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HQ 114851

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December 15, 1999

VES-3-07-CO:RR:IT:EC 114851 GEV

CATEGORY: CARRIER

Ted Degville
Rio Energy International, Inc.
5718 Westheimer
Suite 1806
Houston, Texas 77057

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

Dear Mr. Degville:

This is in response to your letter dated October 21, 1999, requesting clarification with respect to the transportation of unfinished blendstocks from the U.S. to the Bahamas and back to the U.S. Our ruling on this matter is set forth below.

FACTS:

Rio Energy International, Inc. (“Rio”), is a large blender of residual fuel oils in the U.S. Gulf Coast that currently has approximately 900,000 barrels of tankage between Houston and New Orleans. The major outlets for their product are Florida Power Corp. and Florida Power and Light.

Rio is currently evaluating the practicality of expanding their blending operation into the Bahamas. To that end they seek clarification with respect to the transportation of unfinished blendstocks from the U.S. to the Bahamas and back to the U.S. Specifically, Rio poses the following two questions:

(1) Do the blendstocks need to go to the Bahamas and back to the U.S. on Jones Act vessels?

(2) Do the blendstocks need to be isolated in the Bahamas and tracked separately?

The products which Rio would like to take to the Bahamas would be primarily, waste lubricants, chemical plant residues and F.C.C.U. slurry oils. The typical specifications of these products are set forth on the bottom of page 1 of Rio’s letter. Attachments A through E of the letter are examples of the products Rio would be bringing back to the U.S.

ISSUE:

Whether the transportation of fuel oil as proposed above is violative of 46 U.S.C. App.

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.

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 possession of the U.S. 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. (Emphasis added)

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.

With regard to the blending operations in question, we note that the information and specifications of the unfinished blendstock components and the resulting products are quite broad. As such, there appears to be a high probability that the materials sent to the Bahamas will not be produced into a “new and different product” within the meaning of § 4.80b(a). Consequently, in response to the first question you pose, the transportation in question from the U.S. to the Bahamas and back to the U.S. must be done by coastwise-qualified vessels. As for the second question you pose, the respective blendstock components should be isolated in the Bahamas and tracked separately to support your position in this matter.

Notwithstanding our determination as discussed above, we nonetheless note that while the broad specifications currently presented for our review are not indicative of the production of a “new and different product” for purposes of § 4.80b(a), a case-by-case analysis of individual future shipments may yield a different result.

HOLDING:

The transportation of fuel oil as proposed above is violative of 46 U.S.C. App. § 883.

Sincerely,

Jerry Laderberg

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