DRA-4-CO:R:C:E 225228 SR
Regional Director
Regulatory Audit Division
South Central Region
New Orleans, Louisiana 70130-2341
RE: Request for Internal Advice concerning claim for drawback;
19 U.S.C. 1313(j)(2); possession of merchandise; fungibility;
commercial interchangeability; Public law 103-182, Section 632
Dear Sir:
This request for internal advice was initiated by a letter
dated January 31, 1994, from Miller & Company P.C. on behalf of
CITGO, concerning drawback.
FACTS:
During a Customs audit of Citgo's Lake Charles, Louisiana,
refinery, Customs became aware that a drawback claim included two
exports of No. 2 fuel oil. One of the exports was from Citgo's
facilities at Lake Charles and the other from a Chevron Oil
Company storage tank at Pascagoula, Mississippi. As a result of
this audit, attorneys for the drawback claimant, CITGO, have
requested this internal advice for a determination as to whether
the fuel oil exported from the Chevron storage tank can be
considered to be possessed by CITGO as required under 19 U.S.C.
1313(j)(2) for same condition substitution drawback.
Coastal Fuels Marketing, Inc., (Coastal) purchased 275,000
barrels of No. 2 fuel oil (the European designation for Gasoil)
from CITGO. CITGO could not fill the order with stock from its
own refinery at Lake Charles, Louisiana, so it purchased the
balance of the order (223,111 barrels) from Chevron U.S.A., Inc.
in Pascagoula, Mississippi, pursuant to a written contract. The
shipping vessel, the MV URANUS was under charter to Coastal
States Trading , Inc., the purchaser of the fuel oil. On January
22, 1991, 223,111 barrels of fuel oil were loaded directly on the
MV URANUS from Chevron's Shore Tank No. 324 at Pascagoula,
Mississippi. On January 26, 1991, 40,395 barrels of fuel oil
were loaded directly on the MV URANUS from CITGO's Shore Tank No.
29 at Lake Charles, Louisiana. CITGO was the exporter of record
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for the entire 275,000 barrels of fuel oil. Coastal paid CITGO
for the entire cargo.
In the file there is a copy of a January 22, 1991 (time:
1659 hours), telex stated to confirm a January 17, 1991,
agreement between the seller (Chevron U.S.A. Inc.) and the buyer
(the drawback claimant, CITGO). Under the telex "[the seller]
agrees to sell to CITGO 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
(maximum) of No. 2 oil meeting provided specifications to be
delivered into buyer-nominated vessel(s) during the delivery
period of January 20-22, 1991, F.O.B. Pascagoula, Mississippi.
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.
ISSUE:
Whether the claimant had possession of the exported fuel oil
to meet the requirements for drawback under 19 U.S.C. 1313(j)(2).
LAW AND ANALYSIS:
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.
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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)).
There is no information in the file as to whether the
merchandise is commercially interchangeable. Under the new law
commercial interchangeability replaces the standard of
fungibility. 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, if the imported merchandise and
the substituted merchandise have been found to be fungible they
would meet the current requirement for commercial
interchangeability. Since possession is the only issue before us
we will assume that the other requirements for drawback under 19
U.S.C. 1313(j)(2) 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
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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."
In this case, according to documents submitted by the
protestant, the exported merchandise claimed in the drawback
claim (225,000 barrels of No. 2 fuel oil purchased from Chevron
and loaded on the MV URANUS) was purchased by the protestant
pursuant to a January 17, 1991, agreement, confirmed by a January
22, 1991, telex. The January 22, 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 January 20-22,
1991, into buyer-nominated vessel(s). The oil was, in fact,
delivered on January 22, 1991, into the MV URANUS, a vessel
chartered by the company buying the oil from the protestant.
Thus, according to the above, the protestant simultaneously
agreed to purchase and sell the oil and delivery was from the
seller (to the drawback claimant) directly to the purchaser (from
the drawback claimant), into a vessel chartered by the purchaser
of the oil. According to the telex confirming the agreement and
stated to contain the terms and conditions of the agreement, 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.
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 drawback
claimant to the company which chartered the exporting vessel took
effect before the purchase of the oil by the drawback claimant
(i.e., the sale was to be effected prior to delivery into the
vessel and the purchase agreement was to take effect at 1659
hours on January 23, 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 claimant 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 drawback claimant) to the buyer
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(from the drawback claimant) 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, 794 F. Supp. 1148 (CIT 1992), 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.
HOLDING:
The claimant did not have possession of the fuel oil
exported from Chevron's storage tank, and therefore, is not
eligible to receive drawback under 19 U.S.C. 1313(j)(2) for the
claim based on this exportation.
This decision should be mailed by your office to the
internal advice requester no later than 60 days from the date of
this letter. On that date 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 to the public
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via the Diskette Subscription Service, Freedom of Information Act
and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division