HQ 227994 - 19 U.S.C. ?1313(p); definition of exporter; deemed exportation; 19 U.S.C. ?1309(b); substitution of finished petroleum derivatives - United States International Trade Commision Rulings

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HQ 227994

June 3, 1998

DRA-2-02 RR:CR:DR 227994 CB

CATEGORY: DRAWBACK

Ronald W. Gerdes, Esq.
Mr. Robert Schaffer
Sandler, Travis & Rosenberg, North Tower
1300 Pennsylvania Avenue, NW
Washington, D.C. 20004

RE: 19 U.S.C. ?1313(p); definition of exporter; deemed exportation; 19 U.S.C. ?1309(b); substitution of finished petroleum derivatives

Dear Messrs. Gerdes and Schaffer:

We are in receipt of your letter of February 26, 1998, on behalf of the American Petroleum Institute ("API"). It is our understanding that the API, in turn, is the contact organization representing the interests of the Air Transport Association, the Independent Fuel Terminal Operators Association, and the National Association of Foreign-Trade Zones with respect to the issue of drawback.

More specifically, in your referenced letter, you have requested a ruling on whether a fuel supplier, who delivers fuel to a qualifying vessel or aircraft, may be viewed as the exporter for purposes of 19 U.S.C. ?1313(p) and ?1309(b).

FACTS:

It is our understanding that within the petroleum industry, a "fuel supplier" could be a refiner operating under 19 U.S.C. purchases eligible fuel from a refiner or importer. It is also our understanding, based on your representations, that legal title to that fuel passes directly from the fuel supplier to the operator of the qualifying aircraft or vessel. That is to say, that a tank farm operator, pipeline operator or airport fueling agent does not own that fuel. The latter are simply the bailees for the vessel owner, airline or fuel supplier.

In response to our request, you have submitted copies of representative contracts which are used in the petroleum industry (we are aware that these contracts only provide an idea of the types of contract used in the industry). The sample contracts provided cover jet fuel. Commonly,
the contracts provide for an export credit sharing arrangement between a refiner and an airline. It is our understanding that the following provisions are used in the industry:

1. The Refiner is responsible for preparing and filing drawback claims and maintaining the appropriate records required by Customs.

2. The Airline provides Refiner with the appropriate export documents required to support the drawback claim (i.e., CF 7514s) and appropriate assignment waivers. Both parties agree that all records related to a claim will be retained for three years.

3. The Airline and Refiner agree to share the drawback monies received.

4. The contracts also provide that title and risk of loss to the products passes from the Refiner to the Airline at the aircraft to which delivery is made (in the case of into-plane delivery) or as the product passes the Refiner's (or its contractor's) outlet.

Based on your representations and the regulatory definition of "exporter", requiring the exercise of power and responsibility for determining and controlling sending the merchandise out of the United States, the following criteria must also be met in any transaction between fuel suppliers and owners of a vessel or aircraft, in addition to the language quoted above from the representative contracts (please note that any reference to "vessel owner" also applies to the vessel operator):

1. The Fuel Supplier is responsible to Customs for preparing and filing drawback claims and maintaining the appropriate records required by Customs (including the accuracy of the certified true copies of the airlines' or vessel owner's records given to show eligibility under 19 U.S.C. ?1309).

2. The Airline or Vessel Owner will provide and the Fuel Supplier will receive certified true copies of the Airline's flight records or vessel's log which will record the information needed to show the eligibility of the aircraft or vessel under 19 U.S.C. ?1309 which are required to support the drawback claim.

3. The Fuel Supplier and Airline or Vessel Owner acknowledge that the lading onto a qualified aircraft/vessel must be done within the 180-day period set forth in 19 U.S.C. ?1313(p)(2)(C)

4. The Fuel Supplier will not provide a certificate of delivery to the Airline or Vessel Owner which would enable the Airline or Vessel Owner to sell or trade the fuel to any other party, including another airline or vessel owner.

5. No other party (such as a pipeline company, a fuel storage facility or airport fueling operator) will have title to the fuel from the time that the fuel is sold by the fuel supplier and custody is given to the airline or vessel owner until it is laden onto an aircraft or vessel that is eligible under 19 U.S.C. ?1309(b).

6. Any other party such as a pipeline company, fuel storage facility or airport fueling operator will only have custody by a bailment from the time the fuel is sold by the fuel supplier until it is laden onto an eligible aircraft or vessel by the airline or vessel owner.

7. The Fuel Supplier will certify that no other party to the transaction has or will file a drawback claim with respect to the same merchandise or supplies.

Finally, your request also included the following delivery scenarios for which you have requested that we provide you with an analysis using the stipulated facts. For the purpose of showing that a fuel supplier has the power and responsibility for determining and controlling the transaction under 19 U.S.C. who owns and possesses the fuel and sells that fuel to a vessel operator or airline who uses that fuel in its vessel or aircraft within 180 days, respectively, on an eligible voyage or flight, for the five scenarios listed below. You have stated that delivery scenario #1 is the only scenario that applies to fuel delivered to a vessel. Scenarios 2, 4, and 5 apply only to airlines.

1. Fuel supplier delivers the fuel directly to the aircraft or vessel upon which it is laden. (Title transfers at this point.)

2. Fuel supplier delivers the fuel to a storage tank located at the airport or port facility and title transfers to the carrier at this point.

3. Fuel supplier delivers the fuel to a storage tank located in a Foreign Trade Zone, and the merchandise is entered in "zone restricted" status.

4. The fuel supplier delivers and transfers title to the carrier at some point in a pipeline, i.e., while the fuel is in transit to the airport or port facility.

5. The fuel supplier delivers the fuel to the carrier, and transfers title, at the "refinery gate," or at any non-airport or port storage facility, and the carrier arranges to move the fuel to the airport or port facility.

ISSUE:

For purposes of 19 U.S.C. ??1309(b) and 1313(p), which party to the transaction is the person who has control and responsibility for the lading onto the qualified aircraft or vessel for which a claim for drawback will be made?

LAW AND ANALYSIS:

Recently, the Customs Regulations regarding drawback were revised to implement the changes contained in the Customs Modernization portion of the North America Free Trade Agreement. The revised regulations are effective as of April 6, 1998. See 63 Fed. Reg. 10970 (March 5, 1998). Section 191.2(m)(2) defines "exporter" as that ". . . person who, as the principal party in interest in the export transaction, has the power and responsibility for determining and controlling the sending of the items out of the United States." The regulation further provides that for ?1309(b) purposes, ". . . the exporter means that person who, as the principal party in interest in the transaction deemed to be an exportation, has the power and responsibility for determining and controlling the transaction (in the case of aircraft or vessel supplies under 19 U.S.C. ?1309(b), the party who has the power and responsibility for lading the vessel supplies on the qualifying aircraft or vessel)." However, upon further review, it is the Customs Service position that further clarification of this definition is required for purposes of 19 U.S.C. ??1309(b) and 1313(p). More specifically, what is the scope of power and responsibility for lading on an eligible vessel or aircraft for which a claim for drawback will be made, in a transaction exclusively between a refiner and an airline/vessel owner, so as to satisfy the regulatory definition of "exporter"?

Generally, section 1313(p) of the United States Code (19 U.S.C. ?1313(p)) provides for drawback for certain petroleum derivatives. Under section 1313(p)(1), notwithstanding any other provision in section 1313, if:

(A) an article (referred to in section 1313(p) as the "exported article") of the same kind an quality (as specifically defined in section 1313(p)) as a qualified article is exported;

(B) the requirements set forth in section 1313(p)(2) are met; and

(C) a drawback claim is filed regarding the exported article,
the amount of the duties paid on, or attributable to the qualified article shall be refunded as drawback to the drawback claimant. The "notwithstanding" clause was included in order to overcome the requirements in 19 U.S.C. ??1313(a) and (b) that the export article made by the petroleum refiner be the article that is actually exported, and that it be commercially interchangeable for purposes of ?1313(j).

The requirements in section 1313(p)(2), compliance with which is a condition precedent to drawback under section 1313(p), are that the exporter must have: (1) manufactured the imported qualified article; or (2) purchased/exchanged the same from the manufacturer; or (3) imported a qualified article; or (4) purchased/exchanged an imported qualified article from the importer; and the exportation occurs within 180 days after the date of entry of the imported qualified merchandise or during the manufacturing period or within 180 days after the close of such period.

A review of the legislative history to the drawback laws, with respect to exportation, shows that the object of the drawback laws was to build up an export trade. Specifically, the following statements leave no doubt regarding the purpose of the drawback provisions:

"By way of encouraging exportation to other countries and extending our markets, the committee have liberalized the drawbacks given upon articles or products imported from abroad and used in manufactures here for the export trade. Existing law refunds 90 per cent of the duties collected upon foreign materials made into the finished product at home and exported aborad, while the proposed bill will refund 99 per cent of said duties, giving to our citizens engaged in this business 9 per cent additional encouragement, the Government only retaining 1 per cent for the expense of handling.

We have also extended the drawback provision to apply to all articles imported which may be finished here for use in the foreign market. Heretofore this privilege was limited. This, it is believed, will effectually dispose of the argument so often made that our tariff on raw materials, so called, confines our own producers to their own market and prevents them from entering the foreign market, and will furnish every opportunity to those of our citizens desiring it to engage in the foreign trade.
. . .
That is, we give to the capital and labor of this country substantially free trade in all foreign materials for use in the markets of the world . . .

We have extended this provision and in every way possible liberalized it, so that the domestic and foreign product can be combined and still allow to the exporter 99 per cent upon the duty he pays upon his foreign material intended for export; which is, in effect, what free traders and our political opponents are clamoring for, namely, free raw material for the foreign trade. And if you are desirous of seeing what you can do in the way of entering the foreign market, here is the apportunity (sic) for your. . . .
While the drawback features of the existing law are intended to encourage domestic manufactures, this encouragement is intended only when such manufactures are endeavoring to build up the foreign trade of the United States. The two purposes are joint and inseparable. No other construction will reconcile the principles of the customs system and of drawback allowance.

21 Cong. Rec. pp. 4247-4248 (daily ed. May 7, 1890) (statement of Rep. McKinley).

The emphasis on fostering foreign trade has also been made plain by the applicable case law as well as administrative decisions. In Tide Water Oil Co. v. United States, 171 U.S. 210 (1897), the Supreme Court stated that "[t]he object of the (drawback) section was evidently not only to build up an export trade, but to encourage manufactures in this country, where such manufactures are intended for exportation, . . . to compete in foreign markets with the same articles manufactured in other countries. . . [T]his object should be borne steadily in mind." 171 U.S. at 216. See also, The Anheuser-Busch Brewing Co. v. United States, 41 Ct. of Cls. 389, aff'd, 207 U.S. 556 (1908); Aurea Jewelry Creations, Inc. v. United States, 932 F.2d 943 (CAFC 1991), ("[The drawback provisions] have been consistently aimed at encouraging domestic manufacture for exportation in order to increase foreign commerce and aid domestic industry and labor.")

In contrast to Congressional intent in enacting the drawback laws, the legislative history on 19 U.S.C. ?1309 indicates that Congress intended to aid domestic fuel suppliers rather than to foster foreign trade. See 77 Cong. Rec. 3214 (daily ed. May 11, 1933) (statement of Sen. Reed) ("At the present time, ships under the American flag or foreign flags, engaged in the various services mentioned here, all have opportunity to buy their fuel oil at foreign ports, and since we have put a tax on that oil they have all been doing it. At the present time we are not getting any revenue out of vessels engaged in these services. We will not get any revenue out of them if this section passes; but Americans will get the business of selling to them, which at present is prevented by the imposition of the tax."). (emphasis added) Under 19 U.S.C. ?1309(b), drawback may be claimed on articles withdrawn from bonded warehouses, foreign trade zones, imported articles, and articles of domestic manufacture or production, laden as supplies upon an aircraft or vessel. Such lading constitutes a deemed exportation, if the aircraft is shown to be engaged in an activity set forth in 19 U.S.C. ?1309(a).

This indication of the legislative intent, with respect to 19 U.S.C. ?1309, has been consistently relied upon by the courts. In McGoldrick v. Gulf Oil Corp., 309 U.S. 414 (1940), the Supreme Court held that fuel oil which was laden for use as supplies on vessels engaged in foreign trade was deemed exported for purposes of the drawback provision. The action was commenced by Gulf Oil who was the refiner. There was no question of the vessel owner having standing. The Court examined 19 U.S.C. ?1309, in the context of a bonded manufacturing warehouse and the imposition of a State tax, and noted that the legislative history indicated that one intent behind the statute was to increase trade in fuel oil in American ports which had been lost through the purchase of fuel oil in foreign ports. The Court concluded that a State imposed tax, on imported oil manufactured in a bonded warehouse and laden as vessel supplies, failed because it conflicted with Congressional intent to enable domestic refiners to compete with foreign refiners and to promote foreign commerce.

In United States v. Gulf Oil Corp., 32 CCPA 133 (1945), the Court of Customs and Patent Appeals held that the lading on a vessel engaged in foreign trade completes the deemed exportation under 19 U.S.C. ?1309. The issue was whether drawback could be claimed on the entire amount of bunker oil originally laden, or only on that portion which was actually consumed in foreign trade. The court noted that Congressional intent to make drawback effective at the time the supplies are laden on a qualifying vessel was indicated ". . . by its enactment of legislation designed to protect the Government against loss of revenue by imposing an import tax to be paid or repaid by the owner of exported supplies in the event the exported supplies are subsequently landed in the United States. . . ." (citations omitted) Id. at 136. However, the vessel must also actually be engaged in foreign trade. See, United States v. Esso Export Corp., 42 CCPA 51 (1954). It is the act of lading the fuel on a qualifying vessel that triggers the right to claim drawback under 19 U.S.C. ?1309(b). But, as in McGoldrick, the court did not view the vessel owner as the intended beneficiary of the law with respect to causing the lading. See generally, Asiatic Petroleum Corp. v. United States, 36 CCPA 9 (1948); Standard Oil Company of New Jersey v. United States, 32 CCPA 190 (1945); Standard Oil Co. of New Jersey v. United States,
29 CCPA 82 (1941); 3 Cust. Ct. 39, C.D. 199 (1939) (in all of these cases the courts noted that the purpose of the law was to benefit the fuel suppliers).

As stated above, the drawback regulations define "exporter" as the person who has the power and responsibility for controlling the sending of the items out of the United States. This definition is in accord with the interpretation provided by case law and administrative decisions. In Edgar Bros. Co. v. United States, 1 Cust. Ct. 108 (1938), the Customs Court held that the seller becomes the exporter, irrespective of the fact that the actual act of transporting the merchandise out of the country was accomplished by the purchaser, where the merchandise is sold under the express agreement that it be exported. Regarding administrative decisions, Opinion of Solicitor General Taft, September 1, 1890 (19 Op. 638), reprinted in Syn. Dec. 1890 T.D. 10186, p. 318 states: "The law [drawback] plainly intended to reward the person causing the export, who is the shipper." The opinion goes on to hold that the proper person to receive drawback is the owner and shipper to the foreign port. "The right to the drawback, is, at first, inchoate and contingent, attaching to the materials after they have come into the country, but ripens into an absolute right of present enjoyment upon their export in manufactured form. The owner of the goods when the drawback ceases to be contingent and becomes absolute would seem, therefore, to be the person to whom it is payable. The shipper--the exporter--is that owner, for the contingency ceases when the goods are delivered for export, and so he is entitled to drawback." Id. at 321. Thus, the right to claim drawback is vested in the shipper and not in the vessel which actually carries the goods to the foreign country or in the foreign buyer of the goods, either of whom might otherwise be viewed as "causing" the goods to be joined to the commerce of a foreign country.

In contrast to exportations the court cases have shown accomplish the Congressional purpose of fostering export trade, the purpose behind the concept of deemed exportation under 19 U.S.C. ?1309(b) was to obtain business for U.S. manufacturers of fuel and other aircraft and vessel supplies. The regulatory definition contained in 19 CFR 191.2(m), regarding the power and responsibility for lading the eligible aircraft, must be interpreted consistent with the Congressional purpose found by the courts in the cited cases and administrative decisions since the statutory text has remained unchanged. In this situation, the use of ?1313(p) coupled with the application of ?1309 imposes further limitation both as to time limits and transfers enabling the Customs Service to regulate such movements. For drawback claims under 19 U.S.C. ??1309(b) and 1313(p), a person has control and responsibility for lading under 19 CFR 191.2(m)(2) if that person sells eligible fuel, in a transaction that meets the criteria listed under the "FACTS" portion of this ruling (i.e., items 1-4 of the representative contracts and items 1-7), to an airline or vessel owner who uses that fuel on a qualifying aircraft or vessel.

Within the context of the foregoing discussion, the following is Customs response to the five different delivery options set forth in your ruling request. The responses are based on the above stated definition of "fuel supplier". Additionally, the responses are based on the assumption that scenario #1 is the only fact pattern that applies to both an airline and a vessel. Fact patterns 2, 4, and 5 apply solely to an airline.

1. Fuel supplier delivers the fuel directly to the aircraft or vessel upon which it is laden. (Title transfers at this point.) Customs Response: In this instance, the fuel supplier would be the deemed exporter and, thus, be eligible to claim drawback under 19 U.S.C. ??1313(p) and 1309(b) provided the fuel is exported on the qualifying aircraft or vessel, as appropriate, within 180 days from the date of entry of the imported fuel or end of the manufacturing period. This response is based on the assumption that the fuel supplier is responsible to Customs for the accuracy of and maintaining the appropriate records, that the fuel supplier will not provide a certificate of delivery to the airline or vessel operator, and that no other party will have title to the fuel at the time it is laden on the qualifying aircraft or vessel.

2. Fuel supplier delivers the fuel to a storage tank located at the airport and title transfers to the airline at this point. Customs Response: Same as above, the fuel supplier would be the deemed exporter and, thus, would be eligible to claim drawback under 19 U.S.C. ??1313(p) and 1309(b) provided the fuel is exported on a qualified aircraft of that airline within 180 days from the date of entry of the imported fuel or end of manufacturing period. This response is based on the assumption that the fuel supplier is responsible to Customs for the accuracy of and maintaining the appropriate records, that the fuel supplier will not provide a certificate of delivery to the airline, and that no other party will have title to the fuel from the time it is sold by the fuel supplier and custody is given to the airline and that each of the contractual and evidentiary criteria under the FACTS portion will be shown to have been met, as discussed above.

3. Fuel supplier delivers the fuel to a storage tank located in a Foreign Trade Zone, and the merchandise is entered in "zone restricted" status. Customs Response: Merchandise admitted in "zone restricted" status is deemed exported by virtue of 19 U.S.C. ?81c(a), fourth proviso.
Neither 19 U.S.C. ?1309 nor ?1313(p) apply either to the admission or subsequent withdrawal from the zone.

4. The fuel supplier delivers and transfers title to the airline at some point in a pipeline, i.e., while the fuel is in transit to the airport. Customs Response: The fuel supplier would be deemed the exporter provided the accounting records, including those of the pipeline operator, support the transaction, the fuel is exported on a qualified aircraft of that airline within 180 days from the date of entry of the imported fuel or end of manufacturing period. This response is based on the assumption that the fuel supplier is responsible to Customs for the accuracy of and maintaining the appropriate records, that the fuel supplier will not provide a certificate of delivery to the airline, and that no other party will have title to the fuel from the time it is sold by the fuel supplier and custody is given to the airline and that each of the contractual and evidentiary criteria under the FACTS portion will be shown to have been met, as discussed above.

5. The fuel supplier delivers the fuel to the airline, and transfers title, at the "refinery gate," or at any non-airport storage facility, and the airline arranges to move the fuel to the airport. Customs Response: The fuel supplier would be the deemed exporter provided the accounting records, including those of the fuel storage facility support the transaction. The fuel supplier would be eligible to claim drawback under 19 U.S.C. qualified aircraft of that airline within 180 days from the date of entry of the imported fuel or end of manufacturing period. This response is based on the assumption that the fuel supplier is responsible to Customs for the accuracy of and maintaining the appropriate records, that the fuel supplier will not provide a certificate of delivery to the airline, and that no other party will have title to the fuel from the time it is sold by the fuel supplier and custody is given to the airline, and that each of the contractual and evidentiary criteria under the FACTS portion will be shown to have been met, as discussed above.

HOLDING:

For purposes of claiming drawback under 19 U.S.C. ?1309(b) in combination with 19 U.S.C. ?1313(p) only, the entity which transfers title to an airline or vessel owner, in a transaction in which all of the contractual and evidentiary criteria listed under the "FACTS" portion are met, and which obtains the CF 7514 signed by the carrier on a qualifying flight or vessel operator for a qualifying voyage will be considered to have the power and responsibility for the lading onto an eligible aircraft or vessel.

Sincerely,

John A. Durant, Director
Commercial Rulings Division

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