CLA-2 OT:RR:CTF:TCM H016802 JER
Timothy VanOost, Esq.
BP America, Inc.
Cantera III
4101 Winfield Road, 2 West
Warrenville, IL 60555
RE: Request for Binding Ruling; Classification of Bitumen-Condensate Blends
Dear Mr. VanOost:
This is in response to a letter, submitted on behalf of BP America, Inc., (BP), dated June 1, 2007, to United States Customs and Border Protection (“CBP”), in which BP requested a binding ruling pertaining to the tariff classification of certain bitumen-condensate blends (Cold Lake Crude (Canada) Oil) and Peace River Heavy (Canada) Crude Oil) under the Harmonized Tariff Schedule of the United States (“HTSUS”). Crude Assay Reports on the Cold Lake and Peace River Crude Oils were included with your request.
In reaching our decision, we have taken into consideration additional information provided to CBP by BP’s counsel during discussions held in January, March and November 2008, pertaining to the post-importation use of the light condensate component of the blends used to facilitate the transportation of bitumen via pipeline.
FACTS:
Both Cold Lake Crude Oil and Peace River Heavy Crude Oil are blends of bitumen, a heavy tar-like viscous oil, and a light condensate which stems from natural gas production. The bitumen is extracted from tar sand deposits on three reserves, known as Athabasca, Cold Lake and Peace River, located in Alberta, Canada. According to the information provided, “tars sands,” also known as “oil sands” or “bituminous sands”, consist of natural bitumen, clay, sand and water. Prior to exportation, the bituminous sands undergo a separation process whereby water, steam and solvents are used to separate the bitumen from the sand and clay. The bitumen is then blended with condensate. The blends (hereinafter the “bitumen-condensate blends”) are composed of 65-75% bitumen and 25-35% condensate. Because of the extreme viscosity of bitumen, a diluent is required to facilitate transportation via pipeline. According to commercial practices, “there are three options for the transport of bitumen oil by pipeline: 1) heating it, 2) mixing it with water, or 3) mixing it with a diluent.” It is widely accepted that diluents such as condensate are preferable to heat injection and water, particularly in colder climates, in reducing the viscosity of bitumen to facilitate pipeline flow. In the instant case, the diluent used is condensate.
According to your submission, after importation the bitumen and condensate will be separated. The bitumen will then be upgraded by removing carbon or adding hydrogen to make it a “lighter” product such as light crude oil. The bitumen will then be refined into common petroleum products, such as gasoline and kerosene. The condensate may either be recycled and returned to Canada for re-use as a diluent or be refined into common petroleum products. Unlike bitumen, the condensate does not require further upgrading. It can be directly refined into commercial petroleum products.
According to our research, bitumen-condensate blends similar to the ones at issue, may also be marketed and sold “as is” as heavy or extra-heavy crude oil. In fact, a mixture of 70% bitumen and 30% condensate from the Cold Lake field in Canada is sold as “Cold Lake Blend.” Crude Oil Assay Reports provided as part of your submission indicate that the Cold Lake blend tests at 21.9° per the American Petroleum Institute (API) and the Peace River blend at 20.5° API.
ISSUE:
Whether the bitumen-condensate blends are classified under heading 2709, HTSUS, or under heading 2714, HTSUS.
LAW AND ANALYSIS:
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.
The HTSUS provisions under consideration are as follows:
2709.00 Petroleum oils and oils obtained from bituminous minerals, crude:
2709.00.10 Testing under 25 degrees A.P.I …..
2714 Bitumen and asphalt, natural; bituminous or oil shale and tar sands; asphaltites and asphaltic rocks:
2714.10.00 Bituminous or oil shale and tars sands
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System at the international level. While not legally binding nor dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127 (August 23, 1989).
In your submission, you state that the subject bitumen-condensate blends are classifiable under heading 2714, HTSUS, in accordance with GRI 3(b). Specifically you assert that the natural bitumen is prima facie classifiable in heading 2714, HTSUS, while condensate is prima facie classifiable in heading 2709, HTSUS, and that the bitumen imparts the essential character of the bitumen-condensate blend. Your argument is based on the premise that no heading of the HTSUS covers mixtures/blends such as the one at issue and accordingly, GRI 1 is not applicable. Instead, you assert that classification of the subject blends should be made by reference to GRI 2(b) and GRI 3.
According to GRI 2(b):
Any reference in a heading to a material or substance shall be taken top include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.
GRI 3 provides, in relevant part:
When by application of GRI 2(b) or any other reason goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (b) [m]ixtures, composite goods consisting of different components, and goods put up in sets for retail sale, which cannot be made by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
In support of your position, you cite Headquarters Ruling Letter (“HQ”) 955203, dated June 2, 1994, in which CBP classified a mixture of crude and refined oil in heading 2709, HTSUS, by application of GRI 3. CBP found that the essential character of the mixture of reconstituted crude oil was the light crude oil because that oil exceeded 50% by volume of the final product. You reason that because 65% or more of the subject mixture’s volume is bitumen, and because the condensate is added solely to facilitate the transportation of the bitumen, that the bitumen imparts the essential character of the bitumen-condensate blend.
As you noted, Customs (now CBP) held that the mixture of light crude (unprocessed petroleum) and topped crude (processed petroleum) oils described in HQ 955203 could not be classified in heading 2709, HTSUS, by reference to GRI 1 because that provision “is limited to petroleum oils that have not been processed by a refinery operation… [and] is consistent with definitions of crude oil.” Customs did find, however, that the product was classified in heading 2709, HTSUS, by application of GRI 3(b) because the essential character of the mixture (determined by volume of components) was the light crude. In this case, both the bitumen and the condensate are crude products. This understanding is supported by EN 27.09 which states, in relevant part:
This heading covers crude petroleum oils and crude oils obtained from bituminous minerals (e.g., from shale, calcareous rock, sand), i.e., natural products, whatever their composition, whether obtained from normal or condensation oil deposits or by the destructive distillation of bituminous minerals…
The heading also covers gas condensates, i.e., crude oils obtained during the stabilisation of natural gas immediately upon its extraction. This operation consists of obtaining, mainly by cooling and depressurisation, the condensable hydrocarbons (C4 to approximately C20) from the wet natural gas.
Based on the foregoing, we conclude that the classification decision reached in HQ 955203 is unhelpful in determining the classification of the merchandise at issue because HQ 955203 did not concern a mixture of crude oils.
Prior to determining the essential character of the bitumen-condensate blends under GRI 2(b) and GRI 3, we must first determine whether the product can be classified by application of GRI 1. The U.S. Court of International Trade has noted that “the classification of all merchandise is governed by the General Rules of Interpretation, which provide a framework for classification under the United States Harmonized Tariff Schedule, and are to be applied in sequential order.” Mattel Inc., and Fisher Price v. United States, 346 F. Supp. 2d 1295,1299 28 Ct. Int’l Trade 1370 (2007); See also Maxcell Bioscience, Inc. v. United States, 533 F. Supp. 2d 1261; Airflow Tech., Inc. v. United States, 483 F. Supp. 2d 1337. Once classification has been determined according to GRI 1 there is no need to consider classification under the remaining GRIs. Hence, any resort to the subsequent GRIs, including GRI 3(b) and its essential character analysis is unnecessary. Pomeroy Collection, Ltd. V. United States, 559 F. Supp. 2d 1374, 1384 (2008).
It is well-settled that imported merchandise must be classified with reference to its condition as imported. See XTC Products, Inc. v. United States, 771 F. Supp. 401, 405 (1991). See also United States v. Citroen, 223 U.S. 407, 32 S. Ct. 256, 56 L. Ed. 486 (1911). In their condition as imported, bitumen-condensate blends are mixtures of two crude petroleum oils. See EN 27.09. In addition, they are marketed and sold in their imported condition as (heavy and extra-heavy) crude oil. Thus, we conclude that in their condition as imported, the subject bitumen-condensate blends are commercially recognized crude oils.
By its terms, heading 2709, HTSUS, provides for crude oil regardless of its composition and thus includes crude oils composed of both condensate and bituminous oil. Based on the foregoing, we find that the bitumen-condensate blends are classified as crude petroleum oils under heading 2709, HTSUS, by application of GRI 1. As a result, there is no need to determine the essential character of the subject blends using GRI 2(b) and GRI 3(b).
HOLDING:
By application of GRI 1, the bitumen-condensate blend known as “Cold Lake Heavy Crude Oil” is classified under heading 2709, HTSUS, and is specifically provided for in subheading 2709.00.10, HTSUS, which provides for “Petroleum oils and oils obtained from bituminous minerals, crude: Testing under 25 degrees A.P.I.” The 2008 column one, general rate of duty is 5.25 cents per barrel.
By application of GRI 1, the bitumen-condensate blend known as “Peace River Heavy Crude Oil” is classified under heading 2709, HTSUS, and is specifically provided for in subheading 2709.00.10, HTSUS, which provides for “Petroleum oils and oils obtained from bituminous minerals, crude: Testing under 25 degrees A.P.I.” The 2008 column one, general rate of duty is 5.25 cents per barrel.
Duty rates are provided for convenience only and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at www.usitc.gov/tata/hts/. A copy of this ruling letter should be attached to 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,
Gail A. Hamill, Chief
Tariff Classification and Marking Branch