HQ 113083 - Coastwise Trade; Fuel Oil; 46 U.S.C. App. ? 883 - United States International Trade Commision Rulings

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HQ 113083

May 11, 1994

VES-3-CO:R:IT:C 113083 GEV

CATEGORY: CARRIER

Ronald J. Gumbaz
Vice President
Delphi Petroleum Inc.
40 Ave. at the Common
Shrewsbury, New Jersey 07702-4532

RE: Coastwise Trade; Fuel Oil; 46 U.S.C. App. ? 883

Dear Mr. Gumbaz:

This is in response to your letter dated May 9, 1994, regarding the transportation of fuel oil. Your letter offers two alternative scenarios not included in your letter of April 14, 1994, to which we have previously responded (ruling 113080, dated May 2, 1994). Our ruling on these two new alternatives is set forth below.

FACTS:

Delphi Petroleum Inc. ("Delphi") is a Delaware corporation engaged in the worldwide sale and trade of crude oil and refined petroleum products and is currently under contract to supply fuel oil to the Puerto Rico Electric Power Authority (PREPA) at San Juan, P.R. Delphi has the opportunity to purchase viscous dirty fuel oil manufactured by the Caribbean Petroleum Co. (CAPECO) at its San Juan, P.R. refinery. However, this fuel oil cannot be utilized by PREPA because it does not meet the quality requirements of PREPA.

Delphi also has access to a quantity of Yombo crude of Congo origin presently stored at St. Eustatius Terminal, N.A. Delphi proposes to process in tank a quantity of approximately 50% of the Yombo crude with approximately 50% of the CAPECO product with the resultant product meeting PREPA's specifications. The following two transportation scenarios involving a foreign-flag vessel are offered for Customs consideration:

1. After lading the Yombo crude at St. Eustatius, then proceeding to the CAPECO refinery dock and lading the CAPECO fuel oil for processing with the Yombo crude already on board, the foreign-flag
vessel would vacate the dock and sail to an anchorage prior to completing the discharge of the processed product back across the CAPECO dock. At some later time the vessel would return to the CAPECO dock from the anchorage to continue the discharge.

2. After lading the Yombo crude at St. Eustatius the foreign-flag vessel would sail directly to the PREPA dock. The CAPECO fuel oil would then be transported from the CAPECO refinery by a U.S.-flag vessel to the foreign-flag vessel. The CAPECO product would be discharged from the U.S.-flag vessel onto the foreign-flag vessel for processing while the latter was berthed at the PREPA dock. The processed product would be discharged across the PREPA dock with the foreign-flag vessel never having moved from the PREPA dock, except to the extent that it was forced to vacate the PREPA dock, go to an anchorage, and then return to the PREPA dock to commence or continue discharge.

ISSUE:

Whether the transportation of fuel oil as proposed in the above scenarios is in violation of 46 U.S.C. App. ? 883.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, ? 883 (the merchandise coastwise law often called the "Jones Act") prohibits the transportation of merchandise between United States coastwise points, either directly or via a foreign port, or for any part of the transportation, in any vessel other 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.

In interpreting ? 883, Customs has ruled that a point in United States territorial waters is a point in the United States embraced within the coastwise laws. The territorial waters of the United States consist of the territorial sea, defined as the belt, 3 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. Furthermore, Customs has long-held ? 883 applicable to Puerto Rico pursuant 48 U.S.C. ? 744 and 46 U.S.C. App. ? 877.

Section 4.80b(a), Customs Regulations, provides, in part, that:

A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at
a point embraced within the coastwise laws ("coastwise point") is unladen at another coastwise point, regardless of the origin or ultimate destination of the merchandise. However, merchandise 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 posses- sion of the U.S. not subject to the coastwise laws), it is manufactured or processed into a new and different pro- duct, and the new and different product thereafter is transported to a coastwise point.

In applying ? 4.80b(a), Customs 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. In regard to the processing of fuel oil, pursuant to T.D. 91-32 published in the Federal Register on April 10, 1991 (56 FR 14467) prior to reaching a determination that a new and different product has in fact been created for purposes of ? 4.80b(a), the procedures and specific data of such operations should be submitted by the party seeking such a determination. Customs will then review the data and make the necessary determination which will form the basis for a decision regarding any possible violation of ? 883.

Whether or not a new and different product has been created by the processing in question for purposes of 19 CFR ? 4.80b(a) is immaterial with regard both of the alternative scenarios described above. Although the processing in each case takes place on board the vessel, there is no transportation between coastwise points. In Scenario #1 the CAPECO product is being laded and unladed at the same coastwise point. The movement of the vessel from the dock to an anchorage and back to the dock is not a coastwise movement provided the CAPECO product is not discharged at the anchorage. The same rationale applies in Scenario #2 if the foreign-flag vessel is forced to vacate the dock and later returns. In addition, if the vessel is remaining stationary and merely pumping the resultant product ashore, there is no transportation between coastwise points. In Scenario #2, however, the vessel transporting the CAPECO fuel oil from the CAPECO refinery dock to the PREPA dock must not only be U.S.-flagged, it must also be U.S.-built (i.e., coastwise-qualified).

HOLDING:

The proposed transportation of fuel oil as described in the above scenarios is not in violation of 46 U.S.C. App. ? 883 provided the coastwise point of lading and unlading is the same, and with respect to Scenario #2, the vessel transporting the CAPECO fuel oil from the CAPECO refinery dock to the foreign-flag vessel berthed at the PREPA dock must be coastwise-qualified.

Sincerely,

Arthur P. Schifflin

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