CLA-2
OT:RR:CTF:TCM H258443 PTM
Tariff No: 2710.19.45
Jacob Dweck
Sutherland, Asbill & Brennan LLP
700 Sixth St. NW Suite 700
Washington, DC 20001
RE: Revocation of NY N250961; Tariff Classification of Renewable Diesel
Dear Mr. Dweck,
We are writing in response to your correspondence, dated September 26, 2014, in which you request reconsideration of a ruling issued by U.S. Customs and Border Protection (“CBP”) of a ruling on behalf of your client, Neste Oil US, Inc. (“Neste”). Specifically, you request reconsideration of New York (“NY”) Ruling N250961, dated March 18, 2014 concerning the tariff classification of NEXBTL renewable diesel under the Harmonized Tariff Schedule of the United States (“HTSUS”). In NY N250961, we classified renewable diesel in subheading 3824.90.9290, HTSUS, which provides for “Prepared binders for foundry molds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included: Other: Other: Other.” We have reviewed N250961 and find it to be in error. For the reasons set forth below, we hereby revoke N250961.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. 1625 (c)(1)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057), a notice was published in the Customs Bulletin, Vol. 50, No. 34, on August 24, 2016, proposing to revoke N250961 and any treatment accorded to substantially identical transactions. Three comments were received in response to this notice. The comments supported the proposed revocation of N250961.
FACTS:
NEXBTL is referred to as “renewable diesel” or “R100.” NEXBTL is produced from vegetable oils and animal fats and is used to power diesel engines.
In N250961, we stated the following:
The instant product is called NEXBTL. NEXBTL consists of various paraffinic hydrocarbons. Product literature states in part that: Unlike traditional biofuels, NEXBTL is a ’dropin’ fuel and is fully compatible with existing fuel infrastructure, distribution systems, and engines. Proprietary hydrotreating technology converts vegetable oil and waste fats into premium-quality fuel. Therefore, NEXBTL renewable diesel is a pure hydrocarbon with significant performance and emission benefit”.
It is further stated that: Hydrotreated Vegetable Oil (HVO) is a mixture of straight chain and branched paraffins – the simplest type of hydrocarbon molecules from the point of view of clean and complete combustion. Typical carbon numbers are C15 ... C18….HVO is also called Renewable diesel or HDRD (Hydrogenation Derived Renewable Diesel)”. You suggest classification in heading 2710, HTSUS. However, NEXBTL 100% Hydrotreated Vegetable Oil does not meet the requirement in heading 2710 which provides for: "Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70 percent or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations." Therefore, the product must be classified elsewhere in the tariff. The applicable subheading for the NEXBTL Non-Ester Renewable Diesel will be 3824.90.9290, Harmonized Tariff Schedule of the United States (HTSUS)
Traditional diesel fuels are petroleum distillates rich in paraffinic hydrocarbons. In the United States, the American Society for Testing and Materials (“ASTM”) Standard D975 establishes the standards for diesel fuel according to various criteria. These criteria include boiling range, cetane number, lubricity, cloud point, flash point, viscosity, aniline point, sulfur content, water content, ash content and carbon residue. Historically, diesel fuel has been derived from petroleum hydrocarbons. As a result, the D975 specification has evolved to define performance requirements for diesel engine fuels composed of conventional hydrocarbon oils refined from petroleum. However, the D975 standard does not require that fuels be derived from petroleum. The definition of a hydrocarbon oil in the ASTM D975 specification states it is a homogeneous mixture with elemental composition primarily of carbon and hydrogen, but that it may be manufactured from a variety of raw materials including petroleum, oil sands, natural gas, coal, and biomass. Additionally, the standard permits the inclusion of additives to hydrocarbon oils to enhance performance to meet the requirements of the D975 standard.
The U.S. Department of Energy Alternative Fuels Data Center provides the following information concerning renewable diesel:
Use: Renewable diesel is designed to substitute directly for petroleum diesel without modifying vehicle engines or fueling infrastructure. It may also be blended with conventional diesel.
Production: Renewable diesel can be produced from soybean, palm, canola or rapeseed oil; animal tallow; vegetable oil waste or brown trap grease; and other fats and vegetable oils. Producing renewable diesel involves hydrogenating triglycerides to remove metals and compounds with oxygen and nitrogen using existing refinery infrastructure that is used for conventional petroleum. Dedicated hydrotreating facilities that do not produce conventional petroleum can also produce renewable diesel.
Distribution: Renewable diesel is compatible with existing fuel distribution systems. It can be distributed through modern infrastructure and transported through existing pipelines to dispense at fueling stations.
Benefits: Among other benefits, renewable diesel reduces carbon monoxide and hydrocarbons in the environment. Renewable diesel is flexible inasmuch as it is compatible with existing diesel distribution infrastructure (not requiring new pipelines, storage tanks or retail station pumps), can be produced using existing oil refinery capacity and does not require extensive new production facilities. Renewable diesel’s high combustion quality results in similar or better vehicle performance compared to conventional diesel.
The California Air Resources Board (“CARB”) commissioned a report on the compatibility of renewable diesel with existing motor vehicle fuel specifications as set forth in the California Code of Regulations. The report concluded that renewable diesel met all applicable motor vehicle fuel specifications for diesel fuel. The State Water Resources Control Board of California and CARB issued a joint statement that stated that “renewable diesel should be treated the same as conventional CARB diesel for all purposes.”
In connection with the request for reconsideration, Neste provided additional information. Neste states that NEXBTL consists of aliphatic hydrocarbon chains and is a mixture of hydrocarbons. No single hydrocarbon compound constitutes more than fifty percent by weight of NEXBTL. NEXBTL may be used in its pure “neat” form and can serve as a direct substitute for petroleum diesel. That is, it can be used in diesel engines without blending and without modification to the engine itself.
Several automobile manufacturers have examined renewable diesel and approved of its use in their vehicles. For example, Volvo Trucks North America issued a press release stating that it “after concluding truck and engine lab testing, approved the use of renewable diesel fuel for all its proprietary Volvo engines, offering environmental and cost-savings benefits to its consumers.” Similarly, Mercedes-Benz trucks granted approval for the use of hydrotreated vegetable oil (“HVO”) fuel in its medium and heavy duty trucks.
NEXBTL renewable diesel is a distinct product from biodiesel, although they are both derived from renewable feedstocks. The technical definition of biodiesel is “a fuel comprised of mono-alkyl esters of long chain fatty acids derived from vegetable oils or animal fats, designated B100, and meeting the requirements of ASTM D 6751.” Biodiesel is produced by through the process of transesterification, and contains esters. By contrast, NEXBTL is produced through hydrotreatment. The resulting renewable diesel contains solely hydrocarbons and no esters. Thus, biodiesel is produced using a different process, has different chemical properties and is subject to a different standard than renewable diesel.
In connection with this request for reconsideration, NESTE submitted four samples of NEXBTL “R100” renewable diesel to the CBP Laboratory and Scientific Services Directorate (“LSSD”). LSSD determined that the samples were comprised of aliphatic hydrocarbons with no aromatics. LSSD did note several differences between the samples of NEXBTL and petroleum diesel. For example, the R100 has a higher cetane number (92.85) than petroleum diesel, the sample has no sulfur present compared to petroleum diesel, the R100 has no aromatics compared to petroleum diesel, and the R100 has little or no fossil carbon present compared to petroleum diesel.
ISSUE:
What is the tariff classification of NEXBTL renewable diesel?
LAW AND ANALYSIS:
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI’s”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System at the international level. While not legally binding, and therefore not dispositive, the ENs provide a commentary on the scope of each heading of the Harmonized System and are thus useful in ascertaining the classification of merchandise under the HTSUS. See T.D. 89-80, 54 Fed. Reg. 35127 (Aug. 23, 1989).
The HTSUS provisions at issue are as follows:
2710 Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70 percent or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils:
2710.19 Other:
2710.19.45 Mixtures of hydrocarbons not elsewhere specified or included, which contain by weight not over 50 percent of any single hydrocarbon compound
* * *
3824 Prepared binders for foundry molds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included:
3824.90 Other:
3824.90.92 Other:
Because heading 3824, HTSUS covers only merchandise that is “not elsewhere specified or included,” the subject merchandise can be classified there by application of GRI 1 only if it is not prima facie classifiable in heading 2710, HTSUS. See R.T. Foods, Inc. v. United States, 757 F.3d 1349, 1354 (Fed. Cir. 2014) (stating that a provision that contains the terms "not elsewhere specified or included" is a basket provision, in which classification of a given product "is only appropriate if there is no tariff category that covers the merchandise more specifically"). Accordingly, we initially consider whether the subject merchandise is classifiable in heading 2710 HTSUS.
Heading 2710 covers oils obtained from geological sources. Note 2 to Chapter 27, HTSUS, states that:
References in heading 2710 to "petroleum oils and oils obtained from bituminous minerals" include not only petroleum oils and oils obtained from bituminous minerals, but also similar oils, as well as those consisting mainly of mixed unsaturated hydrocarbons, obtained by any process, provided that the weight of the nonaromatic constituents exceeds that of the aromatic constituents.
(Emphasis added).
This heading contains three distinct categories of merchandise: 1) "petroleum oils and oils obtained from bituminous minerals, other than crude;" 2) "preparations not elsewhere specified or included, containing by weight 70 percent or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations;" and 3) "waste oils." See BP Products North America Inc. v. United States, 716 F. Supp. 2d 1291, at 1294-1295 (Ct. Int’l Trade 2010). Petroleum is defined as “an oily flammable bituminous liquid that may vary from almost colorless to black, occurs in many places in the upper strata of the earth, is a complex mixture of hydrocarbons with small amounts of other substances, and is prepared for use as gasoline, naphtha, or other products by various refining processes.” NEXBTL is not a petroleum oil or an oil obtained from bituminous minerals as it is a hydrocarbon oil derived from the hydrotreatment of vegetable oils and animal fats, rather than from geological sources. Furthermore, it cannot be characterized as a waste oil. However, Note 2 to Chapter 27 provides that the first two categories of the heading also covers “similar oils.” Consequently, the classification of R100 NEXBTL in heading 2710 HTSUS depends on whether the product is a “similar oil” to petroleum oils and oils obtained from bituminous minerals.
The term “similar oils” is not defined in the nomenclature. In BP Products North America Inc. v. United States, supra, the Court of Appeals for the Federal Circuit discussed the term “similar oils” when it addressed an argument regarding the aromatic constituency limitation contained in Note 2 to Chapter 27, HTSUS. The court stated:
Statutory Chapter Note 2 provides that:
References in heading 2710 to 'petroleum oils and oils obtained from bituminous minerals' include not only petroleum oils and oils obtained from bituminous minerals, but also similar oils, as well as those consisting mainly of mixed unsaturated hydrocarbons, obtained by any process, provided that the weight of the nonaromatic constituents exceeds that of the aromatic constituents.
Note 2 of Chapter 27, HTSUS. This aromatic constituency limitation, therefore, has no application to petroleum oils because the exclusion applies only to the last antecedent, "similar oils." See Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1336 (Fed Cir. 2008) (stating that the doctrine of the last antecedent provides that "[r]eferential and qualifying words and phrases, where no contrary intention appears, refer solely to the last antecedent, which consists of the last word, phrase, or clause that can be made an antecedent without impairing the meaning of the sentence" (internal quotation marks and citation omitted)).
Thus, the court relied on the grammatical construction of Note 2 to Chapter 27 to conclude that “similar oils” may not contain more aromatic than non-aromatic content by weight. There was no further discussion as to what qualifies as a “similar oil.” However, by this construction there is a limiting factor based on aromatic content. Because R100 contains no aromatic content, it is not precluded from qualifying as a “similar oil” within the meaning of Note 2 to Chapter 27.
In Victoria’s Direct LLC, v. United States, the Court of Appeals for the Federal Circuit stated that “[a]pplying the phrase ‘and similar articles’ to the merchandise at issue, then, requires determining whether the merchandise, considering all of its features, shares the unifying characteristics of the particular heading.” Thus, to be considered as “similar,” merchandise must have “unifying characteristics” to the enumerated product. Furthermore, in determining the proper meaning of a tariff provision, the Courts have held that where the HTSUS does not expressly define a term, “the correct meaning of the term is its common commercial meaning.” Arko Foods Int’l, Inc. v. United States, 654 F.3d 1361, 1364 (Fed. Cir. 2011). To determine the common commercial meaning, the Courts have directed that CBP may rely upon its own understanding of terms, and may consult lexicographic and scientific authorities. See Airflow Tech., Inc. v. United States, 524 F.3d 1287, 1291 (Fed. Cir. 2008). The Meriam-Webster Dictionary defines the word “similar” as follows:
Full Definition of similar
having characteristics in common: strictly comparable
alike in substance or essentials
In context, the term “similar oils” must mean oils that have characteristics in common with or are alike in substance or essentials to petroleum oils and oils of bituminous minerals. NEXBTL R100 renewable diesel is similar chemically to petroleum diesel inasmuch as both products are hydrocarbons. NEXBTL is so similar to petroleum diesel that it can be substituted directly for petroleum diesel without modification to a vehicle’s engine, which is evidenced by the fact that auto manufacturers such as Volvo have approved of its use in their engines. Furthermore, NEXBTL can be produced using existing refinery infrastructure that is used for conventional petroleum. NEXBTL may be transported and distributed in existing infrastructure such as pipelines and fuel dispensaries. Additional evidence of the similarity of renewable diesel and conventional diesel lies in the State Water Resources Control Board of California and CARB’s joint statement that “renewable diesel should be treated the same as conventional CARB diesel for all purposes.” Both products must meet the ASTM D975 standard for diesel at the retail level in order for them to be used. Consequently, we find that NEXBTL R100 has unifying characteristics with petroleum diesel and is alike in substance. Therefore, we find that NEXBTL is a “similar oil” to conventional petroleum diesel.
We note that NEXBTL R100, in its imported condition, may not meet the ASTM D975 criteria for lubricity. However, in this respect NEXBTL is similar to petroleum diesel. Petroleum diesel does not typically satisfy the lubricity requirement for the ASTM D975 standard at the point of manufacture because the lubricity additive is not added to petroleum diesel until just before it is delivered at the retail level. This is standard industry practice because diesel is transported using the same pipeline infrastructure that also carries jet fuel. The lubricity additive is a contaminant for jet fuel, therefore, it is not added to diesel until after it has been withdrawn from the pipeline. Consequently, ASTM D975 testing occurs at the retail level rather than prior to its importation. Similarly, NEXBTL R100 is mixed with an appropriate quantity of lubricity additive at the retail level. Both petroleum diesel and NEXBTL must meet the ASTM D975 standard in order for it to be used in the United States. ASTM D975 permits the inclusion of additives to hydrocarbon oils to enhance performance to meet the requirements, including lubricity, of the D975 standard. Consequently, the fact that NEXBTL requires the addition of lubricity additive post-importation in order to meet the ASTM D975 standard does not disqualify it from being defined as a “similar oil” to petroleum diesel classified under heading 2710 HTSUS.
LSSD noted several differences between petroleum diesel and the samples of R100. However, these differences do not change the fact that NEXBTL is interchangeable with petroleum diesel. For example, the cetane level of NEXBTL is higher than what is customary for petroleum diesel. However, the ASTM D975 specification only provides for a minimum cetane level (40) that the samples of NEXBTL exceeded (92.5). There was no fossil content or aromatic detected in the samples of NEXBTL. However, these differences are the result of the fact that the NEXBTL is derived from a different feedstock, vegetable and animal oils, than petroleum diesel. With respect to aromatic content, the ASTM D975 requires that product not exceed a maximum of 35% aromatic content by volume. NEXBTL contains no aromatic content, so the product is in compliance with the ASTM D975 specification for aromatic content. Note 2 to Chapter 27 does not require oils to be identical in order to be classified therein, they need only be “similar.” Because the differences identified do not affect the ability for NEXBTL to be used as a substitute for petroleum diesel, we find that they do not disqualify them from classification under heading 2710 HTSUS as “similar oils.”
The Explanatory Note to Chapter 38.26 provides further support for classification in heading 2710 HTSUS. EN 38.26, which covers biodiesel, states:
38.26 - Biodiesel and mixtures thereof, not containing or containing less than 70 % by weight of petroleum oils or oils obtained from bituminous minerals.
Biodiesel consists of mono-alkyl esters of fatty acids of various chain lengths, immiscible with water, with a high boiling point, low vapour pressure and a viscosity similar to that of diesel oil produced from petroleum. Biodiesel is typically made by a chemical process called transesterification, whereby the fatty acids in oils or fats react with an alcohol (usually methanol or ethanol) in the presence of a catalyst to form the desired esters.
* * *
This heading excludes :
(a) Mixtures containing, by weight, 70 % or more of petroleum oils or of oils obtained from bituminous minerals (heading 27.10).
(b) Products derived from vegetable oils which have been fully deoxygenated and consist only of aliphatic hydrocarbon chains (heading 27.10).
(Emphasis added).
NEXBTL is not biodiesel as biodiesel contains a different chemical structure, is produced via a different process and is subject to its own ASTM specification. However, the EN provides that products derived from vegetable oils which have been fully deoxygenated and consist only of aliphatic hydrocarbon chains are excluded from classification under heading 38.26, and that these products should be classified in heading 27.10. NEXBTL is fully deoxygenated and consists only of aliphatic hydrocarbon chains, and may be produced either from vegetable or animal oils. The exclusion of the EN states that products meeting this description should be classified in heading 27.10. Because NEXBTL meets the definition of the product described in the exclusion, the EN suggests that it should be classified in heading 27.10.
Based on the foregoing, we find that NEXBTL R100 is a “similar oil” within the meaning of Note 2 to Chapter 27 HTSUS and is prima facie classifiable in heading 2710. Consequently, classification in heading 3824 HTSUS is precluded.
HOLDING:
By application of GRI 1, NEXBTL is classified in heading 2710 HTSUS, and specifically in subheading 2710.19.45, which provides for “Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70 percent or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils: Other: Mixtures of hydrocarbons not elsewhere specified or included, which contain by weight not over 50 percent of any single hydrocarbon compound.” The column one, general rate of duty is 10.5¢/bbl.
Duty rates are provided for convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at http://www.usitc.gov/tata/hts/.
EFFECT ON OTHER RULINGS:
NY N250961 is hereby REVOKED
In accordance with 19 U.S.C. §1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division