OT:RR:BSTC:CCR H322112 AFM
David McCullough & Andy Kriha
Eversheds Sutherland (US) LLP
The Grace Building, 40th Floor
1114 Avenue of the Americas
New York, NY 10036-7703
RE: 46 U.S.C. § 55102; 19 C.F.R. § 4.80b(a); New and Different Product; Proposed Transportation of Gasoline Blendstock
Dear Messrs. McCullough and Kriha:
This is in response to your November 22, 2021, letter in which you request a ruling on behalf of your client, [name of company] (hereinafter “the Company”) determining whether the proposed transportation of certain petroleum products in conjunction with contemplated blending operations by a non-coastwise-qualified vessel would constitute a violation of 46 U.S.C. § 55102. Our decision follows.
FACTS:
The following facts are from your ruling request and supplemental information provided to this office in December 2021, January 2022, March 2022, and on April 15, 2022. You propose to load No. 5 fuel oil and vacuum tower bottoms onboard non-coastwise qualified vessels at U.S. ports, for discharge into storage tanks that the Company leases at the Limetree Bay Terminal on St. Croix in the U.S. Virgin Islands (“Limetree Bay”). The blendstocks would likely originate from The Company’s leased storage in Wilmington, Delaware, or Eagle Point, Pennsylvania. The Company would store these products at Limetree Bay for an indefinite period, until there is a market demand or an order from a customer. The Company has customers in Puerto Rico that purchase No. 6 fuel oil that, by contract and orders, must meet ASTM D396-21 specifications. The Company seeks to meet these orders by blending U.S.-origin blendstocks of No. 5 fuel oil and vacuum tower bottoms, which do not meet the specifications for No. 6 fuel oil, to create a No. 6 fuel oil. The blending would take place in onshore blending tanks at Limetree Bay. The Company would then lade the No. 6 fuel oil onto a non-coastwise-qualified vessel at Limetree Bay for unlading into tanks in Puerto Rico.
The Company seeks a ruling determining whether:
Blending U.S.-origin product blendstocks in on-shore blending tanks at Limetree Bay, to create a No. 6 fuel oil, would create a new and different product not subject to the coastwise laws of the United States; and/or,
Blending U.S.-origin product blendstocks on a non-coastwise qualified vessel for on-board blending to create No. 6 fuel oil, would create a new and different product not subject to U.S. coastwise laws if (a) the vessel remained stationary at the Limetree Bay dock throughout the blending process, (b) no transportation of the product occurs until the product is verified to have met the new ASTM standard, and (c) the same vessel then transports the finished product to Puerto Rico.
ISSUE:
Whether, based on the product specifications provided, the two proposed blending operations would result in the creation of a “new and different product” within the meaning of 19 C.F.R. § 4.80b(a), such that the proposed transportation by a non-coastwise-qualified vessel would not be in violation of 46 U.S.C. § 55102.
LAW AND ANALYSIS:
Pursuant to 46 U.S.C. § 55102 (“the Jones Act”), a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port, unless the vessel has a coastwise endorsement. Additionally, under 19 C.F.R. § 4.80b(a):
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.
CBP has consistently held that in order for fuel oil to qualify as a new and different product, it must undergo a change in American Society for Testing Material (“ASTM”) grade. In Headquarters Ruling (“HQ”) H101115 (Apr. 23, 2010), CBP stated that in adherence to industry standards, when fuel oil changes ASTM grades, it becomes a new and different product. In that case, CBP found that the transportation would not be in violation of 46 U.S.C. § 55102 because the merchandise was imported at one ASTM grade and exported at another ASTM grade.
Accordingly, here we sought advice from CBP’s Laboratories and Scientific Services Directorate (“LSSD”) as to whether the proposed blending operation would result in a new and different product. Based on the information provided in your request and responses to our requests for additional information, including specifications and blending processes, LSSD has advised that the blending process you propose in scenario 1 to create No. 6 fuel oil would result in a new and different product within the meaning of 19 C.F.R. § 4.80b(a). Specifically, the blending creates a shift in kinematic viscosity, which allows the fuel oil considered to be ungraded, to now qualify for ASTM grade D396-21. Therefore, we find that the blending operations proposed in scenario 1 above, would result in a new and different product. Thus, under 19 C.F.R. § 4.80b, because the new and different product was created at in intermediary port or place other than a coastwise point its subsequent transportation aboard a non-coastwise qualified vessel would not be in violation of 46 U.S.C. § 55102.
With respect to proposed scenario 2, blending on a stationary non-coastwise qualified vessel, CBP has a longstanding position of denying the manufacture or processing of products on board a vessel for purposes of the Jones Act. In HQ 111888, dated September 27, 1991, CBP similarly analyzed whether a blending operation in a shore tank would result in a “new and different product” under 19 C.F.R. § 4.80b(a) so that the proposed transportation of the blended product by a foreign-flag vessel would not be in violation of 46 U.S.C. § 883. In its analysis, CBP stated “[i]n applying section 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.”
In HQ 112023, dated December 23, 1991, the importer proposed the transportation of “hake surimi processed on board two non-coastwise-qualified, U.S.-flag vessels outside the three-mile U.S. territorial sea but within the U.S. 200 mile Exclusive Economic Zone (EEZ)” and inquired as to whether the loading of fish in that location would be considered loading at a coastwise point under 48 U.S.C. § 883 and whether the proposed processing would create a “new and different product” under 19 C.F.R. § 4.80b(a). CBP held that the loading took place at a coastwise point. As to whether the hake was processed into a “new and different product” CBP stated that the “sufficiency of the processing need not be addressed” because the “article in question must be landed prior to undergoing any manufacturing or processing.” Consequently, CBP held that the processing did not comply with 19 C.F.R. § 4.80b(a) because the processing took place on board a vessel. Also, in HQ 113080, dated May 2, 1994, a Delaware corporation presented four oil transportation scenarios involving a foreign-flag vessel. One of the proposed scenarios involved processing the oil on board a vessel which would remain anchored during the processing of the oil. In line with its precedent that in applying 19 C.F.R. § 4.80b(a) “manufacturing or processing may not take place on board a vessel,” CBP held that scenario would be a violation of the coastwise laws.
More recently, in HQ 115672, dated May 14, 2002, CBP considered a proposed transportation and assembly operation which involved assembly of steel into crates on board a foreign-flag vessel, the HERMOD. CBP explained:
[I]n order for the transportation of the subject steel to fall outside the purview of § 883, it must meet the following two criteria: (1) it must be manufactured or processed into an new and different product; and (2) such manufacture or processing must not take place on board a vessel. Since the assembly of the steel into crates is to take place on board the HERMOD, the latter criterion will not be met thereby giving rise to a violation of 46 U.S.C. App. § 883 when the assembled crates would be unloaded from H-302 in Mobile.
Consequently, CBP held that the proposed use of a foreign-flag vessel for assembly of steel into crates on board that vessel is violative of the Jones Act.
All the above cases demonstrate CBP’s long-standing holding that “manufacturing or processing may not take place on board a vessel.” Therefore, without reaching a “new and different product” analysis under, 19 C.F.R. § 4.80b(a) we find the proposed scenario 2, involving blending on a stationary non-coastwise qualified vessel, would be in violation of 46 U.S.C. § 55102, , , because the “article in question must be landed prior to undergoing any manufacturing or processing.” As in HQ 113080, where CBP found that processing oil on board a stationary vessel would be a violation of the coastwise laws, here the Company’s proposed blending on a non-coastwise qualified vessel, would violate 46 U.S.C. § 55102.
HOLDINGS:
As discussed, above:
The first proposed blending operation would result in the creation of a new and different product within the meaning of 19 C.F.R. § 4.80b(a). Therefore, the first proposed transportation by a non-coastwise-qualified vessel would not be in violation of the Jones Act, 46 U.S.C. § 55102, because the new and different product was created at in intermediary port or place, other than a coastwise point, and was not blended onboard a vessel.
The second proposed blending operation, involving fuel blending on board a stationary non-coastwise qualified vessel, would violate 46 U.S.C. § 55102, because the manufacture or processing of products is not permitted on board a vessel under the Jones Act.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruing letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” If the terms of the import or export contracts and results of the sampling records vary from the facts stipulated to herein, or CBP ascertains discrepancies based upon a review of any other pertinent information, this decision shall not be binding on CBP as provided for in 19 C.F.R. § 177(b)(1), (2) and (4), and § 177.9(b)(1) and (2).
Sincerely,
for W. Richmond Beevers
Chief, Cargo Security, Carriers and Restricted Merchandise Branch
Office of International Trade, Regulations and Rulings
U.S. Customs and Border Protection