HQ 115604 - Coastwise Trade; Petroleum Blending; 46 U.S.C. App. § 883 - United States International Trade Commision Rulings

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HQ 115604

March 25, 2002

VES-3-24-RR:IT:EC 115604 GEV

CATEGORY: CARRIER

Juan A. Anduiza, Esq.
Haight Gardner Holland & Knight
195 Broadway
New York, New York 10007-3189

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

Dear Mr. Anduiza:

This is in response to your letter of February 22, 2002, with enclosures, on behalf of your client, PDVSA Trading. S.A. (“PDVSA”), further in regard to Customs ruling letter 115482, dated January 8, 2002, concerning the application of the Jones Act to a proposed petroleum blending operation to be performed in the Bahamas. Upon reviewing the additional specifications you provide, our ruling on this matter is set forth below.

FACTS:

PDVSA is a Venezuelan corporation registered to do business in various states of the United States, including Georgia, Louisiana, Massachusetts, Mississippi, New York, Pennsylvania and Texas. PDVSA is engaged in the business of purchase and sale of petroleum products. Concerning the blended products discussed herein, PDVSA would be the owner of the material.

Another involved party is PDVSA Petroleo, S.A., a Venezuelan company which is the sister corporation of PDVSA. Another subsidiary of PDVSA, Bahamas Oil Refining Company International Limited (“Borco”), owns a petroleum terminal facility located in the Bahamas.

At issue is the proposed blending of petroleum feedstocks at the Borco facility (including components originating in the United States), and the subsequent transportation of the blended products (Marine Residual Fuels) to the United States by foreign-flag vessels chartered on either a “spot” basis (such as a voyage charter) or term basis or furnished to PDVSA under the terms of a contract of affreightment.

It is contemplated that at the Borco facility a feedstock, originating in Venezuela or another foreign country, will be blended with feedstocks originating in the United States. As to the specific nature of the contemplated blending, your letter of August 31, 2001, enclosed the technical data for both the U.S.-origin feedstock component and the foreign-origin feedstock component. Upon reviewing this data, we issued Customs ruling letter 115482, dated Janauary 8, 2002, wherein we held that in view of the broad specifications submitted in this case, Customs is unable to render a definitive answer to PDVSA’s request within the scope of their current inquiry. Rather, we stated that it is our opinion that a determination as to whether a “new and different product” within the meaning of 19 CFR § 4.80b(a) would be created with regard to PDVSA’s inquiry can only be made based on more specific data submitted on a case-by-case basis. The purpose of your letter of February 22, 2002, is to provide us with such data.

Accordingly, the supplemental information for our review which is submitted with your most recent letter is as follows: (Enclosure 1) the technical specifications for the U.S.-origin feedstock; (Enclosure 2) the technical specifications for the non-U.S.-origin feedstock; and (Enclosure 3) the technical specifications for the resulting, blended product. With the exception of these specifications, you incorporate by reference all other aspects of your letter of August 31, 2001.

ISSUE:

Whether the blending operation described above is sufficient to create a “new and different product” within the meaning of 19 CFR § 4.80b(a) so that the proposed transportation of the blended product by foreign-flag vessels is not violative of 46 U.S.C. App. § 883.

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 (i.e., a coastwise-qualified vessel).

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 posses- sion 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. Pursuant to Treasury Decision (T.D.) 91-32 published in the Federal Register on April 10, 1991 (56 FR 14467) and in the Customs Bulletin on April 24, 1991 (Customs Bulletin and Decisions, vol. 25, no. 17, April 24, 1991, at pp. 1-5) prior to reaching a determination that a “new and different product” has in fact been created by a blending operation 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 46 U.S.C. App. § 883.

With respect to the supplemental data submitted with your letter of February 22, 2002, we note that it indicates that PDVSA is proposing to blend [

]. As fuel oils are bought, sold, and traded worldwide on the basis of their ASTM grades, we remain of the opinion that the ASTM designation defines the commercial character of the product. Since [

], it is our position that the blending operation described above does not create a “new and different product” within the meaning of 19 CFR § 4.80b(a). A foreign-flag vessel may therefore not be used to effect the proposed coastwise transportation.

HOLDING:

The blending operation described above is not sufficient to create a “new and different product” within the meaning of 19 CFR § 4.80b(a). Consequently, the proposed coastwise transportation of the blended product by foreign-flag vessels is violative of 46 U.S.C. App. § 883.

Sincerely,

Larry L. Burton

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