HQ 0223769 - Internal advice request concerning fungibility of jet fuel; ASTM standards for jet fuel; aromatics content; footnote C of ASTM standard D-1655; substitution same condition drawback; 19 U.S.C. 1313(j)(2) - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1993 HQ Rulings > HQ 0223541 - HQ 0223772 > HQ 0223769

HQ 223769

October 20, 1992

DRA-4-CO:R:C:E 223769 C

CATEGORY: ENTRY LIQUIDATION

Deputy Assistant Regional Commissioner
Commercial Operations
U.S. Customs Service
South Central Region
423 Canal Street, Suite 337
New Orleans, Louisiana 70130-2341

RE: Internal advice request concerning fungibility of jet fuel; ASTM standards for jet fuel; aromatics content; footnote C of ASTM standard D-1655; substitution same condition drawback; 19 U.S.C. 1313(j)(2)

Dear Sir:

This responds to your memorandum of August 13, 1991, regarding the fungibility of jet fuel for CITGO Petroleum Corporation (CITGO). We have reviewed all relevant materials, including CITGO's brief and exhibits, and our response follows.

FACTS:

You stated that CITGO filed a substitution same condition drawback claim covering imports and exports of commercial kerosene-type jet fuel. The chemical analysis reports on the imported and exported shipments were referred to the Customs Laboratory at New Orleans for a fungibility determination. Its February 8, 1991, report indicated that the shipments were not fungible. The laboratory found that the exported jet fuel did not meet the American Society for Testing and Materials (ASTM) specification for aromatics content for commercial kerosene-type jet fuel.

The ASTM jet fuel standard, D-1655, specifies a maximum aromatics content of 20 volume percent but adds the following proviso as its footnote C: Fuels with an aromatics content over 20 volume percent but not exceeding 25 volume percent are permitted provided the supplier (seller) notifies the purchaser of the volume, distribution and aromatics content within 90 days of the date of shipment unless other reporting conditions are agreed to by both parties.
In this case, the imported jet fuel has an aromatics content below 20%, and the exported jet fuel has an aromatics content between 20% and 25%. The imported merchandise satisfies the aromatics specification listed in the main table of ASTM D-1655, while the exported merchandise satisfies the specification set forth in footnote C. CITGO argues that by falling within the range of footnote C, it has satisfied the specification provided in ASTM D-1655. Further, CITGO maintains that "there is incontrovertible evidence that jet fuel manufacturers, airlines and all other commercial parties in the industry ignore the ASTM aromatics footnote C and accept product containing up to 25 percent aromatics without notice and without prior agreement."

ISSUE:

Whether commercial kerosene-type jet fuel that meets the standard for aromatics content as set forth in ASTM standard D- 1655 is fungible with such jet fuel that does not meet that standard but falls within the range of the standard's footnote C?

LAW AND ANALYSIS:

The substitution same condition drawback law, 19 U.S.C. 1313(j)(2), requires that the exported substituted merchandise must be fungible with the imported designated merchandise and must be in the same condition at exportation as was the designated merchandise at importation. The term "fungible merchandise" is defined in section 191.2(l) of the Customs Regulations, 19 C.F.R. 191.2(l), as "merchandise which for commercial purposes is identical and interchangeable in all situations." This definition is consistent with the clearly expressed intent of Congress when it enacted the law (see House Report (Ways and Means Committee) No. 98-1015, September 12, 1984, reprinted at 1984 U.S.C.C.A.N 4960, 5023; see also 129 Cong. Rec. E 5339 (daily ed. November 4, 1983). In addition, this definition was quoted favorably and applied by the United States Court of International Trade in Guess? Inc. v. United States, Slip Op. 90-121 (CIT November 26, 1990), 24 Cust. Bull., No. 51, p. 26 (1990). (Guess? was remanded to the CIT on the facts only.)

CITGO asserts that it is a commercial practice in the industry to treat commercial kerosene-type jet fuel (hereafter referred to as jet fuel) containing aromatics between 20% and 25% as interchangeable with jet fuel containing aromatics of 20% and below. CITGO argues that jet fuel producers and users, as well as engine manufacturers, recognize no distinction between jet fuel containing 20% or less aromatics and that containing between 20% and 25% aromatics. In this regard, CITGO stated the following:

Jet fuel containing aromatics between 20 and 25 percent is priced the same as jet fuel containing aromatics less than 20 percent [at levels of 20% and below]. If aromatics content is too high, i.e., in excess of approximately 25 percent, the purchaser will likely reject the shipment. Otherwise, assuming all of the other ASTM properties are acceptable, kerosene-type commercial grade jet fuel containing between 20 and 25 percent aromatics is bought and sold in an identical manner as that containing 20 percent and less aromatics. There is no commercial distinction between such fuels.

CITGO provided the affidavit of Mr. Jack Donathan, CITGO's Manager of Terminal Blending Operations and previously its Manager of Fuel Technical Services. He stated that the airlines have never requested, and CITGO has never provided, notice that its jet fuel contains aromatics above 20%. CITGO routinely furnishes jet fuel containing between 20% and 25% aromatics without notice to any of its domestic or foreign customers. Mr. Donathan is not aware of any seller or purchaser that provides or requires notice that jet fuel aromatics exceed 20%.

Additionally, CITGO offers evidence that the two leading domestic manufacturers of jet engines, General Electric and Pratt & Whitney, recommend to users of their products that aromatics in jet fuel not exceed 25%. Further, CITGO alleges, until recently, Pratt & Whitney's specifications listed a maximum of 20% for aromatics but changed it to 25% in recognition of the emerging change of practice in the industry.

Standing in contradistinction to the foregoing assertions are the ASTM standards themselves. As stated, these standards have been recognized as acceptable guidelines in making fungibility determinations for jet fuel (C.S.D. 91-21). As counsel indicates in its brief, the ASTM is comprised of both producers and users in a given industry who appoint technical committees to formulate and review product standards. The ASTM standards for jet fuels, formulated as above, recognize a distinction between fuels containing aromatics of 20% and below and fuels containing aromatics in excess of 20% up to 25%. This means that committees appointed by producers and users of jet fuel determined that there is a significant difference between jet fuels containing these different levels of aromatics. Now, we are being asked by one producer to ignore this distinction on the grounds that standards in jet fuel production, sale, and use have changed and, as CITGO alleges, an entire industry has modified its practice.

We continue to believe that the ASTM standards, as guidelines, are the best indicators of fungibility for jet fuels. Since these standards, as currently constituted, include the distinction represented by footnote C, we are inclined to continue to give the distinction meaningful recognition. The question is whether or not evidence of commercial use can override the technical standards Customs has used in making fungibility determinations. CITGO alleges that commercial practice in the industry demonstrates that the fuels in question - the D-1655 fuel and the footnote C fuel - are commercially interchangeable and thus fungible. However, we are not convinced that CITGO has established this proposition sufficiently.

In addition to the ASTM standards, jet fuel specifications contained in EXXON's 1987 edition of "Jet Fuel Specifications" were reviewed. Included among those entities listing a maximum 20% by volume for aromatics were the following:

ASTM*
IATA*
Colonial Pipeline Company*
Explorer Pipeline Company*
Pratt & Whitney
Buckeye Pipeline*
U.S. Air Force
Australian Government (Civil)**
National Council of Petroleum**
ICONTEC*
French Ministry of the Armed Forces

Those listing a maximum of 25% for aromatics were the following:

General Electric
MITI*
Swedish Defence Materials Administration

Those listing a maximum of 22% for aromatics were the following:

Canadian Government Specifications Board* United Kingdom Ministry of Defense

The specifications of entities noted above with an asterisk contain a footnote that permits acceptance of fuels with up to 25% aromatics so long as a timely notice is provided by the supplier (seller) to the buyer. The specifications of entities noted above with a double asterisk contain a footnote that permits acceptance of fuels with up to 22% provided a timely notice is given. For Pratt & Whitney, listed in the first group above, the footnote is a waiver of the 20% maximum: "Waiver currently in effect authorizing up to 25 vol. % Aromatics, as necessary." Although MITI is listed above in the second, or 25% maximum, group, the footnote indicates that any fuel with aromatics in excess of 20% requires the necessary notification. In effect, MITI belongs in the first group. The specifications for those entities above without an asterisk do not contain a footnote, thus indicating that there is no flexibility.

The foregoing list of aromatics specifications and footnotes indicates that companies and other entities have recognized a distinction between jet fuels with different levels of aromatics. Since not all maximums and footnotes are the same, it is clear that some of these entities view the distinction differently. If the distinction was not considered significant, there would not be any footnotes and all maximums would be 25%. In any event, with so many entities recognizing a significant distinction between fuels of different aromatics levels, as represented by their respective specifications - most mirroring the ASTM standards, it is hard to conclude that the industry has abandoned the distinction. CITGO has not submitted proof that all entities operating within the industry, or even a majority, have abandoned the footnote's distinction.

Letters were submitted on CITGO's behalf by Colonial Pipeline Company and Explorer Pipeline Company. CITGO cites them as evidence that pipeline companies treat the footnote C fuels the same as the D-1655 fuels. Yet, the latest obtained specifications for Colonial Pipeline and Explorer Pipeline, issued, respectively, in January 1992 and February 1992, indicate the same maximum of 20% aromatics for jet fuel and the same footnote. Moreover, the letter from Colonial Pipeline, dated December 2, 1991, indicates that Colonial recognizes ASTM footnote C but appears to consider it a matter for the supplier (seller) and buyer. Colonial commingles D-1655 and footnote C fuels but admonishes purchasers to be aware of the possibility that it may receive fuel with aromatics as high as 25%. The letter from Explorer Pipeline Company, dated December 2, 1991, indicates that it commingles these fuels but also recognizes the legitimacy of ASTM footnote C and appears to consider it a matter between the supplier and purchaser.

A third letter was submitted on CITGO's behalf; this one from Delta Airlines. Delta admits that it uses D-1655 fuel and footnote C fuel interchangeably and does not demand notice as required under footnote C of the ASTM standards.

We believe that the evidence submitted by CITGO is insufficient to demonstrate that the entire industry has abandoned the 20% maximum for aromatics as established by the ASTM standards and represented in the specifications issued by individual entities as set forth above. Moreover, CITGO's assertion that the domestic jet fuel manufacturing industry has abandoned any recognition of a 20% maximum for jet fuels is unpersuasive. The studies it cited indicate that one third of the manufacturers's samples observed demonstrate aromatics levels in excess of 20%. We do not believe that this establishes that the industry, including producers, buyers, sellers, and users, has abandoned any recognition of the 20% maximum aromatics level contained in the ASTM standards.

Finally, at a meeting at Customs Headquarters, it was suggested that the ASTM itself was contemplating changing the maximum standard for jet fuel aromatics. Although the proposition has been the subject of rumor, CITGO has not submitted any proof that it is forthcoming. Moreover, the rumor, as is its nature, is anything but certain with respect to the contemplated maximum.

Ultimately, CITGO asks us to do that which is inadvisable without a clear and substantial basis: abandon technical standards - standards that have been used by Customs to make fungibility determinations - on the basis of a less than convincing argument that commercial practice has changed industry-wide and while the standards, as they have been constituted, remain in effect. Our Office of Laboratories and Scientific Services has cautioned against straying from established industry-wide technical standards that have already been accepted as indicators of fungibility. This is not to say that it would never be appropriate to accept as convincing evidence of an industry's commercial practice that clearly demonstrates interchangeable use of a product at variance with a technical standard. It is just that on the facts here, the evidence is unconvincing and unpersuasive, especially in view of the continued existence of an industry standard that could be changed if the industry - through ASTM - found it necessary or appropriate. If the ASTM did in fact change the aromatics standard, we would recognize such change as persuasive evidence that the industry-wide commercial practice was to treat standard D-1655 fuels the same as footnote C fuels.

HOLDING:

Based on the foregoing, we conclude that the imported and exported shipments of jet fuel here involved are not fungible on the grounds that the exported substituted jet fuel is not within the same ASTM standard as the imported designated jet fuel. Commercial kerosene-type jet fuels evidencing 20% and below aromatics levels (ASTM D-1655) are not fungible with commercial kerosene-type jet fuels evidencing aromatics levels in excess of 20% but not exceeding 25% (footnote C to ASTM D-1655).

Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling