HQ 0109475 - Applicability of 46 U.S.C. App. 883 to transportation in non-coastwise-qualified vessels of fertilizer from Florida to Canada when part of the fertilizer is returned to the United States. - United States International Trade Commision Rulings

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HQ 109475

October 4, 1988

VES-3 CO:R:P:C 109475 PH

CATEGORY: CARRIER

Ms. Shirley R. Boyd
Law Department
Cargill Incorporated
Post Office Box 9300
Minneapolis, Minnesota 55440

RE: Applicability of 46 U.S.C. App. 883 to transportation in non-coastwise-qualified vessels of fertilizer from Florida to Canada when part of the fertilizer is returned to the United States.

Dear Ms. Boyd:

This is in response to your letter of April 26, 1988, in which you request a ruling on the applicability of 46 U.S.C. App. 883 to certain transactions involving the transportation of fertilizer.

FACTS:

You state that a subsidiary of your company manufactures phosphate fertilizers in Tampa, Florida. Your company also purchases other fertilizer products from third parties. A Canadian subsidiary of your company warehouses and merchandises fertilizers in Canada.

Your company is considering the shipment of fertilizer purchased by your Canadian subsidiary from your Florida subsid- iary or third parties to a warehouse in Montreal, Quebec, or Hamilton, Ontario. You state that these shipments would be by United States or foreign-flag vessels.

You state that the fertilizer products would be sold by your Canadian subsidiary in Canada F.O.B. the warehouse. The sale contracts would state "not for resale in the United States."

You request that we rule on the issues set forth in the ISSUES portion of this ruling.

ISSUES:

(1) May fertilizer owned by a United States company be transported in a non-coastwise-qualified vessel from a point in the United States to a Canadian warehouse owned by a Canadian subsidiary of the United States company where the fertilizer is sold, with the provision in the sales contract that it is "not for resale in the United States," to a Canadian purchaser who then exports some of the fertilizer back to the United States?

(2) May fertilizer owned by a United States company be transported in a non-coastwise-qualified vessel from a point in the United States to a Canadian warehouse owned by a Canadian subsidiary of the United States company where the fertilizer is sold, with the provision in the sales contract that it is "not for resale in the United States," to a United States purchaser who then exports some of the fertilizer back to the United States?

(3) If the coastwise laws are violated in either (1) or (2) above, what would be the effect of commingling, in the Canadian warehouse, the fertilizer transported in a non-coastwise- qualified vessel with fertilizer transported in a coastwise- qualified vessel?

LAW AND ANALYSIS:

Section 27 of the Act of June 5, 1920, as amended (41 Stat. 999; 46 U.S.C. App. 883, often called the Jones Act), provides that:

No merchandise shall be transported by water, or by land and water, on penalty of forfeiture of the mer- chandise (or a monetary amount up to the value thereof as determined by the Secretary of the Treasury, or the actual cost of the transportation, whichever is greater, to be recovered from any consignor, seller, owner, importer, consignee, agent, or other person or persons so transporting or causing said merchandise to 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 transpor- tation, in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States ....

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 of section 883 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 applica- bility of section 883 to the transportation of grain from Chicago or Milwaukee to a Canadian port in non-coastwise-qualified ves- sels. 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 section 883. 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 [section 883]" (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 opin- ion 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 Attor- ney 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.]

The Customs Service is "charged with the administration" of section 883. We have issued a number of rulings on the applica- bility of section 883 to operations such as that under consider- ation. In these ruling, 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 held that an 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. 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 consid- ered to break the continuity of the transportation when any of the merchandise is transported onward to a second point in the United States.

In the case under consideration, fertilizer would be shipped by your company from Florida to the warehouse of a subsidiary of your company in Canada. There the fertilizer would be sold to Canadian or United States companies. The only evidence of an "intention to bring [the fertilizer] into the common stock of [Canada]" would be that the sales contracts would state "not for resale in the United States." We conclude, on the basis of the authorities discussed above, that this is not sufficient to break the continuity of the transportation of the fertilizer. Fertil- izer which is transported from Florida to Canada in a non- coastwise-qualified vessel and then is returned to the United States would be transported in violation of 46 U.S.C. App. 883 and your company and its Florida and Canadian subsidiaries would be subject to the penalties provided for under section 883.

In the event that we hold that the described transportation violates section 883, you ask about the effect of commingling, in the Canadian warehouse, the fertilizer transported from Florida in a non-coastwise-qualified vessel with that transported in a coastwise-qualified vessel. It is our position that in such a circumstance the shipper is responsible for seeing that the fer- tilizer transported in the non-qualified vessel is kept segregat- ed from that transported in the qualified vessel. If the fertil- izer is commingled, penalties under section 883 are applicable with regard to the amount of commingled fertilizer returned to the United States, up to the quantity of the fertilizer transported from Florida to the Canadian warehouse in a non- qualified vessel.

You may wish to examine section 4.80b(a), Customs Regulations (19 CFR 4.80b(a)) (see also, American Maritime Association v. Blumenthal, 590 F. 2d 1156 (1978), cert. den. 441 U.S. 943), promulgated under the authority of section 883, with regard to your company's proposed operation. Under this provision, merchandise is not considered to have been transported coastwise when it is laden at one coastwise point, it is transported to and unladen at an intermediate non-coastwise point where it is manu- factured or processed into a new and different product, and thereafter the new and different product is transported to a second coastwise point. You have not provided us with enough information to rule on the applicability of this provision to your company's proposed operation. If you wish to request a ruling on this issue, we suggest that you review the Court's decision in the AMA v. Blumenthal decision to assist you in determining what information we will need, and what arguments you want to make.

HOLDINGS:

(1) Fertilizer which has been transported in a non- coastwise-qualified vessel from a point in the United States to a Canadian warehouse where it is sold, with the provision in the sales contract that it is "not for resale in the United States," to a Canadian purchaser is transported in violation of 46 U.S.C. App. 883 if it is returned to the United States.

(2) Fertilizer which has been transported in a non- coastwise-qualified vessel from a point in the United States to a Canadian warehouse where it is sold, with the provision in the sales contract that it is "not for resale in the United States," to a United States purchaser is transported in violation of 46 U.S.C. App. 883 if it is returned to the United States.

(3) If the fertilizer described in (1) or (2) above is commingled, in the Canadian warehouse, with fertilizer transport- ed from Florida to the warehouse in a coastwise-qualified vessel, penalties under 46 U.S.C. App. 883 are applicable with regard to the amount of commingled fertilizer returned to the United States, up to the quantity of the fertilizer transported from Florida to the Canadian warehouse in the non-coastwise-qualified vessel.

Sincerely,

B. James Fritz

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