• HQ H121475
• Jan 05, 2015

• Type : Classification • HTSUS :

OT:RR:CTF:VS H121475 RSD

Port Director
U.S. Customs and Border Protection
112 W. Stuntsman
Pembina, North Dakota 58271
Attn: Protest Unit

RE: Application for Further Review of Protest Number 3304-10-100069; NAFTA Eligibility of Crude Oil Imported from Canada; NAFTA Certificates of Origin; Diluent/Condensate

Dear Port Director:

This is in response to the Application for Further Review of Protest Number 3304-10-100069 timely filed by counsel on behalf of Nexen Marketing U.S.A., Inc. (Nexen) on July 19, 2010, whether importations of crude oil from Canada were eligible for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”). Counsel made supplemental submissions on July 16, 2010, October 8, 2010, July 1, 2011, March 13, 2014, and July 15, 2014. To further explain the latest submission, a meeting was held at our offices on August 26, 2014, with employees from Nexen and its counsel. Protestant has asked that certain information submitted in connection with this protest, including the names of oil producers, suppliers and the quantities of products purchased, be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. §177.2(b)(7), the request for confidentiality is approved. The information contained within brackets and all attachments to this protest decision, forwarded to our office, will not be released to the public and will be withheld from published versions of this decision. FACTS:

The protest under consideration concerns five entries of crude oil from Canada that were entered at the Port of Pembina, North Dakota by the Protestant, Nexen, between December 2006 and June 2007. The Protestant claimed preferential duty treatment for the merchandise at entry under NAFTA. The protest record indicates that Nexen Marketing is a Canadian company that was related to Nexen Marketing U.S.A., Inc., the importer of record, until December 31, 2010. On December 31, 2010, Nexen Holdings U.S.A. Inc., sold Nexen Marketing U.S.A., Inc. to [xxxxxxxx xxxx xxxx xxxxxxx].

On March 3, 2010, the Port of Pembina issued a Customs and Border Protection (CBP) Form 28 initiating a verification of Nexen’s NAFTA claims regarding the shipments of crude oil from Canada. In this verification, CBP requested Nexen submit copies of the NAFTA Certificates of Origin, the names and addresses of the producers of the crude oil, along with other supporting documentation to verify its claim for NAFTA tariff preference. Since CBP did not receive a response from Nexen as of April 5, 2010, the Port of Pembina issued a proposed CBP Form 29 indicating that NAFTA preference would be denied. On May 5, 2010, the entries were rate advanced, and the imported merchandise was classified under subheading 2709.00.10, Harmonized Tariff Schedule of United States (HTSUS) at a duty rate of 5.25 cents per barrel, and a .21 percent merchandise processing fee was also assessed. On June 1, 2010, the Port of Pembina received the NAFTA Certificates of Origin, but the producer information was not supplied. CBP emailed Nexen’s customhouse broker to inform them that the entries were sent for liquidation, but that Nexen had the right to file a protest. On July 19, 2010, Nexen filed a protest contesting the denial of NAFTA preference. The Application for Further Review was granted and the protest was forwarded to CBP Headquarters.

In the protest, Nexen’s counsel claims that Nexen has no record of receiving the March 3, 2010, Request for Information, CBP Form 28. Instead, counsel contends that as soon as Nexen received the May 5, 2010, CBP Form 29 from CBP, it did respond with the entry packages and the certificates of origin for the relevant entries. The July 1, 2011, submission indicates that Nexen purchased a quantity of crude oil called Fosterton (also known as Canadian Foster Blend crude) from various producers or shippers on the South Saskatchewan pipeline. According to counsel, the crude oil that Nexen Marketing purchased in Canada was bought from local Canadian producers, shippers or other marketers of crude oil. Counsel adds that Nexen has been purchasing crude oil from various suppliers who obtained the crude oil from various Alberta and Saskatchewan wells for a number of years, and that Nexen has exported this crude oil into the United States. Nexen claims that there were no non-originating or unknown materials or components in the shipments under consideration. Specifically, Nexen claims that both the crude oil and the diluent, added to the crude oil to permit it to flow through the pipeline, are of Canadian origin. In order to support this assertion, Nexen made several submissions with documentation concerning the shipments of crude oil that are the subject of this protest.

For the entries under consideration, Counsel presented a series of documents referred to as the Shipper’s Balance from the owner/operator of the pipeline, [xxxxxx xxxxxxxxx xxxxxxx xxx], as confirmation of the origin of the purchased crude oil. The Shipper’s Balance shows that the crude oil was taken from different facilities along the South Saskatchewan pipeline and that Nexen made crude oil purchases from other suppliers at various delivery hubs. The document also shows that there were transfers from another shipper, which indicates that Nexen purchased crude oil from two other suppliers, which were delivered to the Enbridge Tank at Regina. Also on the same document under the line “Transfers from Another Shipper,” there is an indication that the diluent that was allocated to Nexen by the owner/operator of the pipeline [xxxxxx xxxxxxxxx xxxxxx] was called CRW condensate blend. Counsel further states that to Nexen’s knowledge, based on information from the Shipper’s Balance, there was no other condensate allocated to Nexen at either the Enbridge Tank at Regina or on the Wascana pipeline. No information regarding the source of the specific CRW condensate used in the pipelines was presented. However, Protestant claims that Fosterton crude oil and CRW are only produced in Canada based on information contained in the website, “crudemonitor.ca.”

In the submission dated March 13, 2014, counsel indicates that the first entry of crude oil in question occurred in December 2006, when Nexen Marketing imported [xxxxxxx] bbl. or [xxxxxx] m3 of Canadian Foster Blend, also known as Fosterton crude. Nexen purchased [xxxxxx] m3 directly from producers at several wellheads connected to the South Saskatchewan pipeline or at truck terminals also directly connected to the pipeline. Counsel indicates that the only manner to get crude oil into the South Saskatchewan pipeline is from a wellhead directly connected to the pipeline or from a truck terminal directly connected to the pipeline that brings in local production. The South Saskatchewan Shipper’s Balance indicates that in November 2006, Nexen purchased crude oil from the following producers: [xxxxxxxx xxxxx xxxxxx xxxxx, xxxxxxx xxxxxx, xxxxx xxxxxx, xxxxxx xxx xxxxxxxxx, xxxxxxxx xxxxxx, and xxxxxxxx xxxxxx]. In the same month, Nexen purchased the remaining volume that it imported into the U.S., [xxxxxx] m3, from [xxxxxxxxx xxxxxxxxx] directly on the South Saskatchewan Pipeline. Nexen also indicates that it purchased [xxx] m3 of CRW condensate Blend from the owner/operator of the pipeline [xxxxxx xxxxxxxxx xxxxxx], but no information was presented regarding the origin of the condensate, nor was anything presented regarding the name of the producer of the condensate.

The South Saskatchewan Shipper’s Balance is also attached as confirmation of these purchases. The Shipper’s Balance states that this crude is Fosterton. According to counsel, this document is considered to be a binding document between the pipeline and its shippers and is used to confirm the type of crude and volumes that were received and delivered by the pipeline on Nexen’s behalf. The Shipper Balances are used by shippers and producers to verify invoiced amounts.

The second entry under consideration occurred in January 2007, and involved the importation of [xxxxxxx] bbl. or [xxxxxx] m3 of Canadian Foster Blend. In December 2006, Nexen purchased [xxxxx] m3 on the South Saskatchewan Pipeline from: [xxxxxxxx xxxxx xxxxxx xxxxx, xxxxxxx xxxxxx, xxxxx xxxxxx, xxxxxx xxx xxxxxxxxx, xxxxxxxx xxxxxx and xxxxxxxx xxxxxx]. More than the remaining volume that Nexen imported [xxxxxx] m3 was purchased from [xxxxxxxxx xxxxxxxxx] directly on the South Saskatchewan Pipeline. In addition, Nexen purchased [xxx] m3 of CRW Condensate Blend from the owner/operator of the pipeline [xxxxxx xxxxxxxxx xxxxxx], but no information was presented regarding the origin of the condensate, nor was anything presented regarding the name of the producer of the condensate.

The third entry occurred in January/February 2007, and involved the importation of [xxxxxx] bbl. or [xxxxxx] m3 of Canadian Foster Blend. Nexen purchased [xxxxx] m3 on the Saskatchewan Pipeline from [xxxxx xxxxxx, xxxxxxx xxxxxx, xxxxxxxx xxxxx xxxxxx xxxxx, xxxxxx xxx xxxxxxxxx, xxxxxxxx xxxxxx, and xxxxxxxx xxxxxx]. More than the remaining volume [xxxxx] m3 that was imported was purchased from [xxxxxxxxx xxxxxxxxx] directly on the South Saskatchewan Pipeline. CRW Condensate Blend in the amount of [xxx] m3 was purchased from the owner/operator of the pipeline [xxxxxx xxxxxxxxx xxxxxxx], but again no information regarding the origin of the condensate was submitted.

The fourth entry occurred in March/April 2007, and involved the importation of [xxxxxx] bbl. or [xxxxxx] m3 of Canadian Foster Blend. Nexen purchased [xxxx] m3 on the Saskatchewan Pipeline from [xxxxx xxxxxx, xxxxxxx xxxxxx, xxxxxxxx xxxxx xxxxxx xxxxx, xxxxxx xxx xxxxxxxxx, xxxxxxxx xxxxxx, and xxxxxxxx xxxxxx]. More than the remaining volume [xxxxxx] m3 that was imported was purchased from [xxxxxxxxx xxxxxxxxx] directly on the South Saskatchewan Pipeline. CRW Condensate Blend in the amount of [xxx] m3 was purchased from the owner/operator of the pipeline [xxxxxx xxxxxxxxx xxxxxx]. As in the prior entries, no information regarding the source of the condensate was presented.

The fifth entry occurred in April/May 2007, and involved the importation of [xxxxxx] bbl. or [xxxxxx] m3 of Canadian Foster Blend. Nexen purchased [xxxxxx] m3 on the Saskatchewan Pipeline from [xxxxx xxxxxx, xxxxxxx xxxxxx, xxxxxxxx xxxxx xxxxxx xxxxx, xxxxxx xxx xxxxxxxxx, xxxxxxxx xxxxxx, and xxxxxxxx xxxxxx]. More than the remaining volume [xxxxxx] m3 that was imported was purchased from [xxxxxxxxx xxxxxxxxx] directly on the South Saskatchewan Pipeline. CRW Condensate Blend in the amount of [xxx] m3 was purchased from the owner/operator of the pipeline [xxxxxx xxxxxxxxx xxxxxx] and no information regarding the producers of the condensate was submitted.

In its latest submission of July 15, 2014, Counsel provided additional documents to demonstrate that the imported crude oil is of Canadian origin. The submission contains sample producer contracts and Schedule A supplements. The producer contracts list specific parcels of land from which the crude oil was obtained. Counsel submitted a spreadsheet for the five entries under protest. This spreadsheet shows the total quantity of crude oil imported for each of the five entries, the names of the specific producers of the crude oil, and quantity of crude oil that each producer supplied for each of the five entries. As an example to demonstrate that the imported crude was of Canadian origin, counsel provided a series of documents related to the November 2006 entry. The submission contains a Bridger Pipeline Shipper Balance for November 2006 showing a delivery of [xxxxxxxxx] bbl. There is also a [xxxxxx xxxxxxxxx] Shipper Balance from November 2006 showing a delivery to the Bridger Pipeline of [xxxxxxx] bbl. converted from [xxxxxxxx] m3. The Enbridge Shipper Balance for November 2006 showed a delivery of [xxxxxxxx] m3 and receipts from the South Saskatchewan Pipeline of [xxxxxxxx] m3. The South Saskatchewan Pipeline Shipper Balance for November 2006 shows delivery to Enbridge at Regina of [xxxxxxxx] m3. Receipts comprised of [xxxxxxx] m3 of field receipts from producers and [xxxxxxxx] m3 of transfers from other shippers were submitted. In total, these field receipts add up to [xxxxxxx] m3. The volume that was imported to the U.S. was [xxxxxxxxx] m3. Nexen purchased [xxxxxxxx] m3 from [xxxxxxxxx] as a “Transfer from Another Shipper” which covers the volume. The submission also contains a series of documents that counsel refers to as “split letters” from crude oil producers showing the amount of crude oil that was allocated to Nexen on the pipeline and the pipeline facility where the crude oil transfer was made. Each of the split letters contains a number which relates to a position on a map of a grid of the oil field where the oil well facilities were located. A copy of this map with the grid of the oil field was also submitted. In addition, counsel presented split letters sent to Nexen from [xxxxxxxx xxxxx xxxxxxxxx xxx xxxxxxxxxxx, xxxxx xxxxxxxxxx xxxxxxxxxxx xxxx, xxxxx xxxxxxxxxx, xxx, xxxxx xxx xxxxxxxxxx xxxxxxx, xxxxxx xxx xxxxxxxxx xxxx, xxxxxxxx xxxxxxxxxxx, and xxxxxxxx xxxxxx]. The split letters indicate that the following companies were the producers of the crude oil that was shipped on the South Saskatchewan pipeline for the November 2006 entry: [xxxxxxxx xxxxx, xxxxx xxxxxx, xxxxxxx, xxxxxxxx xxxxx xxxxxxxxxx, xxxxxx xxxxxxxxx, xxxxxx, xxxxxr, and xxxxxxxx]. Although counsel only submitted the split letters for the November 2006, entry, counsel contends that Nexen can furnish the additional split letters showing the producers of the crude oil for the remaining four entries.

Counsel also furnished copies of examples of the Nexen Marketing purchase contracts with several crude oil producers: [xxxxxxxx xxxxx, xxxxx xxxxxx, xxxxxxx xxxxxxxxx, xxxxxxxx xxxxx xxxxxxxxxx, xxxxxx xxxxxxxxx, xxxxxx xxxxxxxxx xxxxx, xxxxxxxx xxxxxxxxxxx, and xxxxxxxxx xxxxxxxxx]. It was further explained that the purchase contracts are only examples since it was not possible to find all of the exact contracts, which were the subject of these purchases due to their age. In addition, counsel presented producer certification letters/emails from several crude oil producers certifying that the crude oil was of Canadian origin. Counsel submitted a series of certification letters from the following producers: [xxxxxxxx xxxxx, xxxxx xxxxxx, xxxxxxx xxxxxxxxx, xxxxxxxx xxxxx xxxxxxxxxx (not applicable to November 2006 entries), xxxxxx xxxxxxxxx, xxxxxx xxxxxxxxx xxxxx, xxxxxxxx xxxxxxxxxxx, and xxxxxxxxx xxxxxxxxx] attesting to the Canadian origin of the crude oil that they sold to Nexen. However, protestant has not provided the names of the producers or any information regarding the source of condensate it purchased, a material added to move the crude oil through the pipeline.

ISSUE:

Whether the mixture of imported crude oil condensate was eligible for preferential tariff treatment under NAFTA?

LAW AND ANALYSIS:

Pursuant to General Note (“GN”) 12, HTSUS, for an article to be eligible for NAFTA preference, two criteria must be satisfied. First, the article in question must be “originating” under the terms of GN 12 and second, the article must qualify to be marked as a good of a NAFTA country under the NAFTA Marking Rules contained in 19 C.F.R. 102.20. With regard to the first criteria, GN 12(b) provides, in pertinent part, as follows:

For purposes of this note, goods imported into the customs territory of the U.S. are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as goods originating in the territory of a NAFTA party only if they are goods wholly obtained or produced in the territory of Canada, Mexico and/or the U.S.; or they have been transformed in the territory of Canada, Mexico, and/or the U.S. so that each of the non-originating material used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s), and (t) of this note or the rules set forth therein, or the goods otherwise satisfy the applicable requirements of subdivisions (r), (s), and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or they are goods produced entirely in the territory of Canada, Mexico and/or the U.S. exclusively from originating materials.

General Note 12(b)(i) provides as follows: Goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if—

(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or….

Nexen submitted two blanket NAFTA Certificates of Origin for the period from January 1, 2006 through December 31, 2007, and January 1, 2007 through December 31, 2007. The products listed on the certificates of origin were crude oil classified under subheading 2709.00, HTSUS, and condensate classified under subheading 2710.19, HTSUS. Since these were blanket certificates of origin, no specific entries or quantities of merchandise were shown.

Section 181.72(a), CBP Regulations (19 CFR 181.72(a)), provides as follows:

…Customs may initiate a verification in order to determine whether a good imported into the United States qualifies as an originating good for purposes of preferential tariff treatment under the NAFTA as stated on the Certificate of Origin pertaining to the good. Such a verification (1) May also involve a verification of the origin of a material that is used in the production of a good that is the subject of a verification under this section;… In this case, your office initiated a verification of Nexen’s NAFTA tariff preference claim by issuing a CBP Form 28 requesting supporting documentation regarding the shipments of the crude oil. In this verification, CBP requested the NAFTA Certificates of Origin with the names and addresses of the producers and other supporting documentation to verify Nexen’s claim for NAFTA preference. When your office did not receive a response from Nexen, it denied Nexen’s claim for NAFTA tariff preference. Subsequently, in the context of the protest, Nexen provided documentation showing that it obtained the crude oil from some facilities in Canada. The Shipper’s Balance from the South Saskatchewan pipeline shows the amount of crude oil taken from each facility along that pipeline, as well as other suppliers. The documents show the specific product that Nexen purchased from the various suppliers along the pipeline and the suppliers of the product. The Shipper’s Balance indicates that the specific product that Nexen purchased from its suppliers was Fosterton crude oil.

In Nexen’s latest submission, a series of declarations from Canadian crude oil producers was presented. These declarations are signed by oil company officials who state that their company sold petroleum products to Nexen Marketing on the South Saskatchewan pipeline during the specified time period and that the product they sold only consisted of Canadian crude oil that they produced. As noted above, the split letters show the quantity of crude oil furnished to Nexen from the various producers at specific facilities along the South Saskatchewan Pipeline. The split letters also contain a number which relates to locations on a map containing a grid of the oil fields located in Saskatchewan, Canada, so that a specific parcel of land in the oil field where that crude oil was pumped out of the ground may be determined. Therefore, each portion of the crude oil shipment can be traced to a specific facility and location in the oil field where it was pumped out of the ground. Although Nexen has only presented the split letters for the November 1, 2007 entry, counsel affirms that the split letters and supporting documentation for the remaining four entries have been located and will be presented to CBP, if they are requested to do so.

Based upon the additional information presented with Nexen’s protest, which enables each portion of the shipment to be traced to a specific location where the crude oil was produced, we are satisfied that Nexen has established that the Fosterton crude oil was wholly produced entirely in the territory of Canada. However, the same cannot be said for the CRW condensate blend, an essential material of the imported crude oil. Although Nexen claims that only originating CRW blend was used and was nearly completely consumed within Alberta, it provided no support for this assertion. More significantly, unlike the Fosterton crude, Protestant did not present any substantiating information regarding the actual producers or the specific sources of the diluent added to the pipeline for the particular shipments under consideration. Protestant claims that the pipeline companies would not disclose any information regarding the source of the condensate, and because of its proprietary nature, no other information establishing its derivation was available.

Protestant claims that based on information contained in the website, “crudemonitor.ca”, which indicates that CRW condensate is only produced in Canada, the condensate added to crude oil in the pipeline should also be considered to be a Canadian origin product. However, we find that a general reference contained solely in a website, without additional support, is inadequate evidence for establishing the Canadian origin of the particular condensate used in the specific crude oil shipments under consideration. In order to establish the eligibility for NAFTA tariff preference of the crude oil shipments, the importer must be able to provide specific evidence which demonstrates the source of all the materials contained in that shipment, including in this case, the specific source of the condensate used. Since Protestant is unable to present any records or other information substantiating the source of the precise condensate used in the crude oil shipments under consideration, we conclude that it has not established that the condensate was of Canadian origin. Thus, because Nexen is not able to establish that the shipments of crude oil consisted only of materials wholly obtained or produced entirely in the territory of Canada, or that any other General Note 12, HTSUS, rules have been satisfied to convey originating treatment, we find that the crude oil shipments, the subject of this protest, are not eligible for the NAFTA tariff preference.

HOLDING: While protestant has submitted sufficient documentation to substantiate the Canadian origin of the Fosteron crude oil contained in the shipments in question, insufficient documentation was presented to substantiate the Canadian origin of the condensate used. Consequently, CBP has been unable to verify the origin of one of the materials certified on the NAFTA Certificates of Origin. Therefore, the shipments are ineligible for NAFTA duty preference and the protest should be denied.

In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the Customs Form 19, 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, Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. 
Sincerely,

Myles B. Harmon, Director
Commercial and Trade Facilitation Division