CLA-02 IT:RR:CTF:VS 017863 NL
Antonio Bauza Santos, Esq.
Angel Marrero Murga, Esq.
Goldman, Antonetti & Cordova, P.S.C.
American International Plaza, 14th Floor
250 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
RE: Ethyl Alcohol for Fuel Use; CBERA; Section 423, Tax Reform Act of 1986, as amended; 19 U.S.C. 2703(a)(1)(B); Puerto Rico; FTZ; Insular Possession; Customs Territory; 9901.00.50, HTSUS
Dear Sirs:
This is in reply to your request of September 20, 2007, for a prospective ruling concerning the importation into the U.S. of certain dehydrated ethyl alcohol for fuel use (ethanol). A telephone conference was held on February 26, 2008. We received a supplemental submission dated March 26, 2008.
FACTS:
A corporation organized under the laws of Puerto Rico will import hydrous ethyl alcohol from Brazil and other origins for use as a raw material in a dehydration plant. The plant would be located in a Foreign Trade Zone (FTZ) in Puerto Rico. In the plant, the hydrous ethyl alcohol would be converted by azeotropic distillation to anhydrous fuel grade ethyl alcohol (ethanol). You are seeking a ruling that such fuel grade ethanol, when entered from the Puerto Rico FTZ for consumption in the U.S., is eligible for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA) and the Tax Reform Act of 1986, as amended. Current general duty is 1.9%; fuel grade ethanol is subject to additional duty (excise tax) of 14.27 cents per liter.
ISSUE:
Is ethanol from, e.g., Brazil, eligible for duty-free treatment under CBERA when entered following dehydration in a foreign trade zone in Puerto Rico?
LAW & ANALYSIS
The CBERA provides, in pertinent part, that:
Unless otherwise excluded from eligibility by this chapter, and subject to section 423 of the Tax Reform Act of 1986, the duty-free treatment provided under this chapter shall apply to any article which is the growth, product, or manufacture of a beneficiary country if –
* * *
(B) the sum of (i) the cost or value of the materials produced in a beneficiary country or two or more beneficiary countries, plus (ii) the direct costs of processing operations performed in a beneficiary country or countries is not less than 35 per centum of the appraised value of such article at the time it is entered.
19 U.S.C. 2703(a)(1).
Section 423 of the Tax Reform Act, as amended by the Steel Trade Liberalization Act of 1989 (Pub. L. 101-221, section 7(a), 103 Stat. 1890 (1989)), provides that ethyl alcohol or a mixture thereof must be an “indigenous product” of the beneficiary country to be eligible for CBERA tariff treatment. Specifically, section 423 provides, in pertinent part, that:
“. . . no ethyl alcohol or a mixture thereof may be considered --.
for purposes of section 213 of the Caribbean Basin Economic Recover Act, to be—
an article that is wholly the growth, product, or manufacture of a beneficiary country,
a new or different article of commerce which has been grown, produced, or manufactured in a beneficiary country,
a material produced in a beneficiary country, or
otherwise eligible for duty-free treatment under this Act as the
growth, product, or manufacture of a beneficiary country;
unless the ethyl alcohol or mixture thereof is an indigenous
product of that … beneficiary country.
Pursuant to section 423(c)(3)(A),
Ethyl alcohol and mixtures thereof that are only dehydrated within an insular possession or beneficiary country…shall be treated as being indigenous products of that possession or country only if the alcohol or mixture, when entered, meets the applicable local feedstock requirement.
After the ethyl alcohol is dehydrated, the definition refers to it as “dehydrated alcohol and mixtures.”
Congress, in amending 19 U.S.C. 2703(a)(1) to be “subject to section 423 of the Tax Reform Act of 1986,” as amended, prescribed a unified scheme for tariff treatment of ethyl alcohol under the CBERA. See National Corngrowers Ass’n v. Von Raab, 650 F. Supp. 1007 (CIT 1986), aff’d, 814 F.2d 651 (Fed. Cir. 1987). As noted by the Court, the purpose of section 423 mandated “the use of specified percentages of locally fermented alcohol in ethanol mixtures to be imported free into the United States.” 650 F. Supp. at 1011. The Court found that if there was a requirement, in order to obtain duty-free treatment, to first demonstrate that “. . . dehydration is a substantial transformation, in addition to meeting the dictates of § 423 . . . [this] would virtually guarantee that no fuel ethanol could be imported duty-free unless it was entirely produced and distilled in a Caribbean Basin nation.” 650 F. Supp. at 1011. In effect, section 423 provides that for ethanol, the “product of” requirement is to be satisfied by dehydration, which makes the merchandise “indigenous”. The other CBERA requirements are satisfied if the local feedstock requirement (to the extent applicable) is met.
Duty-free tariff treatment for dehydrated fuel use ethanol under CBERA is implemented under subheading 9901.00.50, Harmonized Tariff Schedule of the United States (HTSUS). The U.S. Notes accompanying subheading 9901.00.50 specify that
…duty-free treatment shall be accorded to ethyl alcohol or a mixture thereof when entered from an insular possession or beneficiary country…
U.S. Note 3, Subchapter I to Chapter 99, HTSUS.
We note that both section 423 of the 1986 Tax Relief Act, as amended, and the HTSUS provisions refer to “insular possession” without distinction. Nothing in these provisions establishes different treatment for a product of Puerto Rico as compared with any other U.S. insular possession. We therefore understand that the duty-free treatment for dehydrated ethyl alcohol or mixtures would be available for any such product that becomes a product of any U.S. insular possession, including Puerto Rico before entering the Customs territory of the U.S.
Uniquely, Puerto Rico is a U.S. insular possession that for tariff purposes is within the Customs Territory of the U.S. See Section 101.1, CBP Regulations (19 CFR 101.1). However, a Foreign Trade Zone, including one within Puerto Rico, is considered as being outside the Customs territory of the U.S, and the general tariff laws of the U.S. do not apply except as specified. 19 U.S.C. §81c; 19 CFR 146.1(a). Therefore, merchandise produced in a Puerto Rico Foreign Trade Zone is merchandise that is a growth, product or manufacture of Puerto Rico provided an applicable rule of origin is satisfied. In the case of dehydrated ethanol and mixtures for fuel use, section 423 specifies that dehydration of hydrous ethanol results in merchandise that is an “indigenous” product of the place where the dehydration takes place. Without doubt, “indigenous” is to be taken as having a meaning equivalent to “growth, product or manufacture” for the purposes of CBERA and subheading 9901.00.50. Therefore, fuel use ethanol and mixtures are indigenous products of Puerto Rico when dehydrated there.
Prior CBP rulings make clear that production of merchandise in a Foreign Trade Zone will result in merchandise that is considered a product of the country in which the zone is situated. In C.S.D. 81-44, CBP ruled that for drawback purposes, manufacturing in a Foreign Trade Zone is manufacturing in the United States, and considered it irrelevant that the zone was outside the Customs territory of the U.S. In HQ 735399 (December 22, 1993), CBP ruled that for country of origin marking purposes, foreign parts that underwent substantial transformation in a U.S. FTZ lost their foreign identity and were exempted from the marking requirements of section 304, Tariff Act as amended (19 USC 1304). Finally, in HQ W967896 (February 5, 2008), Customs ruled, again for marking purposes, that a blend of sugar and gelatin that underwent substantial transformation in a U.S. FTZ became a product of the U.S. for marking purposes. These rulings confirm that for tariff purposes, production in a Puerto Rico FTZ would result in a product of Puerto Rico which was produced outside the Customs territory of the U.S.
Based on the foregoing, ethyl alcohol and mixtures, for fuel use, would be considered products of Puerto Rico when dehydrated in a Puerto Rico foreign trade zone. Although the feedstock used for such products was produced in hydrous form in Brazil, which is not a CBERA beneficiary country, dehydration in Puerto Rico results in an indigenous product of
Puerto Rico. Such fuel use ethanol, when entered from a Puerto Rico foreign trade zone into the Customs territory of the U.S. in Puerto Rico, is eligible for duty-free tariff treatment under subheading 9901.00.50, HTSUS, provided that the ethyl alcohol or mixture also satisfies the local feedstock requirement as set forth in U.S. Note 3(c) to subchapter I, Chapter 99, HTSUS.
HOLDING:
Brazilian-origin ethyl alcohol is considered an indigenous product of Puerto Rico when dehydrated in a foreign trade zone in Puerto to produce fuel use ethyl alcohol and mixtures. The merchandise will be eligible for duty-free treatment under CBERA when entered into the Customs territory of the U.S., provided the merchandise also satisfies the applicable local feedstock requirement.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch