VES-3-24-RR:IT:EC 115274 GEV

Michael D. Sherman, Esq.
John M. Hermann, Esq.
Collier Shannon Scott, PLLC
Washington Harbour, Suite 400
3050 K Street, NW
Washington, D.C. 20007-5108

RE: Coastwise Trade; Gasoline; Blending; 46 U.S.C. App. § 883

Dear Messrs. Sherman and Hermann:

This is in response to your letters of January 4, 2001, and June 21, 2001, on behalf of your client, Vitol S.A., Inc. (“Vitol”) of Houston, Texas, regarding the application of the Jones Act to a gasoline blending operation to be performed by Vitol in St. Eustatius, Netherlands Antilles. Our ruling on this matter is set forth below.

FACTS:

This ruling request involves the transportation of a product from the United States that undergoes a blending operation with foreign-laden products in St. Eustatius, Netherlands Antilles, and the subsequent transportation to the United States of the finished blended product.

In your letter of January 4, 2001, you presented three scenarios for our consideration. It was your position that the blending operations in each of these three scenarios resulted in the creation of a new and different product for purposes of the Jones Act. As such, you contended that the gasoline blendstock at issue could be transported from the United States to St. Eustatius aboard foreign-flag vessels and the finished product resulting from the blending operation in these three scenarios could be transported to the United States aboard foreign-flag vessels without violating the Jones Act. - 2 -

At your request, a meeting was held on April 11, 2001, at Customs Headquarters to discuss this matter further. Attendees of this meeting included yourself, a staff attorney in the Entry Procedures and Carriers Branch, the Executive Director, Laboratories & Scientific Services, U.S. Customs Service, and the undersigned. Subsequent to this meeting, you submitted your letter of June 21, 2001, wherein you withdrew your request regarding Fact Situations #2 and #3 that were presented in your letter of January 4, 2001, narrowing the scope of your original ruling request to Fact Situation #1. Furthermore, pursuant to our request at the aforementioned meeting, you provided additional information regarding the changes resulting from the blending operation at issue.

In Fact Situation #1 submitted for our consideration, Vitol would transport alkylate, a gasoline blendstock, from the United States to St. Eustatius for blending with other foreign-laden products in the following percentages. The alkylate (42.5%) would be combined with foreign catalytic gasoline (45.8%) and foreign methyl tertiary butyl ether (MTBE; 11.8%). The characteristics for the alkylate and the finished gasoline product created by the blending operation in St. Eustatius were provided in Attachment 1 to your letter of January 4, 2001, and resubmitted with your most recent letter. All of the documentation submitted with respect to Vitol’s ruling request was forwarded to the Laboratories & Scientific Services of the U.S. Customs Service for review.

ISSUE:

Whether the blending operation described above is sufficient to create a “new and different product” within the meaning of 19 CFR § 4.80b(a) so that the proposed transportation of gasoline by foreign-flag vessels is violative of 46 U.S.C. App. § 883.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, § 883 (the merchandise coastwise law often called the "Jones Act") prohibits the transportation of merchandise between United States coastwise points, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States.

- 3 -

In interpreting § 883, Customs has ruled that a point in United States territorial waters is a point in the United States embraced within the coastwise laws. The territorial waters of the United States consist of the territorial sea, defined as the belt, 3 nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ.

Section 4.80b(a), Customs Regulations, provides, in part, that:

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 posses- sion of the U.S. 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. (Emphasis added)

In applying § 4.80b(a), Customs has held that merchandise manufactured or processed into a “new and different product” must be landed and processed at an intermediate port or place other than a coastwise point. The manufacturing or processing may not take place on board a vessel. Pursuant to T.D. 91-32 published in the Federal Register on April 10, 1991 (56 FR 14467) and in the Customs Bulletin on April 24, 1991 (Customs Bulletin and Decisions, vol. 25, no. 17, April 24, 1991, at pp. 1-5) prior to reaching a determination that a “new and different product” has in fact been created by a blending operation for purposes of § 4.80b(a), the procedures and specific data of such operations should be submitted by the party seeking such a determination. Customs will then review the data and make the necessary determination which will form the basis for a decision regarding any possible violation of 46 U.S.C. App. § 883.

With regard to the blending operation in question, Vitol contends that the blending of U.S.-laden alkylate with foreign-laden gasoline and foreign-laden MTBE produces a “new and different product” when compared to the domestic alkylate. This assertion is based on the - 4 -

following claims: (1) price as well as physical differences exist between the alkylate and the finished product (i.e, vapor pressure and the creation of reformulated gasoline); (2) changes in physical characteristics of the alkylate are analogous to changes resulting from fuel oil blending operations that Customs has found to create a “new and different product” in Customs ruling letters 111888, dated September 27, 1991, and 112895, dated February 2, 1994; (3) a “new and different product” is created with respect to name, character and use; and (4) the regulatory standards promulgated by the Environmental Protection Agency (EPA) are now the industry-recognized standards for gasoline. With respect to these claims, we offer the following.

At the outset it should be noted that in regard to Customs ruling letters 111888 and 112895 cited in support of Vitol’s position, pursuant to § 177.9(b)(4), Customs Regulations (19 CFR § 177.9(b)(4)), “Each ruling letter setting forth the applicability of the navigation laws to a vessel will be applied only with respect to transactions involving operations identical to those set forth in the ruling letter.” (Emphasis added) Neither of the operations addressed in the above-cited two ruling letters are identical to Vitol’s proposal. In addition, we note that in regard to reliance on ruling letters by others, pursuant to § 177.9(c), Customs Regulations (19 CFR § 177.9(c)), “…no other persons should rely on the ruling letter or assume that the principles of that ruling will be applied in connection with any transaction other than the one described in the letter.” Furthermore, with specific regard to the applicability of 46 U.S.C. App. § 883 to blending operations, Customs has stated that it will address such matters on a “case-by-case” basis. (see T.D. 91-32, Customs Bulletin and Decisions, vol. 25, no. 17, April 24, 1991, at p. 5) Consequently, Customs ruling letters 111888 and 112895 are not dispositive of this case.

Upon reviewing the specifications contained within the documentation submitted, it is Customs position that from a chemical and physical specification point of view, the alkylate is an ASTM grade gasoline. Accordingly, based on the time of year and the altitude at which it is used, the product may or may not require the addition of oxygenate to meet the EPA requirements under the Clean Air Act. The addition of oxygenate, also called reformulation, to finished gasoline alters the vapor pressure of the product to meet the required volatility under the EPA regulations. However, the need for the reformulation process and the amount of oxygenate added is dependent upon geography and the season. With respect to geographic and seasonal criteria, as

- 5 -

well as price differentials referenced above, we note that such factors were specifically addressed in T.D. 91-32 wherein Custom stated:

Making the marketplace the determinative factor in fuel oil blending decisions will lead to differences concerning identical operations because of geographic location or seasonal fluctuation in pricing. Customs will not adopt a position which would lead to decisions dependent on location or fluctuating economic factors. Customs Bulletin and Decisions, vol. 25, no. 17, April 24, 1991, at p. 3.

Consequently, the amount of oxygenate added can be none, little or significant depending upon the conditions under which the fuel is to be used. However, the fact that the product has not had oxygenate added to it does not negate it from being properly marketed or used as a gasoline.

In light of this information, the facts of the case show that a domestic ASTM grade gasoline would be shipped from the United States to St. Eustatius, Netherlands Antilles, where it would be blended with foreign ASTM grade gasoline for commercial purposes. The addition of oxygenate is usually done at a range of 1% to 8% of the product depending on the port of unlading per EPA requirements for that area’s fuel.

Consequently, it is our position that since both the U.S.-laden product and the final blended product are commercially considered to be gasoline and may be used as such, the proposed blending operation that would take place in St. Eustatius, Netherlands Antilles, would not produce a “new and different product” within the meaning of 19 CFR 4.80b(a). The use of a non-coastwise-qualified vessel for the transportation of the alkylate from the United States to St. Eustatius and the transportation of the blended product from St. Eustatius to the United States would therefore be in contravention of 46 U.S.C. App. § 883. HOLDING:

The blending operation described above is not sufficient to create a “new and different product” within the meaning of 19 CFR § 4.80b(a).

- 6 -

The proposed transportation of gasoline by foreign-flag vessels is therefore violative of 46 U.S.C. App. § 883.

Sincerely,

Larry L. Burton
Chief
Entry Procedures and Carriers Branch