fuel oils which were transported to the Bahamas.
Accordingly, we find that the proposed processing of the fuel oil in the Bahamas results in the manufacture or processing into a new and different product within the meaning of 19 CFR 4.80b(a).
Therefore, pursuant to 19 CFR § 4.80b(a), the proposed transportation is not considered coastwise transportation within the meaning of 46 U.S.C. App. § 883.
The proposed processing operations would result in the creation of “a new and different product” within the meaning of 19 CFR § 4.80b(a). Therefore, pursuant to 19 CFR 4.80b(a), the proposed transportation of the fuel oils is not considered to be coastwise transportation with the meaning of 46 U.S.C. App. § 883.
Glen E. Vereb
Entry Procedures and Carriers Branch