VES-3-07-RR:IT:EC 114172 GG
Thomas H. Walsh, Jr., Esq.
Bingham Dana LLP
150 Federal Street
Boston, MA 02110-1726
RE: Coastwise trade; 46 U.S.C. App. 883; Commingling Merchandise;
Warehousing in Canada; Return to the United States
Dear Mr. Walsh:
This is in response to your ruling request, dated November
21, 1997, made on behalf of your client, Company A. Pursuant to
a discussion with you on December 1, 1997, your request for
immediate consideration of this case in accordance with 19 CFR
177.2(d) was denied for lack of a clear need shown. However,
your request that the party-in-interest's name be kept
confidential for competitive business reasons is granted.
FACTS:
Company A, a Canadian company, currently purchases caustic
soda ("soda") in bulk from manufacturers in the United States.
It then transports the soda from ports in the United States to
Saint John, New Brunswick, in foreign flag vessels. In New
Brunswick, the soda is discharged into a single storage tank, and
is thereafter sold or used in Canada.
Company A would like to expand its operations to include
bulk soda purchases for transportation to St. John and eventual
resale in the United States. Under this proposal, the soda will
be transported to St. John on coastwise qualified vessels. Title
will transfer in St. John. The soda will be commingled in a
single storage tank in St. John with soda shipped from the United
States on foreign flag vessels. An amount of soda not greater
than the amount transported to Saint John in the coastwise
qualified vessels will be sold and delivered by truck to
purchasers in Maine and in other northeast states. Company A
will maintain documentation to verify that the amount sold
domestically will not exceed the amount transported on the
coastwise qualified vessels.
The reasons given for this proposed way of doing business
are as follows: bulk shipment of soda by water is cost-effective
and safe; the existing facility in St. John can supply northeast
U.S. companies; it is a short truck route to the northeast United
States from St. John; the proposed transportation will reduce the
cost of soda to U.S. manufacturers and improve their competitive
posture; the proposed transportation will increase the use and
financial stability of the U.S. merchant fleet; and any negative
impact will fall upon foreign, not domestic, manufacturers and
sellers of soda.
ISSUE:
Whether the proposed transportation of soda constitutes a
violation of the merchandise transportation statute, 46 U.S.C.
App. 883?
LAW AND ANALYSIS:
The coastwise law pertaining to the transportation of
merchandise, section 27 of the Act of June 5, 1920, as amended
(41 Stat. 999; 46 U.S.C. App. 883, often called the Jones Act),
provides in pertinent part that:
No merchandise shall be transported by water, or by
land and water, on penalty of forfeiture of the
merchandise (or a monetary amount up to the value
thereof as determined by the Secretary of the Treasury,
or the actual cost of the transportation, whichever is
greater, to be recovered from any consignor, agent, or
other person or persons so transporting or causing said
merchandise to be transported), between points in the
United States...embraced within the coastwise laws,
either directly or via a foreign port, or for any part
of the transportation, in any other vessel than a
vessel built in and documented under the laws of the
United States and owned by persons who are citizens of
the United States...
In determining whether merchandise which is transported from
one point in the United States to a point in a foreign country
and then to another point in the United States is subject to the
prohibition in section 883 by virtue of being transported between
coastwise points "via a foreign point", we have relied upon the
holding of the Supreme Court in The Bermuda, 70 U.S. 514 (1865).
In that decision, the Supreme Court held that:
A transportation from one point to another remains
continuous, so long as intent remains unchanged, no
matter what stoppages or transshipments intervene. [70
U.S. at 553.]
The Supreme Court went on to reaffirm the longstanding rule that:
***[E]ven the landing of goods and payment of duties
does not interrupt the continuity of the voyage of the
cargo, unless there be an honest intention to bring
them into the common stock of the country***. [70 U.S.
at 554.]
The Attorney General of the United States relied upon The
Bermuda in his consideration of the application of section 883 to
certain transportation. In 34 Op. Att'y Gen. 335 (1924)(see
also, 32 Op. Att'y Gen. 350 (1920)) the Attorney General
considered the applicability of section 883 to the transportation
of grain from Chicago or Milwaukee to a Canadian port in non-coastwise-qualified vessels. The grain was unladen into an
elevator where it remained for an indefinite time until it was
loaded into railroad cars for transportation by rail to points in
New England. In some instances the grain had already been sold
for delivery at an American port when it reached the Canadian
port, while in other instances there was an existing intent to
ship the grain to the Canadian elevator for storage in
anticipation of demands for future deliveries for domestic
consumption in Canada, for export abroad, or for sale and
delivery in the United States. The Attorney General determined
that the shipments of grain consigned through the Canadian port
to a point in the United States or which had been shipped with
the intention that it would ultimately be sent to the United
States, were in violation of section 883.
In the case at hand, Company A states that only the soda
shipped to Canada on coastwise qualified vessels is intended for
ultimate sale in the United States. That transported on foreign
flag vessels is for Canadian consumption only. However, this is
complicated by the fact that the sodas are commingled in Canada
prior to distribution to purchasers in Canada and the United
States. Therefore, the soda that comes back here is composed in
part of soda that was sent to Canada on non-coastwise qualified
vessels.
The issue of commingling was addressed in Headquarters
Ruling Letter (HRL) 104910, dated November 7, 1980 (C.S.D. 81-117). In that case, a Canadian firm imported petroleum coke from
the United States on Canadian flag vessels. It mixed the coke
with its own stock, and then sold some to a company in the United
States. The coke was shipped back to the United States by truck.
Customs determined that a violation of the coastwise laws had
occurred. The rationale was that the intent had existed all
along for a portion of the coke to be shipped from one coastwise
point through Canada to another coastwise point. The continuity
of the transportation between points had not been broken by the
storage or commingling of the coke in Canada. C.S.D. 81-117 is
distinguishable from Company A's proposed operation, however,
because in the former no leg of the voyage was by a U.S.
coastwise-qualified vessel. That is not the same as Company A's
proposed situation, where at least some of the soda will be
transported to Canada by a coastwise-qualified vessel.
A subsequent ruling also dealt with commingling issues. In
HRL 109475, dated October 4, 1988 (C.S.D. 89-1), fertilizer
shipped from the United States to Canada on non-coastwise-qualified vessels was commingled in Canada with fungible
fertilizer that was sent from the United States on coastwise-qualified vessels. Although there was a clause in the sales
contract stating that the fertilizer was not for resale in the
United States, a portion of the commingled fertilizer was sold
and sent to purchasers there. Customs imposed penalty liability
beginning with the first shipment to the United States of
commingled merchandise, sustaining that liability until an amount
equal to that which departed this country in non-coastwise-qualified vessels had been returned in commingled form. Company
A's factual situation is almost identical, except for the fact
that Company A has always intended to return a certain amount of
soda to the United States. Despite the similarities between the
two cases, in our opinion a compromise can be reached to
accommodate both Company A and Customs, which will enable Company
A to return soda to the United States without penalty and Customs
to enforce the coastwise laws of the United States.
To accomplish these goals, we find that we cannot adopt
Company A's position in its entirety, which is that an amount of
soda equal to the amount transported to Canada on coastwise-qualified vessels may, contingent upon the keeping of records,
automatically return to the United States free of penalty.
Something must first be done to alleviate Customs' concern that
an amount of soda in excess of the soda transported on coastwise-qualified vessels will end up back in this country. For that
reason, we will approve Company A's proposed plan only on the
condition that Company A maintains records to show that an amount
of soda equal to the amount shipped on non-coastwise-qualified
vessels is first sold in Canada or in another foreign country
before any of the remainder is sold or returned to the United
States. This will ensure that the merchandise coastwise laws are
not violated and will provide a mechanism whereby eligible soda
may be returned to the United States without penalty.
HOLDING:
The transportation of caustic soda from the United States to
Canada on a coastwise-qualified vessel, its commingling in Canada
with fungible soda shipped to Canada on non-coastwise qualified
vessels, and its subsequent return by truck to the United States,
does not violate 46 U.S.C. App. 883, provided adequate records
are maintained to show that an amount of the commingled soda
equal to the amount transported to Canada on non-coastwise
qualified vessels is first sold foreign. The failure to have
such records would subject Company A to penalties for violation
of the merchandise coastwise laws.
Sincerely,
Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch