DRA-4-CO:R:C:E 224103 PH
Deputy Regional Director
Commercial Operations Division
Pacific Region
RE: Internal Advice Request; Same Condition Substitution
Drawback; Possession; B. F. Goodrich Co. v. United States;
19 U.S.C. 1313(j)(2)
Dear Sir:
In your memorandum of June 11, 1991 (File: DRA-2-O:C:T:L
RMA), you requested a ruling on whether certain operations of
Astra Oil, Inc. (the Claimant) meet the possession requirements
for same condition substitution drawback. By memorandum of July
15, 1991 (File: DRA-4-CO:R:C:E 223292 TG), we returned the
request, pending a decision on the possession issue by the Court
of International Trade (CIT) in the case of B. F. Goodrich v.
United States. The Court has now issued a decision in that case
(Slip Op. 92-68, May 12, 1992, published in Vol. 26 Cust. Bull. &
Dec. No. 24, June 10, 1992, at page 11; modified by Slip Op. 92-
87, June 9, 1992, published in Vol 26 Cust. Bull. & Dec. No. 27,
at page 37). In view of the Court's decision in this case, you
again forwarded the internal advice request to this office for
our disposition with your memorandum of July 22, 1992 (File:
DRA-2-O:C:T:L RMA:dd).
We have considered the arguments made and the materials
submitted by the Claimant, as well as your comments. Our advice
follows. If you have any questions, please call on William G.
Rosoff or Paul G. Hegland of the Entry Rulings Branch in this
Division (202-927-0820).
FACTS:
The Claimant states that it is engaged in the business of
buying and selling petroleum products, such as gasoline,
kerosene, jet fuel, diesel oil, No. 2 and No. 6 oils, and other
products obtained from the distillation of crude oil. The
Claimant purchases foreign petroleum products for importation
into the United States. With regard to these petroleum products,
the Claimant is the importer of record into the United States and
makes entry and pays the applicable Customs duties. (In view of
the decision in B. F. Goodrich, supra, material relating to how
the Claimant may or may not possess the foreign petroleum
products after their importation is not set forth in this
ruling.)
The Claimant purchases domestic petroleum products from
United States producers and refiners for resale to domestic and
foreign buyers. The Claimant states that its purchases in the
United States are generally on an FOB basis and that it takes
physical delivery of the domestic products, obtains title and
assumes risk of loss directly from the seller's refinery or
terminal as the products pass the flange connection between the
supply facility and the receiving vessels at the load port.
Occasionally, the merchandise is first delivered to barges or
ships chartered by the Claimant or to shore tanks leased by the
Claimant for lightering or temporary storage. The Claimant
supervises and controls the receipt and loading of all of the
domestic products. It hires an inspector to gauge the quantity
and quality of the cargoes as they are loaded on board vessels in
the United States. The Claimant exclusively directs and controls
the movement of the vessels to the ports, terminals, and berths;
the date, time, and duration of loading; the quantity of domestic
cargoes loaded; and the dispersion (distribution) of the cargoes
on board the vessels and the tank-by-tank sequence and plan of
vessel loading.
The Claimant states that its domestic cargoes for export are
resold on a C&F United States port basis. The Claimant
negotiates and concludes the vessel charters and has the
exclusive right to direct and control the vessels until they are
prepared to depart United States waters. The Claimant generally
loads the exporting vessels at different United States ports or
terminals. The loading generally lasts several days. The
Claimant directly instructs the vessel masters regarding the
movement of the vessels and the loading of the cargoes and does
not relinquish control over the cargoes until the vessels are
fully loaded and the cargoes are tested. At that time the
Claimant's inspectors issue certificates of quality and quantity
covering the export cargoes and the vessel masters issue the
export bill of lading to the Claimant or to its bank or its
order. The Claimant transfers title and delivery to its foreign
customer at the port of exportation when the vessels are fully
loaded and the export bills of lading are issued. The Claimant
is the exporter and so identified on the bills of lading and the
Shipper's Export Declarations.
In addition to selling domestic cargoes for export on a C&F
United States port basis, the Claimant sells the cargoes to
foreign parties on a CIF, C&F or out-turn foreign port basis. In
these cases, the Claimant charters the ocean vessels, directs the
vessels to load cargoes at one or several United States locations
and completely controls the loading of such cargoes on board the
vessels and their transport to the foreign customers (usually in
Canada or Mexico). In the case of the C&F and CIF foreign port
sales, the Claimant receives the bill of lading and maintains
complete control over the vessels and the export cargoes until
the vessels arrive at their foreign destination(s) and the
merchandise is discharged. In the case of out-turn sales, the
Claimant maintains complete control until the cargoes are
actually received by the foreign purchaser(s). The Claimant is
the exporter and relinquishes title and delivery only when the
cargoes are discharged abroad.
The Claimant has filed and intends to file claims for
drawback, under the same condition substitution drawback law, for
the above-described operations. The Claimant asks that we
assume, for purposes of our consideration of this issue, that the
substituted merchandise (i.e., the merchandise to be exported) is
fungible with the designated imported merchandise, is exported
within three years of the date of importation of the designated
merchandise, is not used in the United States before such
exportation, and is in the same condition at the time of
exportation as was the designated merchandise at the time of its
importation. We so assume, although we note that the Claimant
must establish compliance with these and any other applicable
requirements in the law and regulations (see 19 CFR Part 191).
ISSUE:
May same condition substitution drawback under 19 U.S.C.
1313(j)(2) be granted in the situations described in the FACTS
portion of this ruling?
LAW AND ANALYSIS:
Under section 313(j)(2), Tariff Act of 1930, as amended (19
U.S.C. 1313(j)(2)), "[i]f there is, with respect to imported
merchandise on which was paid any duty, tax, or fee imposed under
Federal law because of its importation, any other merchandise
(whether imported or domestic) that-- (A) is fungible with such
imported merchandise; (B) is [timely] exported or destroyed under
Customs supervision; (C) before such exportation or destruction-
- (i) is not used within the United States, and (ii) is in the
possession of the party claiming drawback ...; and (D) is in the
same condition at the time of exportation or destruction as was
the imported merchandise at the time of its importation; then
upon the exportation or destruction of such other merchandise
[drawback may be granted], but in no case may the total drawback
on the imported merchandise ... exceed 99 percent of that duty,
tax, or fee."
Before the decision in the B. F. Goodrich case, supra,
Customs had interpreted 19 U.S.C. 1313(j)(2) to require that the
designated imported merchandise and the substitute merchandise to
be exported both must be possessed by the same person during the
3-year period after importation of the designated imported
merchandise (see 19 CFR 191.141(h)). In B. F. Goodrich, supra,
the Court held that a drawback claimant under 19 U.S.C.
1313(j)(2) is not required to have possessed the designated
imported merchandise. The Court stated that "it is clear that
the possession requirement attaches only to the exported goods,
not to the imported goods (Vol. 26 Cust. Bull. & Dec. No. 24, at
page 13, emphasis in original). The Court held that the
provision in the Customs Regulation concerning same condition
substitution drawback (19 CFR 191.141(h)) is invalid and must
have no force and effect (supra, at page 19; note, however, that
in the Supplemental Order modifying Slip Op. 93-68 (i.e., Slip
Op. 93-87) the Court enjoined Customs from enforcing section
191.141(h) "to the extent that it requires possession of imported
merchandise and is inconsistent with this decision", Vol. 26
Cust. Bull. & Dec. No. 27, at page 38). The Court stated that
"[section] 1313(j)(2) requires only that a drawback claimant have
paid the duty, tax or fee for the privilege of importing the
goods" (Vol. 26 Cust. Bull. & Dec. No. 24, at page 13). The
Court ordered Customs to "continue to grant substitution same
condition drawback claims based on the requirements established
by 19 U.S.C. 1313(j)(2), and the case law construing it" (Vol. 26
Cust. Bull. & Dec. No. 27, at page 38).
Accordingly, under 19 U.S.C. 1313(j)(2), a drawback claimant
is no longer required to have possessed the designated imported
merchandise. He or she is only required to "have paid the duty,
tax or fee for the privilege of importing the goods", as the
Court stated in B. F. Goodrich, supra, in addition to having
possessed the exported merchandise. In this case, the Claimant
did pay the duty for the privilege of importing the goods.
Therefore, assuming that all other requirements are met (as we
are asked to assume in this case), we must determine whether the
merchandise which was exported in this case was in the possession
of the Claimant before it was exported.
Initially, we note that "exportation" is defined as "a
severance of goods from the mass of things belonging to this
country with the intention of uniting them to the mass of things
belonging to some foreign country" (19 CFR 101.1(k), see also
Swan v. Finch v. United States, 190 U.S. 143 (1903), and 17 Op.
Att'y Gen. 579 (1883)). The date of exportation has been held to
be "that time at which the goods in question finally depart the
country of exportation" (National Sugar Refining v. United
States, 84 Cust. Ct. 118, 120, C.D. 4849; 488 F. Supp. 907
(1980); see also, Roessler & Hasslacher Chemical Co. v. United
States, 1 Cust. Ct. App. 290, T.D. 31353 (1911), and Ruth F.
Sturm's Customs Law and Administration, pp. 274, 275 (1980)).
According to the last cited authority--
In the case of merchandise imported by water, the
date of exportation is the date of the last
sailing of the importing vessel from the country
of exportation. Until the vessel finally clears,
there is no complete act of exportation, the
goods are still subject to control by the country
of exportation.
In this case, the Claimant states that it takes delivery,
obtains title, and assumes risk of loss with regard to the
domestic petroleum products to be exported at the time that the
products pass the flange connection from the refinery to: (1)
the exporting vessels at the port of loading; (2) barges or other
vessels chartered by the Claimant and used to lighter or
temporarily store the products before being loaded in the
exporting vessels at the port of loading; or (3) shore tanks
leased by the claimant for temporary storage of the products
before they are loaded in the exporting vessels at the port of
loading. In most cases, several cargoes at several different
United States ports will be loaded in the exporting vessels
before those vessels proceed to the foreign port(s) to which the
products are to be transported. However, in a few instances,
exporting vessels will be entirely loaded at one United States
port. The cargoes to be exported will be resold on either a C&F
United States port basis or a CIF, C&F, or out-turn foreign port
basis. In the case of foreign port basis resales, the Claimant
charters the exporting vessels as the charterer and in the case
of the United States port basis resales, the Claimant negotiates
and concludes the vessel charters but, apparently, the foreign
purchaser of the products is the charterer of the vessels.
In the instances in which the products are stored in shore
tanks leased by the Claimant for temporary storage before the
products are loaded in the exporting vessels at the port of
loading, the arrangement is tantamount to a "bailment". We have
addressed the applicability of the possession requirements for
same condition substitution drawback in a bailment situation (see
ruling 222500 dated July 16, 1990, referred to by the Claimant,
copy enclosed for your information). In this ruling we noted
that a bailment, in its ordinary legal signification, imports the
delivery of personal property by one person to another in trust
for a specific purpose, with a contract, express or implied, that
the trust shall be faithfully executed, and the property returned
or duly accounted for when the specific purpose is accomplished,
or kept until the bailor reclaims it, citing 8 Am. Jur. Bailment,
section 2 (1980). In this ruling we concluded that the fact that
merchandise was held in a bailment did not result in failure to
meet the possession requirements for same condition substitution
drawback, so long as the bailor (the party for whom the goods
were stored) had complete control and dominion over the
merchandise and was able to put it to any use chosen. Based on
the information available in the file, and in the absence of
evidence to the contrary, we conclude that the Claimant did have
possession with regard to the products stored in shore tanks
leased by the Claimant for temporary storage before the products
were loaded in the exporting vessels at the port of loading.
Similarly, we conclude that the Claimant did have possession
with regard to the products temporarily stored or lightered in
barges or other vessels chartered by the Claimant before they
were loaded in the exporting vessels at the port of loading. We
so conclude on the basis of the nature of vessel charters.
Basically, a charter is an agreement under which "an entire ship
or some principal part thereof is let to a merchant" (Great
Circle Lines, Ltd., v. Matheson & Co., Ltd., 681 F. 2d 121, 124
(1982), quoting from E. Jhirad and A. Sann, 1 Benedict on
Admiralty Sec. 225 (7th ed. 1981); see also Black's Law
Dictionary, pages 235-236 (6th ed. 1990), and Thomas J.
Schoenbaum, Admiralty and Maritime Law Sec. 10-1 (1987)).
Three general types of vessel charters may be distinguished,
according to the last-referenced authority (Schoenbaum, Sec. 10-
1). Those three varieties of vessel charters are demise or
bareboat charters, time charters, and voyage charters. It is
generally settled law that under a demise or bareboat charter,
"the owner of the vessel must completely and exclusively
relinquish 'possession, command, and navigation' thereof to the
demisee ... It is therefore tantamount to, though just short of,
an outright transfer of ownership" (Guzman v. Pichirilo, 369 U.S.
698, 699-670 (1962); see also, Schoenbaum, Sec. 10-1, "For most
purposes, the charterer in a demise is treated as an owner ...").
The other two general types of vessel charters are described as
"a contract to use a vessel for a particular period of time,
although the vessel owner retains possession and control" (time
charter) and "a contract for the hire of a vessel for one or a
series of voyages" (voyage charter) (Schoenbaum, Sec. 10-1).
With regard to both of these kinds of vessel charters, it has
been stated that "a bailment is created and the shipowner as
bailee is liable for any negligent damage to the goods carried"
(Schoenbaum, Sec. 10-7).
Accordingly, unless the terms of the charters under
consideration provide otherwise, the Claimant, as charterer of
the barges or other vessels chartered by the Claimant for use in
lightering or temporarily storing the products before they were
loaded in the exporting vessels at the port of loading, possessed
the petroleum products to be exported (i.e., if the charters were
bareboat or demise charters, the products would have been in
vessels in which the claimant was tantamount to the owner (of the
vessels) and if the charters were time or voyage charters, the
products would have been held in the vessels in an arrangement
tantamount to a bailment). The same is true of the products
loaded in vessels chartered by the Claimant to transport (on a
CIF, C&F, or out-turn foreign port basis) them (i.e., the
products) to the foreign purchaser (i.e., whether the charters
were bareboat or demise charters, or time or voyage charters, the
Claimant possessed the products to be exported before they were
exported).
The remaining situation for consideration is that of
products which are not temporarily stored in shore tanks leased
by the Claimant or in barges or other vessels chartered by the
Claimant and are not lightered to the exporting vessels in barges
or other vessels chartered by the Claimant but are loaded in the
exporting vessels at the port of loading on a C&F United States
port basis. In these cases, although the Claimant may negotiate
and conclude the charter, the Claimant does so on behalf of the
foreign purchaser of the products and the foreign purchaser is
the charterer. In these cases, the Claimant states that it
supervises and controls the receipt and loading of the products
and it hires an inspector to gauge the products as they are load
in the exporting vessels. The Claimant states that it
exclusively directs and controls the movement of the vessels and
the loading of the products. Only when the vessels are fully
loaded and a bill of lading is issued (by the Claimant) and the
vessels are prepared to commence their ocean voyages, does
delivery occur.
In these instances the Claimant is arguing, in effect, that
it possessed the domestic petroleum products before exportation,
even though the products were, during the claimed possession, en
route to (apparently, via pipeline) and in the vessels in which
they were to be exported. The latter vessels were chartered by
the foreign party to which the products were to be exported. The
Claimant states that it had control over the products before they
were delivered to the foreign party. The control described by
the Claimant appears to be sufficient so that the Claimant could
have been, in effect, a sub-charterer (i.e., a charterer of the
vessels from the foreign purchaser charterer). If that was the
case, the Claimant would be considered to have possession of the
products in this circumstance as well. However, in the absence
of documentary evidence (e.g., a charter agreement or a contract
setting forth the responsibilities and rights of the Claimant and
the foreign purchaser between the time that the products are
loaded in the exporting vessels and the time that the vessels
finally depart from the United States), we are unable to rule on
this issue. Unless the Claimant can provide such evidence,
drawback should be denied (for lack of possession of the
merchandise to be exported) in this circumstance.
As you are probably aware, the recent court decisions
regarding same condition substitution drawback (i.e., B. F.
Goodrich, supra, and Central Soya Co., Inc. v. United States, 761
F. Supp. 133 (CIT 1991), affirmed, Appeal. No. 91-1324, January
28, 1992, Vol. 26 Cust. Bull. & Dec. No. 7, February 12, 1992,
page 9) have caused uncertainty in this area. Therefore, in
addition to meeting the requirements described above, with each
drawback claim the Claimant should be required to provide a
written statement that no drawback rights have been transferred
or will be transferred to any other party with regard to either
the imports or the exports which provide the basis for drawback
in the claim.
HOLDING:
Same condition substitution drawback under 19 U.S.C.
1313(j)(2) may be granted, assuming compliance with all other
applicable statutory and regulatory requirements, regardless of
whether the Claimant had possession of the imported merchandise,
when the Claimant imported the import merchandise and paid the
duties thereon and--
(1) took delivery and obtained title of the substitute
domestic merchandise to be exported and stored that
merchandise in shore tanks leased by the Claimant prior to
loading the merchandise in the exporting vessels at the port
of loading,
(2) took delivery and obtained title of the substitute
domestic merchandise to be exported and stored that
merchandise in barges or other vessels chartered, under a
bareboat or demise charter, or a time or voyage charter, by
the Claimant prior to loading the merchandise in the
exporting vessels at the port of loading,
(3) took delivery and obtained title of the substitute
domestic merchandise to be exported and loaded that
merchandise in barges or other vessels chartered, under a
bareboat or demise charter, or a time or voyage charter, by
the Claimant for lightering the merchandise to the exporting
vessels at the port of loading, or
(4) took delivery and obtained title of the substitute
domestic merchandise to be exported and loaded that
merchandise in the vessels in which the merchandise was to
be transported to the foreign purchaser, if those vessels
were chartered by the Claimant under a bareboat or demise
charter, or a time or voyage charter.
Such drawback may not be granted, although the Claimant
imported the import merchandise and paid the duties thereon, with
regard to the substitute domestic merchandise which was loaded in
the vessels in which the merchandise was to be transported to the
foreign purchaser, if those vessels were chartered by the foreign
purchaser, and not the Claimant, in the absence of documentary
evidence such as a sub-charter agreement or a contract setting
forth the responsibilities and rights of the Claimant and the
foreign purchaser between the time that the merchandise is loaded
in the exporting vessels and the time that the vessels finally
depart from the United States.
Sincerely,
John Durant, Director
Commercial Rulings Division