DRA-4-CO:R:C:E 223769 C
Deputy Assistant Regional Commissioner
Commercial Operations
U.S. Customs Service
South Central Region
423 Canal Street, Suite 337
New Orleans, Louisiana 70130-2341
RE: Internal advice request concerning fungibility of jet fuel;
ASTM standards for jet fuel; aromatics content; footnote C of
ASTM standard D-1655; substitution same condition drawback; 19
U.S.C. 1313(j)(2)
Dear Sir:
This responds to your memorandum of August 13, 1991,
regarding the fungibility of jet fuel for CITGO Petroleum
Corporation (CITGO). We have reviewed all relevant materials,
including CITGO's brief and exhibits, and our response follows.
FACTS:
You stated that CITGO filed a substitution same condition
drawback claim covering imports and exports of commercial
kerosene-type jet fuel. The chemical analysis reports on the
imported and exported shipments were referred to the Customs
Laboratory at New Orleans for a fungibility determination. Its
February 8, 1991, report indicated that the shipments were not
fungible. The laboratory found that the exported jet fuel did
not meet the American Society for Testing and Materials (ASTM)
specification for aromatics content for commercial kerosene-type
jet fuel.
The ASTM jet fuel standard, D-1655, specifies a maximum
aromatics content of 20 volume percent but adds the following
proviso as its footnote C: Fuels with an aromatics content over
20 volume percent but not exceeding 25 volume percent are
permitted provided the supplier (seller) notifies the purchaser
of the volume, distribution and aromatics content within 90 days
of the date of shipment unless other reporting conditions are
agreed to by both parties.
In this case, the imported jet fuel has an aromatics content
below 20%, and the exported jet fuel has an aromatics content
between 20% and 25%. The imported merchandise satisfies the
aromatics specification listed in the main table of ASTM D-1655,
while the exported merchandise satisfies the specification set
forth in footnote C. CITGO argues that by falling within the
range of footnote C, it has satisfied the specification provided
in ASTM D-1655. Further, CITGO maintains that "there is
incontrovertible evidence that jet fuel manufacturers, airlines
and all other commercial parties in the industry ignore the ASTM
aromatics footnote C and accept product containing up to 25
percent aromatics without notice and without prior agreement."
ISSUE:
Whether commercial kerosene-type jet fuel that meets the
standard for aromatics content as set forth in ASTM standard D-
1655 is fungible with such jet fuel that does not meet that
standard but falls within the range of the standard's footnote C?
LAW AND ANALYSIS:
The substitution same condition drawback law, 19 U.S.C.
1313(j)(2), requires that the exported substituted merchandise
must be fungible with the imported designated merchandise and
must be in the same condition at exportation as was the
designated merchandise at importation. The term "fungible
merchandise" is defined in section 191.2(l) of the Customs
Regulations, 19 C.F.R. 191.2(l), as "merchandise which for
commercial purposes is identical and interchangeable in all
situations." This definition is consistent with the clearly
expressed intent of Congress when it enacted the law (see House
Report (Ways and Means Committee) No. 98-1015, September 12,
1984, reprinted at 1984 U.S.C.C.A.N 4960, 5023; see also 129
Cong. Rec. E 5339 (daily ed. November 4, 1983). In addition,
this definition was quoted favorably and applied by the United
States Court of International Trade in Guess? Inc. v. United
States, Slip Op. 90-121 (CIT November 26, 1990), 24 Cust. Bull.,
No. 51, p. 26 (1990). (Guess? was remanded to the CIT on the
facts only.)
CITGO asserts that it is a commercial practice in the
industry to treat commercial kerosene-type jet fuel (hereafter
referred to as jet fuel) containing aromatics between 20% and 25%
as interchangeable with jet fuel containing aromatics of 20% and
below. CITGO argues that jet fuel producers and users, as well
as engine manufacturers, recognize no distinction between jet
fuel containing 20% or less aromatics and that containing between
20% and 25% aromatics. In this regard, CITGO stated the
following:
Jet fuel containing aromatics between 20 and 25 percent
is priced the same as jet fuel containing aromatics
less than 20 percent [at levels of 20% and below]. If
aromatics content is too high, i.e., in excess of
approximately 25 percent, the purchaser will likely
reject the shipment. Otherwise, assuming all of the
other ASTM properties are acceptable, kerosene-type
commercial grade jet fuel containing between 20 and 25
percent aromatics is bought and sold in an identical
manner as that containing 20 percent and less
aromatics. There is no commercial distinction between
such fuels.
CITGO provided the affidavit of Mr. Jack Donathan, CITGO's
Manager of Terminal Blending Operations and previously its
Manager of Fuel Technical Services. He stated that the airlines
have never requested, and CITGO has never provided, notice that
its jet fuel contains aromatics above 20%. CITGO routinely
furnishes jet fuel containing between 20% and 25% aromatics
without notice to any of its domestic or foreign customers. Mr.
Donathan is not aware of any seller or purchaser that provides or
requires notice that jet fuel aromatics exceed 20%.
Additionally, CITGO offers evidence that the two leading
domestic manufacturers of jet engines, General Electric and Pratt
& Whitney, recommend to users of their products that aromatics in
jet fuel not exceed 25%. Further, CITGO alleges, until recently,
Pratt & Whitney's specifications listed a maximum of 20% for
aromatics but changed it to 25% in recognition of the emerging
change of practice in the industry.
Standing in contradistinction to the foregoing assertions
are the ASTM standards themselves. As stated, these standards
have been recognized as acceptable guidelines in making
fungibility determinations for jet fuel (C.S.D. 91-21). As
counsel indicates in its brief, the ASTM is comprised of both
producers and users in a given industry who appoint technical
committees to formulate and review product standards. The ASTM
standards for jet fuels, formulated as above, recognize a
distinction between fuels containing aromatics of 20% and below
and fuels containing aromatics in excess of 20% up to 25%. This
means that committees appointed by producers and users of jet
fuel determined that there is a significant difference between
jet fuels containing these different levels of aromatics. Now,
we are being asked by one producer to ignore this distinction on
the grounds that standards in jet fuel production, sale, and use
have changed and, as CITGO alleges, an entire industry has
modified its practice.
We continue to believe that the ASTM standards, as
guidelines, are the best indicators of fungibility for jet fuels.
Since these standards, as currently constituted, include the
distinction represented by footnote C, we are inclined to
continue to give the distinction meaningful recognition. The
question is whether or not evidence of commercial use can
override the technical standards Customs has used in making
fungibility determinations. CITGO alleges that commercial
practice in the industry demonstrates that the fuels in question
- the D-1655 fuel and the footnote C fuel - are commercially
interchangeable and thus fungible. However, we are not convinced
that CITGO has established this proposition sufficiently.
In addition to the ASTM standards, jet fuel specifications
contained in EXXON's 1987 edition of "Jet Fuel Specifications"
were reviewed. Included among those entities listing a maximum
20% by volume for aromatics were the following:
ASTM*
IATA*
Colonial Pipeline Company*
Explorer Pipeline Company*
Pratt & Whitney
Buckeye Pipeline*
U.S. Air Force
Australian Government (Civil)**
National Council of Petroleum**
ICONTEC*
French Ministry of the Armed Forces
Those listing a maximum of 25% for aromatics were the
following:
General Electric
MITI*
Swedish Defence Materials Administration
Those listing a maximum of 22% for aromatics were the
following:
Canadian Government Specifications Board*
United Kingdom Ministry of Defense
The specifications of entities noted above with an asterisk
contain a footnote that permits acceptance of fuels with up to
25% aromatics so long as a timely notice is provided by the
supplier (seller) to the buyer. The specifications of entities
noted above with a double asterisk contain a footnote that
permits acceptance of fuels with up to 22% provided a timely
notice is given. For Pratt & Whitney, listed in the first group
above, the footnote is a waiver of the 20% maximum: "Waiver
currently in effect authorizing up to 25 vol. % Aromatics, as
necessary." Although MITI is listed above in the second, or 25%
maximum, group, the footnote indicates that any fuel with
aromatics in excess of 20% requires the necessary notification.
In effect, MITI belongs in the first group. The specifications
for those entities above without an asterisk do not contain a
footnote, thus indicating that there is no flexibility.
The foregoing list of aromatics specifications and footnotes
indicates that companies and other entities have recognized a
distinction between jet fuels with different levels of aromatics.
Since not all maximums and footnotes are the same, it is clear
that some of these entities view the distinction differently. If
the distinction was not considered significant, there would not
be any footnotes and all maximums would be 25%. In any event,
with so many entities recognizing a significant distinction
between fuels of different aromatics levels, as represented by
their respective specifications - most mirroring the ASTM
standards, it is hard to conclude that the industry has abandoned
the distinction. CITGO has not submitted proof that all entities
operating within the industry, or even a majority, have abandoned
the footnote's distinction.
Letters were submitted on CITGO's behalf by Colonial
Pipeline Company and Explorer Pipeline Company. CITGO cites them
as evidence that pipeline companies treat the footnote C fuels
the same as the D-1655 fuels. Yet, the latest obtained
specifications for Colonial Pipeline and Explorer Pipeline,
issued, respectively, in January 1992 and February 1992, indicate
the same maximum of 20% aromatics for jet fuel and the same
footnote. Moreover, the letter from Colonial Pipeline, dated
December 2, 1991, indicates that Colonial recognizes ASTM
footnote C but appears to consider it a matter for the supplier
(seller) and buyer. Colonial commingles D-1655 and footnote C
fuels but admonishes purchasers to be aware of the possibility
that it may receive fuel with aromatics as high as 25%. The
letter from Explorer Pipeline Company, dated December 2, 1991,
indicates that it commingles these fuels but also recognizes the
legitimacy of ASTM footnote C and appears to consider it a matter
between the supplier and purchaser.
A third letter was submitted on CITGO's behalf; this one
from Delta Airlines. Delta admits that it uses D-1655 fuel and
footnote C fuel interchangeably and does not demand notice as
required under footnote C of the ASTM standards.
We believe that the evidence submitted by CITGO is
insufficient to demonstrate that the entire industry has
abandoned the 20% maximum for aromatics as established by the
ASTM standards and represented in the specifications issued by
individual entities as set forth above. Moreover, CITGO's
assertion that the domestic jet fuel manufacturing industry has
abandoned any recognition of a 20% maximum for jet fuels is
unpersuasive. The studies it cited indicate that one third of
the manufacturers's samples observed demonstrate aromatics levels
in excess of 20%. We do not believe that this establishes that
the industry, including producers, buyers, sellers, and users,
has abandoned any recognition of the 20% maximum aromatics level
contained in the ASTM standards.
Finally, at a meeting at Customs Headquarters, it was
suggested that the ASTM itself was contemplating changing the
maximum standard for jet fuel aromatics. Although the
proposition has been the subject of rumor, CITGO has not
submitted any proof that it is forthcoming. Moreover, the rumor,
as is its nature, is anything but certain with respect to the
contemplated maximum.
Ultimately, CITGO asks us to do that which is inadvisable
without a clear and substantial basis: abandon technical
standards - standards that have been used by Customs to make
fungibility determinations - on the basis of a less than
convincing argument that commercial practice has changed
industry-wide and while the standards, as they have been
constituted, remain in effect. Our Office of Laboratories and
Scientific Services has cautioned against straying from
established industry-wide technical standards that have already
been accepted as indicators of fungibility. This is not to say
that it would never be appropriate to accept as convincing
evidence of an industry's commercial practice that clearly
demonstrates interchangeable use of a product at variance with a
technical standard. It is just that on the facts here, the
evidence is unconvincing and unpersuasive, especially in view of
the continued existence of an industry standard that could be
changed if the industry - through ASTM - found it necessary or
appropriate. If the ASTM did in fact change the aromatics
standard, we would recognize such change as persuasive evidence
that the industry-wide commercial practice was to treat standard
D-1655 fuels the same as footnote C fuels.
HOLDING:
Based on the foregoing, we conclude that the imported and
exported shipments of jet fuel here involved are not fungible on
the grounds that the exported substituted jet fuel is not within
the same ASTM standard as the imported designated jet fuel.
Commercial kerosene-type jet fuels evidencing 20% and below
aromatics levels (ASTM D-1655) are not fungible with commercial
kerosene-type jet fuels evidencing aromatics levels in excess of
20% but not exceeding 25% (footnote C to ASTM D-1655).
Sincerely,
John Durant, Director
Commercial Rulings Division