CLA-2 CO:R:C:G 082360 JGH
Area Director of Customs
New York Seaport
6 World Trade Center
New York, N.Y. 10048
RE: The acceptance of "End-Use,, certificates involving importations of ethanol by Union Carbide Corporation (UCC), Internal Advice 13/88
Dear Sir:
This decision concerns the adequacy of Union Carbide's recordkeeping system in tracking ethanol sales from entry through end use in satisfaction of the actual use regulations, 19 CFR 10,131-139, to establish that the ethanol will not be used as a motor fuel or to produce a motor fuel, and, thus, will not be subject to additional duties under subheading 9901.00.50, HTSUS.
FACTS:
UCC imports ethanol from several sources, and, in addition, Purchases ethanol imported by others, as well as domestic ethanol. The ethanol is used to produce a variety of products, such as solvents and cosmetic and household products. After importation the ethanol is sent to a Distilled Spirits Plant (DSP) where most of it is denatured (with some left undenatured), but all is processed according to the Bureau of Alcohol, Tobacco and Firearms (BATF) regulations. Each of the denatured ethanol formulations is tailored to the individual customer's specifications.
In order to keep track of the ethanol, UCC maintains a recordkeeping system comprised of the BATF records, bonds and permits, along with UCC management required records, all of which are subject to regular audits.
ISSUE
Whether the program proposed by UCC, including special accounting procedures to keep track of imported ethanol production and sales, is sufficiently complete to satisfy the regulations involving actual use: 19 CFR 10,131-139.
LAW AND ANALYSIS:
The basic question is whether UCC's recordkeeping is capable of tracking all of the imported ethanol from entry through end use, in order to establish to Custom's satisfaction that the imported ethanol was not used for motor fuel purposes. In view of the volume of sales, it is recognized that the potential number of end use certificates which could be submitted to Customs could present a considerable logistics problem. Since U.S. Note 2, Subchapter 1, Chapter 99, HTSUS, states, in effect, that evidence has to be submitted which establishes to the satisfaction of the Commissioner that the ethanol was 'not used for motor fuel purposes, the procedure proposed in satisfaction of the regulations is in the nature of a constructive receipt by Customs of the proof of end use. Under the proposal the importer would certify the entry for nonfuel use; keep track of the ethanol product as it progresses through the UCC system; and ensure that records are kept and maintained that will demonstrate that the ethanol was, in fact, used for a nonfuel purpose. These records will be retained by the end user for a period of 4 years for possible Customs review.
UCC agrees that at entry it will certify to Customs that the ethanol will not be used as a fuel or used to produce a fuel, but will be used for various industrial purposes. Further, it agrees that consistent with recognized sound business practices, UCC will maintain records and follow recognized accounting procedures to account for all ethanol (both foreign and domestic) sales and uses. In addition, by May 1 of each year, UCC will require its customers to notify it of any ethanol purchased from UCC in the prior year that has not been consumed in an end product. Of course, it is understood, that if any ethanol has been used in or sold as fuel, Customs will be notified immediately.
"Blanket-End Use" certification will be furnished to Customs by the importer by June 1 of the year following the year in which the ethanol was sold. It is agreed that the certificate will (in equivalent quantity as 190 proof ethanol):
l) List entries covered by the certification, and show the amounts of ethanol, ports of entry, and names of ships (or other carriers).
2) List all UCC's other acquisitions of ethanol.
3) Contain a statement on the amount of ethanol used or exported by UCC.
4) List all sales to third parties (includes dealers as well as end users),and includes the name of purchaser, date of shipment, quantity and product sold.
5) Contain a statement that the purchaser used the ethanol for various non fuel purposes.
6) Contain a statement that the purchasers agree to allow Customs to verify sales.
7) Contain a statement that UCC has reminded purchasers of their obligation to inform Customs of any diversions.
It is understood that UCC will require the end-user to maintain records which will actually prove how the ethanol was used, and require the purchasers to retain such records for possible review by Customs for a period of 4 years from the date of purchase.
UCC has supplied Customs with data covering entries of imported ethanol for the years 1985, 1986, and 1987. The data submitted provides a descriptive analysis of UCC's recordkeeping system which appears on its face to contain the necessary data required by Customs to liquidate actual use entries. Specifically, two main summaries identify in a linear format key information which tracks all the entries within the specified period. For example, a Canadian entry on January 2, 1985, with 135,700 gallons listed, went to the DSP in Carteret, N.J., and while there were other shipments of ethanol products from the DSP, these latter were not used by UCC to satisfy the January 2 entry.
UCC has determined that a 5 day through-put time at the DSP
is necessary in order to allow the ethanol to be processed and made available for shipment. Thus, there is imputed a 5 day delay before accumulated shipments out of the DSP are used for the purpose of certifying customers to satisfy the entry. On vessel imports, a 14 day through-put delay is used, before applying customer certified shipments. Under this approach all entries for the period are accounted for, the ethanol is quantified, the delayed shipments-recognized processing time acknowledged (assuming the figures are accurate and consistent) before they are counted on a total basis for the enumerated importations. In another submission, all sales for the period are listed. This reference, in effect, is a summary by date, customer name, city and state, order number, product name, quantity shipped and equivalent gallons (reduction to ethanol content). A record is kept on an annual basis which shows the total quantity of all equivalent gallons sold equaling the total customer-certified equivalent gallons.
Where a storage tank contains both imported and domestic product, any diversion of ethanol for motor fuel purposes would be based on a computation of foreign content using the percentage of product relative to the total ethanol sold. Only the foreign content percentage would be applied to any diverted quantity, to which additional duty would apply.
It is concluded that the data submitted by UCC captures the imported ethanol as entered and the sales thereof. The affidavits and other documentation submitted to Customs account for sufficient quantities to enable Customs to liquidate the applicable entries for the years 1984 through 1987. The Customs Office of Regulatory Audit may perform some on-site spot checks and verify the accuracy of the affidavits.
Prospectively, for years subsequent to the above the procedures to be implemented are as follows:
1) At entry UCC will certify that the imported ethanol will not be used to produce a fuel or used as a fuel, and will state how it will be used.
2) Adequate records will be kept and acceptable accounting procedures followed to track all of the ethanol product.
3) UCC will notify potential customers that the ethanol can not be used for fuel and require them to state how, in fact, it will be used.
4) "Blanket End-Use Certification" will be furnished to Customs by June 1 of the year subsequent to the year in which ethanol was sold to customers. The certificate will state: the amount (both domestic and foreign) acquired, sold and to whom; that it was not used for fuel purposes and how it was used.
5) Ethanol sold but not consumed during the calendar year will not be certified by the end user until consumed.
6) UCC will require that the end user maintain records which establish how the ethanol was used for a period of 4 years from date of purchase. These records must be capable of tracking the ethanol from purchase through end'. use.
7) With appropriate notice, Customs will be entitled to conduct on-site spot checks to verify end-use and the accuracy of customer sales.
8) It is recognized that under 19 C.F.R. 10.137, UCC as the importer of record is responsible for the production of all the end-use certificates, which identify the end user.
9) To ensure uniformity of application of the program, UCC will provide Customs with samples of the notice given customers to remind them of their obligations in regard to diversions and the necessity to maintain use-records for the prescribed period of time.
HOLDING:
For years subsequent to 1987, liquidation of entries will take place as soon as possible after receipt of the UCC documentation which is in compliance with the above.
For years 1984 through 1987, liquidation of entries will take place as soon as possible after the date of this decision.
Sincerely,
John Durant, Director
Commercial Rulings Division