HQ 0111888 - Coastwise Trade; Fuel Oil Blending; 46 U.S.C. App. 883, 19 CFR 4.80b(a) - United States International Trade Commision Rulings

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HQ 111888

September 27, 1991

VES-3-07-CO:R:IT:C 111888 BEW

CATEGORY: CARRIER

Donald Zarin, Esquire
Milgrim Thomajan & Lee PC
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036-5405

RE: Coastwise Trade; Fuel Oil Blending; 46 U.S.C. App. 883, 19 CFR 4.80b(a)

Dear Mr. Zarin:

This is in response to your letter dated September 16, 1991, requesting a ruling regarding the applicability of 46 U.S.C. App. 883 to a proposed blending operation. Our ruling on this matter is set forth below.

FACTS:

A U.S. corporation has loaded approximately 35,000 barrels of heavy cycle oil, 10,000 barrels of carbon black oil, 5,000 barrels of light cycle oil, and 55,000 barrels of clarified slurry oil onto a foreign flag vessel at a U.S. port. Approximately 215,000 barrels of a high viscosity residual oil will be loaded onto the same foreign-flag vessel at a foreign port in a separate storage tank segregated from the U.S. originated fuel oil. The company proposes to ship the segregated oil to a port in the Caribbean, where the products would be off- loaded and manufactured through blending in a shore tank leased by the U.S. corporation. You state that all blending operations of the U.S. origin and foreign origin oils will be performed in the shore tank. The resultant new product of approximately 320,000 barrels would be classifiable as No. 6 fuel oil under the American Standard for Testing Materials (ASTM) standard specifications. The new product will be loaded onto a foreign- flag vessel for shipment to and off-loading in a U.S. port.

ISSUE:

Whether the 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, section 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 the coastwise laws, Customs has ruled that a point in United States territorial waters is considered a point embraced within the coastwise laws. The coastwise laws generally apply to points in the territorial sea, defined as the belt, three (3) nautical miles wide, adjacent to the coast of the United States and 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 possession of the U.S. 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.

In applying section 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. Pursuant to T.D. 91-32 published in the Federal Register on April 10, 1991 (56 FR 14467) prior to reaching a determination that a new and different product has in fact been created by a blending operation for purposes of section 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 section 883.

Upon reviewing the specifications of this particular blending operation, we note that the ASTM grades of the domestic oil (No. 4 and No. 5) and that of the imported fuel oil blend (No. 6) are different. Further, we note that a comparison of the domestic oils and the imported No. 6 blend show significant differences in the specifications for APT gravity, viscosity, sulfur and heavy metals content and flash point not only between the imported blend and domestic oils, but also among the domestic oils.

Based on this data it is apparent that the petroleum industry would consider the subject blending operation as having created a product which is new and different that any of its domestic oil components. Under the foregoing, we find than the subject blending operation creates a new and different product from that exported from the U.S. within the meaning of section 4.80b(a).

According, the transportation of the resultant blend by a foreign-flag vessel would not be a violation of 46 U.S.C. App. 883.

HOLDING:

The 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 would not be a violation of 46 U.S.C. App. 883.

Sincerely,

B. James Fritz

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