CLA-2 RR:CR:SM 561029 RSD
Beverly L. Greenberg, Esq.
6852 Southwest 89th Terrace
Miami, Florida 33156
RE: Eligibility of dehydrated ethyl alcohol for duty-free
treatment under the CBERA;
Tax Reform Act of 1986; Steel Trade Liberalization Act of
1989; motor fuel; ethyl alcohol; indigenous product
Dear Ms. Greenberg:
This is in reference to your letter dated June 1, 1998, on
behalf of Vivalet Limited requesting a ruling concerning the
eligibility of fuel grade ethyl alcohol dehydrated in Costa Rica
for duty-free under the Caribbean Basin Economic Recovery Act
(CBERA) (19 U.S.C. 2701-2706), and the Tax Reform Act of 1986
(Pub. L. 99-5140 as amended by the Steel Trade Liberalization Act
of 1989 (Pub. L. 101 and Pub. L 101-382).
FACTS:
You state that Vivalet Limited (Vivalet) will be both the
exporter and the importer of record for the proposed transaction.
Vivalet will be importing fuel grade ethyl alcohol into the U.S.
from Costa Rica through the ports of Tacoma, Washington;
Portland, Oregon; New Orleans; or Houston. The merchandise will
be dehydrated in a local distillery in Costa Rica to the
exporter's specifications, and then will imported directly to the
U.S.
Synthetic hydrous ethyl alcohol will be produced in a
country that is not a beneficiary of the Caribbean Basin Economic
Recovery Act. In your ruling request, you have provided the
specifications of the ethyl alcohol. The merchandise will be
imported into Costa Rica, where it will be rectified and
dehydrated by a local distillery. The resulting product will
have a maximum water content of 0.65%. This ethyl alcohol will
then be exported to the United States for used as motor fuel.
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ISSUE:
Whether the ethyl alcohol dehydrated and rectified in Costa
Rica meets the requirements under the CBERA for duty-free entry
into the U.S.
LAW AND ANALYSIS:
Under the CBERA, eligible articles from BCs are accorded
duty-free treatment. The requirements for eligibility are
established in 19 U.S.C. section 2703(a), which provides as
follows:
(1) Unless otherwise excluded from eligibility by this
chapter, and subject to section 423 of the Tax Reform Act of
1986, the duty-free treatment provided under this chapter shall apply to any article which is the growth, product, or
manufacture of a beneficiary country if-
(A) that article is imported directly from a
beneficiary country into the customs territory of the
United States and;
(B) the sum of (i) the cost or value of the materials
produced in a beneficiary country or two or more
beneficiary countries, plus (ii) the direct costs of processing operations performed in a beneficiary country or
countries is not less than 35 percent of the appraised
value of such article at the time it is entered. (Emphasis
added).
Section 423 of the Tax Reform Act of 1986, as amended by the
Steel Trade Liberalization Act of 1989 (P.L. 101-221, section
7(a) 103 Stat. 1886, 1890 (1989)), states that ethyl alcohol
qualifies as an eligible article if the ethyl alcohol or mixture
thereof is an "indigenous product" of the BC. Specifically,
section 423 provides, in pertinent part, as follows:
(a) IN GENERAL. -Except as provided in subsection (b), no
ethyl alcohol or a mixture thereof may be considered- * *
*
(2) for purposes of section 213 [19 U.S.C. 2703] of the
Caribbean Basin Economic Recovery Act, to be-
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(A) an article that is wholly the growth, product, or
manufacture of a beneficiary country,
(B) a new or different article of commerce which has
been grown, produced, or manufactured in a beneficiary
country, (C) a material produced in a beneficiary country, or (D) otherwise eligible for duty-free treatment under
this Act as the growth, product, or manufacture of
a beneficiary country; unless the
ethyl alcohol or mixture thereof is an
indigenous product of that insular possession
or beneficiary country.
* * *
(c) DEFINITIONS. . .
* * *
(3)(A) Ethyl alcohol and mixtures thereof that are only
dehydrated within an insular possession or beneficiary
country . . . shall be treated as being indigenous
products of that possession or country only if the alcohol or
mixture when entered, meets the applicable local feedstock
requirement.
(B) The local feedstock requirement with respect to
any calendar year is- (i) O percent with respect to
the base quantity of dehydrated alcohol and mixtures
that is entered; (ii) 30 percent with respect to the 35,000,000 gallons of dehydrated alcohol and mixtures next
entered after the base quantity; and (iii) 50 percent
with respect to all dehydrated alcohol and mixtures
entered after the amount specified in clause (ii) is entered.
(C) For purposes of this paragraph:
(i) The term 'base quantity' means, with
respect to dehydrated alcohol and mixtures
entered during any calendar year, the greater of-
(I) 60,000,000 gallons; or
(II) an amount (expressed in gallons) equal
to 7 percent of the United States domestic market
for ethyl alcohol. . .
(ii) The term 'local feedstock' means hydrous ethyl
alcohol which is wholly produced or manufactured in any
insular possession or beneficiary country.
(iii) The term 'local feedstock requirement' means the
minimum percent, by volume, of local feedstock that
must be included in dehydrated alcohol and mixtures.
(Emphasis added).
Congress, in amending 19 U.S.C. 2703(a)(1) to be "subject to
section 423 of the Tax Reform Act of 1986," as amended,
prescribed a unified scheme for tariff treatment of ethyl alcohol
under the CBERA. See National Corngrowers Ass'n v. Von Raab, 650
F. Supp. 1007 (CIT 1986), aff'd, 814 F.2d 651 (Fed. Cir. 1987).
As indicated in the language of section 423, and supported by the
legislative history of section 423, it is Customs' position that
ethyl alcohol
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which meets the "indigenous product" requirement would be
considered to be "wholly the growth, product, or manufacture of a
beneficiary country." Section 10.195(d), Customs Regulations (19
CFR 10.195(d)), states that articles which are "wholly the
growth, product, or manufacture of a" BC shall normally be
presumed to meet the CBERA origin requirements set forth in 19
CFR 10.195(a) (including the 35% value-content requirement).
Therefore, ethyl
alcohol which satisfies the "indigenous product" requirement is
normally presumed to meet the CBERA 35% requirement, and is
entitled to duty-free treatment under this program when imported
directly from the BC into the U.S.
In other words, for ethyl alcohol which is dehydrated in a
possession or a BC, such as Costa Rica, the first 60 million
gallons (or an amount equal to 7% of the U.S. domestic market for
ethyl alcohol, whichever is greater) imported during a calendar
year is considered "indigenous" and may enter duty free, even
though no local feedstock (hydrous ethyl alcohol produced in the
possession or BC) is used. After the base quantity (the greater
of 60 million gallons or an amount equal to 7% of the domestic
market ) has been imported during the calendar year, an
additional 35 million gallons may be entered duty free, provided
at least 30% of ethyl alcohol is derived from local feedstock.
After these additional 35 million gallons have been imported, any
additional imports during the same calendar year will be duty
free only if 50% of the product is derived from local feedstock.
The U.S. International Trade Commission determines the
number of gallons equal to 7% of the U.S. domestic market for
ethyl alcohol based on data provided by the Treasury Department
on domestic alcohol fuel producers. The 7% figure is based on
information on U.S. consumption during the 12-month period ending
on September 30 preceding the beginning of each calendar year.
Once the greater of 60 million gallons or 7% of the domestic
market is determined for each calendar year, the U.S. Customs
Service monitors imports of dehydrated ethyl alcohol from
possessions and BCs to ensure that any ethyl alcohol imported
over and above that base quantity meets the local feedstock
requirement.
HOLDING:
Ethyl alcohol which is dehydrated in Costa Rica, and which
meets the "indigenous product" requirement established in section
423 of the Tax Reform Act of 1986, as amended, is normally
presumed to meet the 35% value-content requirement and will
receive duty-free treatment, assuming it is "imported directly"
from Costa Rica to the U.S.
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A copy of this ruling letter should be attached to the entry
documents find 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 Customs officer handling the
transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division