Eligibility of dehydrated ethyl alcohol for duty-free treatment under the Caribbean Basin Economic Recovery Act (“CBERA”)

HQ 561360 May 24, 1999 CLA-2 RR:CR:SM 561360 KSG CATEGORY: Classification Beverly L. Greenberg, Esq. 6852 Southwest 89th Terrace Miami, Florida 33156 RE: Eligibility of dehydrated ethyl alcohol for duty-free treatment under the Caribbean Basin Economic Recovery Act (“CBERA”) Dear Ms. Greenberg: This is in response to your letter of April 15, 1999, on behalf of Cypress Trading Services Limited, requesting a binding ruling regarding the eligibility of imported dehydrated ethyl alcohol from Costa Rica for duty-free treatment under the Caribbean Basin Economic Recovery Act (“CBERA”). FACTS: Cypress Trading Services Limited is the importer of record and exporter for the proposed transaction. The fuel grade ethyl alcohol will be imported from Costa Rica to Tacoma, Washington, Portland ,Oregon, New Orleans, Louisiana, and Houston, Texas. Hydrous ethyl alcohol produced from a renewable resource, such as sugar cane, will be produced in a country that is not a beneficiary of the CBERA. The specifications of the alcohol are provided in your request. The hydrous ethyl alcohol will be exported from Brazil to Costa Rica, where it will be rectified and dehydrated in a local distillery. The resulting product will have a maximum water content of 0.65%. This ethyl alcohol will be exported to the U.S. to be used for motor fuel purposes. ISSUE: Whether the ethyl alcohol dehydrated and rectified in Costa Rica is eligible for duty-free treatment under the CBERA. LAW AND ANALYSIS: Under the CBERA, eligible articles from designated beneficiary countries (“ BC’s”) are accorded duty-free treatment. The requirements for eligibility are established in 19 U.S.C. 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 BC if- (A) that article is imported directly from a beneficiary country into the customs territory of the U.S.; and (B) the sum of the cost or value of the materials produced in a beneficiary country or two or more beneficiary countries, plus the direct costs of processing operations performed in a beneficiary country or countries is not less than 35 per centum of the appraised value of such article at the time it is entered. Section 423 of the Tax Reform Act of 1986, 19 U.S.C. 2703, note, as amended by the Steel Trade Liberalization Program Implemention Act of 1989 (Pub. L. 101-221, section 7(a) 103 Stat. 1886 (1989)) (“Section 423"), 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 theCaribbean Basin Economic Recovery Act, to be- (A) an article that is wholly the growth, product, or manufacture of a BC, (B) a new or different article of commerce which has been grown, produced, or manufactured in a BC, (C) a material produced in a BC, or (D) otherwise eligible for duty-free treatment under this Act as the growth, product, or manufacture of a BC; unless the ethyl alcohol or mixture thereof is an indigenous product of that insular possession or BC.... (c) Definitions... (3)(A) Ethyl alcohol and mixtures thereof that are only dehydrated within an insular possession or BC...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) 0 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 BC. (iii) The term “local feedstock requirement” means the minimum percent, by volume, of local feedstock that must be included in dehydrated alcohol and mixtures. As indicated in the language of section 423 and supported by its legislative history, it is Customs’ position that ethyl alcohol which meets the “indigenous product” requirement would be considered to be “wholly the growth, product, or manufacture of a BC.” 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. Therefore, 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 if it is “imported directly” from Costa Rica to the U.S. 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 Customs officer handling the transaction. Sincerely, John Durant Director, Commercial Rulings Division