Reconsideration of CBP Ruling HQ H219709 (August 9, 2012); 46 U.S.C. § 55102; 19 CFR 4.80b(a); New and Different Product

HQ H233786 January 7, 2013 VES- 3-OT-RR:BSTC:CCR H233786 ALS CATEGORY: Carriers Jeanne M. Grasso, Esq. Blank Rome, LLP 600 New Hampshire, N.W. Washington, D.C. 20037 RE: Reconsideration of CBP Ruling HQ H219709 (August 9, 2012); 46 U.S.C. § 55102; 19 CFR 4.80b(a); New and Different Product  Dear Ms. Grasso:This letter is in reply to your submission of September 27, 2012, on behalf of your client, wherein you request a reconsideration and clarification of CBP Ruling HQ H219709 (August 9, 2012) regarding whether the proposed transportation by a non-coastwise-qualified vessel would constitute a violation of 46 U.S.C. § 55102. Our ruling on your request is set forth below. FACTS:Your client proposes to transport, aboard a foreign-flagged vessel, United States-sourced gasoline blendstock and naphtha from a coastwise point in the United States to the Bahamas to be blended together to produce Reformulated Blendstock for Oxygenate Blending (“RBOB”). It is possible that foreign-sourced components will be added to the blending process at that time. The RBOB will then be transported aboard a foreign-flagged vessel from the Bahamas to a coastwise point in the United States, where ethanol will be added to it “to create a gasoline-oxygenate blend meeting United States motor gasoline requirements.” ISSUE:Whether the proposed blending operations would result in the creation of a “new and different product” within the meaning of 19 CFR 4.80b(a) so that the proposed transportation by foreign-flagged vessels would not be in 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 response to the subject request for reconsideration, we have referred your most recent submission to CBP’s Laboratories and Scientific Services (LSS), Office of Information and Technology, for its review. In conjunction with their review, we offer the following in response to your request. The first question you raise is in your submission under the heading “The Subject Ruling Contains Contradictory Statements.” Under that heading, you state that “[t]he subject ruling quotes the findings of CBP’s Office of Information and Technology, Laboratories and Scientific Services [hereinafter ‘LSS’] which are contradictory. LSS states that: ‘it will not be possible to make a determination as to whether or not these shipments will be legal under the Jones Act. Further information relating to the instant shipments will be necessary. LSS goes on to explain again that it is unable to provide guidance without more information, but thereafter states that ‘it is our opinion that the blending process would not produce a ‘new and different product’ article of commerce.’” Our initial determination in HQ 219709 was based upon the information provided, which LSS opined contained overly broad specifications from which they were unable to conclude that the proposed blending process, as initially described, would result in a new and different product. To the extent that LSS surmised that it could possibly reach a different result if provided with more information does not affect our determination in the case currently under consideration. Your second concern comes from your submission under the heading “The Subject Ruling Seems to Apply the Incorrect Legal Standard,” wherein you state “[LSS] seems to use the incorrect legal standard in this ruling. The phrase ‘new and different article of commerce’ is used throughout the ruling, even though such terminology is associated with a ‘substantial transformation.’ The standard used for coastwise trade rulings, however, is based on whether a ‘new and different’ product is formed. This is recognized in another gasoline blending ruling, [CBP Ruling HQ 112895 (February 2, 1994)].” Notwithstanding the terminology employed by LSS, the subject ruling did not apply the incorrect legal standard. It specifically and unambiguously stated that the issue in our initial determination was “whether the proposed ‘blending operations’ would result in the creation of a ‘new and different’ product within the meaning of 19 CFR 4.80b(a), and whether such proposed transportation would be in violation of 46 U.S.C. § 55102.” We concluded our analysis by stating “we find that the proposed processing of the subject petroleum products in the Bahamas will not result in a “new and different product within the meaning of 19 CFR 4.80b(a),” after quoting directly from section 4.80b(a). Our holding in HQ 219709 specifically states that “we find that the subject proposed ‘blending operations,’ as specifically described within this particular submission, would not result in the creation of a ‘new and different product’ within the meaning of 19 CFR 4.80b(a).” This legal standard is reflected in all CBP ruling concerning this issue. The third point you raise is found in your statement made under the heading “LSS Incorrectly Characterizes the Blendstock and RBOB.” You note that LSS states that it is not possible for it to make a determination “due to the number of specification variables” relating to ‘Blend stock 1’ and in the ‘RBOB’ in which either product may or may not meet the ASTM requirements for “conventional gasoline.” You contend that “conventional gasoline” is not defined in the ASTM standard, but rather defined by the industry, U.S. regulations, and by the Environmental Protection Agency [EPA] as something other than reformulated gasoline, which is required in the United States. You further contend that LSS is incorrect in stating that the blendstock may meet ASTM requirements for gasoline, citing CBP Ruling HQ 116650 (June 9, 2006). LSS states that due to the wide range of possible specifications provided, there is uncertainty as to the character of the components and the resultant blended product. LSS further states that to the extent that it has characterized the blendstock and RBOB, it has done so based on the specifications provided, which they find to be “very broad which allows for a possible overlap of the RBOB and the blendstocks as well as the products that meet the ASTM definition of an end use gasoline.” HQ 116650, supra, is instructive on this matter. Your fourth point is your statement made under the heading “The Subject Ruling’s Guidance is Inconsistent with Prior Rulings.” You note our determination that “the specifications at the time of the export from the U.S. for the ‘Blendstock 1’ and the specifications of ‘RBOB’ at the time of import” are required to determine whether a new and different product is created. You contend that this would require a shipper to take a sample at loading and another before discharge and then submit a ruling request to CBP. You further contend that this is inconsistent with our prior rulings, such as CBP Ruling HQ 113080 (May 2, 1994), which you claim “set the parameters for what would constitute a “new and different product” and then impose upon the shipper the obligation to test the product leaving the United States and the product before it returns to the United States to ensure compliance.” In HQ 113080, we found, in pertinent part, that “because of the apparent crudeness of the fuel oil, it is almost certain that the specifications will vary with each shipment. Therefore, the issuance of this ruling may cover a broad range of fuel oils and blends. In comparing the ranges, the specifications of the blends and fuel oil may intersect at various key specifications, (i.e., viscosity, flash point). Therefore, the possibility exists that the blends and the exported U.S. fuel oil may be substantially similar. In the instances where the key specifications intersect or are similar, it is our opinion that the offshore blending process would not be sufficient to create a ‘new and different product’ within the meaning of 19 CFR 4.80b(a).” We find nothing in that declarative statement, or any other statement within HQ 113080, that suggests we typically set parameters within which the exported product and the product subsequently brought into the United States must fall. On the contrary, HQ 113080 reflects our position that variances in specifications that present the possibility of overlap between the original components and the finished blended product lead us to conclude that the blending process would not be sufficient to create a “new and different product” within the meaning of section 4.80b(a). With respect to the fifth item contained you letter, found in your statement made under the heading “The Subject Ruling Contains Confusing Legal Analysis,” we note the following. “You contend that the subject ruling’s discussion of continuity of transportation is confusing in that your request ‘involves only the application of 19 CFR 4.80b(a) and a determination whether the proposed blending operation creates a new and different product.’” In response to this issue, we refer to our response to your second concern above to reiterate that we were unambiguous in identifying the issue as whether the proposed ‘blending operations’ would result in the creation of a ‘new and different’ product within the meaning of 19 CFR 4.80b(a), clearly indicated that our findings were based on an analysis of 46 U.S.C. § 55102 and 19 CFR 4.80b(a) as applied to the given facts, and further stated so in our holding. This is the controlling legal authority on such issues. Your sixth point is succinctly set forth under the heading “The Subject Ruling Does Not Address the Companies’ Request Regarding Naphtha.” You cite HQ 116650, supra, claiming that the ruling held that naphtha is a different product from RBOB. LSS states that “the key issues in this case are the uncertainties surrounding overly broad specifications provided to CBP with regard to the products shipped… Naphtha is a gasoline blendstock of which we are requesting, if possible, tighter specifications so that there is no possibility of overlap with the RBOB.” Thus, we discussed naphtha in our initial determination only to the extent that the then-provided specifications would allow. Finally, we note your inclusion of revised specifications in your request for reconsideration. Upon review of the revised specifications, LSS found that “as in the original submission, these specifications are overly broad and imprecise.” Thus, LSS remains unable to render an analysis that would conclude a “new and different product” was created pursuant to 19 CFR 4.80b(a). In light of these findings, it is our position that the proposed blending operations, as described, would not be sufficient to create a “new and different product” within the meaning of 19 CFR 4.80b(a). Consequently, the proposed transportation of fuel oil on a foreign-flagged vessel to the Bahamas to be processed as described above, then transported by a foreign-flagged vessel back to the United States, would constitute a violation of 46 U.S.C. § 55102. HOLDING:Based on the specifications provided, we find that the proposed blending operations would not result in the creation of a “new and different product” within the meaning of 19 CFR 4.80b(a). Consequently, the proposed transportation by foreign-flagged vessels would be in violation of 46 U.S.C. § 55102. CBP Ruling HQ H219709 (August 9, 2012) is hereby affirmed.Sincerely, Glen E. Vereb Director Border Security and Trade Compliance Division Office of International Trade, Regulations & Rulings U.S. Customs and Border Protection