CLA-2 OT:RR:CTF:VS H013526 KSG
Port Director
Bureau of Customs and Border Protection
7141 Office City Drive
Houston, Texas 77087
RE: Eligibility of certain entries for duty-free treatment under various preferential tariff treatment programs; GSP; AGOA; Insular Possession Program; U.S.-Israel FTA; ATPDEA; Chile FTA
Dear Director:
This is in response to your request for Internal Advice, dated June 15, 2007, concerning a Focused Assessment conducted by your port reviewing certain 2004 entries imported by Vitol S.A. Inc. (“Vitol”) for which preferential tariff treatment was claimed under the Generalized System of Preferences (“GSP”); the African Growth and Development Act (“AGOA”); the Insular Possession Program; the U.S.-Israel Free Trade Agreement; the Andean Trade Promotion and Drug Eradication Act (“ATPDEA”); and the U.S.-Chile Free Trade Agreement (“UCFTA”).
Counsel raised the issue in its submission as to whether Vitol exercised reasonable care in this matter. Since there is no pending penalty action, this question is premature and it will not be dealt with in this ruling.
Submissions from counsel for Vitol dated November 13, 2006, January 30, 2007, July 25, 2007, and October 24, 2007, are incorporated into this file.
Conferences were held with counsel for Vitol on this matter at HQ on September 18, 2007, and March 12, 2008. A conference was held with the Houston Office of Regulatory Audit on September 27, 2007.
FACTS:
GSP Entry
The entry selected for review under the GSP, dated April 9, 2004, was entered at the Port of Norfolk, Virginia. The entry was for methyl tertiary butyl ether (MTBE), entered as a product of Russia that was claimed to be wholly produced in that country by production plants in Volzhiskiy and Chaikovskiy (rather than Tobolsk-Nefthechim as originally stated by Vitol). The MTBE was classified in subheading 2909.19.1400, HTSUS.
MTBE is a chemical compound that can be manufactured by an additional reaction of two organic substances, methanol and isobutylene. Methanol may be produced from natural gas or methane while isobutylene is a product of normal butane and isobutene or by petroleum cracking.
Vitol Energy S.A. of Geneva (“Vitol Geneva”), a related party to Vitol, states that it contracted with Massory Oy, a company located in Helsinki, Finland, that purchases and sells petroleum products and petrochemiclas, to purchase approximately 5,000 MT of Russian-origin MTBE. Massory Oy purchased the MTBE from Gazexport of Russia, which through its subsidiary Ak Sibur operates petrochemical plants in Tobolsk, Russia known as 000 Tobolsk-Nefthechim, Volzhiskiy and Chaikovskiy. Since there are no year-round seaports in Russia, Gazexport shipped the MTBE via rail tank cars to Hamina, Finland. The cargo was loaded onto the vessel M/T Solstraum at Hamina. The M/T Solstram proceeded to the port of Kalundborg, Denmark, where on March 29, 2004, 4,984,227 MT of MTBE was loaded onto the vessel M/T Frea. The cargo remained under customs supervision while in Denmark. The M/T Frea proceeded directly to the U.S. Atlantic coast. Prior to importation, Vitol Geneva sold the MTBE to Vitol.
The documentation submitted by counsel is an affidavit signed by Hannu Koykka, the Executive Director of Massory Oy. The affidavit states that Massory Oy contracted with Vitol to supply the MTBE involved in this case.
CBP indicated in the Focused Assessment that it was concerned that even if a refinery has the capability to produce methanol and isobutylene, a refinery may also purchase these intermediates. CBP was also concerned that a refinery may purchase MTBE and resell it.
Counsel contends that the entry is eligible for preferential tariff treatment based on the affidavits submitted and the certificates of origin alone.
AGOA Entry
The entry selected for review under the African Growth and Opportunity Act (“AGOA”) covered 193,953 barrels of low sulfur fuel oil claimed as a product of Ghana. This product is classified in subheading 2709.19.0530, HTSUS. Vitol states that this product was produced in the TEMA refinery in Ghana and loaded aboard the vessel “Isola Verde.” The fuel oil was discharged and entered by means of two formal entries in Bayonne, New Jersey between February 1 and 3, 2004.
According to the declaration provided by the Managing Director of TEMA,
the fuel oil claimed for this entry was produced at the TEMA Ghana refinery, and the crude oil used to produce this product was all originating from African countries eligible for benefits under the AGOA. This declaration also states that “TEMA only stores low sulfur fuel oil produced at its refinery in tank numbers 27, 28, 29 and 30 and that no third party purchased low sulfur fuel oil was delivered into these tanks or delivered to Vitol.” The declaration gave the cost of the crude oil used to produce the low sulfur fuel. Lastly, the declaration states that the low sulfur grade oil loaded aboard the “Isola Verde” is a product that is wholly the growth of Ghana and eligible for AGOA preference.
III. Product of Insular Possession
This entry, filed on June 5, 2004, involved the entry of 53,954.56 barrels of
No. 2 fuel oil, produced by the Hovensa LLC refinery located in St. Croix, U.S. Virgin Islands. The product was shipped aboard the vessel M/T Energy 6503 and imported into the port of San Juan, Puerto Rico.
The entry is claimed to be a product of an Insular Possession potentially eligible for “no less favorable treatment” than CBERA goods.
Counsel cited to a ruling recently issued by CBP to Hovensa LLC that it considers controlling in this case. The ruling is Headquarters Ruling Letter (“HRL”) 562918, dated March 4, 2004, which held that certain imported petroleum products classified in heading 2710, HTSUS, and processed in its St. Croix refinery from non-originating crude oil were eligible for duty-free treatment under GN 3(a)(iv)(D) and entitled to no less preferential treatment than that accorded to such products when they are produced in a CBTPA beneficiary country. Further, pursuant to section 213(b)(3)(A) of CBERA, known as the NAFTA parity provision, petroleum products classified in heading 2710, HTSUS, were eligible for the same preferential tariff treatment as Mexican NAFTA originating products classified under the same 8 digit HTSUS subheading. Under NAFTA, petroleum products classified in heading 2710 that were produced in Mexico from nonoriginating crude oil were NAFTA originating and eligible for NAFTA preferential treatment when imported into the U.S., assuming all other applicable requirements were met. This entry was claimed as eligible for preferential tariff treatment based on HRL 562918.
We note that counsel for Vitol also included in its submission an entry of low sulfur diesel fuel that was produced at the Hovensa refinery in St. Croix, U.S. Virgin Islands that was not included in the audit and also not included in the Request for Internal Advice from the Port. Since this entry was not discussed in the Port referral and it does not appear that this raises any additional legal issues, we have not included a discussion of this entry in our analysis.
U.S.- Israel Free Trade Agreement
This entry involves 281,563 barrels of unleaded gasoline which Vitol classified in subheading 2710.11.1550, HTSUS. Vitol states that this imported gasoline was processed by Oil Refineries Ltd. (“ORL”) at their Ashdod, Israel refinery. The crude oil used to produce the finished produce is non-originating.
The imported unleaded gasoline was loaded aboard the vessel M/T Sun Light and entered at the port of Newark, New Jersey in an entry dated May 17, 2004.
There were three declarations submitted with respect to this entry.
The first declaration, dated November 17, 2005, was prepared by Rivka Brokman, the Commercial Deputy General Manager of ORL. It describes the merchandise involved in the entry; generally describes the production operations performed on foreign crude oil in the refinery to create the finished product and concludes that the foreign crude oil undergoes a double substantial transformation. There is no information regarding the cost of the foreign materials used to produce the finished product or any other cost figures.
The second declaration, dated January 18, 2006, was prepared by George Green, the Crude Oil Trading Manager of ORL. It makes three revisions to the first declaration and provides further details regarding the production of the entry of unleaded gasoline in question. Most significantly, this review determined that there was a blending of a limited quantity of imported HVGO, an intermediate good, together with locally produced feed.
The second declaration also gives information regarding the cost of the foreign materials that are asserted to undergo a double substantial transformation in Israel. The cost of the crude oil used in run B was given. The total amount claimed for the materials is $7,579,000 divided by a total entered value of $14,490,831, which equals about 52%. This does not include the direct costs of processing performed in Israel. There was no supporting documentation submitted for the costs of the raw materials listed in the Declaration.
The third declaration, dated April 26, 2004, was also prepared by George Green. This declaration forwarded the following six attachments: 1) a table summarizing crude oil movements for February 2004 taken from the internal monthly economic report; 2) a table showing the value of the crude oil for run A, covering the period of February 1-15, 2004, calculated in U.S. dollars based on the weighted average cost; 3) a table showing the value of the crude oil for run B, covering the period of April 3-18, 2004, calculated in U.S. dollars based on the weighted average cost; 4) a table summarizing crude oil movements for April 2004 taken from the internal monthly economic report; 5) the invoice for the imported HVGO showing the unit price; and 6) the report of the independent inspector detailing the transfers from the refinery tanks to the final shore tank prior to loading.
In summary, ORL states that the processing of the crude oil included: atmospheric resid (a mixture of heavy hydrocarbons (HVGO) or “catfeed”)) via atmospheric distillation, which Vitol claims is a substantial transformation and then, processing in the fluid catalystic cracking unit where a catalyst is added to produce low octane gasoline (“catgas”), which Vitol claims was the second substantial transformation in this case. There was information attached to the third declaration regarding two crude runs for the period February 1-15 and for the period from April 3-18, with supporting documentation.
ATPDEA
This entry involved 323,162 bbls. of No. 6 fuel oil, also known as residual fuel oil, imported from Colombia. This entry was loaded aboard the vessel M/T Ladon on October 15, 2004, at the Cartagena refinery of Ecopoetrol. Of this 323,162 bbls. of No. 6 fuel oil, 313,000 bbls. was discharged in Freeport, Bahamas. Therefore, Vitol’s entry for the shipment claimed duty-free treatment under the ATDEA for only 9,712 bbls. of Colombian No. 6 fuel.
A certificate of origin was signed by Fernando Bastos, Ecopetrol’s International Trading Manager. The certificate of origin states that the No. 6 fuel oil was wholly the growth of Colombia and that Ecopetrol was both the exporter and producer of the merchandise.
VI. Chile FTA
Two entries were selected for review under the U.S.-Chile Free Trade Agreement (“CHILE FTA”); an entry of 86,181.1 barrels of catalytic naphtha and an entry of unleaded gas motor fuel. We are reviewing the entry of catalytic naphtha.
Counsel stated that catalytic naphtha is classified in subheading 2710.11.2500, HTSUS. Vitol states that it purchased this product from Empressa Nacional Petrolro (“ENAP”), which is a refinery in Concon, Chile, owned and controlled by the government of Chile. The refinery provided Vitol with a certificate of origin, which was submitted to CBP.
Vitol states that the imported product was loaded aboard the vessel MT Turmoil on August 22, 2004, and imported into the port of New York on September 21, 2004.
In addition to the certificate of origin, Vitol submitted a declaration. The declaration, prepared by ENAP Refineras, states that the 86,181.1 barrels of catalytic naphtha was produced at its Concon, Chile refinery, using either Chilean crude oil or foreign origin crude oil (not U.S. origin). The refinery tanks that the crude oil was stored in was listed, as well as the refinery tank of the catalytic naphtha. The declaration stated that the processing units the crude oil was sent to included: desalting; the distillation tower unit; the atmospheric distillation tower, the vacuum distillation unit; and the fluid catalytic cracking unit. The declaration stated that it received 574,540.7 barrels of crude oil, which were used to produce this product and during and immediately prior to this period, this amount of crude oil was received into inventory.
ISSUE:
Whether Vitol has shown that the requirements of the six trade programs are satisfied, based on the documentation submitted by the importer described in this decision, i.e., the affidavits and certificates of origin.
LAW AND ANALYSIS:
GSP Claim
Title V of the Trade Act of 1974, as amended (19 U.S.C.A. 2461-65), authorizes the President to establish a Generalized System of Preferences to provide duty-free treatment for eligible articles from beneficiary developing countries (“BDCs”). Articles produced in a BDC may qualify for duty-free treatment under the GSP if the good are imported directly into the customs territory of the U.S. from the BDC and the sum or value of materials produced in the BDC plus the direct costs of the processing operations performed in the BDC is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the U.S. See 19 U.S.C. 2463(a)(2) and (3).
The regulatory language set forth in 19 CFR 10.176( c), which is titled “Country of origin criteria” states that “merchandise which is wholly the growth, product, or manufacture of a BDC…shall normally be presumed to meet the requirements set forth in this section.” Then, 19 CFR 10.177(a), which addresses the topic of “Cost or value of materials produced in the beneficiary developing country”, states that both materials “wholly produced” in the BDC and materials substantially transformed in the BDC must satisfy the “produced in the BDC” requirement.
General Note 3(c)(i), HTSUS, provides, in part, that special tariff treatment under the GSP is indicated in the “Special” subcolumn in the tariff by the symbols “A”, “A*,” or “A+”.
In this case, the entry is classified in a GSP-eligible provision. Russia is designated as a beneficiary developing country for GSP purposes under General Note 4(a), HTSUS.
The “product of” requirement means that to receive duty-free treatment, an article either must be made of materials “wholly the growth, product or manufacture of” the BDC, or if made of materials imported into the BDC, those materials must be substantially transformed in the BDC into a new and different article of commerce. See 19 CFR 10.176(a). A substantial transformation occurs “when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.” Texas Instruments Inc. v. United States, 681 F.2d 778 (1982).
The Focused Assessment (“FA”) conclusions did not raise the issue of whether the entry satisfied the “imported directly” requirement. We assume for the purposes of this ruling that the imported directly requirement is met.
The issue presented is whether the documentation initially submitted by Vitol, the certificate of origin, and the affidavit are sufficient to demonstrate that the entry is eligible for preferential tariff treatment under the GSP.
Counsel for Vitol argues that the documentation submitted, which counsel contends shows the production capability of the refinery in question, is sufficient. Counsel states that the only two inputs used in MTBE production, isobutylene and methanol, are in plentiful supply in Russia so that “any MTBE produced in Russia would almost certainly be ‘wholly the product’ of Russia.” The affidavit submitted by the Executive Director of Massory Oy, the middleman, states that to be best of their knowledge, Ak Sibur does not import MTBE or any of the raw materials used to produce MTBE. The declaration states that very little methanol is imported into Russia and there is no open market in Russia for isobutylene.
In HRL 563020, dated May 24, 2005, the issue presented was whether imported goods could be valued based on a formula using “standard costs” and “actual costs” to determine whether the 35% value-content requirement under GSP was satisfied. The producer was unable to provide the actual cost of materials produced and processing costs performed in the BDC. The “standard costs” were derived using production parameters. CBP ruled that this formula would not be allowed. CBP stated that “the GSP regulations clearly reflect that the ‘direct costs of processing operations’ and ‘cost or value of materials produced’ must relate to the specific merchandise under consideration….”
In this case, Vitol relies on the country of origin certificate and an affidavit from a middleman that did not produce the product in question as being sufficient to establish that the entry is eligible for preferential tariff treatment. Further, counsel argues that because the certificate of origin identifies the MTBE as wholly produced in Russia, there is no requirement to demonstrate that it meets the 35% value-added requirement. Counsel cites 19 CFR 10.176(c) as its authority.
The GSP program has statutory criteria which must be satisfied to confer preferential tariff treatment on imported goods. The regulations set forth at 19 CFR 10.173(c) state that any evidence of country of origin submitted under this section shall be subject to such verification as the port director deems necessary. In the event that the port director is prevented from obtaining the necessary verification, the port director may treat the entry as dutiable. CBP acted within its authority and reasonably in requesting more information and documentation from the importer than the information given in the certificate of origin and an affidavit from a middleman that did not have direct knowledge of the production of the imported MTBE.
The statutory language set forth in 19 U.S.C. 2463(a)(2)(A) clearly requires that all goods entered under GSP must satisfy the 35% value-content requirement. The two regulatory provisions cited above, 19 CFR 10.176(c) and 19 CFR 10.177(a) when read together, mirror the statutory requirement that all imported goods must satisfy the 35% value-content requirement, whether the materials are “wholly produced” in the BDC or substantially transformed in the BDC. Vitol’s interpretation of the regulation that it stands for the proposition that the importer is not required to show that it has met the 35% value-content requirement would conflict with clear statutory language, and would be beyond the scope of regulatory authority. While the language used in the regulation “normally be presumed” implies that the 35% value-content is normally met, it still requires that the 35% value-content requirement be satisfied.
Pursuant to the statutory requirements, CBP should analyze the facts presented to determine (1) whether the importer has demonstrated that the good was “wholly the growth, product or manufacture” of the BDC; 2) if not, whether the foreign materials undergo a substantial transformation so that the “product of” requirement is met and (3) analyze any cost data submitted to determine if the 35% value-content requirement is satisfied. If the good is found to be “wholly the growth, product or manufacture” of the BDC, CBP must review the facts of the particular case and determine whether there are any compelling factors present that would trigger CBP’s further review regarding whether the value-content requirement was met.
Examples of reasonable factors to be considered in determining if further information is necessary to establish that a good is “wholly the growth, product, or manufacture” include: if a good is made of more than one material and the importer has not satisfied the port director based on the documentation presented that all the materials originate in the BDC; if the source of the information is not the producer of the imported good; if materials not usually sourced in the BDC are claimed as “wholly the growth, product, or manufacture” of the BDC; or if the industry is one in which producers are also known to buy and sell goods or materials from other countries as well as produce those materials.
Vitol has not provided any documentation prepared by the foreign producer demonstrating that the MTBE was wholly produced in Russia. Any information submitted by the middleman that it is likely that the materials used to produce the MTBE cannot be given much weight. Further, CBP has concerns that in this industry either the intermediates or the finished product could be purchased from another country by the refinery. This type of scenario is known to occur in the oil industry. The information provided in this case does not demonstrate that the imported goods are wholly the growth, product or manufacture” of the BDC. Vitol has also not submitted any information regarding the processing operation in Russia, so we are unable to determine if the foreign materials are substantially transformed in Russia. Vitol has not submitted supporting cost data to demonstrate that the value-content requirement is satisfied in this case. Therefore, Vitol has not sufficiently demonstrated that the entry in question is eligible for preferential tariff treatment under the GSP.
Counsel further argues that the production process is sufficiently complex that any third-country inputs would be subjected to a double substantial transformation.
While counsel makes the above assertion regarding double substantial transformation, sufficient detail about the processing in Russia has not been provided and CBP has not received any production documentation from the foreign producer. This would be necessary to determine if the goods undergo a double substantial transformation in Russia. Further, no cost data has been provided to support the 35% value-content requirement. Vitol has not submitted sufficient documentation for CBP to verify that the goods are eligible for preferential tariff treatment under the GSP.
Vitol contends that as a purely practical matter, it is unrealistic to require Vitol on its own to obtain proprietary production and inventory records of unrelated foreign refiners, and in particular, such records as they relate to a discreet volume of product to substantiate the entries under scrutiny. Further, Vitol argues that all of the refineries are owned by the government of the respective countries in which each is located and as such, the certificates of origin should be accorded special weight.
The GSP is a statutory program designed with the goal of assisting less developed countries to expand their exports by providing certain imported goods preferential tariff treatment pursuant to the legal requirements discussed above. CBP does not give more weight to certificates of origin issued by foreign governments. Rather, CBPs’ focus is on the information provided by the particular certificate of origin. The Port has the discretion to go beyond the certificate of origin and ask for additional supporting documentation when it is not satisfied that the statutory requirements of the GSP have been met. If the importer is unable to obtain the necessary documentation to demonstrate that the imported goods are eligible for such treatment, CBP may properly deny preferential tariff treatment for those imported goods. 19 CFR 10.173(c).
AGOA
Title I of the Trade and Development Act of 2000, Pub. L. 106-200, 114 Stat. 251, May 18, 2000, referred to as the African Growth and Development Act (“AGOA”) provided for the extension of duty-free treatment under the GSP to non-textile articles normally excluded from the GSP that are not import sensitive.
General Note 16(b), HTSUS, provides that an eligible article which is a good of a designated beneficiary sub-Saharan African country (“BSA”) and is imported directly into the customs territory of the U.S. shall be entitled to duty-free treatment if the good is the growth, product or manufacture of the BSA and
the sum of (A) the cost or value of materials produced in one or more BSA, plus (B) the direct costs of the processing operations performed in the BSA, or any two or more BSA’s that are members of the same association of countries which is treated as one country under section 507(a)(2) of the 1974 Act, is equivalent to not less than 35 percent of the appraised value of the article at the time of entry into the U.S.
Ghana is designated as a BSA for purposes of the AGOA in GN 16(a). The imported good is an eligible good, as indicated by the special “D” rate of duty, provided that the additional requirements of the program are met.
In this case, Vitol submitted a declaration signed by Dr. K K Sarpong, the Director of the Tema Oil Refinery, where the low sulfur fuel oil was claimed to be produced.
The low sulfur fuel oil was entered as wholly the growth, production or manufacture of Ghana. The declaration stated that the 29,001 metric tons of low sulfur fuel oil “are typically made using crude oil originating from various African countries which are beneficiary countries pursuant to the African Growth and Opportunity Act.” The declaration did not name the country or countries that supplied the crude oil or contain any information that CBP could use to verify the origin of the crude oil. The declaration did not give any information based on the actual shipment of fuel oil involved in the case. As stated above in the discussion of the GSP program, the imported goods are only eligible for preferential tariff treatment if they are actually wholly the growth, manufacture or product of the BSA.
Further, in the appendix to the Focused Assessment, Regulatory Audit stated that refineries today are not pure production facilities and normally do not produce everything they need. They buy from crude intermediates, additives, even finished products to meet the higher market demand if it is beyond its capacity. CBP concluded that without reviewing actual production records, and documentation to support the statutory criteria, there are risks of non-qualifying entries claiming AGOA preference.
Counsel cites to the regulations and notes the absence of an explicit requirement for actual production records. Counsel then argues that in fact, nothing more than a certificate of origin or a GSP declaration is sufficient to support an importer’s claim for preferential treatment under the AGOA. Counsel points out that the regulations require the importer to have records explaining “how the importer came to the conclusion that the article qualifies…”(19 CFR 10.178a(e)(1)), “records that indicate that the manufacturing or processing operations reflected in or applied to the article meet the country of origin rules …” (19 CFR 10.178a(e)(2))… and “a properly completed GSP declaration is one example of a record that would serve this purpose” (19 CFR 10.178a(e)(2)).
The regulations require that the importer be able to show that the good is wholly the product of a BSA and have records that demonstrate that the cost or value of materials of the U.S. and/or a BSA meet the 35% value-content requirement. A properly completed GSP declaration is “one example of a record that would serve this purpose.” 19 CFR 10.178a(e)(5). This statement does not mean that if the port director is not satisfied that the claim meets the legal requirements set forth under the AGOA, CBP is compelled to rely on a GSP declaration alone without any additional supporting documentation as satisfaction of the statutory and regulatory requirements. CBP has the right to ask for additional documentation that the port director deems necessary to demonstrate that the claim is eligible for preferential tariff treatment under the AGOA. 19 CFR 10.178a(e)(6); 19 CFR 10.173(c).
Insular Possession and sec. 213 of CBTPA
The U.S. Virigin Islands are an insular possession of the United States. See 19 CFR 7.2.
Pursuant to GN 3(a)(iv)(D), subject to the provisions in section 213 of the Caribbean Basin Economic Recovery Act (“CBERA”), goods which are imported from insular possessions of the United States shall receive duty treatment no less favorable than the treatment afforded such goods when they are imported from a beneficiary country under such act.
Under section 213(b)(3) of the United States-Caribbean Basin Trade Partnership Act (“CBTPA”), known as the NAFTA parity provision, certain articles produced in a CBTPA beneficiary country which were previously excluded from preferential treatment, became entitled to the same tariff treatment as originating Mexican goods under the NAFTA imported into the U.S.
Goods in headings 2709 and 2710, HTSUS, are eligible for such treatment under the NAFTA parity provision. As stated above, pursuant to HRL 562918, under NAFTA, petroleum products classified in heading 2710 that were produced in Mexico from non-originating crude oil satisfied the applicable tariff shift rule and were NAFTA originating and eligible for NAFTA preferential treatment when imported into the U.S., assuming all other applicable requirements were met. Accordingly, pursuant to the NAFTA parity provision and GN 3(a)(iv)(D), goods of heading 2710 imported into the U.S. from the Virgin Islands are considered originating goods.
If the entry involved in this case is factually the same as the scenario described in HRL 562918 in all relevant respects, then it appears that the entry would be eligible for preferential treatment in this case. As discussed above, we do not find that submission of the two certificates of origin alone would be sufficient to establish that this entry is eligible for preferential tariff treatment. Further, we note that the certificate of origin submitted in this case claims that the merchandise was “wholly the growth, product or manufacture” of a Caribbean beneficiary country.” In fact, the foreign non-originating materials satisfied the tariff shift rule and thus qualified as an originating good.
Information submitted to the Port by Hovensa may demonstrate that the goods in question were produced in the Virgin Island’s refinery as claimed. We are not making a determination on this matter because as noted above in the “Facts”, this information was not presented to us. The port should review these documents thoroughly and make a determination on this issue.
U.S.- Israel FTA
Under the U.S.-Israel FTA (ILFTA), set forth at GN 8(b), HTSUS, eligible articles the growth, product, or manufacture of Israel which are imported directly to the U.S. from Israel qualify for duty-free treatment as “products of Israel” provided :
(i) each article is the growth, product or manufacture of Israel or is a new or different article of commerce that has been grown, produced or manufactured in Israel:
(ii) each article is imported directly from Israel (or directly from the West Bank, the Gaza Strip or a qualifying industrial zone as defined in general note 3(v)(G)to the tariff schedule) into the customs territory of the United States; and
(iii) the sum of—
(A) the cost or value of materials produced in Israel, and including the cost or value of materials produced in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3 (a)(v) to the tariff schedule plus
(B) the direct costs of processing operations performed in Israel, and including the direct costs of processing operations performed in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, is not less than 35% of the appraised value of each article at the time it is entered.
If an article is produced from materials which are imported into Israel, as in this case, the cost or value of those materials may be counted toward the 35% value-content requirement, as “materials produced in Israel,” only if they undergo a double substantial transformation in Israel. The crude oil imported into Israel must be substantially transformed into a new or different intermediate article of commerce, which is itself substantially transformed in the production of the final article – low octane gasoline.
A substantial transformation results when a new and different article emerges from the processing having a distinctive name, character or use. U.S. v. Gibson-Thomsen Co., Inc., 27 CCPA 269 (1940). If the manufacturing or combining process is a minor one which leaves the identity of the imported article intact, a substantial transformation has not occurred.
We will assume for the purposes of this decision that the imported good met the imported directly requirement.
As stated above, Vitol submitted three declarations to support this entry: 1) a declaration by Rivka Brokman, the Commercial Deputy General Manager of Oil Refineries Ltd. dated November 17, 2005 ; 2) a declaration by George Green, the Crude Oil Trading Manager of Oil Refineries Ltd. dated January 18, 2006; and 3) another declaration by George Green dated February 21, 2006 with six attachments described above.
The declaration of Rivka Brokman gave a general description of the processing of unleaded gasoline in the refinery. The declaration of George Green dated January 18, 2006, includes three revisions to the declaration of Rivka Brokman: 1) there was a blending of a “limited quantity” (10% by volume of the finished product) of desulfurized light naphtha into the final product; 2) there was a blending of a “limited quantity” of locally produced vacuum bottoms in the feed to the FCC unit; and 3) there was a blending of a “limited quantity” of imported HVGO together with locally produced feed to the FCC unit. There is a description of the processing of light naphtha and the blackfeed (vacuum bottoms and HVGO). The declaration also gave calculations regarding the value-content stating the amount of bbl that it concluded underwent a double substantial transformation times a number for the raw materials.
CBP noted that Israel is not known as a country that produces petroleum products beyond its own needs for the purposes of exporting it. CBP concluded in the Focused Assessment that it needed the following information to verify production in the claimed refinery: supporting documentation showing quantities used in the production within the refinery to establish that the processing described above as the first substantial transformation took place in the Israeli refinery; country of origin documents for the foreign crude oil; and invoices or other payment records supporting the valuation of the crude oil. Specifically, CBP stated that without charging and yield reports, tank inventory records, and metering tickets, the team was not able to verify if the imported gasoline was a product of the crude oil processed in February and April 2004, the two runs for which information was provided.
Since Vitol is claiming that all the crude oil used was foreign non-originating material, there would be no need for the Port to require that Vitol supply country of origin documents for these materials.
However, it was reasonable for CBP to request invoices or other payment records supporting the valuation of the foreign crude oil and production documentation such as charging and yield reports, tank inventory records and metering tickets in order to support the assertion that the crude oil in question was in fact processed as described above in the Israeli refinery of ORL. Without such documentation, CBP cannot substantiate the claim that the imported gasoline in question underwent a double substantial transformation in the ORL Israeli refinery, as claimed.
Further, CBP cannot verify that the 35% value-content requirement was met without documentation to support the valuation of the foreign crude oil. We concur with the Port that it was reasonable in requesting additional documentation with regard to this entry. We find that CBP could not verify that this entry was entitled to preferential tariff treatment under the U.S.-Israeli FTA based on the Certificate of Origin and the three declarations submitted.
ATPDEA
The Andean Trade Promotion and Drug Eradication Act (“ATPDEA”) extended certain specified trade benefits to Andean Trade Preferences Act (“ATPA”) beneficiary countries that were designated as ATPDEA beneficiary countries. These provisions provide for the preferential tariff treatment of certain articles that were not eligible for duty-free treatment under the ATPA prior to the enactment of the ATPDEA.
These benefits include duty-free treatment to petroleum, or any product derived from petroleum, classified in subheading 2709 and 2710, HTSUS which meet the requirements set forth in Section 3103 of the ATPDEA (codified at 19 U.S.C. 3203). Beneficiary countries (“BC”) are Bolivia, Colombia, Ecuador and Peru.
The goods must be: either wholly the growth, product or manufacture of a ATPDEA BC or substantially transformed in the ATPDEA BC; imported directly from a BC into the customs territory of the U.S.; and the sum of the cost or value of the materials produced in a ATPDEA BC plus the direct costs of processing operations performed in such BC must be not less than 35% of the appraised value of the imported good.
The phrase “imported directly” is defined in 19 CFR 10.253(b) as:
Direct shipment from any ATPDEA BC to the U.S. without passing through the territory of any country that is not an ATPDEA BC;
If the shipment is from any ATPDEA BC to the U.S. through the territory of any country that is not an ATPDEA BC, the articles in the shipment do not enter into the commerce of any country that is not an ATPDEA BC while en route to the U.S. and the invoices, bills of lading, and other shipping documents show the U.S. as the final destination; or
If the shipment is from any ATPDEA BC to the U.S. through the territory of any country that is not an ATPDEA BC, and the invoices, and other documents do not show the U.S. as the final destination, the articles in the shipment upon arrival in the U.S. are imported directly only if they:
Remained under the control of the customs authority of the intermediate country;
Did not enter into the commerce of the intermediate country except for the purpose of sale other than at retail, and the port director is satisfied that an importation results from the original commercial transaction between the importer and the producer or the producer’s sales agent; and
Were not subjected to operations other than loading or unloading, and other activities necessary to preserve the articles in good condition.
For articles that are wholly the growth, product, or manufacture of an ATPDEA BC, 19 CFR 10.253(d)(6), provides that these goods will “normally be presumed” to meet the value content requirement.
Counsel argues that the certificate of origin submitted along with the declaration it submitted from Fernando Bastos, the International Trading Manager of the Ecopetrol refinery are satisfactory to demonstrate that the imported No. 6 fuel oil was eligible for preferential tariff treatment under the ATPDEA.
The regulations set forth at 19 CFR 10.257(a) state that a claim “will be subject to whatever verification the port director deems necessary. In the event that the port director for any reason is prevented from verifying the claim, the port director may deny the claim for preferential treatment.”
The declaration concludes that the crude oil used to produce the No. 6 fuel oil was “100% Colombian origin” but contains no supporting documentation or information. There was no information submitted to demonstrate that the 35% value-content requirement was satisfied.
As discussed above, Vitol must be able to demonstrate that the crude oil used to manufacture the No. 6 fuel oil was in fact from Colombia. Vitol has submitted no such supporting documentation. Therefore, Vitol has not demonstrated to the port director that the imported No. 6 fuel oil is eligible for preferential tariff treatment under the ATPDEA.
We note that it does appear that the goods would satisfy the “imported directly” requirement since the goods did not enter the commerce of any other country and either the documentation showed the U.S. as the final destination or even if not, there was no further processing of the goods in intermediate countries.
VI. Chile FTA
The U.S.-Chile Free Trade Agreement was implemented by the United States-Chile Free Trade Agreement Implementation Act, Pub. L. 108-77, 117 Stat. 909 (19 U.S.C. 3805 note) (2003). General Note 26, HTSUS, sets forth the rules of origin for preferential tariff treatment under the U.S.-Chile Free Trade Agreement (UCFTA”). The regulations pertaining to the UCFTA are set forth in 19 CFR 10.401-10.490, which follow and supplement the provisions of GN 26.
Pursuant to GN 26(b), goods are considered “originating” for the purposes of the UCFTA if:
they were wholly obtained or produced entirely in the territory of Chile or of the United States, or both;
were produced entirely in the territory of Chile or of the United States, or both, and –(A) each non-originating material used in the production of the good undergoes an applicable change in tariff classification set out in subdivision (n) of this note; or (B) the good otherwise satisfies any applicable regional value-content or other requirements set forth in such subdivision (n); and satisfies all other applicable requirements of this note and of applicable regulations; or
the good is produced entirely in the territory of Chile or of the United States, or both, exclusively from materials described in subdivision (i) or (ii), above.
In this case, Vitol claims that if the good was not wholly obtained or produced in Chile, that the catalytic naphtha satisfied the tariff shift rule set forth in GN 26. Therefore, GN 26(b)(ii) is applicable. GN 26(n) provides the following rule for goods of heading 2710, HTSUS:
A change to heading 2710 from any other heading; or
A change to any good of heading 2710 from any other good of heading 2710, provided that the good classified in heading 2710 is the product of a chemical reaction, as defined in subdivision (m)(vi) of this note.
Counsel argues that the imported good in this case satisfies the tariff shift requirement set forth in GN 26(n) and that since there is no regional value content requirement for goods of heading 2710, Vitol is not required to submit cost information as required by CBP in the Focused Assessment. Further, since Vitol did not claim that the imported good was “wholly obtained”, Vitol should not have to submit records demonstrating that it used wholly obtained raw materials.
We agree with counsel that there is no value-content requirement for goods of heading 2710 and therefore, Vitol is not required to submit cost data for this entry. Further, if non-originating crude oil was utilized to manufacture the imported catalytic naphtha in Chile, the tariff shift rule would be met and the imported goods would be entitled to preferential tariff treatment under the UCFTA, assuming all the other requirements of GN 26 were satisfied. The importer has not claimed that the goods were “wholly obtained or produced” and should not be required to submit documentation to support such a claim.
Counsel also argues that it is not required to submit production and inventory documents to demonstrate production of the imported good in Chile. Counsel relies on the certification of origin, the declaration from the refinery described above, and Vitol’s knowledge of the refinery industry.
The regulation set forth at 19 CFR 10.470(a) addresses the issue of verification under the UCFTA. The regulation provides as follows:
A claim for preferential tariff treatment made under 10.410 of this subpart, including any statements or other information submitted to CBP in support of the claim, will be subject to such verification as the port director deems necessary. In the event that the port director is provided with insufficient information to verify or substantiate the claim, the port director may deny the claim for preferential tariff treatment. A verification of a claim for preferential treatment may involve, but is not limited to, a review of:
(1) All records required to be made, kept, and made available to CBP by the importer or any person under part 163 of this chapter;
(2) Documentation and other information regarding the country of origin of an article and its constituent materials, including, but not limited to, production records, supporting accounting and financial records, information relating to the place of production, the number and identification of the types of machinery used in production, and the number of workers employed in production; and
(3) Evidence that documents the use of U.S. or Chilean materials in the production of the article subject to the verification, such as purchase orders, invoices, bills of lading and other shipping documents, customs import and clearance documents, and bills of material and inventory records.
Further, 19 CFR 10.412(b)(1) states that the importer must have records that explain how the importer came to the conclusion that the good qualifies for preferential tariff treatment. Those records must include documents that support a claim that the article in question qualifies for preferential tariff treatment …
As clearly set forth above, 19 CFR 10.470, supports CBP’s ability to request production records and inventory records to support a claim under the UCFTA. Importer obligations set forth in 19 CFR 10.412(b)(1) clearly indicate that these records must show that the article in question qualifies for preferential tariff treatment. Accordingly, CBP was reasonable in asking for actual production records in this case.
Counsel further argues that since the regulations were issued after the entries were filed, these regulations would not be applicable to 2004 entries.
Article 4.12(2) of the U.S.-Chile Free Trade Agreement states that the U.S. may request that an importer claiming preferential tariff treatment for a good demonstrate to its customs authority that the good qualifies as originating. Further, the Agreement states in Article 4.14(1) that the importer is responsible for submitting a certificate of origin or other information demonstrating that the good qualifies as originating…and for submitting any supporting documents requested by the U.S. customs authority. It is clear from the language contained in the Agreement that both Chile and the U.S. always understood that the importer would be responsible for submitting additional documentation along with the certificate of origin if Customs requested such additional documentation to verify that the imported goods were eligible for preferential tariff treatment. Therefore, even without considering whether the regulations are applicable to the 2004 entries, Customs always had the authority to request additional documentation to support the claim for preferential tariff treatment.
HOLDING:
The affidavits and declarations discussed in this ruling are not sufficient, without further supporting documentation, to demonstrate that the various imported petroleum products satisfy the legal requirements of the various preferential tariff treatment programs for which claims were made.
As noted above, this file is being sent back to the Port to consider additional documentation submitted by Vitol to determine if these entries are eligible for preferential tariff treatment under the various trade programs cited.
This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to CPB
personnel, and to the public on the CPB 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,
Monika R. Brenner
Chief, Value & Special Programs Branch
cc: Daryl Moore
Field Director
Regulatory Audit,
U.S. Customs and Border Protection
Houston, Texas
Cheryl A. Johnson
Assistant Field Director
Regulatory Audit,
U.S. Customs and Border Protection
Houston, Texas
Linda Finnerty
Import Specialist
U.S. Customs and Border Protection
Houston, Texas