DRA-2-02 RR:CR:DR 227994 CB
Ronald W. Gerdes, Esq.
Mr. Robert Schaffer
Sandler, Travis & Rosenberg, North Tower
1300 Pennsylvania Avenue, NW
Washington, D.C. 20004
RE: 19 U.S.C. 1313(p); definition of exporter; deemed
exportation; 19 U.S.C. 1309(b);
substitution of finished petroleum derivatives
Dear Messrs. Gerdes and Schaffer:
We are in receipt of your letter of February 26, 1998, on
behalf of the American Petroleum Institute ("API"). It is our
understanding that the API, in turn, is the contact organization
representing the interests of the Air Transport Association, the
Independent Fuel Terminal Operators Association, and the National
Association of Foreign-Trade Zones with respect to the issue of
drawback.
More specifically, in your referenced letter, you have
requested a ruling on whether a fuel supplier, who delivers fuel
to a qualifying vessel or aircraft, may be viewed as the exporter
for purposes of 19 U.S.C. 1313(p) and 1309(b).
FACTS:
It is our understanding that within the petroleum industry,
a "fuel supplier" could be a refiner operating under 19 U.S.C.
1313(a) or (b), an importer of eligible fuel, or a person who
purchases eligible fuel from a refiner or importer. It is also
our understanding, based on your representations, that legal
title to that fuel passes directly from the fuel supplier to the
operator of the qualifying aircraft or vessel. That is to say,
that a tank farm operator, pipeline operator or airport fueling
agent does not own that fuel. The latter are simply the bailees
for the vessel owner, airline or fuel supplier.
In response to our request, you have submitted copies of
representative contracts which are used in the petroleum industry
(we are aware that these contracts only provide an idea of the
types of contract used in the industry). The sample contracts
provided cover jet fuel. Commonly,
the contracts provide for an export credit sharing arrangement
between a refiner and an airline. It is our understanding that
the following provisions are used in the industry:
1. The Refiner is responsible for preparing and filing drawback
claims and maintaining the appropriate records required by
Customs.
2. The Airline provides Refiner with the appropriate export
documents required to support the drawback claim (i.e., CF 7514s)
and appropriate assignment waivers. Both parties agree that all
records related to a claim will be retained for three years.
3. The Airline and Refiner agree to share the drawback monies
received.
4. The contracts also provide that title and risk of loss to the
products passes from the Refiner to the Airline at the aircraft
to which delivery is made (in the case of into-plane delivery) or
as the product passes the Refiner's (or its contractor's) outlet.
Based on your representations and the regulatory definition
of "exporter", requiring the exercise of power and responsibility
for determining and controlling sending the merchandise out of
the United States, the following criteria must also be met in
any transaction between fuel suppliers and owners of a vessel or
aircraft, in addition to the language quoted above from the
representative contracts (please note that any reference to
"vessel owner" also applies to the vessel operator):
1. The Fuel Supplier is responsible to Customs for preparing and
filing drawback claims and maintaining the appropriate records
required by Customs (including the accuracy of the certified true
copies of the airlines' or vessel owner's records given to show
eligibility under 19 U.S.C. 1309).
2. The Airline or Vessel Owner will provide and the Fuel
Supplier will receive certified true copies of the Airline's
flight records or vessel's log which will record the information
needed to show the eligibility of the aircraft or vessel under 19
U.S.C. 1309 which are required to support the drawback claim.
3. The Fuel Supplier and Airline or Vessel Owner acknowledge
that the lading onto a qualified aircraft/vessel must be done
within the 180-day period set forth in 19 U.S.C. 1313(p)(2)(C)
or 1313(p)(2)(E).
4. The Fuel Supplier will not provide a certificate of delivery
to the Airline or Vessel Owner which would enable the Airline or
Vessel Owner to sell or trade the fuel to any other party,
including another airline or vessel owner.
5. No other party (such as a pipeline company, a fuel storage
facility or airport fueling operator)
will have title to the fuel from the time that the fuel is sold
by the fuel supplier and custody is given to the airline or
vessel owner until it is laden onto an aircraft or vessel that is
eligible under 19 U.S.C. 1309(b).
6. Any other party such as a pipeline company, fuel storage
facility or airport fueling operator will only have custody by a
bailment from the time the fuel is sold by the fuel supplier
until it is laden onto an eligible aircraft or vessel by the
airline or vessel owner.
7. The Fuel Supplier will certify that no other party to the
transaction has or will file a drawback claim with respect to the
same merchandise or supplies.
Finally, your request also included the following delivery
scenarios for which you have requested that we provide you with
an analysis using the stipulated facts. For the purpose of
showing that a fuel supplier has the power and responsibility for
determining and controlling the transaction under 19 U.S.C.
1309(b) and 1313(p), the fuel supplier is defined as the entity
who owns and possesses the fuel and sells that fuel to a vessel
operator or airline who uses that fuel in its vessel or aircraft
within 180 days, respectively, on an eligible voyage or flight,
for the five scenarios listed below. You have stated that
delivery scenario #1 is the only scenario that applies to fuel
delivered to a vessel. Scenarios 2, 4, and 5 apply only to
airlines.
1. Fuel supplier delivers the fuel directly to the aircraft or
vessel upon which it is laden. (Title transfers at this point.)
2. Fuel supplier delivers the fuel to a storage tank located at
the airport or port facility and title transfers to the carrier
at this point.
3. Fuel supplier delivers the fuel to a storage tank located in
a Foreign Trade Zone, and the merchandise is entered in "zone
restricted" status.
4. The fuel supplier delivers and transfers title to the carrier
at some point in a pipeline, i.e., while the fuel is in transit
to the airport or port facility.
5. The fuel supplier delivers the fuel to the carrier, and
transfers title, at the "refinery gate," or at any non-airport or
port storage facility, and the carrier arranges to move the fuel
to the airport or port facility.
ISSUE:
For purposes of 19 U.S.C. 1309(b) and 1313(p), which party
to the transaction is the person who has control and
responsibility for the lading onto the qualified aircraft or
vessel for which a claim for drawback will be made?
LAW AND ANALYSIS:
Recently, the Customs Regulations regarding drawback were
revised to implement the changes contained in the Customs
Modernization portion of the North America Free Trade Agreement.
The revised regulations are effective as of April 6, 1998. See
63 Fed. Reg. 10970 (March 5, 1998). Section 191.2(m)(2) defines
"exporter" as that ". . . person who, as the principal party in
interest in the export transaction, has the power and
responsibility for determining and controlling the sending of the
items out of the United States." The regulation further provides
that for 1309(b) purposes, ". . . the exporter means that person
who, as the principal party in interest in the transaction deemed
to be an exportation, has the power and responsibility for
determining and controlling the transaction (in the case of
aircraft or vessel supplies under 19 U.S.C. 1309(b), the party
who has the power and responsibility for lading the vessel
supplies on the qualifying aircraft or vessel)." However, upon
further review, it is the Customs Service position that further
clarification of this definition is required for purposes of 19
U.S.C. 1309(b) and 1313(p). More specifically, what is the
scope of power and responsibility for lading on an eligible
vessel or aircraft for which a claim for drawback will be made,
in a transaction exclusively between a refiner and an
airline/vessel owner, so as to satisfy the regulatory definition
of "exporter"?
Generally, section 1313(p) of the United States Code (19
U.S.C. 1313(p)) provides for drawback for certain petroleum
derivatives. Under section 1313(p)(1), notwithstanding any other
provision in section 1313, if:
(A) an article (referred to in section 1313(p) as the "exported
article") of the same kind an quality (as specifically defined in
section 1313(p)) as a qualified article is exported;
(B) the requirements set forth in section 1313(p)(2) are met; and
(C) a drawback claim is filed regarding the exported article,
the amount of the duties paid on, or attributable to the
qualified article shall be refunded as drawback to the drawback
claimant. The "notwithstanding" clause was included in order to
overcome the requirements in 19 U.S.C. 1313(a) and (b) that the
export article made by the petroleum refiner be the article that
is actually exported, and that it be commercially interchangeable
for purposes of 1313(j).
The requirements in section 1313(p)(2), compliance with
which is a condition precedent to drawback under section 1313(p),
are that the exporter must have: (1) manufactured the imported
qualified article; or (2) purchased/exchanged the same from the
manufacturer; or (3) imported a qualified article; or (4)
purchased/exchanged an imported qualified article from the
importer; and the exportation occurs within 180 days after the
date of entry of the imported qualified merchandise or during the
manufacturing period or within 180 days after the close of such
period.
A review of the legislative history to the drawback laws,
with respect to exportation, shows that the object of the
drawback laws was to build up an export trade. Specifically, the
following statements leave no doubt regarding the purpose of the
drawback provisions:
"By way of encouraging exportation to other countries and
extending our markets, the committee have liberalized the
drawbacks given upon articles or products imported from
abroad and used in manufactures here for the export trade.
Existing law refunds 90 per cent of the duties collected
upon foreign materials made into the finished product at
home and exported aborad, while the proposed bill will
refund 99 per cent of said duties, giving to our citizens
engaged in this business 9 per cent additional
encouragement, the Government only retaining 1 per cent for
the expense of handling.
We have also extended the drawback provision to apply to all
articles imported which may be finished here for use in the
foreign market. Heretofore this privilege was limited.
This, it is believed, will effectually dispose of the
argument so often made that our tariff on raw materials, so
called, confines our own producers to their own market and
prevents them from entering the foreign market, and will
furnish every opportunity to those of our citizens desiring
it to engage in the foreign trade.
. . .
That is, we give to the capital and labor of this country
substantially free trade in all foreign materials for use in
the markets of the world . . .
We have extended this provision and in every way possible
liberalized it, so that the domestic and foreign product can
be combined and still allow to the exporter 99 per cent upon
the duty he pays upon his foreign material intended for
export; which is, in effect, what free traders and our
political opponents are clamoring for, namely, free raw
material for the foreign trade. And if you are desirous of
seeing what you can do in the way of entering the foreign
market, here is the apportunity (sic) for your.
. . .
While the drawback features of the existing law are intended
to encourage domestic manufactures, this encouragement is
intended only when such manufactures are endeavoring to
build up the foreign trade of the United States. The two
purposes are joint and inseparable. No other construction
will reconcile the principles of the customs system and of
drawback allowance.
21 Cong. Rec. pp. 4247-4248 (daily ed. May 7, 1890) (statement of
Rep. McKinley).
The emphasis on fostering foreign trade has also been made
plain by the applicable case law as well as administrative
decisions. In Tide Water Oil Co. v. United States, 171 U.S. 210
(1897), the Supreme Court stated that "[t]he object of the
(drawback) section was evidently not only to build up an export
trade, but to encourage manufactures in this country, where such
manufactures are intended for exportation, . . . to compete in
foreign markets with the same articles manufactured in other
countries. . . [T]his object should be borne steadily in mind."
171 U.S. at 216. See also, The Anheuser-Busch Brewing Co. v.
United States, 41 Ct. of Cls. 389, aff'd, 207 U.S. 556 (1908);
Aurea Jewelry Creations, Inc. v. United States, 932 F.2d 943
(CAFC 1991), ("[The drawback provisions] have been consistently
aimed at encouraging domestic manufacture for exportation in
order to increase foreign commerce and aid domestic industry and
labor.")
In contrast to Congressional intent in enacting the drawback
laws, the legislative history on 19 U.S.C. 1309 indicates that
Congress intended to aid domestic fuel suppliers rather than to
foster foreign trade. See 77 Cong. Rec. 3214 (daily ed. May 11,
1933) (statement of Sen. Reed) ("At the present time, ships under
the American flag or foreign flags, engaged in the various
services mentioned here, all have opportunity to buy their fuel
oil at foreign ports, and since we have put a tax on that oil
they have all been doing it. At the present time we are not
getting any revenue out of vessels engaged in these services. We
will not get any revenue out of them if this section passes; but
Americans will get the business of selling to them, which at
present is prevented by the imposition of the tax."). (emphasis
added) Under 19 U.S.C. 1309(b), drawback may be claimed on
articles withdrawn from bonded warehouses, foreign trade zones,
imported articles, and articles of domestic manufacture or
production, laden as supplies upon an aircraft or vessel. Such
lading constitutes a deemed exportation, if the aircraft is shown
to be engaged in an activity set forth in 19 U.S.C. 1309(a).
This indication of the legislative intent, with respect to
19 U.S.C. 1309, has been consistently relied upon by the courts.
In McGoldrick v. Gulf Oil Corp., 309 U.S. 414 (1940), the Supreme
Court held that fuel oil which was laden for use as supplies on
vessels engaged in foreign trade was deemed exported for purposes
of the drawback provision. The action was commenced by Gulf Oil
who was the refiner. There was no question of the vessel owner
having standing. The Court examined 19 U.S.C. 1309, in the
context of a bonded manufacturing warehouse and the imposition of
a State tax, and noted that the legislative history indicated
that one intent behind the statute was to increase trade in fuel
oil in American ports which had been lost through the purchase of
fuel oil in foreign ports. The Court concluded that a State
imposed tax, on imported oil manufactured in a bonded warehouse
and laden as vessel supplies, failed because it conflicted with
Congressional intent to enable domestic refiners to compete with
foreign refiners and to promote foreign commerce.
In United States v. Gulf Oil Corp., 32 CCPA 133 (1945), the
Court of Customs and Patent Appeals held that the lading on a
vessel engaged in foreign trade completes the deemed exportation
under 19 U.S.C. 1309. The issue was whether drawback could be
claimed on the entire amount of bunker oil originally laden, or
only on that portion which was actually consumed in foreign
trade. The court noted that Congressional intent to make
drawback effective at the time the supplies are laden on a
qualifying vessel was indicated ". . . by its enactment of
legislation designed to protect the Government against loss of
revenue by imposing an import tax to be paid or repaid by the
owner of exported supplies in the event the exported supplies are
subsequently landed in the United States. . . ." (citations
omitted) Id. at 136. However, the vessel must also actually be
engaged in foreign trade. See, United States v. Esso Export
Corp., 42 CCPA 51 (1954). It is the act of lading the fuel on a
qualifying vessel that triggers the right to claim drawback under
19 U.S.C. 1309(b). But, as in McGoldrick, the court did not
view the vessel owner as the intended beneficiary of the law with
respect to causing the lading. See generally, Asiatic Petroleum
Corp. v. United States, 36 CCPA 9 (1948); Standard Oil Company of
New Jersey v. United States, 32 CCPA 190 (1945); Standard Oil Co.
of New Jersey v. United States,
29 CCPA 82 (1941); 3 Cust. Ct. 39, C.D. 199 (1939) (in all of
these cases the courts noted that the purpose of the law was to
benefit the fuel suppliers).
As stated above, the drawback regulations define "exporter"
as the person who has the power and responsibility for
controlling the sending of the items out of the United States.
This definition is in accord with the interpretation provided by
case law and administrative decisions. In Edgar Bros. Co. v.
United States, 1 Cust. Ct. 108 (1938), the Customs Court held
that the seller becomes the exporter, irrespective of the fact
that the actual act of transporting the merchandise out of the
country was accomplished by the purchaser, where the merchandise
is sold under the express agreement that it be exported.
Regarding administrative decisions, Opinion of Solicitor General
Taft, September 1, 1890 (19 Op. 638), reprinted in Syn. Dec.
1890 T.D. 10186, p. 318 states: "The law [drawback] plainly
intended to reward the person causing the export, who is the
shipper." The opinion goes on to hold that the proper person to
receive drawback is the owner and shipper to the foreign port.
"The right to the drawback, is, at first, inchoate and
contingent, attaching to the materials after they have come into
the country, but ripens into an absolute right of present
enjoyment upon their export in manufactured form. The owner of
the goods when the drawback ceases to be contingent and becomes
absolute would seem, therefore, to be the person to whom it is
payable. The shipper--the exporter--is that owner, for the
contingency ceases when the goods are delivered for export, and
so he is entitled to drawback." Id. at 321. Thus, the right to
claim drawback is vested in the shipper and not in the vessel
which actually carries the goods to the foreign country or in the
foreign buyer of the goods, either of whom might otherwise be
viewed as "causing" the goods to be joined to the commerce of a
foreign country.
In contrast to exportations the court cases have shown
accomplish the Congressional purpose of fostering export trade,
the purpose behind the concept of deemed exportation under 19
U.S.C. 1309(b) was to obtain business for U.S. manufacturers of
fuel and other aircraft and vessel supplies. The regulatory
definition contained in 19 CFR 191.2(m), regarding the power and
responsibility for lading the eligible aircraft, must be
interpreted consistent with the Congressional purpose found by
the courts in the cited cases and administrative decisions since
the statutory text has remained unchanged. In this situation,
the use of 1313(p) coupled with the application of 1309 imposes
further limitation both as to time limits and transfers enabling
the Customs Service to regulate such movements. For drawback
claims under 19 U.S.C. 1309(b) and 1313(p), a person has
control and responsibility for lading under 19 CFR 191.2(m)(2) if
that person sells eligible fuel, in a transaction that meets the
criteria listed under the "FACTS" portion of this ruling (i.e.,
items 1-4 of the representative contracts and items 1-7), to an
airline or vessel owner who uses that fuel on a qualifying
aircraft or vessel.
Within the context of the foregoing discussion, the
following is Customs response to the five different delivery
options set forth in your ruling request. The responses are
based on the above stated definition of "fuel supplier".
Additionally, the responses are based on the assumption that
scenario #1 is the only fact pattern that applies to both an
airline and a vessel. Fact patterns 2, 4, and 5 apply solely to
an airline.
1. Fuel supplier delivers the fuel directly to the aircraft or
vessel upon which it is laden. (Title transfers at this point.)
Customs Response: In this instance, the fuel supplier would be
the
deemed exporter and, thus, be eligible to claim drawback under 19
U.S.C. 1313(p) and 1309(b)
provided the fuel is exported on the qualifying aircraft or
vessel, as appropriate, within 180 days from the date of entry of
the imported fuel or end of the manufacturing period. This
response is based on the assumption that the fuel supplier is
responsible to Customs for the accuracy of and maintaining the
appropriate records, that the fuel supplier will not provide a
certificate of delivery to the airline or vessel operator, and
that no other party will have title to the fuel at the time it is
laden on the qualifying aircraft or vessel.
2. Fuel supplier delivers the fuel to a storage tank located at
the airport and title transfers to the airline at this point.
Customs Response: Same as above, the fuel supplier would be the
deemed exporter and, thus, would be eligible to claim drawback
under 19 U.S.C. 1313(p) and 1309(b) provided the fuel is
exported on a qualified aircraft of that airline within 180 days
from the date of entry of the imported fuel or end of
manufacturing period. This response is based on the assumption
that the fuel supplier is responsible to Customs for the accuracy
of and maintaining the appropriate records, that the fuel
supplier will not provide a certificate of delivery to the
airline, and that no other party will have title to the fuel from
the time it is sold by the fuel supplier and custody is given to
the airline and that each of the contractual and evidentiary
criteria under the FACTS portion will be shown to have been met,
as discussed above.
3. Fuel supplier delivers the fuel to a storage tank located in
a Foreign Trade Zone, and the merchandise is entered in "zone
restricted" status. Customs Response: Merchandise admitted in
"zone restricted" status is deemed exported by virtue of 19
U.S.C. 81c(a), fourth proviso.
Neither 19 U.S.C. 1309 nor 1313(p) apply either to the
admission or subsequent withdrawal from the zone.
4. The fuel supplier delivers and transfers title to the airline
at some point in a pipeline, i.e., while the fuel is in transit
to the airport. Customs Response: The fuel supplier would be
deemed the exporter provided the accounting records, including
those of the pipeline operator, support the transaction, the fuel
is exported on a qualified aircraft of that airline within 180
days from the date of entry of the imported fuel or end of
manufacturing period. This response is based on the assumption
that the fuel supplier is responsible to Customs for the accuracy
of and maintaining the appropriate records, that the fuel
supplier will not provide a certificate of delivery to the
airline, and that no other party will have title to the fuel from
the time it is sold by the fuel supplier and custody is given to
the airline and that each of the contractual and evidentiary
criteria under the FACTS portion will be shown to have been met,
as discussed above.
5. The fuel supplier delivers the fuel to the airline, and
transfers title, at the "refinery gate," or at any non-airport
storage facility, and the airline arranges to move the fuel to
the airport. Customs Response: The fuel supplier would be the
deemed exporter provided the accounting records, including those
of the fuel storage facility support the transaction. The fuel
supplier would be eligible to claim drawback under 19 U.S.C.
1313(p) and 1309(b) provided the fuel is exported on a
qualified aircraft of that airline within 180 days from the date
of entry of the imported fuel or end of manufacturing period.
This response is based on the assumption that the fuel supplier
is responsible to Customs for the accuracy of and maintaining the
appropriate records, that the fuel supplier will not provide a
certificate of delivery to the airline, and that no other party
will have title to the fuel from the time it is sold by the fuel
supplier and custody is given to the airline, and that each of
the contractual and evidentiary criteria under the FACTS portion
will be shown to have been met, as discussed above.
HOLDING:
For purposes of claiming drawback under 19 U.S.C. 1309(b)
in combination with 19 U.S.C. 1313(p) only, the entity which
transfers title to an airline or vessel owner, in a transaction
in which all of the contractual and evidentiary criteria listed
under the "FACTS" portion are met, and which obtains the CF 7514
signed by the carrier on a qualifying flight or vessel operator
for a qualifying voyage will be considered to have the power and
responsibility for the lading onto an eligible aircraft or
vessel.
Sincerely,
John A. Durant, Director
Commercial Rulings Division