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HQ 556193

December 23, 1991

CLA-2 CO:R:C:S 556193 SER

CATEGORY: CLASSIFICATION

A.M. Rosenblum, Esq.
Shell Oil Company
Two Shell Plaza
P.O. Box 2099
Houston, TX 77252

RE: Eligibility of Methyl Tertiary Butyl Ether for GSP duty-free treatment; commingling

Dear Mr. Rosenblum:

This is in response to your letter of August 15, 1991, concerning duty-free entry under the Generalized System of Preferences (GSP) of Methyl Tertiary Butyl Ether (MTBE) which is to be stored on a U.S. flag vessel at sea according to three possible scenarios prior to entry into the U.S.

FACTS:

Shell plans to import MTBE from several foreign sources into the U.S. Due to a shortage of viable storage facilities in the U.S., Shell plans to first store the MTBE on a U.S. flag vessel at sea prior to entry of the MTBE into the U.S. There are three alternative storage plans that Shell is considering, the first of which involves the shipment, by foreign tankers, of MTBE from Venezuela, Canada, Korea, and Saudi Arabia to the U.S. flag vessel which would be in international waters. The MTBE from all four sources would be commingled aboard the U.S. flag vessel, although proof of quantity and inventory of MTBE from the GSP beneficiary developing country (BDC) (Venezuela) could be maintained by independent inspectors to establish the volume entitled to duty-free treatment. As needs dictate, the MTBE would then be transferred to foreign tankers and imported into the U.S. A first-in, first-out accounting method would be used so that MTBE from a BDC could be accounted for all at one time.

The second alternative is similar to the first except that MTBE from a BDC would not be commingled with MTBA sourced from non-BDCs, but would be stored in totally separate compartments on the U.S. flag vessel. Under the third alternative, only MTBE from a BDC would be stored aboard the U.S. flag vessel. No MTBE from non-BDCs would be stored on the vessel, and there would be no commingling.

You state that, from an operational standpoint, the first alternative provides the best flexibility to meet your needs, with the remaining alternatives listed in order of your preference. You also state that Shell would provide air transportation to and from the U.S. flag vessel for Customs personnel, if required.

ISSUE:

Whether, under each of the three alternative storage plans, the MTBE from a BDC would be entitled to duty-free treatment under the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product, or manufacture of a designated BDC, which are imported directly into the customs territory of the U.S., may receive duty-free treatment if the sum of (1) the cost or value of materials produced in the BDC, plus (2) the direct costs of the processing operation in the BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry. See 19 U.S.C. 2463(b). As provided in General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States Annotated (HTSUSA), Venezuela is a BDC, and the MTBE is classified in subheading 2909.19.10, HTSUSA, which is a GSP-eligible provision.

The first issue presented in this case concerns whether the MTBE from Venezuela or some other BDC would be considered to be "imported directly" from the BDC to the U.S. when it is shipped from the BDC to a vessel in international waters, transferred to the vessel and stored for a period of time, and then transferred to a tanker for shipment to the U.S. Section 10.175, Customs Regulations (19 CFR 10.175) defines the term "imported directly" for purposes of the GSP. Paragraph (a), which sets forth the most restrictive definition of the term, provides that "imported directly" means "[d]irect shipment from the beneficiary country to the United States without passing through the territory of any other country." In all three scenarios presented in this case, the MTBE from a BDC would not pass through the territory of any other country during its shipment from the BDC to the U.S. Therefore, we find that, under the circumstances of this case, the MTBE would be considered "imported directly" to the U.S.

However, the district director at the port of entry must be satisfied that the imported MTBE was, in fact, "imported directly." To ensure that Customs will be able to trace the imported merchandise to its true country of origin, the district director may require the submission of appropriate shipping
documents, invoices, or other documents. See section 10.174, Customs Regulations (19 CFR 10.174).

The next issue to be addressed concerns whether the MTBE, in its condition as imported, is considered to be the "growth, product, or manufacture" of a BDC, as required by the GSP statute. This requirement means that to receive duty-free treatment, an article either must be made entirely of materials originating in the BDC or, if made of materials from a non-BDC, those materials must be substantially transformed in the BDC into a new or different article of commerce. As a general rule, an article is considered to be the "product of" a BDC only if the imported entity as a whole is the "product of" a BDC. See T.D. 91-7 dated January 16, 1991 (25 Cust. Bull. 6) (a set, mixture or composite good classifiable in one HTSUS subheading will receive GSP treatment only if all of the items or components in the collection are considered "products of" the BDC).

In regard to the first scenario in this case, MTBE from a BDC will be commingled with MTBE from non-BDCs aboard a U.S. flag vessel prior to the product's importation into the U.S. Thus, as the MTBE, in its condition as imported, will not be entirely the "product of" a BDC, none of the MTBE will be entitled to duty- free treatment under the GSP.

With respect to the second scenario, MTBE from a BDC would be kept in totally separate compartments of the U.S. flag vessel and would not be commingled with MTBE from non-BDCs. Under these circumstances, if the MTBE from the BDC remains separate from the MTBE from other sources and is imported separately, we believe that the MTBE from the BDC may be entitled to duty-free treatment, assuming compliance with the 35% value-content requirement. However, here again, the district director must be satisfied that a particular shipment of MTBE claimed to have been produced in a BDC is, in fact, entirely a "product of" that BDC. Section 10.173, Customs Regulations (19 CFR 10.173), allows the district director discretion in verifying evidence of the country of origin of imported merchandise. In this regard, please note that section 10.177(b), Customs Regulations (19 CFR 10.177(b)), provides that when the origin of an article is not satisfactorily demonstrated to the appropriate district director, the article shall not be considered to have been produced in the BDC. Therefore, we recommend that you discuss this matter with the appropriate district director prior to initiating this alter- native storage plan.

Under the third scenario, only MTBE from the BDC would be stored aboard the U.S. flag vessel. As the MTBE in this situation clearly would be the "product of" a BDC, it would be entitled to duty-free treatment under the GSP, assuming compliance with the 35% value-content requirement.

We have enclosed for your information a copy of the Customs Regulations relating to the GSP (19 CFR 10.171-10.178).

HOLDING:

Under the first storage plan, the MTBE would not be considered to be the "product of" a BDC in its condition as imported and, therefore, would not be entitled to duty-free treatment under the GSP. Under the second scenario, the MTBE from a BDC which is stored in separate compartments aboard the U.S. flag vessel and imported separately from the MTBE from non- BDCs would be considered to be the "product of" the BDC. However, for the MTBE to receive duty-free treatment under this alternative plan, the appropriate district director must be satisfied, from the documentation submitted and any verification which he deems necessary, that the MTBE is, in fact, entirely the "product of" a BDC and that the 35% value-content requirement is met. The MBTE stored and imported pursuant to the third scenario would be considered to be the "product of" a BDC and would be entitled to duty-free treatment, assuming compliance with the 35% requirement.

Sincerely,

John Durant, Director

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