HQ 561029 - Eligibility of dehydrated ethyl alcohol for duty-free treatment under the CBERA; - United States International Trade Commision Rulings

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HQ 561029

November 24, 1998

CLA-2 RR:CR:SM 561029 RSD

CATEGORY: CLASSIFICATION

Beverly L. Greenberg, Esq.
6852 Southwest 89th Terrace
Miami, Florida 33156

RE: Eligibility of dehydrated ethyl 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 Ms. Greenberg:

This is in reference to your letter dated June 1, 1998, on behalf of Vivalet Limited requesting a ruling concerning the eligibility of fuel grade ethyl alcohol dehydrated in Costa Rica for duty-free under the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701-2706), and the Tax Reform Act of 1986 (Pub. L. 99-5140 as amended by the Steel Trade Liberalization Act of 1989 (Pub. L. 101 and Pub. L 101-382).

FACTS:

You state that Vivalet Limited (Vivalet) will be both the exporter and the importer of record for the proposed transaction. Vivalet will be importing fuel grade ethyl alcohol into the U.S. from Costa Rica through the ports of Tacoma, Washington; Portland, Oregon; New Orleans; or Houston. The merchandise will be dehydrated in a local distillery in Costa Rica to the exporter's specifications, and then will imported directly to the U.S.

Synthetic hydrous ethyl alcohol will be produced in a country that is not a beneficiary of the Caribbean Basin Economic Recovery Act. In your ruling request, you have provided the specifications of the ethyl alcohol. The merchandise will be imported into Costa Rica, where it will be rectified and dehydrated by a local distillery. The resulting product will have a maximum water content of 0.65%. This ethyl alcohol will then be exported to the United States for used as motor fuel.

ISSUE:

Whether the ethyl alcohol dehydrated and rectified in Costa Rica 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 of 1986, 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 of-

(I) 60,000,000 gallons; or

(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.

In other words, for ethyl alcohol which is dehydrated in a possession or a BC, such as Costa Rica, the first 60 million gallons (or an amount equal to 7% of the U.S. domestic market for ethyl alcohol, whichever is greater) imported during a calendar year is considered "indigenous" and may enter duty free, even though no local feedstock (hydrous ethyl alcohol produced in the possession or BC) is used. After the base quantity (the greater of 60 million gallons or an amount equal to 7% of the domestic market ) has been imported during the calendar year, an additional 35 million gallons may be entered duty free, provided at least 30% of ethyl alcohol is derived from local feedstock. After these additional 35 million gallons have been imported, any additional imports during the same calendar year will be duty free only if 50% of the product is derived from local feedstock.

The U.S. International Trade Commission determines the number of gallons equal to 7% of the U.S. domestic market for ethyl alcohol based on data provided by the Treasury Department on domestic alcohol fuel producers. The 7% figure is based on information on U.S. consumption during the 12-month period ending on September 30 preceding the beginning of each calendar year. Once the greater of 60 million gallons or 7% of the domestic market is determined for each calendar year, the U.S. Customs Service monitors imports of dehydrated ethyl alcohol from possessions and BCs to ensure that any ethyl alcohol imported over and above that base quantity meets the local feedstock requirement.

HOLDING:

Ethyl alcohol which is dehydrated in Costa Rica, 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 Costa Rica to the U.S.

A copy of this ruling letter should be attached to the entry documents find at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director
Commercial Rulings Division

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