Coastwise Trade; 46 U.S.C. § 55102; Commingled Merchandise

HQ H104823 May 12, 2010 VES-3-RR:BSTC:CCI H104823 GOB CATEGORY: Carriers Katie Smith Matison, Esq. Lane Powell 1420 Fifth Avenue, Suite 4100 Seattle, WA 98101-2338 RE: Coastwise Trade; 46 U.S.C. § 55102; Commingled Merchandise Dear Ms. Matison: This letter is in reply to your letter of May 5, 2010 on behalf of your client (the “requester”), requesting a ruling with respect to the applicability of 46 U.S.C. § 55102 (frequently referred to as the “Jones Act”) to certain proposed transportation. Our ruling follows. FACTS: The requester purchased four shipments of caustic soda from a state bordering the United States Gulf Coast (the “Gulf Coast Caustic”). The Gulf Coast Caustic was transported from a United States point to the requester’s storage tank facility for caustic soda in North Vancouver, Canada by non-coastwise-qualified vessels. The Gulf Coast Caustic was purchased and delivered to the requester’s storage tank facility in Canada in the first four months of 2010. The Gulf Coast Caustic delivered to the requester’s Canadian facility was commingled with other caustic soda previously transported from Asia (the “Prior Asian Caustic”) to the requester’s Canadian facility by non-coastwise-qualified vessels (collectively, this material (the Gulf Coast Caustic and the Prior Asian Caustic) is hereinafter referred to as the “Prior Caustic”). Thus, the Prior Caustic consists of a mixture of the four shipments of Gulf Coast Caustic and the Prior Asian Caustic, all of which was transported to the requester’s Canadian facility in non-coastwise-qualified vessels. The requester loads caustic soda from the storage tank in its Canadian facility into both rail cars and tanker trucks for direct sales to customers in Canada. Based upon sales forecasts for customers in the province of Alberta, the requester also loads caustic soda into rail cars for transportation to a transloading facility in Alberta, where the caustic soda is loaded into tanker trucks for sales to customers in the provinces of Alberta and Saskatchewan. Because the caustic soda is shipped to the Alberta facility based upon forecasts, it is not sold to customers at the time it is shipped from North Vancouver. All caustic soda shipped to Alberta will be sold into the Canadian market; none of the caustic soda will be returned to the storage tank, or sold or returned to the United States market. The requester has recently arranged to purchase a new shipment of caustic soda from Asia (the “New Asian Caustic”) which will be transported in a non-coastwise-qualified vessel and offloaded into the storage tank facility in North Vancouver. This New Asian Caustic is due to arrive in North Vancouver on approximately May 25, 2010. The New Asian Caustic will thus be commingled with the Prior Caustic. Since much of the Prior Caustic will have been sold to Canadian customers and shipped to Alberta for eventual sale there, it will be impossible to determine what remaining percentage of caustic soda, if any, originated from the Gulf Coast region of the United States. The requester forecasts that, on or about June 16, 2010, it will be able to demonstrate through its comprehensive purchase, storage and sale records that an amount of caustic soda equal to all of the Prior Caustic (the Prior Caustic consists of the commingling of the Gulf Coast Caustic and the Prior Asian Caustic), will then have either (1) been sold into the Canadian market, or (2) been shipped to the Alberta facility for sale into the Canadian market. The requester has the opportunity, after June 16, 2010, to sell certain amounts of caustic soda to an affiliated company, which would then sell the caustic soda to the affiliate’s customers in the United States. The caustic soda would be shipped directly by rail or tanker truck from Canada to these U.S. customers. You state that the requester seeks this ruling in order to clarify the following two points: (1) that the described scenario is sufficiently similar or identical to HQ 116515 (discussed below) that it will be permissible to makes sales into the U.S. after it can show, through adequate records, that the Prior Caustic has been disbursed into the Canadian market; and (2) that documentation establishing that the Prior Caustic has either been sold or loaded into rail cars which are solely designated for sales into the Canadian market and which will not be sold into the U.S. under any circumstances is sufficient to meet the requirement that the Prior Caustic has been sold/disbursed into the Canadian market. ISSUE: Whether the proposed transportation of caustic soda is violative of 46 U.S.C. § 55102? LAW AND ANALYSIS: Generally, the coastwise laws prohibit the transportation of passengers or merchandise between points in the United States embraced within the coastwise laws in any vessel other than a vessel built in, documented under the laws of, and owned by citizens of the United States. A vessel that is built in, documented under the laws of, and owned by citizens of the United States, and which obtains a coastwise endorsement from the U.S. Coast Guard, is referred to as "coastwise-qualified." The coastwise laws generally apply to points in the territorial sea, which is defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline. Title 46, United States Code, § 55102 (46 U.S.C. § 55102), provides in part that no merchandise shall be transported between points in the United States embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a coastwise-qualified vessel. Section 4.80b(a), Customs and Border Protection (“CBP”) Regulations (19 CFR § 4.80b(a)), promulgated pursuant to 46 U.S.C. § 55102, provides in pertinent part as follows: § 4.80b Coastwise transportation of merchandise. Effect of manufacturing or processing at intermediate port or place. 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. In determining whether merchandise which is transported from one point in the United States to a point in a foreign country and then to another point in the United States is subject to the prohibition in section 883 by virtue of being transported between coastwise points "via a foreign point," we have relied upon the holding of the Supreme Court in The Bermuda, 70 U.S. 514 (1865). In that decision, the Supreme Court held that: A transportation from one point to another remains continuous, so long as intent remains unchanged, no matter what stoppages or transshipments intervene. [70 U.S. at 553.] The Supreme Court went on to reaffirm the longstanding rule that: ... [E]ven the landing of goods and payment of duties does not interrupt the continuity of the voyage of the cargo, unless there be an honest intention to bring them into the common stock of the country .... [70 U.S. at 554.] The Attorney General of the United States relied upon The Bermuda in his consideration of the application the Jones Act to certain transportation. In 34 Op. Att'y Gen. 335 (1924) (see also, 32 Op. Att'y Gen. 350 (1920), concerning the transportation of fish from Alaska to United States point via Vancouver, British Columbia, Canada), the Attorney General considered the applicability of the Jones Act to the transportation of grain from Chicago or Milwaukee to a Canadian port in non-coastwise-qualified vessels. The grain was unladen into an elevator where it remained for an indefinite time until it was loaded into railroad cars for transportation by rail to points in New England. In some instances the grain had already been sold for delivery at an American port when it reached the Canadian port, while in other instances there was an existing intent to ship the grain to the Canadian elevator for storage in anticipation of demands for future deliveries for domestic consumption in Canada, for export abroad, or for sale and delivery in the United States. The Attorney General's opinion was requested as to whether the transportation of the grain in the manner described violated the Jones Act. As to grain which had been consigned through the Canadian port to a point in the United States or which had been shipped with the intention that the grain should ultimately be shipped to a point in the United States, it was the Attorney General's opinion "that such transportation is without a doubt in violation of [the Jones Act]" (34 Op. Att'y Gen. at 357). When there was no intent by the shipper to transship the grain to a United States port or place, it was the Attorney General's opinion that "only general rules of law may be laid down" (34 Op. Att'y Gen. at 362). The general rule of law given by the Attorney General in this case was that "the intention of the shipper is the controlling factor" (34 Op. Att'y Gen. at 363). The Attorney General also stated that: ... [W]hether the facts presented in any particular case come within such rules must be determined by the officer charged with the administration of that Act. [34 Op. Att'y Gen. at 362.] CBP is "charged with the administration" of 46 U.S.C. § 55102. We have held, as did the Supreme Court in The Bermuda, that an "honest intention to bring the goods [transported] into the common stock of the [intermediate foreign] country" is required to break the continuity of transportation between coastwise points via a foreign point. We have also held that when, at the time of shipment of merchandise from the United States to an intermediate foreign port, there existed the expectation that a substantial portion of the merchandise would not be consumed in the country of the foreign port, entry through the foreign country's customs and payment of duty is not considered to break the continuity of the transportation when any of the merchandise is transported onward to a second point in the United States. See HQ 109475, dated October 4, 1988. In HQ 114172, dated June 18, 1998, we determined that the transportation of caustic soda from the United States to Canada on a coastwise-qualified vessel, its commingling in Canada with fungible soda shipped to Canada on non-coastwise-qualified vessels, and its subsequent return by truck to the United States, did not violate 46 U.S.C. App. § 883 (the predecessor to 46 U.S.C. § 55102), provided that adequate records were maintained to show that an amount of the commingled soda equal to the amount transported to Canada on non-coastwise-qualified vessels was first sold foreign. We stated: The transportation of caustic soda from the United States to Canada on a coastwise-qualified vessel, its commingling in Canada with fungible soda shipped to Canada on non-coastwise-qualified vessels, and its subsequent return by truck to the United States, does not violate 46 U.S.C. App. § 883, provided adequate records are maintained to show that an amount of the commingled soda equal to the amount transported to Canada on non-coastwise qualified vessels is first sold foreign. [Emphases supplied.] In HQ 115762, dated September 3, 2002, we held that: The transportation of LNG from Alaska [to Mexico] by a foreign-flag vessel in the proposed scenario does not constitute a violation of 46 U.S.C. App. § 883 [the predecessor to 46 U.S.C. § 55102] if, after the Alaska-source LNG is commingled with the foreign-source LNG and processed into gas form, an amount of product equal to the amount brought from Alaska is first sold in Mexico and remains in Mexico. Adequate records must be maintained to verify that an amount equal to that transported to Mexico on foreign-flag vessels is first sold in Mexico. The failure to maintain such records would subject the Company to penalties for violation of the aforementioned statute. [Emphases supplied.] In HQ 116515, dated August 9, 2005, we held that: The transportation of a product on a foreign flag vessel from the U.S. to a foreign facility for blending, with the product subsequently returned to the U.S., does not constitute a violation of 46 U.S.C. App. § 883 [the predecessor to 46 U.S.C. § 55102] provided that: after the U.S.-sourced product is blended with foreign-sourced product, an amount of the blended product at least equal to the amount of U.S.-sourced product is sold to a foreign source at a foreign location prior to the transportation of any of the blended product to the U.S.; complete and adequate records are maintained with respect to all material aspects of the proposed activity; and such records will be promptly made available to Customs and Border Protection officials upon written request. [Last two emphases supplied.] In HQ W116720, dated September 12, 2006, we held that: . . . there will be no violation of 46 U.S.C. App. § 883 [the predecessor to 46 U.S.C. § 55102] if blended LNG is transported to the United States after other blended LNG is sold to Mexican customers provided the amount of Alaska-source LNG in the blended LNG sold to the Mexican customers equals or exceeds the amount of Alaska-source LNG in the blended LNG transported to the United States. Complete and accurate records must be maintained with respect to all material aspects of the activity. . . . A violation of 46 U.S.C. App. § 883 will occur if blended LNG (see above in regard to the Alaska-source requirement) is transported to the United States prior to the time that an appropriate amount of [LNG] is sold to customers in Mexico. [All emphases in original.] Pursuant to the above rulings, the merchandise at issue must be sold in the foreign country prior to the transportation of the merchandise to the United States. In the instant case, based upon the above-described authorities, we find that there will be no violation of 46 U.S.C. § 55102 if caustic soda is transported from the North Vancouver facility to the United States after other caustic soda from the North Vancouver facility is sold to Canadian customers, provided that the amount of caustic soda sold to Canadian customers equals or exceeds the amount of Gulf Coast Caustic which was transported to the North Vancouver facility. This is consistent with the rulings described above. Complete and accurate records must be maintained with respect to all material aspects of the proposed activity. Such records will be promptly made available to CBP officials upon written request. If caustic soda is transported from the storage tank in North Vancouver to the United States prior to the sale to Canadian customers of an amount of caustic soda which equals or exceeds the amount of Gulf Coast Caustic which was transported to the North Vancouver facility, such transportation will be violative of 46 U.S.C. § 55102. We emphasize that, for the purpose of this ruling, there must be an actual sale (or sales) of the caustic soda. It is not sufficient, for the purpose of this ruling, that caustic soda merely be “shipped to the Alberta facility for sale into the Canadian market” or “designated for sale” to the Canadian market. HOLDING: There will be no violation of 46 U.S.C. § 55102 if caustic soda is transported from the North Vancouver facility to the United States after other caustic soda from the North Vancouver facility is sold to Canadian customers, provided that the amount of caustic soda sold to Canadian customers equals or exceeds the amount of Gulf Coast Caustic which was transported to the North Vancouver facility. If caustic soda is transported from the storage tank in North Vancouver to the United States prior to the sale to Canadian customers of an amount of caustic soda which equals or exceeds the amount of Gulf Coast Caustic which was transported to the North Vancouver facility, such transportation will be violative of 46 U.S.C. § 55102. For the purpose of this ruling, there must be an actual sale (or sales) of the caustic soda. It is not sufficient, for the purpose of this ruling, that caustic soda merely be “shipped to the Alberta facility for sale into the Canadian market” or “designated for sale” to the Canadian market. Sincerely, Glen E. Vereb Chief Cargo Security, Carriers, and Immigration Branch