HQ 0557008 - Eligibility of dehydrated alcohol for duty-free treatment under the CBERA; Tax Reform Act of 1986; Steel Trade Liberalization Act of 1989; motor fuel; ethyl alcohol; indigenous product - United States International Trade Commision Rulings

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HQ 557008

March 9, 1993

CLA-2 CO:R:C:S 557008 WAW

CATEGORY: CLASSIFICATION

Ryan Trainer, Esq.
Rogers & Wells
607 14th Street, N.W.
Washington, D.C. 20005-2011

RE: Eligibility of dehydrated alcohol for duty-free treatment under the CBERA; Tax Reform Act of 1986; Steel Trade Liberalization Act of 1989; motor fuel; ethyl alcohol; indigenous product

Dear Mr. Trainer:

This is in response to your letter of November 9, 1992, concerning the eligibility of dehydrated alcohol from Jamaica on behalf of E.D. & F. Man Jamaica Ltd. ("Man"), 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:

You state that ethyl alcohol will be produced in a third country which is not a CBERA beneficiary country (BC). MAN will purchase the alcohol in the third country and import it into Jamaica. Once in Jamaica, the ethyl alcohol will be rectified and dehydrated under contract by JEPCO, a Jamaican company related to MAN.

The alcohol will then be imported into the U.S. by MAN to be used exclusively for motor fuel purposes. You state that this dehydrated alcohol will be made exclusively from ethyl alcohol that is imported into Jamaica from non-BCs.

You claim that the dehydrated alcohol imported into the U.S. from Jamaica as described above should enter the U.S. duty-free. This request is premised on the assumption that the dehydrated alcohol will be within the statutory "base quantity" and will be shipped directly from Jamaica to the U.S. You have asked us to assume that, for purposes of this ruling request, the dehydrated alcohol will be within the local feedstock requirement which is zero percent with respect to the base quantity of dehydrated alcohol and mixtures that is entered.

ISSUE:

Whether the dehydrated ethyl alcohol meets the requirements under the CBERA for duty-free entry into the U.S.

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 percent 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) O 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 (I) 60,000,000 gallons; of
(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 into the U.S.

However, it would be incorrect to conclude that since section 423 covers a special and specific origin test for dehydrated alcohol, the CBERA 35% value-content requirement contained in 19 CFR 10.195(a) does not apply. Pursuant to 19 U.S.C. 2703(a), to be eligible for duty-free treatment under the CBERA, an eligible article must satisfy the "product of", 35% value-content and "imported directly" requirements. Even in circumstances where an article is determined to be wholly produced in the BC, the 35% value-content requirement is still statutorily applicable.

However in calculating the value-content percentage where an article is "wholly the growth, product, or manufacture of a" BC, the cost or value of all the materials incorporated in the article may be counted as "materials produced" in the BC. See sections 10.191(b)(3) and 10.196(a), Customs Regulations (19 CFR 10.191(b)(3) and 10.196(a)). Thus, in regard to dehydrated ethyl alcohol which meets the statutory "indigenous product" requirement (and, therefore, is considered to be "wholly the growth, product, or manufacture of a" BC), all of the feedstock included in the ethyl alcohol, even feedstock imported into a BC from a non-BC, may be counted toward the 35% requirement as "materials produced" in a BC.

With respect to your question concerning whether "any documentation, calculation, or statement" must be submitted to Customs in support of a claim that the merchandise satisfies the 35% requirement, such information is required when specifically requested by the district director.

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 and will receive duty-free treatment, assuming it is "imported directly" from the BC to the U.S.

Sincerely,

John Durant, Director

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