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NY R02282




August 15, 2005

CLA-2-22:RR:NC:SP:237 R02282

CATEGORY: CLASSIFICATION

TARIFF NO.: 2207.10.6000; 2207.20.0000; 9901.00.50

Mr. Antonio Bauza-Santos
Goldman Antonetti & Cordova
P.O. Box 70364
San Juan, Puerto Rico 00936

RE: Classification and eligibility under CBERA of anhydrous ethyl alcohol for fuel use dehydrated in a FTZ located in Puerto Rico from hydrous ethyl alcohol from Brazil.

Dear Mr. Bauza-Santos:

In your letter dated December July 18, 2005, on behalf of Mr. Alvaro Silva, Mr. Fernando Arguelles and Mr. Mario Miranda Arrinda, you requested the tariff classification and eligibility of anhydrous ethyl alcohol under the Caribbean Basin Economic Recovery Act (CBERA), which has been dehydrated in a Foreign Trade Zone (FTZ) in Puerto Rico from hydrous ethyl alcohol feedstock from Brazil, a non-beneficiary country under CBERA.

Undenatured anhydrous ethyl alcohol imported for fuel use is classifiable in subheading 2207.10.6000, Harmonized Tariff Schedule of the United States (HTSUS), which provides for undenatured ethyl alcohol of an alcoholic strength by volume of 80 percent volume or higher: for nonbeverage purposes. The rate of duty is 2.5 percent ad valorem. Denatured hydrous ethyl alcohol is classifiable in subheading 2207.20.0000, HTSUS, for ethyl alcohol and other spirits, denatured, of any strength. The rate of duty is 1.9 percent ad valorem. Importations under subheadings 2207.10.6000 and 2207.20.0000, HTSUS, are subject to an added duty of 14.27 cents per liter assessed on ethyl alcohol imported for fuel use in subheading 9901.00.50, HTSUS. A Federal Excise Tax of $13.50 per proof gallon may apply.

Articles classifiable under subheading 2207.10.6000 or 2207.20.0000 and 9901.00.50, HTSUS, which are products of the beneficiary countries may be entitled to duty free treatment under the Caribbean Basin Economic Recovery Act (CBERA) upon compliance with all applicable regulations. Ahowever, a Federal Excise Tax of $13.50 per proof gallon may apply.

Under the CBERA, eligible articles from beneficiary countries are accorded duty-free 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 duty-free 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. 101-221, 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 beneficiary country. Specifically, section 423 provides, in pertinent part, as follows:

(a) In general. -Except as provided in subsection (b), no ethyl alcohol or a mixture thereof may be considered-

(1) 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 duty-free 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 beneficiary country 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 be entered duty free, even though no local feedstock (hydrous ethyl alcohol produced in the possession or beneficiary country) 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, U.S. Customs and Border Protection monitors imports of dehydrated ethyl alcohol from insular possessions and beneficiary countries to ensure that any ethyl alcohol imported over and above that base quantity meets the local feedstock requirement.

Accordingly, under the ethanol statute (19 U.S.C. §2703), U.S. Customs and Border Protection is granting duty free treatment to all qualifying imports of ethanol from insular possessions of the United States and beneficiary countries under the CBERA which are dehydrated there and meet the local feedstock requirement. Articles imported into the customs territory of the United States from a FTZ in Puerto Rico must meet the requirements for eligibility under CBERA established in 19 U.S.C. section 2703(a) and Section 423 of the Tax Reform Act of 1986, as amended by the Steel Trade Liberalization Act of 1989 (P.L. 101-221, section 7(a) 103 Stat. 1886, 1890 (1989)). However, Brazil is not a designated beneficiary country and the above rates of duty apply. To obtain the weekly commodity status report for merchandise subject to tariff rate quotas check the U.S. Customs and Border Protection web site at http://www.cbp.gov. At the web site click on "CEBB" then search for the term "textiles and quotas".

Additional requirements are imposed by the Bureau of Alcohol, Tobacco and Firearms. Denatured and undenatured anhydrous ethyl alcohol transferred in bond to a distilled spirits plant for fuel use may be exempt from the Federal Excise Tax provided all applicable regulations are met. You may contact them at 650 Massachusetts Avenue NW, Washington, D.C. 20226, phone (202) 927-8500 or (800) 398-2282.

This merchandise may be subject to the requirements of the Toxic Substances Control Act administered by the U.S. Environmental Protection Agency. You may contact them at 402 M Street SW, Washington, D.C. 20460, phone (202) 554-1404.

This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).

A copy of the ruling or the control number should be provided with the entry documents filed at the time merchandise is imported. If you have any questions on the ruling, contact National Import Specialist Frank Cantone at (646) 733-3038.

Sincerely,

Robert B. Swierupski

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