FOR 2-04
OT:RR:CTF:ER
H253748 KF
Director, Petroleum Natural Gas and Minerals CEE
Houston Field Office
U.S. Customs & Border Protection
2323 S. Shepherd Drive, Suite 1200
Houston TX 77019
Attn: Lynn Fallik
Re: Responsibility for proving the status of merchandise admitted into a Foreign Trade Zone; 19 C.F.R. § 146.4(h); Crude oil; 19 C.F.R. § 146.43(a); Commingling crude oil in storage; 19 U.S.C. § 81c(a).
Dear Director:
This is in response to your memorandum, dated May 21, 2014, forwarding an internal advice request from Louisiana Offshore Oil Port (“LOOP”) regarding whether a zone operator or zone user is responsible for proving the status of merchandise admitted into a Foreign Trade Zone (“FTZ”); and the documentation needed to prove the domestic status of crude oil admitted into a FTZ. We apologize for the delay in responding to your request.
FACTS:
LOOP is the zone operator of FTZ Subszone 124D in Louisiana. See 81 Fed. Reg. 235, 88211 (December 7, 2016). LOOP operates FTZ 124D to provide storage for domestically produced crude oil and domestic status crude oil from Canada. LOOP states that it has no ownership interest in any of the crude oil admitted into FTZ Subzone 124D. Zone users ship the crude oil stored by LOOP from Canada to the Gulf Coast, by pipeline, rail, and barge. LOOP conducts tracking and accounting for the crude oil stored at FTZ 124D through an inventory control recordkeeping system.
LOOP is engaged in consultations with your office regarding the difficulty it faces in obtaining entry documents for crude oil imported to the United States due to the multiple shipment and sales transactions that occur before the crude oil reaches FTZ 124D. To illustrate, LOOP explains that crude oil is: bought, sold, and traded in batches while moving in a pipeline; bought and sold while in transit on a barge; and bought and sold during transfer into storage tanks located on the Gulf Coast. LOOP states the above illustrations are not exhaustive, and may occur repeatedly or in combination prior to the crude oil’s admission into FTZ 124D. Your office advised LOOP that documents such as affidavits regarding the status of the crude oil in a transaction and commercial contracts may be used to prove its domestic status. LOOP also informed your office that once a zone user admits crude oil into FTZ 124D, it is stored in tanks on premises. During storage, domestic status crude oil from Canada may be commingled with domestically produced crude oil.
Due to LOOP’s tracking and accounting responsibilities as a zone operator, LOOP seeks to clarify whether zone operators or zone users are responsible for proving the status of merchandise admitted into a FTZ. LOOP additionally asks what documents can be used to prove the domestic status of crude oil from Canada, specifically whether documents other than official United States Customs and Border Protection (“CBP”) forms are acceptable. Implicit in LOOP’s request is an inquiry into the appropriate procedures to track merchandise from transit to admission, through potential comingling, to the moment of removal from a FTZ. LOOP is particularly concerned over the documentation necessary to prove the domestic status of crude oil admitted into FTZ 124D by pipeline.
ISSUES:
Whether a zone operator or zone user is responsible for proving the status of merchandise admitted into a FTZ.
What documentation is required to prove the domestic status of crude oil admitted into a FTZ?
LAW AND ANALYSIS:
Whether a zone operator or zone user is responsible for proving the status of merchandise admitted into a FTZ.
A zone operator “is a corporation, partnership, or person that operates a zone or subzone under the terms of an agreement with the zone grantee.” See 19 C.F.R. § 146.1(b). LOOP is the authorized zone operator of FTZ Subzone 124D subject to the terms of its agreement with the zone grantee, the South Louisiana Port Commission. See 60 Fed. Reg. 110, 30267 (June 8, 1995) (Order No. 748). As a zone operator, LOOP is required to “supervise all admissions, transfers, removals, recordkeeping, manipulations, manufacturing, destruction, exhibition, physical and procedural security, and conditions of storage in the zone.” See 19 C.F.R. § 146.4(a). LOOP is also primarily “responsible for complying with requirements for admission, manipulation, manufacture, exhibition, or destruction, shortage, or overage; inventory control and recordkeeping systems, [and] transfer to Customs territory.” See 19 C.F.R. § 146.4(h).
To effect its supervisory and compliance responsibilities to CBP, a zone operator must maintain an inventory control and recordkeeping system that accounts “for all merchandise, including domestic status merchandise, temporarily deposited, admitted, granted a zone status and/or status change, stored, exhibited, manipulated, manufactured, destroyed, transferred, and/or removed from a zone.” See 19 C.F.R. § 146.21(a)(1); see e.g. HQ 229589 (October 24, 2002). LOOP is therefore responsible for maintaining records and information sufficient to prove the status of merchandise admitted into, stored, and removed from FTZ Subzone 124D.
A zone user is “a person or firm using a zone or subzone for storage, handling, or processing of merchandise.” See 19 C.F.R. § 146.1(b). A zone user can be authorized by a zone operator to maintain an individual recordkeeping system accounting for merchandise the zone user admits, but the zone operator remains primarily “responsible to [CBP] and liable under its bond for supervision, defects in, or failures of a [zone user’s recordkeeping] system.” See 19 C.F.R. § 146.21(b)(3). Accordingly, we find that as a zone operator, LOOP is responsible and liable to CBP for proving the status of merchandise admitted, stored, and removed from FTZ Subzone 124D.
What documentation is required to prove the domestic status of crude oil admitted into a FTZ?
Domestic status may be elected for merchandise admitted into a FTZ that is: (1) produced in the United States and on which all internal revenue taxes have been paid; (2) imported from a foreign country and on which all duties and taxes owed have been paid; and (3) re-admitted to the FTZ after initially being admitted free of any duty and tax obligation. See 19 C.F.R. § 146.43(a). LOOP states that the crude oil admitted into FTZ Subzone 124D is domestically produced and imported from Canada with payment of all duties owed. We find that both types of crude oil admitted qualify for domestic status so long all duties and taxes owed have been paid prior to the crude oil’s admission to FTZ Subzone 124D.
Domestic status merchandise that is mixed, combined, or otherwise manipulated after admission into a FTZ does not lose its domestic status. See 19 C.F.R. § 146.43(b). LOOP explains that domestic status crude oil may be commingled during storage at FTZ Subzone 124D, creating a difficulty in positively identifying the exact type of domestic status crude oil within a storage tank. To prove the domestic status of crude oil commingled during storage in a FTZ, a zone operator must maintain an inventory control and accounting procedure sufficient to clearly identify the source and quantity of each type of crude oil within a storage tank. See C.S.D. 81-67 (September 5, 1980). Due to the inherent difficulty in distinguishing types of crude oil on a molecular basis, utilizing a unique identification code for each quantity of crude oil admitted to the zone and maintaining documents that track its source origin, movement in accordance with purchase contracts, and delivery by pipeline, may serve to properly account for the domestic status of crude oil stored and commingled in a FTZ. See HQ 228616 (July 1, 2002) (“[i]t is in the commercial nature of pipeline transportation of petroleum oils, crude or otherwise, that molecular tracking is not feasible”); and HQ 224628 (January 10, 1994) (approving an inventory control system tracking merchandise admitted to an FTZ and commingled based on the “unique identification code which would follow all quantities of that [merchandise] through all FTZ activities”).
In HQ 228616, CBP determined that crude oil admitted into a FTZ could be tracked by documents including “a pipeline operator’s delivery ticket/s,” transportation documents clearly identifying the quantity of oil being shipped such as a “bill of lading or equivalent document of receipt, issued by the pipeline carrier to the shipper and accepted by the consignee,” and documents identifying the crude oil unladen from a vessel. In HQ 224628, CBP determined that merchandise admitted in tanks and through pipelines could be tracked through a unique identification code and supporting documents including: purchase orders, contracts, invoices, receipts clearly identifying the merchandise and any change in its quantity, and documents detailing a monthly physical inventory of the merchandise in storage. In HQ H102097 (February 29, 2012), CBP determined that natural gas batches stored and commingled during storage in a FTZ could be tracked by utilizing the First In, First Out (“FIFO”) inventory control method.
LOOP explains that due to the multiple sales, shipment, and transfer transactions that occur with crude oil prior to its admission into FTZ Subzone 124D, LOOP anticipates difficulty in obtaining documents proving the domestic status of the crude oil admitted. LOOP indicates that it has access to commercial sales contracts, shipment documents, affidavits, and other documents capable of identifying the source and quantity of the crude oil admitted into FTZ Subzone 124D. Due to the variety of documents CBP has accepted to accurately identify and track merchandise admitted into a FTZ in lieu of official CBP forms, we find that your office properly advised LOOP that documents such as sales contracts and affidavits regarding the status of the crude oil in a transaction may be used to prove its domestic status in combination with the other documents referenced above, such as bills of lading and pipeline transit receipts. We find that LOOP may prove the domestic status of the crude oil it admits, stores, commingles, and removes from FTZ Subzone 124D by utilizing an inventory control and recordkeeping system capable of satisfying the accounting requirements specified in 19 C.F.R. § 146.21(a). We note that pursuant to 19 C.F.R. § 146.13, the port director retains discretion to identify and request specific documents necessary to satisfy a zone operator’s regulatory compliance obligations.
HOLDING:
Based on the above, we find that: (1) a zone operator is responsible for proving the status of merchandise admitted into its FTZ; and, (2) commercial sale contracts, delivery receipts, shipment records, affidavits, and various other documents may be sufficient to prove the domestic status of merchandise admitted into and commingled during storage in a FTZ, subject to the discretion of the port director.
You are to mail this decision to the Internal Advice requester no later than 60 days from the date of the decision. At that time, the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public on CBP’s website, located at www.cbp.gov by means of the Freedom of Information Act and other methods of public distribution.
Sincerely,
Monika R. Brenner Acting Chief Entry Process & Duty Refunds Branch