FOR-2-03-CO:R:C:E 223268 PH
District Director
Savannah, Georgia 31401
RE: Transportation via Bonded Pipeline of Jet Fuel from Foreign
Trade Zone; 19 U.S.C. 81c; 19 U.S.C. 1309(a)(3); C.D. 3260-
34
Dear Sir:
With your memorandum of June 5, 1991 (File: CLA-2-
SV:I:LCD), you forwarded a letter dated May 14, 1991, from Dennis
T. Snyder, Esq., on behalf of Citgo Petroleum Corporation,
describing the proposal of Citgo to remove jet fuel from the Lake
Charles, Louisiana, foreign trade zone (FTZ) subzone and
transport it by bonded pipeline to Hartsfield Airport in Atlanta,
Georgia, for loading onto aircraft qualifying for relief from
duties under 19 U.S.C. 1309. You asked a number of questions
about the proposal and asked that we issue a decision on the
proposal. Our ruling follows.
FACTS:
The inquirer states that his client (to be identified as the
"producer" in this ruling) activated a FTZ subzone at Lake
Charles, Louisiana, and plans to manufacture aircraft turbine
fuel commonly known as "Jet A." The product will have the FTZ
status of privileged foreign. The producer proposes to remove
the product from the subzone and transport it by a bonded
carrier pipeline to Hartsfield Airport in Atlanta. There, the
inquirer states that the product is to be exported as aircraft
fuel under 19 U.S.C. 1309. The inquirer provides proposed
procedures for the handling and control of the product. The
inquirer states that all Customs documentation at Lake Charles
and Atlanta will be handled by licensed Customs brokers.
(NOTE: THE PROCEDURES PROPOSED BY THE INQUIRER
ARE OUTLINED BELOW. THIS RULING IS BASED ON THIS
DESCRIPTION OF THESE PROCEDURES. IF THE INQUIRER
DESIRES COMMENTS ON OTHER PROCEDURES, INCLUDING
ANY WHICH MAY BE IN HIS PROPOSAL BUT MAY NOT BE
OUTLINED BELOW, HE MAY REQUEST SUCH COMMENTS IN A
SUPPLEMENTAL INQUIRY.)
Under the procedures proposed by the inquirer, the producer
would remove product from the FTZ under established FTZ
procedures and transport it in bond from the FTZ to Atlanta via a
pipeline which is a bonded common carrier. The producer would
prepare and sign the transportation entry on Customs Form 7512.
Surety would be on the producer's Code 2 bond in the amount of
$700,000. The producer's liability would be for the entire
amount removed from the FTZ.
While moving through the pipeline, the product would be
segregated from other product having a Customs bonded or domestic
status. On arrival in Atlanta, the product would be temporarily
stored in segregated, non-bonded tanks pending introduction into
refueling hydrants. Upon receipt of the product in Atlanta, the
producer would notify Customs of the quantities received. Any
shortage between the quantity received by the producer in Atlanta
and the quantity removed from the FTZ would be entered on a
Customs Form 7501, filed by the producer in Atlanta, and subject
to duty.
A Certificate of Use on an appropriate form would be
maintained in Atlanta for each Customs Form 7512. Pumping
tickets for product uplifted into qualified aircraft, and duty
payments for shortages on Customs Form 7501 would be recorded on
the Certificates of Use on a first-in, first-out (FIFO) basis.
Customs Forms 7512 would be closed out within 60 days from the
date of removal of product from the FTZ. Certificates of Use and
all supporting documents would be delivered to Customs in Atlanta
within 10 days after the final close-out.
No pumping ticket would be validated against an open Customs
Form 7512 unless a quantity of privileged foreign product at
least in equal amount was physically present in segregated
storage and/or the hydrant system in Atlanta at the time the
aircraft was refueled. Pumping tickets for privileged foreign
product removed from an aircraft after refueling would be
cancelled and the product would be returned to segregated storage
or duty paid.
The producer would maintain records and conduct operations
in a manner that would permit the producer to demonstrate to
Customs on demand that quantities of privileged foreign product
on hand in segregated storage and in refueling hydrant line fill
equal the amount on open Customs Forms 7512 which have been
received in Atlanta from the bonded carrier and not yet laden
aboard qualifying aircraft. On the first day of operations,
refueling hydrant line fill would be the next day's anticipated
uplift of foreign privileged product and thereafter line fill
would be quantities uplifted during the previous 24-hour period.
Duty-paid quantities in excess of 1 percent on any given Customs
Form would be considered to have been irregularly delivered
unless satisfactorily explained to Customs.
ISSUES:
(1) May privileged foreign status aircraft turbine fuel be
transported from a FTZ subzone in Lake Charles, Louisiana, to
Hartsfield Airport in Atlanta, Georgia, via a bonded carrier
pipeline and on arrival in Atlanta be temporarily stored in
segregated, non-bonded tanks under the procedures described in
the FACTS portion of this ruling?
(2) Does the aircraft turbine fuel described in ISSUE (1)
qualify for duty-free treatment under 19 U.S.C. 1309 if, from the
temporary holding tanks it is introduced into an aircraft
refueling hydrant and pumped into qualifying (under 19 U.S.C.
1309) aircraft under the procedures described in the FACTS
portion of this ruling?
LAW AND ANALYSIS:
Pursuant to section 309(a), Tariff Act of 1930, as amended
(19 U.S.C. 1309(a)), "[a]rticles of foreign or domestic origin
may be withdrawn ... from [an FTZ] free of duty and internal-
revenue tax" for supplies of foreign or United States vessels or
aircraft "actually engaged in foreign trade or trade between the
United States and any of its possessions, or between Hawaii and
any other part of the United States or between Alaska and any
other part of the United States." The Customs Regulations
pertaining to sections 1309 and 1317 are found in 19 CFR 10.59
through 10.65.
The statutory authority for FTZ's is found in the Foreign
Trade Zones Act of 1934, as amended (48 Stat. 998; 19 U.S.C. 81a
through 81u). The Customs Regulations providing for the
administration and interpretation of the laws relating to FTZ's
are found in 19 CFR Part 146. The transfer of merchandise from
an FTZ is governed by 19 CFR Part 146, Subpart F. It is
specifically provided in 19 CFR 146.69 that "[a]ny merchandise
which may be withdrawn duty and tax free in Customs territory
under [19 U.S.C. 1309 or 1317 and 19 CFR 10.59 through 10.65] may
similarly be transferred from [an FTZ], regardless of its zone
status, under those statutes and regulations."
The regulatory provisions for withdrawal of vessel or
aircraft supplies under 19 U.S.C. 1309 are found in 19 CFR 10.60.
Under paragraph (f) of this section:
... when articles are withdrawn from continuous
Customs custody elsewhere than in a bonded
warehouse for lading at another port, the
procedure set forth in [19 CFR 18.26] shall be
followed, except that the withdrawal when filed
shall be supported by a bond on Customs Form 301,
containing the bond conditions set forth in [19
CFR 113.62]. There shall be such examination of
the articles as may be necessary to satisfy the
district director that they are subject to the
privileges of [19 U.S.C. 1309] and that the value
and quantity declared for them are correct.
We have long held that privileged foreign status merchandise
may not be transferred from a FTZ to a Customs bonded warehouse
(see C.S.D. 81-8; see opinion letter 212503, dated January 26,
1981, for the explanation of this position). However, consistent
with the authorities cited above, we have also held that
privileged foreign status merchandise may be transferred from a
FTZ under an entry for transportation and exportation under 19
U.S.C. 1309, assuming that the merchandise meets the
requirements of that provision (see opinion letter 212503,
referred to above, and ruling letter 222291, dated May 14, 1990).
This position is, of course, conditioned on compliance with the
applicable Customs Regulations (referred to above).
Accordingly, with regard to the proposal and procedures
under consideration, the privileged foreign status aircraft
turbine fuel could be removed from a FTZ and transported by
bonded carrier pipeline to the Atlanta airport and there used as
aircraft fuel under the duty-free provisions of 19 U.S.C. 1309,
provided that the applicable requirements and procedures are
complied with. If, as appears to be the case, the producer is
one of the parties listed in 19 CFR 18.11(b), the producer could
prepare and sign the transportation entry on Customs Form 7512
(19 CFR 18.26, 18.20). The producer would be required to have a
basic importation and entry bond (19 CFR 113.62) instead of a
basic custodial bond (19 CFR 113.63) (see 19 CFR 10.60(f)). The
sufficiency of the bond amount is a question for the appropriate
district director or regional commissioner (see 19 CFR 113.13 and
Customs Directive 3510-04, dated July 23, 1991). The producer
would be liable for the entire amount of fuel removed from the
FTZ. (See 19 CFR 146.71(a) (applicable to an entry for
transportation and exportation, see 19 CFR 18.2(a)(4)) for
procedures for the release and removal of merchandise from a
FTZ.)
Shipments of aircraft turbine fuel would be required to be
delivered to Customs at Atlanta within 30 days after the date of
withdrawal of the fuel from the FTZ (19 CFR 18.2(c)(2). No more
than two working days after arrival at Atlanta of any portion of
the fuel in an in-bond shipment, the producer would be required
to surrender the required forms to Customs (see 19 CFR 18.2(d),
18.7(a)). The producer would be liable for any shortages between
the quantity received by the producer in Atlanta and the quantity
removed from the FTZ. The producer's liability would be governed
by 19 CFR 18.8 and 113.62.
In the procedures for retention of goods at dock (or
airport) (see 19 CFR 18.24 and Customs Directive (C.D.) 3260-34,
May 9, 1991), Customs has developed procedures which may be used
with the temporary storage of the aircraft turbine fuel in
segregated, non-bonded tanks at Atlanta before the pumping of the
fuel in qualified aircraft. We are enclosing a copy of the
Customs Directive for your assistance. Please note that
facilities approved for these procedures need not be bonded (see
paragraph C., under the Action section of the C.D.) (as noted
above, privileged foreign status merchandise may not be
transferred from a FTZ to a Customs bonded warehouse).
Under 19 CFR 18.24 and C.D. 3260-34, the producer (or other
person operating the temporary holding tanks) would apply for the
use of the retention procedures described therein (see paragraph
C., under the Action section of the C.D.). The tanks would be
subject to review by Customs for compliance with the security
standards and specifications in Treasury Decision 72-56. The use
of Certificates of Use described by the inquirer is consistent
with the C.D. (see paragraph F., under the Action section of the
C.D.), although the other information described in the C.D. would
also be required on those Certificates. The use of FIFO
procedures in accounting for the use of the fuel, as described by
the inquirer, is consistent with the C.D., provided that the fuel
shipments are fungible (see paragraph E., under the Action
section of the C.D.).
As stated above, shipments of aircraft turbine fuel would be
required to be delivered to Customs at Atlanta within 30 days
after the date of withdrawal of the fuel from the FTZ.
Acceptance by Customs of an entry (in this case, the Customs Form
7512) for a shipment of aircraft turbine fuel for retention at a
dock or airport would constitute such delivery to Customs. The
close-out procedures described by the inquirer are consistent
with those in the C.D. (which has a 1-year period for close-out
(see Background section and paragraph H. of the Action Section of
the C.D.).
As for the pumping of the fuel from the temporary holding
tanks, assuming that Customs approves the use of the procedures
in 19 CFR 18.24 and C.D. 3260-34, the procedures therein (record-
keeping and otherwise) would be applicable (see paragraph E.,
under the Action section of the C.D., for record-keeping
requirements). Note that, as stated in paragraph F. under the
Action section of the C.D., fuel uplifted into an aircraft under
19 U.S.C. 1309 may only be removed from the aircraft under
Customs supervision, with a proper permit, and will be treated as
an importation (see also 19 U.S.C. 1309(c) and 19 CFR 10.63).
Note that under paragraph E. in the Action section of the C.D.,
the producer would be required to ensure that inventory records
of the temporary storage facility are capable of maintaining an
audit trail between the specific shipment (with allowances for
FIFO procedures for fungible fuel, see above) in the facility and
the Certificate of Use or other document showing lading on board
the aircraft for a qualified use). Note also that responsibility
for the fuel and compliance with the Customs Regulations and the
C.D. remains with the principal on the bond covering the
merchandise (the producer in this case) while the fuel is in the
temporary holding tanks (paragraph C in the Action section of the
C.D.).
So far as we are aware, the equation of line fill with
quantities of fuel uplifted in the previous 24 hour period, as
suggested in the inquirer's proposal, is inappropriate, in view
of the procedures available under the C.D. Further, we are
unable to agree on the limitation (to 1 percent) for duty-paid
quantities on any given Customs Form 7512.
The foregoing procedures are applicable if the hydrants from
which the aircraft turbine fuel is pumped into the aircraft or
trucks carrying fuel to aircraft receive the fuel only from the
temporary holding tanks. If fuel from other sources is
commingled with the fuel from the temporary holding tanks in a
common hydrant, more restrictive procedures would be applicable.
In a series of recent rulings on the use of a single hydrant
fueling system to transported bonded (from a Customs bonded
warehouse) and non-bonded jet fuel, we described such procedures
(see letter 222914, dated April 29, 1991, and related materials
referred to therein, copies enclosed). The essential
requirements developed in this correspondence may be applied in
this case.
Basically, these requirements are that an issue meter (for
the aircraft turbine fuel) must be at or immediately before the
point where the fuel from the temporary holding tanks and other
fuel are commingled and in close proximity to the hydrant of the
refueling system. At the point of commingling, the issue meter
and the fuel line for the other fuel must be equipped with check
valves or similar devices to prevent any back-flow of the fuel
from the temporary holding tanks. The system downstream of the
issue meter must be configured in such a manner so that the fuel
from the temporary holding tanks introduced into the system
cannot be removed other than by being pumped into aircraft. Any
fuel from the temporary holding tanks commingled in the system
which is not laden on a qualified aircraft in the 24-hour period
in which it was introduced into the system must be entered and
duty thereon must be paid (Note: the 24-hour period, as used in
this case, is defined as a 24 hour period beginning at 12:01 a.m.
and ending at 12:00 midnight). Additionally, there must be
satisfactory (to Customs) reconciliation of the use of the bonded
fuel. Such reconciliation could consist of the bills for fuel
withdrawn from the system by airlines using the fuel, including
fuel for both qualifying and non-qualifying flights.
Satisfactory evidence would also be required of any fuel which
could be withdrawn from the system for other purposes downstream
of the control points (described above) in the system and of the
quantity of all fuel entering the controlled parts of the system.
With specific regard to the questions you raised in your
memorandum transmitting the inquirer's proposal--
1. Temporary storage in non-bonded tanks is acceptable,
under the terms outlined in this ruling.
2. You may ascertain the ownership and location, as well
as any other facts about which you are concerned with
regard to the temporary holding tanks, in the approval
process for the tanks (see 19 CFR 18.24 and C.D. 3260-
34).
3. Metering gauges or other measuring devices and their
location must be satisfactory to you. At a minimum,
satisfactory measuring devices must be located at the
exit to the FTZ, at the entry to the temporary holding
tanks, at the exit from the temporary holding tanks, and
at the point where the fuel is pumped into aircraft. If
the fuel from the temporary holding tanks is commingled
with other fuel, additional measuring devices, as
described above, must be in the system. You may accept
the producer's readings of the meters or Customs may do
them (or do spot checks) (see 19 CFR 146.71(a), 18.7(b)).
4. The use of hydrants and/or tank trucks to fuel
aircraft must be satisfactory to you. If other fuel is
not commingled with the fuel from the temporary holding
tanks in the refueling system, there should be tickets,
or other documentation (showing quantity) for fuel pumped
into trucks and bills for the fuel when it is pumped from
the trucks into aircraft. If other fuel is commingled
with the fuel from the temporary holding tanks,
reconciliation would be as described above and in the
materials enclosed on this kind of system.
HOLDINGS:
(1) Privileged foreign status aircraft turbine fuel may be
transported from a FTZ subzone in Lake Charles, Louisiana, to
Hartsfield Airport in Atlanta, Georgia, via a bonded carrier
pipeline and on arrival in Atlanta be temporarily stored in
segregated, non-bonded tanks under the procedures described in
the FACTS portion of this ruling, as modified and/or restricted
in the LAW AND ANALYSIS above, (see cited Customs Regulations in
19 CFR Parts 10, 18, 113, and 146 and C.D.'s 3510-04 and 3260-
34).
(2) The aircraft turbine fuel described in ISSUE (1) may
qualify for duty-free treatment under 19 U.S.C. 1309 if, from the
temporary holding tanks it is introduced into an aircraft
refueling hydrant and pumped into qualifying (under 19 U.S.C.
1309) aircraft under the procedures described in the FACTS
portion of this ruling, as modified and/or restricted in the LAW
AND ANALYSIS above, (see 19 CFR 18.24 and 10.63 and C.D. 3260-
34). If other fuel is commingled with the fuel from the
temporary holding tanks in a common hydrant, more restrictive
requirements (as described) would be applicable (i.e., basically,
there must be a satisfactory measurement device for the fuel from
the temporary holding tanks at or immediately before the
commingling point and in close proximity to the hydrant, there
must be some sort of satisfactory back-flow valve at the point of
commingling to prevent any back-flow of the fuel to the temporary
holding tanks, the system must be configured so that fuel from
the temporary holding tanks cannot be removed other than being
pumped into aircraft, fuel from the temporary holding tanks not
pumped into a qualifying aircraft in the 24-hour period (as
defined in this ruling) in which it was introduced into the
system must be entered and duty paid, and there must be
satisfactory reconciliation of the use of the bonded fuel).
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosures