OT:RR:CTF:VS H328199 EE
Lisa Carpenter
Charter Brokerage, LLC
22763 Westheimer Parkway
Katy, Texas 77450
RE: USMCA Eligibility; Diluted Crude Oil
Dear Ms. Carpenter:
This is in response to your correspondence dated November 22, 2021, in which you request a ruling on behalf of your client, the importer. Your request concerns whether certain diluted crude oil products from Canada are eligible for preferential tariff treatment under the United States-Mexico-Canada Agreement (“USMCA”). Your request, submitted as an electronic ruling request, was forwarded to this office from the National Commodity Specialist Division for response.
FACTS:
The importer is a diversified natural resource company headquartered in Canada with global operations and activities, including assets and investments in the
Fort Hills Energy LP (“FHELP”) oil sands project. Oil sands are a type of unconventional petroleum deposit which produces a dense and extremely viscous crude bitumen. Crude bitumen produced from oil sands is so viscous it will not flow unless heated or diluted with a lighter hydrocarbon such as a light crude oil or natural gas condensate (“diluent”). Diluents injected into heavy crudes allow for the product to meet pipeline specifications and to be transported through the pipelines.
You state that the extracted heavy crude bitumen has an API Gravity below 25 and is classified under subheading 2709.00, HTSUS. Diluents are derived from the production of crude and natural gas and may be transported to a storage facility directly from the field (“field condensate”) or through the fractionation and distillation of natural gas liquids (“processed condensate”). You state that field condensate is typically classified under subheading 2709.00, HTSUS, and processed condensate is classified under subheading 2710.12, HTSUS.
You state that the imported diluted crude oil, referred to as Fort Hill Reduced Carbon Life Cycle Dilbit Blend (“FRB”), will contain a blended ratio of less than 40% diluent with a 0.9265 KG/L density @ 15 degrees Celsius and API gravity
testing at 21.1, which is within the typical heavy crude range. You indicate that the diluted crude oil is classified under subheading 2709.00, HTSUS. You claim that in most cases, as supported with FY 2020 blending report data, the diluent percentage did not exceed 28% which is within the allowable range under the USMCA rules of origin.
You submitted pipeline specifications; the crude extraction process; the USMCA Certificate of Origin provided by the operator of the production facility; a 12-month analysis period of the blending report data; and an 11-month report on the diluent percentage by volume of the diluted crude oil.
ISSUE:
Whether the Dilbit Blend (diluted crude oil) is eligible for preferential tariff treatment under the USMCA when it is imported from Canada into the United States.
LAW AND ANALYSIS:
The USMCA was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11, 14 (19 U.S.C. § 4511(a)). General Note (“GN”) 11 of the HTSUS implements the USMCA. GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(a)(i) provides:
Goods that originate in the territory of Mexico, Canada or the United States (hereinafter referred to as “USMCA country” or “USMCA countries” as further defined in subdivision (l)(xxiv) of this note) under the terms of subdivision (b) of this note and regulations issued by the Secretary of the Treasury (including Uniform Regulations provided for in the USMCA), and goods enumerated in subdivision (p) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn, followed by the symbol “S” in parentheses, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act; and . . .
GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(b) states:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a “good originating in the territory of a USMCA country” only if—
the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or
…
As previously noted, you state that the Dilbit Blend (diluted crude oil) is classified under subheading 2709.00, HTSUS. Since the diluted crude oil contains non-originating materials, it will not qualify as originating pursuant to GN 11(b)(i) or (ii). We must therefore consider whether the diluted crude oil qualifies as originating pursuant to GN 11(b)(iii). The applicable rule of origin set forth in GN 11(o) provides in Heading Rule for Chapter 27 that:
For the purposes of determining whether or not a good of heading 2709 is an originating good, the origin of diluent of headings 2709 or 2710 that is used to facilitate the transportation between USMCA countries of crude petroleum oils and crude oils obtained from bituminous minerals of heading 2709 is disregarded, provided that the diluent constitutes no more than 40 percent by volume of the good.
The applicable tariff shift rule set forth in GN 11(o)/27(6), states:
A change to headings 2708 through 2709 from any other heading, including another heading within that group.
In the instant case, you specifically inquire, in the situation where the diluent may have unknown origin, undetermined classification, and the diluent is blended at various levels, not to exceed 40% by volume of the imported diluted crude oil, whether the imported Dilbit Blend will qualify for preferential tariff treatment. Based on the Heading Rule in GN 11(o)/27(6), if the diluent that is used to facilitate the transportation of the crude oil from Canada to the United States constitutes less than 40 percent by volume of the imported diluted crude oil, the origin of the diluent may be disregarded. However, based on the Heading Rule, the diluent must either be classified under heading 2709, HTSUS, or 2710, HTSUS. The diluent may be blended at various levels as long as it constitutes less than 40 percent by volume of the imported Dilbit Blend (diluted crude oil). If the diluent constitutes more than 40 percent by volume of the imported Dilbit Blend, the non-originating materials must meet the applicable tariff shift rule in GN 11(o)/27(6). Provided that all other requirements are met, the diluted crude oil will be eligible for preferential tariff treatment under the USMCA when imported into the United States from Canada. It should be noted that CBP always reserves the right to conduct verifications and to request documentation from the importer to ensure that the import transactions under consideration fully comply with the requirements of the USMCA.
HOLDING:
Based on the information provided, the Dilbit Blend (diluted crude oil) will be eligible for preferential tariff treatment under the USMCA when imported from Canada into the United States, provided the percentage requirements of the diluent are met.
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 ruling 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.”
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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 and Special Programs Branch