Coastwise Trade; Blending; 46 U.S.C. App. 883

HQ 111606 May 13, 1991 VES-3-07-CO:R:IT:C 111606 GEV CATEGORY: Carriers William H. Bode, Esq. Bode & Hainline 1150 Connecticut Avenue, N.W. Washington, D.C. 20036 RE: Coastwise Trade; Blending; 46 U.S.C. App. 883 Dear Mr. Bode: This is in response to your letter dated March 25, 1991, requesting a ruling regarding the applicability of 46 U.S.C. App. 883 to a proposed blending operation. Our ruling on this matter is set forth below. FACTS: A U.S. corporation intends to load in California approximately 40,000 barrels of 93 octane unleaded gasoline and ship this product on a foreign-flag vessel to a port in the Netherlands Antilles. In a separate shipment on a different foreign-flag vessel, the corporation would load in Houston, Texas approximately 60,000 barrels of 87 octane unleaded gasoline, then ship this product to the same port. The corporation would off-load these different products and blend them in a single on-shore tank leased by the corporation. This blending operation would produce approximately 100,000 barrels of a 89 octane gasoline. The corporation then would load this blended product onto a foreign-flag vessel for shipment to and off-loading in New York, New York. ISSUE: Whether the blending operation described above is sufficient to create a "new and different product" within the meaning of 19 CFR 4.80b(a) so that the proposed transportation of the resultant blend by a foreign-flag vessel is not in violation of 46 U.S.C. App. 883. - 2 - LAW AND ANALYSIS: Title 46, United States Code Appendix, 883 (the merchandise coastwise law often called the "Jones Act") prohibits the transportation of merchandise between United States coastwise points, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States. In interpreting 883, Customs has ruled that a point in United States territorial waters is a point in the United States embraced within the coastwise laws. The territorial waters of the United States consist of the territorial sea, defined as the belt, 3 nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ. Section 4.80b(a), Customs Regulations, provides, in part, that: 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 posses- sion of the U.S. not subject to the coastwise laws), it is manufactured or processed into a new and different pro- duct, and the new and different product thereafter is transported to a coastwise point. In applying 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. Pursuant to T.D. 91-32 published in the Federal Register on April 10, 1991 (56 FR 14467) prior to reaching a determination that a new and different product has in fact been created by a blending operation for purposes of 4.80b(a), the procedures and specific data of such operations should be submitted by the party seeking such a determination. Customs will then review the data and make the necessary - 3 - determination which will form the basis for a decision regarding any possible violation of 883. Upon reviewing the specifications of this particular blending operation, we note at the outset that the adjustment of a gasoline's octane rating is a minor operation which petroleum blenders perform on a routine basis. However, the downgrading of a gasoline with an octane rating of 93 to an octane rating of 89 is not a normal practice in commerce. In addition, we note that the blended 89 octane gasoline can easily be converted back to its original gasoline components. Furthermore, the 89 octane gasoline can be converted to 93 octane gasoline by the addition of MTBE (methyl tert-butyl ether). The 87 octane gasoline can be produced from 89 octane gasoline by diluting the higher octane gas with lower octane rated blendstocks. Both blend components as well as the resultant blend meet the stringent requirements for automotive spark-ignition engine fuel (gasoline) as stated in ASTM D4814-88a. Based on this ASTM standard, in order for a product to be defined commercially as gasoline it must have a minimum anti-knock rating of 85. We note that the value of the commercial product will rise proportionally with the octane rating, however, because all of the products under review meet the minimum octane rating required by the ASTM standard, the difference among them is one of grading rather than change of product type. In view of the fact that all of the products under consideration meet the ASTM requirements for gasoline and as a result, may be commercially defined as gasoline, it is apparent that the blending operation under consideration did not create a "new and different product" within the meaning of 4.80b(a), Customs Regulations. Accordingly, the proposed transportation of the resultant blend by a foreign-flag vessel is in violation of 46 U.S.C. App. 883. HOLDING: The blending operation described above is insufficient to create a "new and different product" within the meaning of 19 CFR 4.80b(a) so that the proposed transportation of the resultant blend by a foreign-flag vessel is in violation of 46 U.S.C. App. 883. Sincerely, B. James Fritz Chief