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HQ 114172

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June 18, 1998

VES-3-07-RR:IT:EC 114172 GG

CATEGORY: VESSELS

Thomas H. Walsh, Jr., Esq.
Bingham Dana LLP
150 Federal Street
Boston, MA 02110-1726

RE: Coastwise trade; 46 U.S.C. App. 883; Commingling Merchandise; Warehousing in Canada; Return to the United States

Dear Mr. Walsh:

This is in response to your ruling request, dated November 21, 1997, made on behalf of your client, Company A. Pursuant to a discussion with you on December 1, 1997, your request for immediate consideration of this case in accordance with 19 CFR your request that the party-in-interest's name be kept confidential for competitive business reasons is granted.

FACTS:

Company A, a Canadian company, currently purchases caustic soda ("soda") in bulk from manufacturers in the United States. It then transports the soda from ports in the United States to Saint John, New Brunswick, in foreign flag vessels. In New Brunswick, the soda is discharged into a single storage tank, and is thereafter sold or used in Canada.

Company A would like to expand its operations to include bulk soda purchases for transportation to St. John and eventual resale in the United States. Under this proposal, the soda will be transported to St. John on coastwise qualified vessels. Title will transfer in St. John. The soda will be commingled in a single storage tank in St. John with soda shipped from the United States on foreign flag vessels. An amount of soda not greater than the amount transported to Saint John in the coastwise qualified vessels will be sold and delivered by truck to purchasers in Maine and in other northeast states. Company A will maintain documentation to verify that the amount sold domestically will not exceed the amount transported on the coastwise qualified vessels.

The reasons given for this proposed way of doing business are as follows: bulk shipment of soda by water is cost-effective and safe; the existing facility in St. John can supply northeast U.S. companies; it is a short truck route to the northeast United States from St. John; the proposed transportation will reduce the cost of soda to U.S. manufacturers and improve their competitive posture; the proposed transportation will increase the use and financial stability of the U.S. merchant fleet; and any negative impact will fall upon foreign, not domestic, manufacturers and sellers of soda.

ISSUE:

Whether the proposed transportation of soda constitutes a violation of the merchandise transportation statute, 46 U.S.C. App. 883?

LAW AND ANALYSIS:

The coastwise law pertaining to the transportation of merchandise, section 27 of the Act of June 5, 1920, as amended (41 Stat. 999; 46 U.S.C. App. 883, often called the Jones Act), provides in pertinent part that:

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, to be recovered from any consignor, agent, or other person or persons so transporting or causing said merchandise to be transported), between points in the United States...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...

In determining whether merchandise which is transported from one point in the United States to a point in a foreign country and then to another point in the United States is subject to the prohibition in section 883 by virtue of being transported between coastwise points "via a foreign point", we have relied upon the holding of the Supreme Court in The Bermuda, 70 U.S. 514 (1865). In that decision, the Supreme Court held that:

A transportation from one point to another remains continuous, so long as intent remains unchanged, no matter what stoppages or transshipments intervene. [70 U.S. at 553.]

The Supreme Court went on to reaffirm the longstanding rule that:

***[E]ven the landing of goods and payment of duties does not interrupt the continuity of the voyage of the cargo, unless there be an honest intention to bring them into the common stock of the country***. [70 U.S. at 554.]

The Attorney General of the United States relied upon The Bermuda in his consideration of the application of section 883 to certain transportation. In 34 Op. Att'y Gen. 335 (1924)(see also, 32 Op. Att'y Gen. 350 (1920)) the Attorney General considered the applicability of section 883 to the transportation of grain from Chicago or Milwaukee to a Canadian port in non-coastwise-qualified vessels. The grain was unladen into an elevator where it remained for an indefinite time until it was loaded into railroad cars for transportation by rail to points in New England. In some instances the grain had already been sold for delivery at an American port when it reached the Canadian port, while in other instances there was an existing intent to ship the grain to the Canadian elevator for storage in anticipation of demands for future deliveries for domestic consumption in Canada, for export abroad, or for sale and delivery in the United States. The Attorney General determined that the shipments of grain consigned through the Canadian port to a point in the United States or which had been shipped with the intention that it would ultimately be sent to the United States, were in violation of section 883.

In the case at hand, Company A states that only the soda shipped to Canada on coastwise qualified vessels is intended for ultimate sale in the United States. That transported on foreign flag vessels is for Canadian consumption only. However, this is complicated by the fact that the sodas are commingled in Canada prior to distribution to purchasers in Canada and the United States. Therefore, the soda that comes back here is composed in part of soda that was sent to Canada on non-coastwise qualified vessels.

The issue of commingling was addressed in Headquarters Ruling Letter (HRL) 104910, dated November 7, 1980 (C.S.D. 81-117). In that case, a Canadian firm imported petroleum coke from the United States on Canadian flag vessels. It mixed the coke with its own stock, and then sold some to a company in the United States. The coke was shipped back to the United States by truck. Customs determined that a violation of the coastwise laws had occurred. The rationale was that the intent had existed all along for a portion of the coke to be shipped from one coastwise point through Canada to another coastwise point. The continuity of the transportation between points had not been broken by the storage or commingling of the coke in Canada. C.S.D. 81-117 is distinguishable from Company A's proposed operation, however, because in the former no leg of the voyage was by a U.S. coastwise-qualified vessel. That is not the same as Company A's proposed situation, where at least some of the soda will be transported to Canada by a coastwise-qualified vessel.

A subsequent ruling also dealt with commingling issues. In HRL 109475, dated October 4, 1988 (C.S.D. 89-1), fertilizer shipped from the United States to Canada on non-coastwise-qualified vessels was commingled in Canada with fungible fertilizer that was sent from the United States on coastwise-qualified vessels. Although there was a clause in the sales contract stating that the fertilizer was not for resale in the United States, a portion of the commingled fertilizer was sold and sent to purchasers there. Customs imposed penalty liability beginning with the first shipment to the United States of commingled merchandise, sustaining that liability until an amount equal to that which departed this country in non-coastwise-qualified vessels had been returned in commingled form. Company A's factual situation is almost identical, except for the fact that Company A has always intended to return a certain amount of soda to the United States. Despite the similarities between the two cases, in our opinion a compromise can be reached to accommodate both Company A and Customs, which will enable Company A to return soda to the United States without penalty and Customs to enforce the coastwise laws of the United States.

To accomplish these goals, we find that we cannot adopt Company A's position in its entirety, which is that an amount of soda equal to the amount transported to Canada on coastwise-qualified vessels may, contingent upon the keeping of records, automatically return to the United States free of penalty. Something must first be done to alleviate Customs' concern that an amount of soda in excess of the soda transported on coastwise-qualified vessels will end up back in this country. For that reason, we will approve Company A's proposed plan only on the condition that Company A maintains records to show that an amount of soda equal to the amount shipped on non-coastwise-qualified vessels is first sold in Canada or in another foreign country before any of the remainder is sold or returned to the United States. This will ensure that the merchandise coastwise laws are not violated and will provide a mechanism whereby eligible soda may be returned to the United States without penalty.

HOLDING:

The transportation of caustic soda from the United States to Canada on a coastwise-qualified vessel, its commingling in Canada with fungible soda shipped to Canada on non-coastwise qualified vessels, and its subsequent return by truck to the United States, does not violate 46 U.S.C. App. 883, provided adequate records are maintained to show that an amount of the commingled soda equal to the amount transported to Canada on non-coastwise qualified vessels is first sold foreign. The failure to have such records would subject Company A to penalties for violation of the merchandise coastwise laws.

Sincerely,

Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch

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