OT:RR:BSTC:CCR H313921 AMW
John Latrobe, Esq.
BP Products North America Inc.
201 Helios Way – 5.124
Houston, TX 77079
RE: 46 U.S.C. § 55102; 19 CFR § 4.80b(a); New and Different Product; Proposed Transportation of Naphtha and Naphtha Blend.
Dear Mr. Latrobe:
This is in response to your September 25, 2020 letter in which you request a ruling determining whether the proposed transportation 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 September 25, 2020 ruling request and follow-up information provided to this office on October 5, 2020, and October 20, 2020. BP Products North America, Inc. (“BP”) proposes to transport U.S.-sourced naphtha (described in your request as “heavy virgin naphtha” (“HVN”)) from multiple U.S. ports, including [ ], to the Limetree Bay Terminals refinery in Christiansted, St. Croix, U.S. Virgin Islands. You state that the naphtha will be transported onboard non-coastwise-qualified vessels that will be spot chartered approximately ten days before the subject transaction. While in the U.S. Virgin Islands, the U.S.-origin naphtha will be blended in-tank with “light virgin naphtha” (“LVN”) to create LVN. The blending ratio of HVN:LVN will be approximately 1:3 (25% HVN) to 1:4 (20% HVN). The resulting LVN will be transported to different coastwise points in the United States, including [ ]. You state that “the exact characteristics” of the HVN and LVN will vary between shipments.
ISSUE
Whether, based on the product specifications provided, the proposed blending operation would result in the creation of a “new and different product” within the meaning of 19 CFR § 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, 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.
(emphasis added).
Under 19 CFR § 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.
(emphasis added).
Pursuant to 46 U.S.C. § 55101(b)(3), furthermore, the coastwise laws do not apply to the U.S. Virgin Islands “until the President declares by proclamation that the coastwise laws apply to the Virgin Islands.” No such proclamation has been issued by the President. As such, the coastwise laws, including the Jones Act, 46 U.S.C. § 55102, are not applicable to the U.S. Virgin Islands. The U.S. Virgin Islands is therefore a “foreign port of place other than a coastwise point” as referenced in 19 CFR § 4.80b(a). See, e.g., HQ 109532 (Aug. 3, 1988).
We have sought and received advice from CBP’s Laboratories and Scientific Services Directorate (“LSSD”) as to whether the subject blending operation results in a new and different product. The LSSD determined that the proposed blending operation would not result in a new and different product because there exists no “commercially agreed upon standard” for various grades of naphthas, which makes it impossible to determine that a “new and different product” would be created. Specifically, the LSSD found that (1) as conceded in the ruling request, the subject blending operation does not result in an American Society for Testing and Materials (“ASTM”) grade or specification change; and (2) no industry-wide standard definition for various grades of naphtha (e.g., heavy and light naphtha) exists.
Your request argues that, although an “ASTM shift” would not be evident, the proposed blending operation would nevertheless result in a new and different product. Specifically, you analogize the present request to HQ H249067 (Mar. 6, 2014), in which CBP found that, despite the “inapplicability of ASTM specifications,” a new a different product resulted when “Heavy Naphtha, Light Naphtha, Raffinate, Reformate, Alkylate, Butane, and Catalytic-cracked gasoline” transported from points in the United States underwent blending to produce Reformulated Blendstock for Oxygenate Blending (“RBOB”) and Conventional Regular Gasoline Blendstock (“CBOB”).
Several key differences exist between the present matter and the facts presented in HQ H249067. Specifically, the LSSD report notes that RBOB and CBOB are well defined with respect to their respective properties and uses. In contrast, there is no industry-wide standard for the various “grades” of naphtha. In Standard Definitions for Petroleum Statistics, 5th edition (1995), the American Petroleum Institute (“API”) defines naphtha as “a generic term applied to a petroleum fraction with an approximate boiling range between 122 oF and 400 oF.” The LSSD also notes that the exact specifications for what constitutes “light” and “heavy” naphtha varies in the multiple sources cited in the instant request. For instance, some of these characteristics, such as the initial and maximum boiling points, do not match with with the generic API definition. Other items, such as API gravity and sulfur ranges are different between the indexes and the pipeline carriers cited by the requester. In other words, the LSSD explains, “naphtha” is a generic term similar to the term “crude oil.” The value of the naphtha or crude oil is critically dependent on the characteristics of the commodity. Words like “light,” “heavy,” “sweet,” “sour,” “virgin,” or “straight-run” can assist in describing the commodity, but the actual physical characteristics of the commodity remain the determinative factor. Therefore, the lack of clearly defined specifications makes it impossible to determine whether a new and different article of commerce is produced in this matter. Additionally, the LSSD states, naphthas are considered to be unfinished oils that require further processing to produce a product meeting a recognized standard.
In contrast to H249067, headquarters rulings H280059 (Apr. 26, 2017) and H265791 (Sept. 14, 2015) are more applicable to the present matter. In H280059, we found that the proposed blending of domestic-origin “light sweet crude oils” with foreign-origin crude oil would not result in a new and different product because both inputs are “petroleum oils that have been taken from the ground and remain in an unchanged or minimally changed state.” Similarly, in H265791 we determined that a crude oil condensate blended with crude oil did not produce a new and different product. In both of these rulings, it was clear that the finished crude oils were chemically and commercially distinct from their U.S-origin inputs. However, in both matters, the difference between the inputs and the final, blended product was not sufficient to constitute a new and different product. Similarly, in the present matter, the LSSD has determined that LVN and HVN may be chemically and commercially distinct, but they would not create a new and different product when blended.
Pursuant to 19 CFR § 4.80b(a), and in adherence to the LSSD findings, the proposed transportation would be in violation of 46 U.S.C. § 55102 because a non-coastwise-qualified vessel would transport the merchandise from U.S. ports along the Gulf of Mexico, the first U.S. coastwise point, to U.S. ports along the Eastern Seaboard, the second U.S. coastwise point, via the U.S. Virgin Islands, a territory or possession of the United States not subject to the coastwise laws.
HOLDING
Based on the import and export specifications provided, the proposed blending operations would not result in the creation of a new and different product within the meaning of 19 CFR § 4.80b(a); therefore, the proposed transportation by a non-coastwise-qualified vessel would be a violation of 46 U.S.C. § 55102.
Sincerely,
Lisa L. Burley
Chief/Supervisory Attorney-Advisor
Cargo Security, Carriers and Restricted Merchandise Branch
Office of International Trade, Regulations and Rulings
U.S. Customs and Border Protection