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HQ 116718

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September 7, 2006

VES-3-RR:BSTC:CCI 116718 rb

CATEGORY: CARRIER

Karyn A. Booth
Thompson Hine LLP
1920 N Street, NW., Suite 800
Washington, DC 20036-1600

RE: Coastwise trade; Merchandise transported to Canada; Transshipment; Returned to United States; 46 U.S.C. App. 883

Dear Ms. Booth:

Your letter of August 28, 2006, with enclosures, submitted on behalf of your client, United States Steel Corporation, requests a ruling concerning the transportation of merchandise in a non-coastwise qualified vessel between places in the United States by way of Canada. The requested ruling follows.

FACTS:

A company has heretofore shipped iron ore pellets to Canada where they are intended to be transshipped to the Peoples Republic of China (PRC) for sale and consumption. Similarly, in the present case, the company contracted with a carrier using a foreign-flagged vessel to transport iron ore in April 2006 to Canada, where it was offloaded and placed into storage for subsequent delivery to the company’s subsidiary in the PRC. The company specifically informed the carrier in this regard that its iron ore shipments were to be “in transit in Canada for exporting to other foreign countries and are not exported into Canada.”

However, due to recent changes in market conditions, the company has been unable to find a purchaser for the iron ore in the PRC, and has since located buyers in the United States. Consequently, the company now seeks to return the goods from Canada to the United States.

ISSUE:

Whether merchandise shipped in a foreign-flagged vessel to an intermediate foreign country (Canada) for temporary storage before intended transshipment to and sale for consumption in another foreign country, may, due to changed market conditions, be returned from Canada to the United States without violating 46 U.S.C. App. 883.

LAW AND ANALYSIS:

Under 46 U.S.C. App. 883, in relevant part, no merchandise may be transported by water, or by land and water, between points within the United States embraced within the coastwise laws, either directly or by way of 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 (i.e., a coastwise-qualified vessel).

The present case concerns transportation that would take place between two coastwise points by way of an intermediate foreign point. For such transportation to be otherwise than coastwise in nature, 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” (Headquarters ruling (HQ) 109475, dated October 4, 1988, quoting The Bermuda, 70 U.S. 514, at 554 (1866)).

Against this backdrop, accordingly, “[w]e 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” (HQ 109475, supra). See also 32 Op. Atty. Gen. 350.

In particular, along these same lines, a Customs Bureau telex, file CR 216.132, dated February 19, 1971, succinctly states as follows:

Retel February 17 concerning corn transported November 1970 by foreign vessel from United States to Montreal intended for subsequent exportation to foreign countries. Even though circumstances do not permit exportation as originally intended, corn will be subject to seizure under provisions 46 U.S.C. 883 [now 46 U.S.C. App. 883] if now returned by rail to buyer in United States.

Likewise, as with the foregoing, the iron ore in the case at hand was not shipped to the foreign country of ultimate destination (PRC); it only reached an intermediate foreign country (transshipment point) where it was clearly intended only for storage, and not for use or consumption therein, there admittedly being no intention to bring the goods into the common stock of the intermediate country (Canada). This contrasts with HQ 116424, of March 25, 2005, cited by the company, in which the subject merchandise was transported to and did in fact reach the intended foreign port of ultimate destination, where it was unladed and there rejected by the foreign purchaser for failure to meet the contracted-for specifications. See also HQ 116533, of September 8, 2005.

HOLDING:

Under the circumstances presented, merchandise shipped in a foreign-flagged vessel to an intermediate foreign country (Canada) for temporary storage before intended transshipment to and sale for consumption in another foreign country may not, due to changed market conditions, be returned from Canada to the United States without violating 46 U.S.C. App. 883.

Sincerely,

/s/ Glen E. Vereb

Glen E. Vereb

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