HQ 0111367 - Coastwise Trade; Fuel Oil Blending; 46 U.S.C. App. 883 - United States International Trade Commision Rulings

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HQ 111367

March 5, 1991

VES-3-CO:R:IT:C 111367 GEV

CATEGORY: CARRIER

Beverly J. Rudy, Esq.
Milgrim, Thomajan & Lee, P.C.
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036-5405

RE: Coastwise Trade; Fuel Oil Blending; 46 U.S.C. App. 883

Dear Ms. Rudy:

This is in response to your letter dated October 26, 1990 (your file no. 2545-5) regarding the applicability of the coastwise laws to a proposed fuel oil blending operation.

FACTS:

The blending operation in question involves slurry oil, a crude oil refining byproduct which is a heavy residue, or bottoms. This product typically has the following specifications:

Sulfur Content 1.75%
API Gravity @ 60F -1
Viscosity 140 (SSF @ 122F)
Pour Point, F max 60

Your client wishes to transport the slurry oil from Houston, Texas, where it is currently located, via foreign-flag vessel to Freeport, Bahamas, where the slurry oil will be discharged into storage tanks. The slurry oil will then be blended with a Peruvian origin blend of light fuel oils with the following specifications:

Sulfur Content 1.17%
API Gravity @ 60F 13.1
Viscosity 329 (SSF @ 122F)
Pour Point, F max 30

The proportion of the two components in the final product will be 40% slurry oil (approximately 200,000 barrels) and 60% of the light fuel oil blend (approximately 250,000 barrels).

The resulting product will be no. 6 residual fuel oil, which is to be sold to a Puerto Rican utility to generate electricity. This heavy industrial fuel oil will have the following specifications:

Sulfur Content 1.5%
API Gravity @ 60F 8 min
Viscosity 500 max
Pour Point, F max 75

Subsequent to the processing operation, the resulting residual fuel oil will be laden upon the foreign flag vessel and transported to Puerto Rico for delivery to the utility.

ISSUE:

Whether the fuel oil blending operation described above is sufficient to create a "new and different product" within the meaning of 19 CFR 4.80b(a) so that the proposed transportation of the resultant blend by a foreign-flag vessel is not in violation of 46 U.S.C. App. 883.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, 883 (the merchandise coastwise law often called the "Jones Act") prohibits the transportation of merchandise between United States coastwise points, either directly or via a foreign port, or for any part of the transportation, in any vessel other 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 interpreting 883, Customs has ruled that a point in United States territorial waters is a point in the United States embraced within the coastwise laws. The territorial waters of the United States consist of the territorial sea, defined as the belt, 3 nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ.

Section 4.80b(a), Customs Regulations, provides, in part, that:

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 posses- sion of the U.S. not subject to the coastwise laws), it is manufactured or processed into a new and different pro- duct, and the new and different product thereafter is transported to a coastwise point.

In applying 4.80b(a), Customs has held that merchandise manufactured or processed into a new and different product must be landed and processed at an intermediate port or place other than a coastwise point. The manufacturing or processing may not take place on board a vessel. We note that for the purpose of determining whether a new and different product has occurred as a result of a particular fuel oil blending operation, Customs has looked to whether the resultant product has differed from the original product in the following characteristics: sulfur content, specific gravity, pour point, and viscosity.

However, by a notice published in the Federal Register on November 1, 1989 (54 FR 46075) we informed the public that we were reviewing our position on this matter. We stated that we were of the opinion that not all blending operations which change the above four characteristics may result in a new and different product. The notice stated that prior to reaching future determinations that a new and different product has in fact been created by a blending operation for purposes of 4.80b(a), the procedures and specific data of such operations should be submitted by the party seeking such a determination. Customs will then review the data and make the necessary determination which will form the basis for a decision regarding any possible violation of 883. The final Federal Register package on this matter is currently in review. In the interim, notwithstanding our statement in the notice that Customs has suspended all rulings on this matter until the issue has been finally resolved, in view of the time that has elapsed since the publication of our original proposal we will now consider requests for rulings regarding this matter.

Upon reviewing the specifications of this particular fuel blending operation, we have determined that they are essentially inadequate in describing the character of the products involved. Accordingly, until such time as more complete specifications are submitted for our review, we are unable to issue a definitive ruling on this matter.

We note, however, that we have been able to formulate a non- binding advisory opinion based on the resultant product's
anticipated properties after blending. Our review of the submitted information shows that the slurry oil will probably meet the ASTM D 396 specification for the no. 6 low pour fuel oil. The specifications also indicate that the slurry oil is a low pour fuel oil with a maximum pour point of 60 F. This oil is blended off-shore with a Peruvian blend light oil which does not meet the ASTM D 396 specifications for fuel oil. The resulting 40/60 slurry oil/Peruvian blend is shown to have a maximum viscosity of 500 (it is not specific as to what this amount reflects; we assume SSF at 122 F) and a maximum pour point of 75 F. The pour point value indicates that the product is a high pour point fuel oil.

We emphasize that the values given for the blended product are maximum values and the actual values may, indeed, be lower. Interpolating the values in the 40/60 blend, we anticipate the final viscosity value will range from 140 to 329, most likely below 300 (SSF at 122 F) and the pour point will most likely have a maximum range of 30-60 F. Thus, based on the interpolated values of the blend, rather than the vague maximum values submitted, the 40/60 fuel oil blend will probably meet the ASTM D specification for no. 6 low pour fuel oil.

Therefore, based on our interpolated values, since both the final blend and original slurry oil in most instances will probably meet the ASTM D 396 specifications for low pour point no. 6 fuel oil, the final blend will in most instances not be considered a "new and different product" within the meaning of 4.80b(a). However, a review of the accredited laboratory reports from the commercial laboratories that test the products will eliminate the need for interpolation of the specifications submitted and allow Customs to issue a definitive ruling on this matter.

HOLDING:

The information presented is insufficient to determine whether the proposed fuel oil blending operation will create a "new and different product" within the meaning of 19 CFR 4.80b(a) so that the proposed transportation of the resultant blend by a foreign-flag vessel is not a violation of 46 U.S.C. App. 883. That vessel may therefore not be used for the transportation.

Sincerely,

B. James Fritz

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