HQ 0556515 - Eligibility of fuel grade ethyl alcohol under the CBERA - United States International Trade Commision Rulings

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HQ 556515

April 6, 1992

CLA-2 CO:R:C:S 556515 SER

CATEGORY: CLASSIFICATION

R. Sarah Compton, Esq.
Eckert, Seamans, Cherin & Mellot
Suite 600
2100 Pennsylvania Ave., N.W.
Washington, D.C. 20037

RE: Eligibility of fuel grade ethyl alcohol under the CBERA

Dear Ms. Compton:

This is in response to your letter of February 7, 1992, on behalf of Regent International ("Regent"), concerning the eligibility of fuel grade ethyl alcohol for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA)(19 U.S.C. 2701-2706), and the Tax Reform Act of 1986 (Pub. L. 99-514), as amended by the Steel Trade Liberalization Act of 1989 (Pub. L. 101-221 and Pub. L. 101-382).

FACTS:

Regent is contemplating the importation of fuel grade ethyl alcohol from an undetermined Caribbean Basin beneficiary country (BC). The fuel grade ethyl alcohol would be produced in the BC by dehydrating hydrous ethanol feedstocks.

ISSUE:

Whether dehydrated ethyl alcohol, which meets the indigenous products requirement of section 423 of the Tax Reform Act, as amended, is subject to the 35% value-content requirement of 19

LAW AND ANALYSIS:

Under the CBERA, eligible articles from BCs are accorded duty-free treatment. The requirements for eligibility are established in 19 U.S.C. section 2703(a), which provides as follows:

(1) Unless otherwise excluded from eligibility by this chapter, and subject to section 423 of the Tax Reform Act of 1986, the duty-free treatment provided under this chapter shall apply to any article which is the growth, product, or manufacture of a beneficiary country if-

(A) that article is imported directly from a beneficiary country into the customs territory of the United States; and

(B) the sum of (i) the cost or value of the materials produced in a beneficiary country or two or more beneficiary countries, plus (ii) the direct costs of processing operations performed in a beneficiary country or countries is not less than 35 per centum of the appraised value of such article at the time it is entered. (Emphasis added).

Section 423 of the Tax Reform Act, as amended by the Steel Trade Liberalization Act of 1989 (P.L. 101-221, section 7(a) 103 Stat. 1886, 1890 (1989)), states that ethyl alcohol qualifies as an eligible article if the ethyl alcohol or mixture thereof is an "indigenous product" of the BC. Specifically, section 423 provides, in pertinent part, as follows:

(a) IN GENERAL. -Except as provided in subsection (b), no ethyl alcohol or a mixture thereof may be considered-

(2) for purposes of section 213 [19 U.S.C. 2703] of the Caribbean Basin Economic
Recovery Act, to be-
(A) an article that is wholly the growth, product, or manufacture of a beneficiary country,
(B) a new or different article of commerce which has been grown, produced, or manufactured in a beneficiary country,
(C) a material produced in a beneficiary country, or
(D) otherwise eligible for duty- free treatment under this Act as the growth, product, or manufacture of a beneficiary country; unless the ethyl alcohol or mixture thereof is an indigenous product of that insular possession or beneficiary country.

(c) DEFINITIONS...

(3)(A) Ethyl alcohol and mixtures thereof that are only dehydrated within an insular possession or beneficiary country ... shall
be treated as being indigenous products of that possession or country only if the alcohol or mixture when entered, meets the applicable local feedstock requirement.
(B) The local feedstock requirement with respect to any calendar year is-
(i) 0 percent with respect to the base quantity of dehydrated alcohol and mixtures that is entered;
(ii) 30 percent with respect to the
35,000,000 gallons of dehydrated alcohol and mixtures next entered after the base quantity; and
(iii) 50 percent with respect to all dehydrated alcohol and mixtures entered after the amount specified in clause (ii) is entered.
(C) For purposes of this paragraph:
(i) The term 'base quantity' means, with respect to dehydrated alcohol and mixtures entered during any calendar year, the greater of-
(I) 60,000,000 gallons; or
(II) an amount (expressed in gallons) equal to 7 percent of the United
States domestic market for ethyl alcohol...
(ii) The term 'local feedstock' means hydrous ethyl alcohol which is wholly produced or manufactured in any insular possession or beneficiary country.
(iii) The term 'local feedstock requirement' means the minimum percent, by volume, of local feedstock that must be included in dehydrated alcohol and mixtures. (Emphasis added).

Congress, in amending 19 U.S.C. 2703(a)(1) to be "subject to section 423 of the Tax Reform Act of 1986," as amended, prescribed a unified scheme for tariff treatment of ethyl alcohol under the CBERA. See National Corngrowers Ass'n v. Von Raab, 650 F.Supp. 1007 (CIT 1986), aff'd, 814 F.2d 651 (Fed. Cir. 1987). As indicated in the language of section 423, and supported by the legislative history of section 423, it is Customs position that ethyl alcohol which meets the "indigenous product" requirement would be considered to be "wholly the growth, product, or manufacture of a beneficiary country."

Section 10.195(d), Customs regulations (19 CFR 10.195(d)), states that articles which are wholly the growth, product, or manufacture of a BC shall normally be presumed to meet the CBERA origin requirements set forth in 19 CFR 10.195(a) (including the 35% value-content requirement). Therefore, ethyl alcohol which satisfies the "indigenous product" requirement is normally presumed to meet the CBERA 35% requirement, and is entitled to duty-free treatment under this program when imported directly from the BC to the U.S.

HOLDING:

Ethyl alcohol which is dehydrated in a BC and which meets the "indigenous product" requirement established in section 423 of the Tax Reform Act of 1986, as amended, is normally presumed to meet the 35% value-content requirement of the CBERA and will receive duty-free treatment, assuming it is imported directly from the BC to the U.S.

Sincerely,

John Durant, Director
Commercial Rulings Division

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