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HQ 116518

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August 9, 2005

VES- 3-RR:IT:EC 116518 GOB

CATEGORY: CARRIER

David J. Levine, Esq.
McDermott Will & Emery
600 Thirteenth Street, N.W.
Washington, D.C. 20005-3096

RE: 46 U.S.C. App. § 883; Continuity of Transportation

Dear Mr. Levine:

This letter is in reply to your submission of August 1, 2005 on behalf of Syngenta Seeds, Inc. ("Syngenta"), wherein you request confirmation that partial return shipments of a commodity on non-coastwise-qualified vessels to a U.S. port other than the port of lading do not violate 46 U.S.C. App. § 883. Our ruling on this matter is set forth below.

FACTS:

You describe certain of the pertinent facts as follows:

Syngenta . . . sells corn seed that it develops to farmers in the United States. Among the corn seed sold by Syngenta are those containing various genetic traits developed by Syngenta, including a trait known as Bt10. Corn products with the Bt11 trait, which confers protection against certain insect pests, have been approved for consumption in the United States, the European Union, Japan, and other countries. In late 2004, it was discovered and reported to the Environmental Protection Agency, that a nearly identical, but unapproved, trait known as Bt10 was inadvertently used in several corn seed lines produced by Syngenta and sold to a small number of farmers in the U.S. Because of its close similarity to Bt11, both the EPA and the FDA have announced that corn grain containing Bt10 can be sold in the United States for all purposes without further regulatory approval. However, several foreign governments, including Japan, have not yet approved the importation of corn grain containing Bt10. Since Syngenta's announcement of the possibility of the presence of trace amounts of Bt10 in corn sold for export, Japan has begun a testing program for Bt10 and has rejected portions of six corn shipments intended for importation into Japan. Japanese regulatory authorities have directed the destruction or removal from the country of that corn grain. Syngenta, although neither an exporter nor an importer of corn grain, is attempting to facilitate the redirection of this corn grain. . . .

Between April 23, 2005 and June 15, 2005, various U.S. grain trading companies contracted to sell six shipments of U.S.-grown yellow corn to purchasers in Japan.

You further stated in your letter as follows:

Upon arrival at the ports of entry in Japan, some portion of the corn grain in each of the foregoing shipments was tested by officials of the Japanese Ministry of Agriculture, Forestry and Fisheries for the presence of Bt10. For example, on June 9, 35,000 metric tons of the corn grain aboard the MV Medi Vitoria was delivered to Tomen at Shibushi Port in Kagoshima, Japan and, of the corn grain delivered at Shibushi Port, 4170 metric tons tested positive for Bt10 and was denied entry into Japan. The remaining 30,830 metric tons unloaded at Shibushi Port tested negative for Bt10 and was permitted to be imported into Japan. The remainder of the corn grain aboard the MV Medi Vitoria (15,139 metric tons) was delivered at the Hachinohe Port in Japan and tested negative for Bt10. That grain was released for entry and use in Japan. The 4170 metric tons of corn grain denied entry is currently being held in bonded silos on the docks at Shibushi Port. . . .
None of the Japanese purchasers had any intention at the outset of these transactions to sell any of the corn grain at issue to any customer in the United States. Because entry into Japan was denied for the portions of the shipments that tested positive for the Bt10 trait, however, these Japanese companies now have agreed to sell the "rejected" volumes of corn grain (totaling 13,138 MT) to a U.S. purchaser that is expected to take delivery at the Port of Stockton, California. The subject grain, which is currently being held in bonded silos at the various Japanese ports of entry, will be transported to the Japan Port of Yokohama, where it will be combined into a single shipment and loaded onto a "Handy Max" vessel, the specific identity of which is yet to be determined, for shipment to Stockton, California. . . .

In subsequent correspondence, you state in pertinent part as follows:

. . . I have now confirmed that the corn grain presently held in silos at the ports in Japan is all owned by the respective Japanese purchasers/importers. Neither those Japanese purchasers nor the original U.S. sellers knew that any of the corn grain at issue included grain with the Bt10 genetic trait at the time it was sold. All parties involved - U.S. sellers and Japanese purchasers alike - intended for the grain to be imported for consumption into Japan, and never would have undertaken the transactions in the first place if they had any knowledge of the Bt10 content. Title to the corn grain in each shipment transferred from the U.S. sellers to the respective Japanese buyers when it was loaded for shipment from the United States, and it is the Japanese purchasers who now own the corn grain that has been denied entry into Japanese customs territory by the Japanese authority following the testing at the ports. The documentation you have for all six shipments at issue confirms these facts, including the affidavits from each of the Japanese purchasers and the sales/shipping documents for each shipment.

In a letter dated August 8, 2005, your firm stated in pertinent part as follows:

On August 4, Syngenta was informed of a seventh transaction involving the sale of 40,542.732 metric tons of corn grain to Mitsui delivered on June 30, 2005, which was shipped to the Japanese Port of Hakata aboard the Panamanian-registered "Lotus" from Tacoma, Washington. Of this shipment, 7,673.953 metric tons have recently tested positive for Bt 10 and have been denied entry into Japan.

With your submissions you have submitted the following documentation: affidavits from officials of each of the Japanese companies which purchased the corn - there are seven affidavits reflecting the seven shipments (two of the Japanese companies each purchased two of the shipments; the three other Japanese companies each purchased one shipment); invoices and bills of lading with respect to the shipments; test results from the shipments; and certain letters from the Japanese Ministry of Agriculture, Forestry and Fisheries.

The affiants state in pertinent part as follows: the entire corn shipments were purchased with the intent of importing the corn into Japan for use as food, feed or for other industrial purposes; and at no time did the purchaser purchase the corn with the intent of reselling it in the U.S. The affiants also provide factual information which is consistent with the information you have provided in your submission.

The corn which failed the inspection in Japan represents approximately six percent of the corn shipped in the six subject shipments.

ISSUE:

Whether the subject activity constitutes a violation of 46 U.S.C. App. § 883?

LAW AND ANALYSIS:

Generally, the coastwise laws prohibit the transportation of passengers or merchandise between points in the United States embraced within the coastwise laws in any vessel other than a vessel built in, documented under the laws of, and owned by citizens of the United States. A vessel that is built in, documented under the laws of, and owned by citizens of the United States, and which obtains a coastwise endorsement from the U.S. Coast Guard, is referred to as "coastwise-qualified."

The coastwise laws generally apply to points in the territorial sea, which is defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline. In this letter, we will use the term “territorial waters” to include internal waters and navigable waters of the U.S.

Title 46, United States Code Appendix, § 883 (46 U.S.C. App. § 883), the coastwise merchandise statute often called the “Jones Act”, provides in part that: "No merchandise . . . shall be transported . . . between points in the United States . . . 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 . . ."

Section 4.80b(a), CBP Regulations (19 CFR 4.80b(a)) provides, in pertinent part:

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.

The plain meaning of the statute prohibits merchandise from being transported on a non-coastwise-qualified vessel between points in the United States. The words "either directly or via a foreign port" were inserted in the original statute (46 U.S.C. App. § 883) by the Congress in 1893. Congress, seeing how easily the protection to American shipping would be vitiated by a simple transshipment of the same cargo, inserted these words to prohibit such transshipments.

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 Court held that:

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

The 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. If there be an intention, either formed at time of original shipment, or afterwards, to send the goods forward to an unlawful destination, the continuity of the voyage will not be broken, as to the cargo, by any transactions at the intermediate port (70 U.S. at 554).

The Attorney General of the United States relied upon The Bermuda in his consideration of the applicability of section 883 to certain transportation. In 34 Op. Atty. Gen. 335 (1924) (see also, 32 Op. Atty. Gen. 350 (1920), concerning the transportation of fish from Alaska to a United States point via Vancouver, British Columbia, Canada), 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's opinion was requested as to whether the transportation of the grain in the manner described violated section 883. As to grain which had been consigned through the Canadian port to a point in the United States or which had been shipped with the intention that the grain should ultimately be shipped to a point in the United States, it was the Attorney General's opinion "that such transportation is without a doubt in violation of [section 883]." 34 Op. Atty. Gen. at 357. When there was no intent by the shipper to transship the grain to a United States port or place, it was the Attorney General's opinion that "only general rules of law may be laid down." 34 Op. Atty. Gen. at 362. The general rule of law given by the Attorney General in this case was that "the intention of the shipper is the controlling factor." 34 Op. Atty. Gen. at 363.

The Attorney General also stated that:

. . . [W]hether the facts presented in any particular case come within such rules must be determined by the officer charged with the administration of that Act. 34 Op. Atty. Gen. at 362.

U.S. Customs and Border Protection ("CBP") is the agency charged with the administration of section 883. We have issued a number of rulings on the applicability of section 883 to the transportation of merchandise between coastwise points via a foreign port. In these rulings, we have held, as did the Supreme Court in The Bermuda, that an "honest intention to bring the goods [transported] into the common stock of the [intermediate foreign] country" is required to break the continuity of transportation between coastwise points via a foreign point. We have held that an intent to export merchandise after its transportation from the United States to an intermediate foreign port is not, by itself, sufficient to break the continuity of the transportation, when the merchandise is transported onward from the intermediate foreign port to a second point in the United States. We have also held that when, at the time of shipment of merchandise from the United States to an intermediate foreign port, there existed the expectation that a substantial portion of the merchandise would not be consumed in the country of the foreign port, entry through the foreign country's customs and payment of duty is not considered to break the continuity of the transportation when any of the merchandise is transported onward to a second point in the United States.

Upon a review of all of the relevant facts, we conclude that Syngenta has provided information and documentation which is adequate to establish that there was an intention on the part of the various involved parties for the subject goods to enter the commerce of Japan. Therefore, we find that the continuity of transportation of the goods was broken by the denial of entry by the government of Japan. Accordingly, the use of a non-coastwise-qualified vessel for any portion of the transportation of the goods which failed inspection in Japan back to other than the U.S. port of lading will not be a violation of 46 U.S.C. App. § 883.

HOLDING:

Syngenta has provided information and documentation which is adequate to establish that there was an intention on the part of the various involved parties for the subject goods to enter the commerce of Japan. Therefore, we find that the continuity of transportation of the goods was broken by denial of entry by the government of Japan. Accordingly, the use of a non-coastwise-qualified vessel for any portion of the transportation of the goods which failed inspection in Japan back to other than the U.S. port of lading will not be a violation of 46 U.S.C. App. § 883.

Sincerely,

Glen E. Vereb
Chief

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