DRA-4-CO:R:C:E 224868 PH
Regional Director
Commercial Operations
New Orleans, Louisiana 70130
RE: Protest 1901 93 100021; Substitution Unused Merchandise
Drawback; Possession of Exported Merchandise; 19 U.S.C.
1313(j)(2); Public Law 103-182, Section 632
Dear Sir:
The above-referenced protest was forwarded to this office
for further review. Our decision follows.
FACTS:
The protest is of the liquidation of a drawback entry (or
claim) filed on April 24, 1991. According to the file, the
imported merchandise designated as the basis of drawback for the
claim was imported on October 9, 1989, and the exportation upon
which the claim is based was on February 2, 1991.
According to documents in the file, the protestant was the
importer of the designated imported merchandise (245,601 barrels
of No. 2 fuel oil) and paid the duty on that merchandise
($20,630.52). The protestant, by its Treasurer in an affidavit
dated June 26, 1991, stated, among other things, that "[w]e do
not issue a certificate of delivery covering the designated
merchandise nor a certificate of manufacture and delivery
covering articles manufactured or produced therefrom." In a
certificate, dated December 16, 1992, the Treasurer of the
protestant stated that "[the protestant] was the exporter of the
product and the only claimant for duty drawback on the imported
product." In each statement, the Treasurer stated that the
protestant maintained records in support of the affidavits. The
file contains copies of the contract of purchase with
specifications provided, invoice, and reports of analysis for the
imported merchandise.
According to the Customs Form 7511 (Notice of Exportation of
Articles with Benefit of Drawback) for this claim, the exported
merchandise upon which drawback was claimed was 222,450 barrels
of "gas oil" exported from Chevron Dock No. 5 at Pascagoula,
Mississippi, on the EVROS, ultimately destined for Indonesia.
In the file there is a copy of a February 1, 1991 (time:
2027 hours, EDT), telex stated to confirm a January 30, 1991,
agreement between the seller (Chevron U.S.A. Inc.) and the buyer
(the protestant). Under the telex "[the seller] agrees to sell
to [the protestant] petroleum products under the following terms
and conditions [and the telex] shall serve as the formal contract
between the parties in governing this transaction." The telex
describes the product to be sold as 225,000 barrels (approximate-
ly) of No. 2 oil meeting provided specifications to be delivered
into buyer-nominated vessel(s) during February 1-5, 1991, F.O.B.
Pascagoula, Mississippi. The telex provides that the protestant
is to provide a "standby irrevocable letter of credit" in an
amount and form acceptable to the buyer. The telex provides for
quantity and quality determinations and/or inspections. The
telex provides for payment by wire transfer of "immediately
available Federal funds" within 2 working days after receipt of
wired invoice and supporting documents. The telex requests
confirmation by return wire of agreement or disagreement with the
terms and conditions within 24 hours of receipt of the telex and
states that failure to reply will be deemed to constitute
acceptance of the terms of the agreement. Under another telex on
the same date (February 1, 1991, time: 1127 hours EDT) relative
to the same transaction, it is stated that as a condition of this
transaction, the protestant is to transfer to the seller March
"NYMEX" (New York Mercantile Exchange) No. 2 oil contracts.
In the file there is also a copy of a February 1, 1991 (time
not available), telex stated to confirm a January 30, 1991,
agreement between the seller (the protestant) and the buyer (BP
North America Petroleum, Inc.). This telex states that the
product is 285,000 barrels (plus/minus 10% at the buyer's option)
No. 2 fuel oil meeting provided specifications to be delivered
"F.O.B. into buyer's designated vessel ... during February, 1991,
basis Pascagoula, Ms." This telex also provides for an
irrevocable letter of credit, if sufficient credit is not
established. The telex provides for payment "two calendar days
after completion of loading or four calendar days after
tendering" (there is a February 5, 1991, telex from the
protestant to the buyer referencing the invoice and stating that
payment is due on February 6, 1991, via wire transfer of Federal
funds). According to the February 1, 1991, telex, it "represents
the cash portion of an EFP (exchange for physical) transaction in
accordance with the rules and regulations of the New York
Mercantile Exchange as outlined for such transactions." Also, as
a condition to the transaction, the buyer is to transfer to the
protestant contracts of March, 1991, No. 2 heating oil on that
Exchange. According to the telex, the EFP (see above) is "to be
effected prior to delivery." The telex requests that, if the
buyer was not in agreement with any of its provision, the buyer
be advised "promptly" and stated that otherwise, the terms and
conditions shall be considered binding on both parties.
There are copies of reports of inspection in the file.
According to a "Shore Quantity Summary", at the time of loading
there were 222,450 barrels of "gas oil" (in the file there is a
statement, by an official of the protestant, that according to
the New York Mercantile Exchange "Glossary of Terms", "Gasoil" is
the European designation for "No. 2 Heating Oil") in Chevron tank
324 (included in this quantity is the quantity in the "tank of
displacement", Chevron tank 361). A laboratory report, with
specifications of samples, stated to have been taken from tank
324 on January 31, 1991, is provided. According to a "Time Log",
loading of gas oil into the EVROS commenced at 1630 hours on
February 1, 1991, and was completed at 1206 hours on February 2,
1991 (in the memorandum accompanying the protest, the protestant
states that this loading took place on February 4, 1991; however,
the "Wharf Turnaround Report" confirms the time of loading from
the "Time Log"). According to a "Vessel Measurement" report, the
quantity of gas oil so loaded was 222,092.35 barrels ("Gross
Standard Volume", corrected to 222,450 actual barrels, per other
documents in the file). According to a "Tanker Bill of Lading",
on February 2, 1991, 222,450 barrels of gas oil were shipped on
board by the protestant on the EVROS. The consignee is stated to
be BP North America Petroleum, Inc., and the EVROS is stated to
be chartered by BP North America International Limited, pursuant
to the terms of a charter agreement dated January 31, 1991. No
copy of such a charter agreement is provided.
According to the memorandum accompanying the protest, the
oil from Chevron tank 324 was blended (in the vessel) by the
addition of product from Conoco tank 378 at Lake Charles,
Louisiana. According to documents in the file, 55,578 barrels of
No. 2 oil were loaded on the EVROS from the named tank
(specifications are provided) between 2015 hours on February 5,
1991, to 0410 hours on February 6, 1991.
As stated above, on April 24, 1991, the protestant filed a
claim for drawback on the 222,450 barrels of gas oil. By letter
of August 16, 1991, Customs advised the protestant that it was
suspending the claim, pending resolution of the B.F. Goodrich Co.
v. United States (794 F. Supp. 1148 (CIT 1992)) case. By letter
of December 18, 1992, the protestant requested reactivation of
the drawback claim. With this letter, the protestant provided
certifications relating to the claim, in accordance with Customs
General Notice published in the Customs Bulletin & Decisions on
October 21, 1992 (Vol. 26, No. 43, page 7). Customs Regional
Laboratory was requested to review the merchandise in the claim
for fungibility and found that the imported merchandise and the
exported merchandise were fungible. In letter dated February 19,
1993, Customs advised the protestant that although the imported
and exported merchandise were found to be fungible, drawback was
being denied because Customs was unable to establish compliance
with the requirement for possession of the exported product. In
this letter, Customs referred to ruling 224103, dated October 19,
1992.
The protested drawback claim was liquidated, without
drawback allowed, on March 19, 1993. The protestant filed the
protest under consideration on May 19, 1993, and by letter of May
18, 1993, filed with Customs an amended protest form with the box
for further review checked (we assume that Customs received this
amended protest within the 90 days for filing or amending a
protest, otherwise the application for further review should have
been denied and the protest processed at the district level (19
CFR 174.14, 174.23; Customs Directive 099 3550-065 dated August
4, 1993, page 23, section (1)(a))).
ISSUE:
Is there authority to grant the protest of denial of
drawback in this case?
LAW AND ANALYSIS:
Initially, we note that the protest was timely filed under
the statutory and regulatory provisions for protests (see 19
U.S.C. 1514 and 19 CFR Part 174). We note that the refusal to
pay a claim for drawback is a protestable issue (see 19 U.S.C.
1514(a)(6)).
Generally, under 19 U.S.C. 1313(j)(2), as amended, drawback
may be granted if there is, with respect to imported duty-paid
merchandise, any other merchandise that is commercially
interchangeable with the imported merchandise and if the
following requirements are met. The other merchandise must be
exported or destroyed within 3 years from the date of importation
of the imported merchandise. Before the exportation or
destruction, the other merchandise may not have been used in the
United States and must have been in the possession of the
drawback claimant. For purposes of the possession requirement,
possession is defined as "including ownership while in bailment,
in leased facilities, in transit to, or in any other manner under
the operational control of, the party claiming drawback." The
party claiming drawback must be either the importer of the
imported merchandise or have received from the person who
imported and paid any duty due on the imported merchandise a
certificate of delivery transferring to that party the imported
merchandise, commercially interchangeable merchandise, or any
combination thereof.
The drawback law was substantively amended by section 632,
title VI - Customs Modernization, Public Law 103-182, the North
American Free Trade Agreement Implementation Act (107 Stat.
2057), enacted December 8, 1993. The foregoing summary of
section 1313(j)(2) is based on the law as amended by Public Law
103-182. Title VI of Public Law 103-182 took effect on the date
of enactment of the Act (section 692 of the Act). According to
the applicable legislative history, the amendments to the
drawback law (19 U.S.C. 1313) are applicable to any drawback
entry made on or after the date of enactment as well as to any
drawback entry made before the date of enactment if the
liquidation of the entry is not final on the date of enactment
(H. Report 103-361, 103d Cong., 1st Sess., 132 (1993); see also
provisions in the predecessors to title VI of the Act; H.R. 700,
103d Cong., 1st Sess., section 202(b); S. 106, 103d Cong., 1st
Sess., section 202(b); and H.R. 5100, 102d Cong., 2d Sess.,
section 232(b)).
Compliance with the Customs Regulations on drawback is
mandatory and a condition of payment of drawback (United States
v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing
Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675; see also,
Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) "We are
dealing [in discussing drawback] with an exemption from duty, a
statutory privilege due only when the enumerated conditions are
met" (emphasis added)).
According to documents in the file, the merchandise in this
case has been found to be fungible. Fungibility was the standard
for substitution for drawback under 19 U.S.C. 1313(j)(2) before
its amendment by Public law 103.182. The intent of the change
from fungibility as a standard for substitution to commercial
interchangeability was to make the standard less restrictive (see
House Report 103-361, supra, at page 131). Therefore, since the
imported merchandise and the substituted merchandise in the
protested claim have been determined to be fungible, we conclude
that they meet the current requirement for commercial
interchangeability.
Since the standard for substitution under 19 U.S.C.
1313(j)(2) has been met, the issue yet to be resolved in this
case is whether the possession requirement has been met,
assuming, as appears to be the case, that the other requirements
for drawback under this provision have been met. As stated
above, for purposes of the possession requirement, possession is
defined as "including ownership while in bailment, in leased
facilities, in transit to, or in any other manner under the
operational control of, the party claiming drawback." House
Report 103-361, supra, is helpful in interpreting this provision.
According to the Report, "the Committee does not intend to create
a 'market' for drawback rights" (H. Rep. 103-361, at 130) (see
also the Report Language on the "successorship" provision in 19
U.S.C. 1313(s): "In all cases, the value of the realty and
personalty transferred must exceed the value of the drawback
rights transferred to prevent pure sales of drawback rights."
(id., emphasis added)).
In this case, according to documents submitted by the
protestant, the exported merchandise claimed in the drawback
claim (the 222,450 barrels of gas oil loaded on the EVROS) was
purchased by the protestant pursuant to a January 30, 1991,
agreement confirmed by a February 1, 1991, telex. The February
1, 1991, telex, by its terms, was to take effect within 24 hours
of receipt by the protestant, in the absence of a return wire of
confirmation or disagreeing with the terms and conditions of the
telex. The protestant agreed, as a condition of the transaction,
to transfer to the seller future No. 2 oil contracts on the New
York Mercantile Exchange. Under the telex, the oil was to be
delivered during February 1-5, 1991, into buyer-nominated
vessel(s). The oil was, in fact, delivered into the EVROS on
February 1 and 2, 1991.
Also according to documents submitted by the protestant, the
protestant sold 285,000 (plus/minus 10%) barrels of No. 2 fuel
oil to another company, pursuant to a January 30, 1991, agreement
confirmed by a February 1, 1991, telex. The oil was to be
delivered into the buyer's designated vessel during February of
1991. According to the telex, the telex (representing the cash
portion of an "EFP" (exchange for physical)) was to be effected
prior to delivery. Under the telex, the buyer was to transfer to
the protestant future No. 2 oil contracts on the New York
Mercantile Exchange. As stated above, the oil was, in fact,
delivered into the vessel on February 1 and 2, 1991. The vessel
into which the oil was delivered was chartered by the company
buying the oil from the protestant, pursuant to a charter
agreement dated January 31, 1991, but no copy of the charter
agreement is provided.
Thus, according to the above, the protestant simultaneously
agreed to purchase and sell the oil and delivery was from the
seller (to the protestant) directly to the purchaser (from the
protestant), into a vessel chartered by the purchaser of the oil.
According to the telexes confirming the agreements and stated to
contain the terms and conditions of the agreements, the telex
relating to the sale of the oil to the protestant was to take
effect within 24 hours of receipt by the protestant of the telex
(absent a return wire confirming or disagreeing with the telex;
there is no evidence of such a return wire) and the telex
relating to the sale of the oil from the protestant was to be
effected prior to delivery. Both telexes contain a condition
providing for the exchange of future contracts for No. 2 oil on
the New York Mercantile Exchange.
In such a situation, we conclude that the protestant did not
have possession of the exported merchandise. In fact, according
to the documents in the file, the sale of the oil by the
protestant to the company which chartered the exporting vessel
took effect before the purchase of the oil by the protestant
(i.e., the sale was to be effected prior to delivery into the
vessel (such delivery was between 1630 hours on February 1, 1991,
and 1206 hours on February 2, 1991) and the purchase agreement
was to take effect at 2027 hours on February 2, 1991 (i.e.,
within 24 hours of the date of receipt of the telex, absent a
return wire confirming or disagreeing with the telex)). At no
time, according to the documents in the file, did the protestant
have physical possession, or possession by bailment, in leased
facilities, in transit, or by operational control, of the oil
(i.e., because delivery was directly from the seller (to the
protestant) to the buyer (from the protestant) into the buyer's
chartered vessel).
The transaction in this case is similar to the sort of
transaction which was held not to constitute possession, for
purposes of drawback under 19 U.S.C. 1313(j)(2) (before its
amendment by Public Law 103-182, described above) in C.S.D. 85-
52 ("trading [of] commercial paper ... between brokers or others
in a commodity while that commodity wends its way across America
by train or truck ... will not support drawback. * * * The
question is: Does the legal person possess paper or the
commodity itself?"); C.S.D. 87-18 (in which an arrangement under
which the possessor of the imported merchandise "agrees to
purchase merchandise [from the possessor of the exported
merchandise] ... and exports the substituted merchandise to
fulfill [the latter's] obligation to its foreign customer" was
"considered a sham to create a climate for drawback where none
exists"); and C.S.D. 89-108 (in which Customs was not satisfied
that the possession requirement had been met when the protestant
arranged for the shipment of the exported merchandise directly
from grain elevators of the seller (to the protestant) to South
America and did not take possession of the (exported
merchandise)). Although the Court of International Trade in B.F.
Goodrich v. United States, supra, enjoined Customs from enforcing
its position on the requirement for possession of the imported
merchandise under 19 U.S.C. 1313(j)(2), that decision did not
affect our position on what constitutes possession. In view of
the legislative history to the current law (H. Rep. 103-361,
supra) in which it is stated that the creation of a "market" for
drawback rights is not intended, we conclude that the above
interpretations of the possession requirement, for exported
merchandise under 19 U.S.C. 1313(j)(2), remain valid.
The protestant cites ruling 224103 and contends that it
meets the possession requirement, as interpreted in that ruling.
In that ruling, we stated (in regard to a situation where
exported merchandise is not temporarily stored in shore tanks
leased by the claimant or in barges or other vessels chartered by
the claimant, but is loaded in exporting vessels chartered by the
foreign purchaser at the port of loading on a C&F United States
basis) the claimant could establish possession with documentary
evidence showing that the claimant was, in effect, a sub-
charterer. In ruling 224103, it is stated that "[o]nly when the
vessels are fully loaded and a bill of lading is issued (by the
claimant) and the vessels are prepared to commence their ocean
voyages, does delivery occur." In the protested claim, according
to the documents submitted by the protestant, delivery occurred
when the merchandise was loaded into the buyer's vessel.
Furthermore, we held in ruling 224103 that if a claimant could
not provide documentary evidence (described in the ruling)
establishing a sub-charter, drawback may not be granted under 19
U.S.C. 1313(j)(2). Our decision in this protest is not
inconsistent with ruling 224103.
HOLDING:
There is no authority to grant the protest of the denial of
drawback in the protested drawback claims.
The protest is DENIED. In accordance with Section 3A(11)(b)
of Customs Directive 099 3550-065, dated August 4, 1993, Subject:
Revised Protest Directive, this decision should be mailed, with
the Customs Form 19, by your office to the protestant no later
than 60 days from the date of this letter. Any reliquidation of
the entry in accordance with the decision must be accomplished
prior to mailing of the decision. Sixty days from the date of
the decision the Office of Regulations and Rulings will take
steps to make the decision available to Customs personnel via the
Customs Rulings Module in ACS and the public via the Diskette
Subscription Service, Lexis, Freedom of Information Act, and
other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division