46 U.S.C. § 55102; 19 CFR 4.80b(a); Fuel Oil Blending; New and Different Product

HQ H213098 July 30, 2012 VES- 3-OT-RR:BSTC:CCI H213098 ALS CATEGORY: Carriers Andrea Grant, Esq. Martin Schaefermeier, Esq. DLA Piper, LLP 500 8th Street, N.W. Washington, D.C. 20004 RE: 46 U.S.C. § 55102; 19 CFR 4.80b(a); Fuel Oil Blending; New and Different Product  Dear Ms. Grant and Mr. Schaefermeier:This letter is in reply to your submission of April 6, 2012, on behalf of your client J.P. Morgan Ventures Energy Corporation (hereinafter “JPM”), 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:JPM proposes to transport fuel oil from either Houston, Texas or New York Harbor to the Bahamas, where it will undergo a blending operation with the resultant product subsequently transported to the United States. Specifically, JPM proposes the following scenario, as you state: JPM plans to load, in either Houston or New York Harbor, two types of fuel oil (No. 5 and No. 6) into a non-segregated tank onboard a foreign-flag vessel that it has chartered. Once laden, an independent, third-party inspector will certify that the fuel oil meets the standards for No. 5 fuel oil as set forth in the American Standard for Testing and Materials (“ASTM”) Standard Specification for Fuel Oils, designated as D396-10. The Company will send the vessel to the BORCO terminal in the Bahamas. There, the No. 5 fuel oil will be off-loaded into a shore tank. The product will be blended with large volumes of foreign-origin blendstocks, and the resultant product will meet the ASTM specifications for No. 6 fuel oil. This newly-created No. 6 fuel oil will be loaded onto a foreign-flag vessel and shipped to the United States for use by a utility. ISSUE:Whether the use of a non-coastwise-qualified vessel to transport the subject fuel oil from a coastwise point(s) within the United States to a coastwise point(s) other than the point(s) of lading, via the Bahamas as proposed, 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. Under 19 CFR 4.80b(a), which was promulgated pursuant to 46 U.S.C. App. § 883 (the predecessor of 46 U.S.C. § 55102), the following is provided: 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.) In the present case, you contend that with the blending of the fuel oil transported from the United States to the Bahamas while it is in the Bahamas, the fuel oil is not being transported coastwise because the blending results in a “new and different product.” We have sought and received advice from our Office of Laboratories and Scientific Services (OLSS) as to whether the processing you describe results in a new and different product. OLSS has concluded that the blending process you propose would result in a new and different product within the meaning of 19 CFR 4.80b(a), based on the information provided and subject to certification as you propose. In light of these findings, we find that the movement of No. 5 and No. 6 fuel oils in a non-segregated tank on a foreign-flagged vessel from a coastwise point(s) to the Bahamas to be processed into a new and different product as described above, then transported by a foreign-flagged vessel back to a different a coastwise point(s), does not violate 46 U.S.C. § 55102. Please note that if the fuel oil transported to the Bahamas is processed in a manner different than what you described to us in your April 6, 2012 submission, subject to verification, then our finding herein does not apply. HOLDING:Based on the facts presented herein, the use of a non-coastwise-qualified vessel for transportation of fuel oil from a coastwise point(s) to the Bahamas to be processed as noted above, then transported back to a coastwise point(s) other than the point(s) of lading of the originally transported 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