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HQ 561432





January 24, 2000

CLA-2 RR:CR:SM 561432 RSD

CATEGORY: CLASSIFICATION

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

RE: Eligibility of fuel grade ethyl alcohol under the CBERA

Dear Ms. Greenberg:

This is in response to your letter of April 15, 1999, on behalf Cypress Trading Services Limited concerning the eligibility of fuel grade ethyl alcohol imported from Costa Rica for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701-2706), and section 423 of the Tax Reform Act of 1986, as amended (19 U.S.C. 2703 note).

FACTS:

Cypress Trading Services Limited is proposing to import hydrous ethyl alcohol from Costa Rica which is produced from a renewable resource, such as sugar cane, in a country (Brazil) that is not a beneficiary of the Caribbean Basin Economic Recovery Act (CBERA). The hydrous ethyl alcohol will be exported from Brazil to Costa Rica, a beneficiary country (BC) of the CBERA, where it will be rectified and dehydrated in a local distillery. After the ethyl alcohol is exported to the United States, it will be used exclusively for motor fuel purposes.

ISSUE:

Whether the “base quantity” of dehydrated ethyl alcohol and mixtures thereof that may be entered duty free during any calendar year pursuant section 423 of the Tax Reform Act of 1986, as amended, is applicable to each insular possession and CBERA-beneficiary country or collectively to all insular possessions and CBERA countries.

LAW AND ANALYSIS:

Under the CBERA, eligible articles from BCs are accorded dutyfree 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 dutyfree 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.

Section 423 of the Tax Reform Act of 1986, as amended by the Steel Trade Liberalization Act of 1989 (P.L. 101221, 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 GENERALExcept as provided in subsection (b), no ethyl alcohol or a mixture thereof may be considered
for purposes of general headnote 3(a) of the Tariff Schedule of the United States, to be–

(A) the growth or product of an insular possession of the United States,

(B) manufactured or produced in an insular possession from materials which are the growth, product, or manufacture of any such possession, or

(C) otherwise eligible for exemption from duty under such headnote as the growth or product of an insular possession; or

(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 dutyfree treatment under such 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) 0 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.

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). For ethyl alcohol which is only 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 insular possessions and BCs to ensure that any ethyl alcohol imported over and above that base quantity meets the local feedstock requirement.

You inquire as to whether the “base quantity” of dehydrated alcohol and mixtures (60 million gallons or an amount equal 7% of the U.S. domestic market) that may be entered duty free is applicable to each insular possession and CBERA BC or whether the base quantity total is applicable collectively to all CBERA countries and insular possessions. Customs has interpreted and applied Section 423 of the Tax Reform Act of 1986, as amended, as meaning that the base quantity applies collectively to all BCs and possessions rather than to each. The legislative history indicates that in enacting the 1989 amendments to section 423 of the Tax Reform Act of 1986, Congress considered the Caribbean region as a whole rather than the individual insular possessions and CBERA countries. For example, in the Congressional Record, Senator Lloyd Bentsen, when explaining the provision to the Senate, referred several times to the Caribbean as a region, rather than to individual Caribbean countries. Senator Bentsen stated:

Ethanol that is merely dehydrated in the Caribbean region from alcohol produced elsewhere must meet certain requirements to qualify for zero duties. No indigenous feedstock requirement is imposed on the first 60 million gallons or 7 percent for the U.S. market, whichever is greater.... (Emphasis added.)

135 Cong. Rec. S16941 (1989) (Statement of Sen. Bentsen)

Moreover, interpreting the base quantity to be applicable to each CBERA BC and insular possession, rather than collectively to all the BCs and insular possessions would clearly lead to illogical results. There are a total of approximately 30 possessions and CBERA BCs. Thus, if as you suggest, the base quantity should be applied to each possession and BC rather than to all collectively, the amount of ethanol that potentially could enter duty-free from this region without any local feedstock contribution would be over 200% of domestic consumption. We believe that if Congress had intended this anomalous result, it would have explicitly worded the statute to indicate this intention. It did not. In fact, such an interpretation of the statute is clearly inconsistent with the following further explanation by Senator Bentsen of the 1989 amendments to section 423:

This provision assures the domestic industry of what it has wanted most, a very low quota on CBI ethanol for as long as this product receives favorable tax treatment. In practical effect, I would guess this provision would actually result in lower imports than the quota that applies until the end of the year [under section 423 prior to the 1989 amendments] because no imports will be economic at a 50 percent feedstock requirement. (Emphasis added.)

Id. at 16941 (Statement of Sen. Bentsen)

Accordingly, the legislative history supports the present Customs interpretation of section 423 of the Tax Reform Act of 1986, as amended. Therefore, we conclude that the base quantity of 60 million gallons or an amount equal to 7% of the U.S. domestic market for ethyl alcohol, whichever is greater, is applicable to all insular possessions and CBERA countries collectively rather than to each possession and CBERA country.

HOLDING:

The “base quantity” of dehydrated ethyl alcohol and mixtures thereof that may be entered duty free with no local feedstock contribution is applicable to all insular possessions and CBERA BCs collectively rather than to each insular possession and BC.

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,


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