HQ 0112895 - Coastwise Trade; Fuel Oil Blending; 46 U.S.C. App. 883; 19 C.F.R. 4.80b(a). - United States International Trade Commision Rulings

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HQ 112895

February 2, 1994

VES-3-07 CO:R:IT:C 112895 JBW

CATEGORY: CARRIER

Andrea Grant, Esquire
Verner, Liipfert, Berhard, McPherson and Hand Suite 700
901 15th Street, N.W.
Washington, D.C. 20005-2301

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

Dear Ms. Grant:

This letter is in response to your submissions, dated September 22, 1993, filed on behalf of Global Petroleum Corporation, in which you request a ruling on the applicability of 46 U.S.C. App. 883 to several fuel oil blending operations.

FACTS:

Global Petroleum intends to blend finished gasoline products in a bonded warehouse in Canada from separate blending components. The finished gasoline, in most instances, will be imported into the United States. Global Petroleum intends to transport both the blending components and the finished product on foreign-flag vessels. You request a ruling on the use of specified blending components, which you describe as representative of the blending operations performed. You state, however, that the volumes and the specifications of the components will vary.

Representative Transaction:

United States origin toulene, reformate, and rafinate will be shipped from the United States to Canada in segregated tanks on a foreign-flag vessel. These components contain the following characteristics:

1. Toulene:

API Gravity 40

Distillation (Deg. C)

IBP 104

10% 110

50 % 118.5

90% 138

End. Pt. 166

RVP (psi) 1.5

RON 112

MON 102

2. Reformate:

API Gravity 40.7

Distillation (Deg. C)

IBP 129.5

10% 153

50 % 163

90% 180

End. Pt. 232

RVP (psi) 3.3

RON 97.4

MON 85.8

3. Raffinate:

API Gravity 75.5

Distillation (Deg. C)

IBP 42

10% 60

50 % 72.5

90% 102.5

End. Pt. 121.5

RVP (psi) 5.3

RON 59.3

MON 57.3

4. Pentanes:

Global Petroleum will export to the blending facility in Canada pentane from Mexico. The specifications of this component would be:

API Gravity 90.4

Distillation (Deg. C)

IBP 30

10% 35.6

50 % 36.1

90% 50

End. Pt. 79

RVP (psi) Range: 16.0-16.5

RON 75

MON 73

Additional Components Used for Blending:

Global Petroleum also plans to use the following other components in its blending operation:

NAME SG RON MON R+M/2 LEAD 50PCT SULP MERC RVP DEG C PCT PPM PSI
WT

ASTM LIMITS 82.0 87.0 77 MIN (2)
MIN MIN (1) MAX MAX

Normal Butane 0.58 95.2 89.0 92.1 0 34.0 0.01 1 62.5

Mexican
Pentanes 0.64 73.0 72.0 72.5 0 46.0 0.01 3 13.0

Hydrocrackate 0.65 85.0 83.2 84.1 0 44.5 0.02 3 14.4

Isomerate 0.65 87.1 85.4 86.3 0 41.0 0.01 3 13.6

Light Virgin
Naphtha 0.67 73.1 69.9 71.5 0 51.0 0.01 13 13.5

Belview
Natural 0.67 73.0 72.0 72.5 0 47.5 0.01 3 13.5

Light Straight
Run 0.68 78.3 73.9 76.1 0 60.0 0.01 3 10.5

Raffinate 0.70 71.9 75.0 73.5 0 76.0 0.01 3 6.0

Pygas (Light) 0.71 94.5 80.1 87.3 0 66.0 0.01 3 10.5

Full Range
Naphtha 0.72 54.8 53.5 54.2 0 105.0 0.01 5 10.0

Argentina 83
RON 0.72 83.0 75.0 79.0 0 95.0 0.00 3 10.0

MTBE 0.75 117.7 100.0 108.9 0 60.0 0.01 3 9.0

Toluene 0.87 118.0 96.0 107.0 0 110.0 0.01 3 0.1

Xylene 0.87 112.3 96.0 104.2 0 135.0 0.01 3 0.7

C9 0.87 115.0 95.8 105.4 0 168.0. 0.01 3 0.2

Additional Blending Components:

NAME SG RON MON R+M/2 LEAD 50PCT SULP MERC RVP DEG C PCT PPM PSI
WT

ASTM LIMITS 82.0 87.0 77 MIN (2)
MIN MIN (1) MAX MAX

Light Cat Gas 0.70 90.3 79.3 84.8 0 78.0 0.01 3 11.1

Alkylate 0.70 95.0 92.3 93.7 0 104.0 0.01 3 7.5

Venezuelan
Cat Gas 0.76 91.0 80.0 85.5 0 105.0 0.07 3 8.0

Trinidad
Reformate 0.78 94.5 85.0 89.8 0 125.0 0.02 3 8.5

Heavy Cat
Gas 0.80 89.8 79.7 84.8 0 145.0 0.15 4 2.0

Pygas (Heavy) 0.86 97.2 82.4 89.8 0 154.0 0.01 3 2.0

Amoco Light
Cat Gas 0.68 93.4 80.8 87.1 0 56.0 0.01 3 11.2

NAME 10PCT 90PCT FBP DIST COP EXIST OXID V/L DEG C DEG C DEG RES COR GUM STAB
PCT MG/
VOL 100ML

ASTM LIMITS 225 2PCT 5
MAX MAX MAX

Light Cat Gas 49 194 192 1.0 1 2 240+ 50.3

Alkylate 82 132 197 2.5 1 2 360+ 53.9

Venezuelan
Cat Gas 57 199 220 3.0 1 2 360+ 63.5

Trinidad
Reformate 66 171 235 1.0 1 2 240+ 67.8

Heavy Cat
Gas 80 180 210 1.0 1 3 240+ 88.6

Pygas (Heavy) 120 165 188 3.0 1B 10 150 98.1

Amoco Light
Cat Gas 44 96 128 1.0 1 2 360+ 45.3

The vapor liquid ratio (V/L) was calculated using the formula: 52.47 - 0.33RVP + 0.20T10 + 0.17T50, where T10 is the distillation temperature in degrees C for 10 % evaporated, T50 is the distillation temperature in degrees C for 50 % evaporated, and RVP is RVP in kPA.

Finished Motor Gasoline:

The finished gasoline produced from the blending components in the representative transaction would produce gasoline having the following specifications. You acknowledge that these specifications are only approximate and may only be determined after testing the results of an actual blend.

Characteristics ASTM Specification Imported Gasoline

Distillation (Deg. C)

10% 50-70 Max. 52

50 % 77 Min. 92

90% 110-121 Max. 168

End. Pt. 225 Max. 196

V/L (2) Temp. (Deg. C) 41-60 57

RVP (psi) 15.0-7.8 Max. 9.02-8.76

MON 82 Min. 92

(R+M)/2 87-91 & above 87.4

ISSUE:

Whether the blending operations described above are sufficient to create a "new and different product" within the meaning of 19 C.F.R. 4.80b(a) so that the proposed transportation of the blend by a foreign-flag vessel is not in violation of 46 U.S.C. App. 883.
LAW AND ANALYSIS:

Section 883 of Title 46, United States Code Appendix, provides, in pertinent part:

No merchandise shall be transported by water, or by land and water, on penalty of forfeiture of the merchandise (or a monetary amount up to the value thereof as determined by the Secretary of the Treasury, or the actual cost of the transportation, whichever is greater...), between points in the United States, including Districts, Territories, and possessions thereof embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any other vessel 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....

46 U.S.C. App. 883. The Customs Service has ruled that a point within the territorial waters of the United States is a point embraced within the coastwise laws. The territorial waters of the United States consist of the territorial sea, defined as the belt, three nautical miles wide, 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) of the Customs Regulations provides, in part, that:

[M]erchandise 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 United States 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.

19 C.F.R. 4.80b(a). In applying this section, the Customs Service 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 Treasury Decision 91-32, 56 Fed. Reg. 14467 (April 10, 1991), the Customs Service requires the submission of data on the procedures of and materials used in a fuel oil blending operation to determine whether the merchandise is subject to the provisions of 46 U.S.C. App. 883. In its analysis, the Customs Service has adopted for most cases standards established by the American Society for Testing Materials (ASTM), for such standards represent industry-developed criteria for characterizing fuel oils. The Customs Service will generally consider fuel oils of different ASTM grades as different products. Consequently, fuel oil that is loaded at a coastwise point, blended at a foreign port or place, and unloaded at another coastwise point must change ASTM grade to be considered a "new and different" product for purposes of the coastwise laws.

Review of the specifications of the exporting blending components show that none meet the ASTM specifications for gasoline and can be regarded as new and different products when used to make gasoline meeting the ASTM specifications. Therefore, the transportation of these blending components by foreign-flag vessels will not result in a violation of 46 U.S.C. App. 883.

We note, however, that several of the blending components are extremely close in meeting the ASTM specifications for gasoline. These products are: reformate, Argentina 83 RON, light cat gas, Venezuelan cat gas, Trinidad reformate, and Amoco light cat gas. While shipments have the identical specifications as those submitted would not meet the ASTM requirements for gasoline, we view the specifications as only typical. Therefore, the specifications of the actual shipments may not be exactly identical to the typical specifications provided. The potential variance among different shipments may, in some instances, cause the borderline products to come within specifications for gasoline and would consequently not be considered new and different products.

We also wish to stress that the approach taken by the Customs Service to determine whether the blending of components is a "new and different product" for purposes of 46 U.S.C. App. 883 is not the same as the approach taken by the Customs Service to determine whether a product has undergone a "substantial transformation" for purposes of other statutes. Regarding this case, while several products may be considered to have become a "new and different product," they may not be considered as having undergone a substantial transformation, as they have only undergone a simple blending process and absolutely no process in which a chemical reaction has occurred.

HOLDING:

The blending components listed above do not meet the ASTM standards as gasoline and can be regarded as new and different products when used to make unleaded gasoline meeting the ASTM specifications. Therefore, the transportation of these blendstocks by foreign-flag vessels will not result in a violation of 46 U.S.C. App. 883.

Sincerely,

Arthur P. Schifflin
Chief

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