HQ 563279 - Ethyl Alcohol for Fuel Use; CBERA; Section 423, Tax Reform Act of 1986, as amended; 19 U.S.C. 2703(a)(1)(B); National Corngrowers Ass’n - United States International Trade Commision Rulings

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HQ 563279

July 29, 2005

CLA-02 RR:CR:SM 563279 NL

CATEGORY: CLASSIFICATION

Mr. Stephen Lande, President
Manchester Trade Ltd.
1710 Rhode Island Avenue, NW, Suite 300
Washington, D.C. 20036

RE: Ethyl Alcohol for Fuel Use; CBERA; Section 423, Tax Reform Act of 1986, as amended; 19 U.S.C. 2703(a)(1)(B); National Corngrowers Ass’n

Dear Mr. Lande:

This is in reply to your letter dated May 11, 2005, requesting a ruling on behalf of Trinidad Bulk Traders Limited (TBTL), a subsidiary of Angostura Holdings Limited, concerning the duty-free eligibility of dehydrated ethyl alcohol (ethanol) for fuel use produced by TBTL in Trinidad and Tobago (Trinidad) under the Caribbean Basin Economic Recovery Act (CBERA) and the Tax Reform Act of 1986, as amended. Our determination follows.

FACTS:

In Trinidad, TBTL will dehydrate Brazilian hydrous ethyl alcohol feedstock and concentrate it from 95 to 99.7 percent alcohol-volume to produce anhydrous fuel grade ethanol alcohol.

You request a ruling by U.S. Customs and Border Protection (CBP) that: 1) the cost or value of the Brazilian hydrous ethyl alcohol and the cost of transporting this material to Trinidad may be used in meeting the 35 percent value-content requirement of section 213(a)(1)(B) of the CBERA (19 U.S.C. 2703(a)(1)(B)) for duty-free access to the U.S. market; and 2) that the dehydrated alcohol will be eligible for duty-free treatment under the CBERA when imported into the U.S. from Trinidad and Tobago.

Because your submission does not include actual data as to costs and values, and because the 35 percent value-content requirement is calculated in relation to the value of the good as appraised at importation into the U.S., this ruling does not address the ultimate question of whether TBTL’s product will meet the CBERA 35% value-content requirement at the time of entry. However, based on the facts provided we are able to consider whether the cost or value of the Brazilian hydrous ethanol and cost of transport may be used to meet the 35 percent value-content requirement as it is defined by statute.

ISSUE:

Whether the cost or value of Brazilian hydrous ethanol and the cost of transporting it to the place of processing in Trinidad may be used to meet the CBERA 35 percent value-content requirement.

LAW & ANALYSIS

The CBERA provides, in pertinent part, that:

Unless otherwise excluded from eligibility by this chapter, and subject to section 423 of the Tax Reform Act of 1986, the duty-free treatment provided under this chapter shall apply to any article which is the growth, product, or manufacture of a beneficiary country if –

(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 per centum of the appraised value of such article at the time it is entered.

19 U.S.C. 2703(a)(1).

Section 423 of the Tax Reform Act, as amended by the Steel Trade Liberalization Act of 1989 (P.L. 101-221, section 7(a), 103 Stat. 1890 (1989)), provides that the ethyl alcohol or mixture thereof must be an “indigenous product” of the beneficiary country. Specifically, section 423 provides, in pertinent part, that:

“. . . no ethyl alcohol or a mixture thereof may be considered --. for purposes of section 213 of the Caribbean Basin Economic Recover Act, to be— an article that is wholly the growth, product, or manufacture of a beneficiary country, a new or different article of commerce which has been grown, produced, or manufactured in a beneficiary country, a material produced in a beneficiary country, or otherwise eligible for duty-free treatment under this Act as the growth, product, or manufacture of a beneficiary country; unless the ethyl alcohol or mixture thereof is an indigenous product of that beneficiary country.

Pursuant to section 423(c)(3)(A), a product is defined as an “indigenous product” of a beneficiary country if the ethyl alcohol and mixtures thereof are only dehydrated within the beneficiary country and meet the applicable local feedstock requirement. For purposes of discussion, we assume the applicable feedstock requirement will be met. After the ethyl alcohol is dehydrated, the definition refers to it as “dehydrated alcohol and mixtures.”

The dehydration of Brazilian hydrous ethyl alcohol takes place in Trinidad. Thus, pursuant to section 423(c) the ethyl alcohol imported into Trinidad and Tobago is deemed an “indigenous product of a beneficiary country” assuming the local feedstock requirement is met. Section 423 allows the Brazilian hydrous ethyl alcohol feedstock used for the dehydration process to be considered a material produced in a beneficiary country. Therefore, the value of the feedstock may be counted towards the 35 percent value content requirement as the growth, product, or manufacture of a beneficiary.

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). As noted by the Court, the purpose of section 423 mandated “the use of specified percentages of locally fermented alcohol in ethanol mixtures to be imported free into the United States.” 650 F. Supp. at 1011. The Court found that if there was a requirement, in order to obtain duty-free treatment, to first demonstrate that “. . . dehydration is a substantial transformation, in addition to meeting the dictates of § 423 . . . [this] would virtually guarantee that no fuel ethanol could be imported duty-free unless it was entirely produced and distilled in a Caribbean Basin nation.” 650 F. Supp. at 1011. We believe that the reasoning of the court in this case supports the conclusion that the value of Brazilian hydrous ethyl alcohol feedstock used in the dehydration process may be counted towards the 35 percent value content requirement.

You also have asked whether the cost of transporting the hydrous ethanol to Trinidad may be counted towards the CBERA 35 percent value content requirement. However, the submission provides no details as to this cost. In particular, it is not indicated whether this cost is incurred as part of the cost or value of the Brazilian feedstock or is separately paid. The applicable CBP Regulation implementing CBERA provides that,

[T]he cost or value of materials produced in a beneficiary country or countries includeswhen not included in the manufacturer’s actual cost for the materials, the freight, insurance packing, and all other costs incurred in transporting the materials to the manufacturer’s plant.

19 CFR 10.196(c)(1). Accordingly, under this regulation the costs to transport the Brazilian feedstock to the plant in Trinidad may be included in the cost or value of materials for purposes of the value-content requirement, but only to the extent that it is not included in the manufacturer’s actual cost for the materials.

HOLDING:

The cost or value of the hydrous ethanol imported from Brazil to Trinidad and Tobago for processing may be included in the cost or value of materials produced in Trinidad for purposes of meeting the value-content requirement of the CBERA.

The cost of transporting the hydrous ethanol to Trinidad and Tobago for processing may be included in the cost or value of such materials produced in Trinidad if they are not otherwise included in the manufacturer’s actual cost of materials.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents are filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

Monika R. Brenner, Chief
Valuation & Special

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