46 U.S.C. § 55102; Continuity of Transportation

HQ H131555 February 17, 2011 VES- 3-OT-RR:BSTC:CCI H131555 ALS CATEGORY: Carriers Heather M. Spring, Esq. Cozen O’Connor 1627 I Street, N.W., Suite 1100 Washington, D.C. 20006-4007 RE: 46 U.S.C. § 55102; Continuity of Transportation Dear Ms. Spring:This letter is in reply to your submission of November 8, 2010, on behalf of your client Gunvor International B.V., Amsterdam (hereinafter referred to as “Gunvor”), wherein you request a ruling as to whether the proposed transportation by a non-coastwise-qualified vessel would constitute a violation of 46 U.S.C. § 55102. Our ruling on this matter is set forth below. FACTS:Gunvor proposes to transport fuel oil from Rotterdam, The Netherlands to New York, after it had been transported from two other coastwise points to Rotterdam. The fuel oil transported to Rotterdam consisted of 32,765.731 metric tons of No. 6 fuel oil with 1.0% sulfur content loaded onto the M/V SURFER ROSA at Riverhead, New York on August 4, 2010, and a total of 42,997.967 metric tons of the same type of fuel oil loaded onto the M/V ZHONGJI at Bayonne, New Jersey on September 3 and 4, 2010. On August 16, 2010, 32,775 metric tons of the fuel oil were discharged from the SURFER ROSA into Tank No. 1072 in Rotterdam. Upon leaving Bayonne, the ZHONGJI went to Canada, where 15,756.956 metric tons of the fuel oil were discharged, then to Rotterdam, where 8,040.567 metric tons of the fuel oil were discharged into Tank No. 1072 and 16,316.252 metric tons were discharged into Tank No. 1074 on September 21, 2010. The fuel oil transported to Rotterdam was done pursuant to a contract, dated January 8, 2010 and amended May 7, 2010, in which ConocoPhillips agreed to sell Gunvor 189,000 metric tons of No. 6 fuel oil with 1.0% sulfur content. You state that the purchase was made in anticipation of a change in European regulations as of July 1, 2010, when the allowable sulfur content for No. 6 fuel oil would be reduced from 1.5% to 1.0%. Gunvor added to the low sulfur fuel oil from the United States in Tank No. 1072 “lower quality fuel oil slurry” from Russia and Europe on September 2 and 11, 2010. You state that the market for fuel oil “changed dramatically” while the ZHONGJI cargo was en route to Rotterdam in that the market price of low sulfur fuel oil dropped in Europe but increased in price in the United States. Gunvor agreed by contract, on or about September 19, 2010, to sell approximately 60,000 to 68,000 metric tons of the subject fuel oil to J.P. Morgan Ventures Energy Corporation (hereafter “JPM”), to be delivered at New York Harbor, New York. Paragraph 5 of the contract between Gunvor and JPM details the composition of the product being agreed upon. On September 23, 2010, 32,503 metric tons of fuel oil from Tank No. 1072 was loaded onto the M/V CHEMTRANS RAY. On September 27, 2010, 34,902.866 metric tons (air) of product was loaded onto the CHEMTRANS RAY in Milford Haven, United Kingdom. You state that the addition of the Milford Haven product changed the composition of the cargo onboard the CHEMTRANS RAY. The CHEMTRANS RAY transported the blended cargo to New York, but JPM rejected the cargo on October 11, 2010 because of concerns about transportation of it to New York Harbor possibly being in violation of 46 U.S.C. § 55102. Upon having the cargo rejected, the CHEMTRANS RAY did not discharge the cargo in New York, but returned it to Rotterdam to be discharged into Gunvor’s Vopak tanks. ISSUE:Whether the use of a non-coastwise-qualified vessel to transport the fuel in Gunvor’s tanks in Rotterdam to a coastwise point within the United States, other than the points of lading of the original shipments from Riverhead, New York and Bayonne, New Jersey, would constitute a violation 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, section 55102 (46 U.S.C. § 55102), the coastwise merchandise statute often called the “Jones Act,” provides in part that 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 is wholly owned by citizens of the U.S. for purposes of engaging in the coastwise trade and has been issued a certificate of documentation with a coastwise endorsement under chapter 121 of title 46 or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement. Section 4.80b(a), Customs and Border Protection (“CBP”) Regulations (19 CFR 4.80b(a)) provides, in pertinent part: 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. The plain meaning of the statute prohibits merchandise from being transported on a non-coastwise-qualified vessel between points in the United States. The words "either directly or via a foreign port" were inserted in the original statute by the Congress in 1893. Congress, seeing how easily the protection to American shipping would be vitiated by a simple transshipment of the same cargo, inserted these words to prohibit such transshipments.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 46 U.S.C. § 55102 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 Court held that a transportation from one coastwise point to another remains continuous, so long as intent remains unchanged, no matter what stoppages or transshipments intervene. The Bermuda, supra, at 553. The 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. If there be an intention, either formed at time of original shipment, or afterwards, to send the goods forward to an unlawful destination, the continuity of the voyage will not be broken, as to the cargo, by any transactions at the intermediate port. The Bermuda, supra, at 554. The Attorney General of the United States relied upon The Bermuda in his consideration of the applicability of the Jones Act to certain transportation. The Attorney General ruled that when there was no intent by the shipper to transship merchandise from a United States port or place to a United States port or place via a foreign place, "only general rules of law may be laid down." 34 Op. Atty. Gen. 335, 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. Atty. Gen., supra, at 363. See also 32 Op. Atty. Gen. 350 (1920); CBP Ruling HQ H114310 (July 13, 2010). The Attorney General also stated that “whether 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. Atty. Gen., supra, at 362.CBP is the agency charged with the administration of 46 U.S.C. § 55102. We have issued a number of rulings on the applicability of 46 U.S.C. § 55102 to the transportation of merchandise between coastwise points via a foreign port. In these rulings, 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. See, e.g., HQ H114310, supra.; CBP Ruling HQ 116557 (October 25, 2005). We have held that intent to export merchandise after its transportation from the United States to an intermediate foreign port is not, by itself, sufficient to break the continuity of the transportation, when the merchandise is transported onward from the intermediate foreign port to a second point in the United States. See, e.g., CBP Ruling HQ H032036 (July 10, 2008).In the present case, you contend that, with the sale of the exported fuel oil and its transportation to the Netherlands to fulfill the sales contract, intent to enter the fuel oil into the commerce of Europe is evident. We note again that the ConocoPhillips/Gunvor contract is dated January 8, 2010 and amended on May 7, 2010. The contract indicates that the destination of the fuel oil was Rotterdam, The Netherlands. As noted above, the fuel oil sold to Gunvor was exported from the United States on August 4, September 3, and September 4, 2010, and delivered on August 16 and September 21, 2010. The Gunvor/JPM contract was executed on September 19, 2010. Before the Gunvor/JPM contract was executed, the exported fuel oil had been blended with Canadian and European fuel oil at different locations. You distinguish the present case from the case in CBP Ruling HQ H117395 (August 9, 2010), in which we ruled that section 55102 would have been violated in the proposed transaction where no foreign buyer existed and the merchandise was not to be discharged at a foreign location before it was to be transported back to the United States.Upon a review of all of the relevant facts and supporting documentation, we find the two separate contracts in this case indicate that the exportation of the fuel oil to The Netherlands and the proposed importation of the blended Gunvor fuel oil from The Netherlands to the United States are separate transactions. Nothing in either contract indicates that the other transaction was contemplated at the time either was executed. Furthermore, Gunvor took possession of the exported fuel oil at its foreign facilities and proceeded to further process that fuel oil. Therefore, we find that the continuity of transportation of the goods was broken by completion of the ConocoPhillips/Gunvor contract with the delivery of the exported fuel oil to The Netherlands in absence of any evidence at the time of the execution of the contract that such fuel oil would be transported back to the United States. Accordingly, the use of a non-coastwise-qualified vessel for transportation of the blended Gunvor oil to a United States coastwise point other than the points of lading of the exported fuel oil will not be a violation of 46 U.S.C. § 55102.HOLDING:Based on the facts presented herein, the use of a non-coastwise-qualified vessel for transportation of the blended Gunvor oil from The Netherlands to a coastwise point in the United States other than the points of lading of the exported fuel oil will not be a violation of 46 U.S.C. § 55102.Sincerely, George Frederick McCray Supervisory Attorney-Advisor/Chief Cargo Security, Carriers and Immigration Branch Office of International Trade, Regulations & Rulings U.S. Customs and Border Protection