RR:CTF:ER DRA-4 230510 LLB
Category: Drawback
U.S. Customs and Border Protection
Houston Service Port
2350 N. Sam Houston Parkway East, Suite 1000
Attn: Ms. Christina Brooks
Houston, Texas 77032
Re: Protest/AFR-5301-03-100470; Exxon Mobile Corporation; 19 U.S.C. §§ 1313(b), 1313(p), 3332, and 3333(a)(5)(C); Class III Crude Oil; NAFTA drawback
Dear Ms. Brooks:
The above-referenced protest (5301-03-100470) was forwarded to this office for further review. We have considered the arguments raised by the protestant, Exxon Mobile Corporation, and your office. Our decision follows.
Facts
This timely protest concerns one claim for drawback under 19 U.S.C. § 1313(p) for exported jet fuel. According to the record, the protestant imports Class III Crude oil (hereinafter “crude oil”) from various countries, including Mexico, and manufactures such oil into various petroleum products, such as jet fuel. You determined that the drawback claim met the requirements of § 1313(p), specifically, § 1313(p)(3)(A)(ii), e.g. meeting the requirements of 19 U.S.C. § 1313(b) for substitution manufacturing drawback of crude petroleum. However, you partially denied the drawback claim because the exportations to Canada were subject to NAFTA drawback and did not meet the requirements of 19 C.F.R. § 181.45. The protestant argues that its exports to Canada are not subject to NAFTA drawback under 19 U.S.C. § 3333(a)(5) because the goods meet the rules of origin under 19 U.S.C. § 3332.
The protestant requested further review of the protest decision under 19 C.F.R. § 174.24(a) as “inconsistent with a ruling of the Commissioner of Customs”; however, the protestant does not cite to any CBP ruling. You recommended that AFR pursuant to 19 C.F.R. § 174.24(b), because you believe that the issue you present, which is whether the claimed merchandise meets the rules of origin, specifically 19 U.S.C. § 3332, involves questions of law or fact that have not been considered by CBP or Customs courts. As explained below,
your application of the requirements of the rules of origin to this case is not correct.
Issue
Whether the exported jet fuel in this case is subject to NAFTA drawback
Law and Analysis
Initially, we will address your basis for denying the drawback claim. Your denial letter dated April 7, 2003 indicated that the “[e]xports to Canada were found ineligible and not in compliance with 19 C.F.R. § 181.45.” Section 181.45, addresses which goods are eligible for full drawback, and states, in pertinent part:
(a) Goods originating in Canada or Mexico. A Canadian or Mexican originating good that is dutiable and is imported into the United States is eligible for drawback without regard to the limitation on drawback set forth in § 181.44 of this part if that originating good is:
. . .
(3) Substituted by a good of the same kind and quality and used as a material in the production of another good that is subsequently exported to Canada or Mexico.
According to the record that you provided to this office, Exxon has been authorized to claim substitution manufacturing drawback under 1313(b), pursuant to T.D. 44-02382-000, for the manufacture and production of crude petroleum and petroleum derivatives of the same kind and quality. The designation of imports indicates that one of the imports of crude oil, entry 512-0141867-3, is from Mexico, and the entry itself indicates that such import was duty paid. The designation of imports also indicates that other imports of crude oil are from other non-NAFTA countries such as Kuwait, Columbia, and Saudi Arabia. As such, based on the foregoing, it can be concluded that Exxon manufactured the jet fuel from crude oil from Mexico or substituted the Mexican crude oil with crude oil from another country. You do not raise, nor does it appear from the record, that there are any issues regarding whether the protestant exported the fuel to Canada or whether the substituted goods are the same kind and quality. Thus, the requirements of §181.45 have been met.
However, in your AFR transmittal, you assert that exported jet fuel is subject to NAFTA drawback because the protestant failed to meet the rules of origin requirements under 19 U.S.C. § 3332. The protestant asserts that it has met such requirements. Article 303, paragraph 2 of the NAFTA provides, in pertinent part, that:
No Party may, on condition of export, refund, waive or reduce:
(d) customs duties paid or owed on a good imported into its territory and substituted by an identical or similar good that is subsequently exported to the territory of another party.
Article 303 basically provides that drawback may not be granted by a NAFTA country "on a good imported into its territory and substituted by an identical or similar good that is subsequently exported to the territory of another party." Pursuant to 19 U.S.C. § 3333(a), a “good subject to NAFTA drawback” means any imported good other than:
(5) a good that qualifies under the rules of origin set out in section 3332 of this title that is –
exported to a NAFTA country,
used as a material in the production of another good that is exported to a NAFTA country, or
substituted for by a good of the same kind and quality that is used as a material in the production of another good that is exported to a NAFTA country.
19 U.S.C. § 3333(a)(5). Pursuant to 19 U.S.C. § 3332(a)(1), in pertinent part, a good originates in the territory of a NAFTA country if—
the good is wholly obtained or produced entirely in the territory of one or more of the NAFTA countries
(i) each nonoriginating material used in the production of the good—
undergoes an applicable change in tariff classification set out in Annex 401 of the Agreement as a result of production occurring entirely in the territory of one or more of the NAFTA countries
. . .
(ii) the good satisfies all other applicable requirements of this section;
(C) the good is produced entirely in the territory of one or more of the NAFTA countries exclusively from originating material . . .
(emphasis added). In your AFR transmittal you emphasize the highlighted text above. In addition, you cite 19 U.S.C. § 3332(f)(1), which provides:
For purposes of determining whether a good is an originating good--
if originating and nonoriginating fungible materials are used in the production of the good, the determination of whether the materials are originating need not be made through the identification of any specific fungible material, but may be determined on the basis of any of the inventory management methods set out in regulations implementing this section . . .
You state that since the designated imports are from several countries, one of which being Mexico, that commingling of the foregoing imports occurred in this case. You do not state why you believe that the protestant’s exported goods do not qualify under the rules or origin; however, based on the sections that you emphasized above in 19 U.S.C. § 3332(a) and your citation to 3332(f), we presume that your decision was that the protestant failed to meet the requirements of 3332(a)(C) because the exported good was not produced entirely of originating material and that read in tandem with 3332(f), the protestant was required to identify originating and nonoriginating materials used in the production of the export to Canada.
The goods exported to Canada do not need to meet the requirements of 19 U.S.C. § 3332(a)(1)(C) and (f), e.g. prove that the good was produced exclusively from originating material, because the goods meet the requirements of 19 U.S.C. § 3332(a)(1)(B)(i)(I). The export, CPL Grade 54 Jet A fuel, according to the Chronological Summary of Exports and the Inventory Control Sheet (Exhibit C) indicate that the jet fuel was produced at Exxon’s Benicia refinery in the U.S. Because nonoriginating materials were used in the production, the good must meet the requirements of § 3332(a)(1)(B)(i)(I), which requires that each nonoriginating material used in the production of the good undergo a change in tariff classification as set forth in Annex 401 of the NAFTA. General Note 12 of the Harmonized Tariff Schedule of the United States (HTSUS) incorporates 401 of the NAFTA into the HTSUS and provides that a good originates in the territory of a NAFTA party where:
(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico, and/or the United States;
or
(ii)they have been transformed in the territory of Canada, Mexico, and/or the United States so that—
(A)except as provided in subsection (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein . . .
GN 12(b)(i) and (ii)(HTSUS)(1997). Pursuant to GN 12(t)/27.4, HTSUS(1997), “a change to heading 2710 through 2715 from any heading outside that group” is considered a change in tariff classification. The entry summary indicates that the crude oil was imported under 2709.00.2000, HTSUS, and the export summary indicates that the jet fuel was exported under 2710.00.1530, HTSUS. Insofar as 2709 is a heading outside of 2710 through 2715, the exported jet fuel meets the tariff classification change outlined in GN 12(t)/27.4. Based on the foregoing, the exported jet fuel meets the requirements of sections 3333(a)(5) and 3332(a)(B)(1)(i)(I) and is therefore, not a good subject to NAFTA drawback.
Last, you mention at the end of your AFR transmittal that even if the protestant has a valid drawback claim for its export to Canada, the claim would nevertheless be subject to the “lesser of” rule. The “lesser of” rule in 19 U.S.C. § 1313(n)(2) applies to drawback claims made under 1313(p), see 229268(Aug. 23, 2002); however, the exported good must be a “good subject to NAFTA drawback.” Because the subject exportation is not a good subject to NAFTA drawback, the “lesser of” rule, would not apply.
HOLDING
The exported jet fuel in this case is not a good subject to NAFTA drawback. The protest should be allowed.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division