DRA-2-02; DRA-2-02; DRA-4 RR:CR:DR 230149 AL
U.S. Customs and Border Protection
Chief, Liquidation Branch
555 Battery Street
San Francisco, California 94111
Dear Sir:
This is in response to an internal advice request that was made by your office dated August 28, 2003. Subsequent to that request, a second memorandum was received by our office dated September 18, 2003, which provided additional information concerning the internal advice request. The internal advice request concerns imported duty-paid cryoprotectant and its eligibility for drawback pursuant to 19 U.S.C. 1313(j)(1) and 19 U.S.C. 1309(b). We have considered the facts and issues raised by the American Seafoods Company, Inc. (“ASC”) and by your office. Our decision is as follows.
FACTS:
According to the Port, ASC manages the fishing operations, production, and sales of factory fishing vessels that operate in the United States waters (North of the Aleutians Islands in the Bering Sea at about 198 miles out, within the 200-mile U.S. fishing limit but outside the 3-mile U.S. territorial waters). On August 18, 2003, ASC submitted a request to the Port for accelerated payment of drawback. According to its application, ASC intends to file drawback claims under 19 USC 1313(j)(1) on fishing vessel supplies covered by 19 U.S.C. 1309. The fishing vessel supplies are cryoprotectants. ASC also stated in its application that “[i]t is possible that future claims may also include vessel supplies produced in the U.S. under the provisions of 1313(a) and 1313(b) . . . .” The Port had expressed a concern that cryoprotectant may not constitute a necessary fishing vessel supply. According to a letter dated August 20, 2003, ASC responded to this concern and emphasized that “[t]he cryoprotectant is just as much a necessary supply for these fishing vessels as the diesel fuel used to run the processing machinery for freezing . . . [and] . . . is integral to the functioning and purpose of this type of vessel.”
ASC imports cryoprotectant in bulk from Korea. The imported cryoprotectant is laden on board the fishing vessel located in Dutch Harbor, Alaska. At sea, during the fishing and processing operations, the cryoprotectants are mixed into the fish meat just prior to the packaging and freezing of the product, surimi. Surimi is a Japanese term, used to describe fish meat that is washed and refined to yield a basic fish paste. The production of surimi involves the addition of cryoprotectants, which preserve the integrity of the fish protein during freezing and in frozen storage. When the surimi is packaged and frozen, it is placed in the hold. Once the hold is full, the vessel returns to the port and discharges the product into shipping containers or bulk tramper vessels for export out of the United States.
ISSUES:
Whether the imported duty-paid cryoprotectant constitutes a vessel supply under 19 USC 1309(b), for purposes of drawback eligibility under 19 USC 1313(j)(1).
Whether the finished article (surimi) is dutiable upon return to the United States.
If 19 USC 1309(b) is inapplicable, whether the use of the imported duty-paid cryoprotectant on a U.S. flagged vessel within the 200-mile U.S. fishing limit but outside the 3-mile United States territorial waters and the exportation of the finished product (surimi) qualify for drawback under 19 USC 1313(a).
LAW and ANALYSIS:
Issue 1
ASC asserts that the cryoprotectants qualify as vessel supplies. Section 1309(b) of Title 19 of the United States Code (U.S.C. §1309(b)) states, in pertinent part, that:
Articles withdrawn from bonded warehouses, bonded manufacturing warehouses, continuous customs custody elsewhere than in a bonded warehouse, or from a foreign-trade zone, imported articles, and articles of domestic manufacture or production, laden as supplies upon any such vessel or aircraft of the United States . . . shall be considered to be exported within the meaning of the drawback provision of this chapter.
The scope of what constitutes vessel supplies and equipment for purposes of 19 USC 1309(b) was discussed in TD 49815(4), dated February 16, 1939. That decision held that “supplies” as used in section 1309, includes “all consumable articles necessary and appropriate for the propulsion, operation and maintenance of the vessel, . . . .” ASC’s fishing vessels not only operate as a means of fishing and transportation, but also as fish processors that manufacture “fish paste” known as surimi. With these vessels operating as both a means of transportation and manufacturing, what constitutes necessary supplies for the propulsion, operation and maintenance of them is also beyond what is “necessary” for a vessel that is operated solely for transportation. Because the vessels are also fish processors, then the cryoprotectants, which are essential to the processing/manufacturing of frozen “fish paste,” are supplies necessary to the “operation of the vessel.” As such, the cryoprotectant constitutes vessel supplies pursuant to 19 USC 1309(b). Therefore, the lading of cryoprotectants on ASC’s fishing vessels constitutes an exportation under 19 USC 1309(b).
As a result, ASC may be eligible for drawback pursuant to 19 USC 1313(j)(1), which states in pertinent part:
If imported merchandise, on which was paid any duty, tax, or fee imposed under Federal law because of its importation is, before the close of the 3-year period beginning on the date of importation-exported, . . . and is not used within the United States before such exportation . . .; then upon such exportation . . . 99 percent of the amount of each duty, tax, or fee so paid shall be refunded as drawback.
Here, ASC imports cryoprotectant in bulk from Korea. The cryoprotectant is then laden on board a fishing vessel located in Dutch Harbor, Alaska to be used in the production of surimi at sea. The fish-processing vessels operate north of the Aleutians Island in the Bering Sea at about 198 miles out, within the 200-mile U.S. fishing limit, but outside the 3-mile U.S. territorial waters. The cryoprotectant is not used within the United States prior to exportation in accordance with 19 USC 1313(j)(1) because the cryoprotectant is not used until it is laden on the fishing vessel and that lading constitutes an exportation under 19 USC 1309(b). Therefore, ASC may claim drawback pursuant to 19 USC 1313(j)(1) on the imported duty-paid cryoprotectant.
Issue 2
The pertinent statute, subheading 9815.00.20, HTS (19 USC 1202) and 19 CFR 10.78, provide that products of an American fishery shall be entitled to free entry, if the preparation, preserving or otherwise changing of the condition of fish at sea is done by the master or crew of the fishery or by persons employed by and under the supervision of the master or owner of the fishery. In C.S.D. 82-123 (dated April 23, 1982), it was stated “. . . for fish taken on the high seas to be products of an American fishery and free of duty under the TSUS, they must have been caught by a United States-flag vessel.”
Here, ASC operates U.S.-flagged fish-processor vessels that catch fish used in the production of surimi within the 200-mile U.S. fishing limit but outside the 3-mile U.S. territorial waters. When the hold on the vessel is full of surimi, ASC returns to the port and discharges the product into shipping containers or bulk tramper vessels for export out of the United States. Because the fishing and the production of surimi takes place on a U.S.-flagged vessel, the surimi is not dutiable upon return to the United States in accordance with subheading 9815.00.20, HTSUS and 19 CFR 10.78.
Issue 3
According to ASC, the production of surimi is performed aboard a United States flagged vessel within the 200-mile U.S. fishing limit, but outside the 3-mile U.S. territorial waters.
ASC would not qualify for drawback under 19 USC 1313(a), which states, in pertinent part:
Upon the exportation or destruction under customs supervision of articles manufactured or produced in the United States with the use of imported merchandise, provided that those articles have not been used prior to such exportation or destruction, the full amount of the duties paid upon the merchandise so used shall be refunded as drawback . . . .
ASC’s production of the surimi takes place outside the territorial waters of the United States. Therefore, it would not comply with 19 USC 1313(a) where the finished article, surimi, must be manufactured or produced in the United States. Therefore, if 19 USC 1309(b) did not apply in this case, ASC would not qualify for drawback under 19 USC 1313(a).
HOLDING:
Cryoprotectants are necessary to the operation of the fishing vessels as fish processors, and as such, constitute vessel supplies pursuant to 19 U.S.C. 1309(b). As a result, the imported cryoprotectant, once laden on the fishing vessel, is deemed exported and thus, may be eligible for drawback under 19 USC 1313(j)(1).
In accordance with subheading 9815.00.20, HTSUS and 19 CFR 10.78, the finished product (surimi) is not dutiable upon return to the United States because the fishing and the production of the surimi takes place on a U.S.-flagged vessel.
The use of the cryoprotectant in the production of surimi outside the territorial waters of the United States and the exportation of the finished product (surimi) would not qualify for drawback under 19 USC 1313(a).
Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division