ENT 1
OT:RR:CTF:ER
H272806 HvB
Center Director
Petroleum, Natural Gas, & Minerals Center of Excellence and Expertise
U.S. Customs and Border Protection
2350 N. Sam Houston Parkway East, Suite 900
Houston, Texas 77032
Attn: Dorothy Bond, Entry Specialist; Mark Peeler, Supervisory Import Specialist
Re: Application for Further Review of Protest 3401-15-150003; CHS, Inc.; Merchandise Processing Fees; Pipeline
Dear Center Director:
The purpose of this correspondence is to address the application for further review ("AFR") of Protest Number 3401-15-150003, dated September 8, 2015, filed by CHS, Inc. ("CHS"), regarding the imposition of merchandise processing fees ("MPFs") on entries of crude oil imported into the United States from Canada on the Front Range Pipeline LLC ("Front Range").
FACTS:
CHS protests the liquidation of fourteen entries made at the Port of Sweetgrass, Montana (under the Port of Pembina) between February and October 2014, because CHS does not believe that daily MPFs are appropriate for entries of continuous stream pipeline crude oil. CHS is the importer of record for crude oil imported into the United States from Canada on the Front Range Pipeline. In most instances, CHS is the end-user of the imported oil. CHS files entry at the Port of Pembina for crude oil deliveries. CHS filed the entries at issue either once or twice a month between February and October 2014. CHS's entries were liquidated between March and July 2015.
CHS asserts that because of the nature of the continuous stream pipeline, it entered the crude oil once for a month's worth of flow for the entries at issue and, accordingly, should only be subject to one MPF for each month-long entry. CHS argues that it should owe an MPF of $485 per entry or "release" (i.e., once a month), rather than being liable under the monthly consolidated entry program for up to the maximum MPF per daily importation, which could be $400 times 31 days or $12,400, pursuant to 19 C.F.R. 24.23(b)(1)(i).
CHS clarifies that it is not entering the crude oil through the monthly consolidated entry procedures, which is an optional program that consolidates daily entries into one monthly entry. CHS argues that the continuous stream crude oil pipeline, as its name suggests, is a continuous stream of oil that should be distinguished from batch-based pipeline processing or natural gas monthly flow processing. CHS states that, different from a continuous stream pipeline at issue here, batch-based pipelines can define the beginning and end of a batch and issue a batch ticket that suffices as a pipeline version of the bill of lading for each shipment that is then filed with a corresponding entry. CHS also distinguishes continuous stream pipelines from natural gas pipelines because, although pipeline operators only generate monthly statements for both, the monthly statement for natural gas pipelines indicate daily volume flow activity.
CHS asserts that Front Range only issues a monthly pipeline statement that does not indicate daily volume flow activity. CHS states that there is no daily metering and there is no measurement of which days during the month there was a shipment. CHS argues that while Front Range monitors the pipeline meter daily to ensure that the pipeline is flowing properly, the daily monitoring is not done in accordance with API standards, which would be required to establish daily volumes for CBP reporting. According to CHS, Front Range executes bi-monthly meter readings that are in accordance with API standards.
CHS argues that the monthly pipeline statements reflect a single discharge and, thus, are not subject to the ordinary entry and daily MPF requirements. CHS likens the pipeline to continuous discharge from a vessel that often spans more than a day but for which only one entry with the corresponding $485.00 MPF maximum is applicable. CHS indicates that it uses the majority of the imported oil in its own refinery system, but the price of any oil sold is the average of the daily prices during that month. Accordingly, CHS asserts that if CBP were to require daily entries or even participation in the monthly consolidated entry procedures, CHS would have to arbitrarily fabricate approximations about each day's pipeline flow activity. Such approximations would not include the adjustments that are currently made to the monthly statements and are based on the actual meter readings done in accordance with API standards. CHS argues that there is no legal basis under which to require daily manifests and that CBP has held that pipelines are not subject to true manifesting requirements.
The Petroleum, Natural Gas, and Minerals Center of Excellence and Expertise ("Petroleum CEE") disagrees with CHS and argues that daily manifests and daily entries are required unless the entries are part of the monthly consolidated entry procedures. The Petroleum CEE argues that if each day's flow is not entered under ordinary entry procedures, then the flow of petroleum from Canada through the pipeline without entry is contrary to law.
ISSUE:
Whether MPF should be assessed on a monthly, rather than a daily basis, for imports of crude oil on a continuous stream pipeline.
LAW AND ANALYSIS:
It is the opinion of your office that this protest meets the criteria for further review. We agree and are of the opinion that this protest involves questions of law and fact which have not been previously ruled upon. 19 C.F.R. 174.24(b). CHS's protest is timely, pursuant to 19 U.S.C. 1514(c)(3)(A), because it was filed within 180 days after the date CBP liquidated the entries at issue.
We agree that MPF is properly assessed on a daily basis for imports of crude oil in a continuous stream pipeline as determined by CBP's statutory and regulatory provisions, prior CBP rulings, and by Customs practice, as evidenced by published guidelines and guidance. Pursuant to 19 U.S.C. 58c(a)(9)(A), importers of record must pay MPFs upon formally entering their goods. Specifically, CBP "shall charge and collect" fees "[f]or the processing of merchandise that is formally entered or released during any fiscal year . . . ." 19 U.S.C. 58c(a)(9)(A). See also 19 C.F.R 24.23(b)(2). Merchandise is "entered or released, as the case may be, if the merchandise is entered or released from customs custody under [19 U.S.C. ] 1484(a)(1)(A) of this title." Id. at 58c(b)(8)(E)(ii). Pursuant to 1484(a)(1)(A), an importer of record is required to "make entry" by filing "such information as is necessary to enable [CBP] to determine whether the merchandise may be released from [CBP] custody . . . ."
Crude oil is "merchandise." See 19 U.S.C. 1401(c) (stating that "[t]he word 'merchandise' means goods, wares, and chattels of every description"). "All merchandise imported into the United States is required to be entered, unless specifically excepted." 19 C.F.R. 141.4(a). There is no enumerated exception for crude oil. The date of importation is "the date on which the merchandise arrives within the Customs territory of the United States." 19 C.F.R. 101.1. The date upon which the crude oil from a continuous stream pipeline arrives within the U.S. Customs territory is daily or each day. Thus, CBP's statutory and regulatory provisions dictate that daily entries are required for the daily importation of crude oil into the Customs territory of the United States. Because MPFs are due upon the entry of merchandise, CBP properly assessed MPFs on a daily basis.
This determination is further supported by the statutory and regulatory provisions implementing the monthly consolidated entry program. Historically, importers of record on pipelines filed daily entries for the flow of oil crossing into the United States. Consolidation of daily entries into one monthly entry was not permitted for certain entries until July 1, 1970, when CBP issued Circular ENT-1-AC (hereinafter "1970 Circular") and provided guidelines (hereinafter "1970 Guidelines") for the monthly consolidated entry program that was expanded to the entire country from pilot programs in the Ports of Buffalo and Detroit. This alternative form of entering merchandise was created to address repetitive high-volume shipments of non-dutiable merchandise. Although this program was not created specifically for pipelines, it is common practice for pipelines to use the monthly consolidated entry process.
Congress made it clear in 1990, however, that for importers consolidating daily entries into one monthly entry, aggregated daily MPFs would also be owed. When Congress amended the Customs user fee (MPF) statute in 1990, it specifically contemplated the monthly consolidated entry program and expressly carved out an exception for aggregate MPFs. Congress provided that,
1) Notwithstanding any provision of section 13031 of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c), in the case of entries of merchandise made under the temporary monthly entry programs established by the Commissioner of Customs before July 1, 1989, for the purpose of testing entry processing improvements, the fee charged under section 13031(a)(9) of the Consolidated Omnibus Budget Reconciliation Act of 1985 for each day's importations at each port by the same importer from the same exporter shall be the lesser of
A) $400, or
B) The amount determined by applying the ad valorem rate currently in effect under such section 13031(a)(9) to the total value of each day's importations at each port by the same importer from the same exporter.
(2) The fees described in paragraph (1) that are payable under the program described in paragraph (1) shall be paid with each monthly consumption entry. Interest shall accrue on the fees paid monthly in accordance with section 6621 of the Internal Revenue Code of 1986 [26 U.S.C. 6621].
Section 111(f) of Pub. L. 101-382, as amended by Pub. L. 101-508, title X, Sec. 10001(c), 104 Stat. 1388-1386 (Nov. 5, 1990). In 1991, CBP implemented this Congressional language in 19 C.F.R. 24.23(d), "Fees for processing merchandise, Aggregation of ad valorem fee." 72 Fed. Reg. 15,036 (Apr. 15, 1991). Thus, Congress made its intent clear with regard to MPFs - importers can consolidate daily entries into one monthly entry and "each day's importations" is to be charged daily MPFs that are due "with each monthly consumption entry," plus interest.
In addition, CBP has previously ruled that each "entry" or "release" on a continuous stream pipeline occurs daily and, thus, daily MPFs are required. In Headquarters Ruling Letter ("HQ") W231489 (May 19, 2008), CBP addressed similar arguments made by a natural gas pipeline. Constellation Energy Commodities Group, Inc. ("Constellation") argued that MPFs should be assessed on a monthly, rather than a daily, basis for imports of natural gas via pipeline. In that case, CBP confirmed that MPFs should be calculated on the basis of each release, i.e., on a daily basis, and not on each consolidated monthly entry. Id. Specifically, CBP determined that Congress did not intend to "allow for aggregated monthly entries, but not require the daily aggregate MPF that is specified within that same provision." Id. See also HQ W231582 (dated Dec. 19, 2011) (holding that MPFs should be assessed on daily imports of natural gas imports from Canada, citing HQ W231489 (May 19, 2008)).
CHS argues that its entries are different from that of a natural gas pipeline such as the one at issue in the Constellation case. As discussed above, CHS asserts that its continuous stream pipeline processing only has one entry (or release) per month because it does not ship its product in batches or measure its daily volume flow according to API standards. CHS also argues that, different from Constellation, it does not report daily volumes based on transportation reports or sell oil based on daily prices. CHS argues that no such daily volumes are currently measured or reported and that even if they were to do so, the nature of the "truing up" process that occurs at the end of every month would require CHS to arbitrarily fabricate any such daily reporting. Thus, CHS argues that the monthly pipeline statements reflect a single discharge ("release")-similar to the discharge from a vessel that spans more than one day-and MPF should only be applied to that singular monthly "release."
Constellation made similar arguments including that, because its natural gas transaction documentation was generated on a monthly basis, the "release" occurred once a month and should have been treated as one monthly entry for purposes of assessing the MPF. HQ W231489 (May 19, 2008). CBP did not agree for the statutory and regulatory reasons addressed above. Thus, while the pipeline operator's current practice is to not report daily volumes, CBP's statute and regulations require the filing of entry upon importation, which occurs the moment the merchandise crosses into the Customs territory of the United States. See 19 U.S.C. 1484; T.D. 79-221 (July 17, 1979), 19 C.F.R. 141.68, 142.2.
The requirement that entry must be filed upon importation and before such merchandise can be released into the United States, dates to 1978, when Congress made major changes to the Customs laws, including 19 U.S.C. 1484. Section 102 of P.L. 95-410 amended 19 U.S.C 1484(a), by providing that,
(A) entry shall be made therefore by filing with the appropriate customs officer such other documentation necessary to enable such officer to determine whether the merchandise may be released from customs custody; and
(B) shall file (at the time required under paragraph (2)(B) of this subsection) with the appropriate customs officer such other documentation as is necessary to enable such officer to assess properly the duties on the merchandise, collect accurate statistics with respect to the merchandise, and determine whether any other applicable requirement of law (other than a requirement relating to the release from customs custody) is met.
P.L. 95-410; 92 Stat. 888 (enacted Oct. 3, 1978). Customs implemented these changes in 1979 in a Final Rule (T.D. 79-221, dated July 17, 1979). As Customs explained in T.D. 79-221, prior to the enactment of P.L. 95-410, "most merchandise was released under the immediate delivery procedure before entry was made. The act eliminated the general requirement and provided that the filing of documents necessary to obtain the release of merchandise under 19 U.S.C. 1484(a) is the 'entry.'" Thus, CBP's two-part entry process was created.
Furthermore, the concept and timing of "importation," and thus the requirements for "entry" and "release," cannot be circumscribed by the nature of corporate processing and documentation. Rather, as discussed above, merchandise is imported upon entering the U.S. Customs territory, merchandise must be entered upon importation, and MPFs are owed upon entry or release of the merchandise. In the case of a continuous stream pipeline, that importation event occurs daily and, thus, MPFs are owed daily.
CHS's analogy to a continuous discharge from a vessel that can span more than a day is unavailing because, pursuant to CBP's regulations, the date of importation for a vessel "means the date on which the vessel arrives within the limits of the port in the United States with intent then and there to unlade such merchandise." 19 C.F.R. 101.1. Thus, by regulation, the importation event takes place when the vessel arrives within the port limits. Id. The amount of time it takes to unlade is irrelevant for purposes of determining entry requirements and ensuing MPF liability. Thus, the unlading of a vessel is not akin to continuously importing oil into the Customs territory of the United States.
CHS is correct that the monthly consolidated entry program is optional, and participation is not required. Participation in the monthly consolidated entry program, however, is not required for CBP to assess MPF's on a daily basis for the importation of crude oil in a continuous stream pipeline. Rather, as discussed above, the program's implementing statutory and regulatory language and express reference to daily MPFs is just further evidence of Congress' intent that CBP assess MPF's on a daily basis. Further, the program and subsequent guidance issued by CBP regarding the program, demonstrate CBP's established practice and procedures for the proper entry of oil shipments through a pipeline and provide additional support CBP's assessment of MPF on a daily basis.
Subsequent to the 1970 Circular and 1970 Guidance, CBP issued two guidance documents and a Question-and-Answer document specifically related to pipelines and the monthly consolidated entry process. On December 22, 1992, CBP issued guidance on "Requirements for Pipeline Operators," which is available at https://www.cbp.gov/trade/entry-summary/pipeline-monthly-entry-processing/pipeline-directors (hereinafter "1992 Guidance"). On April 10, 2006, CBP issued guidance on "Monthly Entry for Pipeline," which is available at https://www.cbp.gov/trade/entry-summary/pipeline-monthly-entry-processing/entry-pipeline (hereinafter "2006 Guidance"). Lastly, CBP has published "Pipeline Monthly Entry Questions and Answers," which is available at https://www.cbp.gov/trade/entry-summary/pipeline-monthly-entry-processing/pipeline-line-qa (hereinafter "Pipeline Q&A").
Pursuant to the 1970 Circular, the "monthly entry procedure is an arrangement whereby all shipments during a calendar month between one shipper and one importer through one port are treated for examination, entry and liquidation purposes as a single transaction or importation." The minimum number of shipments necessary to qualify for monthly entry are at least 2 shipments a week or 7 shipments a calendar month. See 1970 Guidelines. Entry must be made for every importation through a pipeline. See 1992 Guidance. Daily manifests are required for pipeline entries. See 2006 Guidance. Although pipeline operators are not required to file those manifests with CBP, those records are to be made available to CBP upon request. See 1992 Guidance. In the event that an importer cannot comply with the monthly consolidated entry requirements, the importer must follow normal entry procedures and file daily entries for all shipments. See Pipeline Q&A. Thus, while we agree with CHS that the monthly consolidated entry program is optional, if CHS chooses to not participate or is unable to participate because of the practices of Front Range, CHS is required to file daily entries and daily MPFs are owed.
To the extent that entries need to be altered after the fact, CHS has the option of filing post summary corrections prior to liquidation or to correct entries through a protest or prior disclosure after liquidation, in order to ensure accurate reporting to CBP. No matter how CHS chooses to conduct its business, however, MPFs are owed upon entry of the merchandise, which is required upon importation, which occurs when the merchandise enters the U.S. Customs territory. In the case of a continuous stream pipeline, such importation occurs daily as the crude oil crosses into the Customs territory of the United States. Thus, regardless of whether CHS chooses to take advantage of the monthly consolidated entry program or file daily entries, MPFs are owed daily as dictated by CBP's statutory and regulatory provisions, a prior CBP ruling, and by Customs practice as evidenced by published guidelines and guidance.
HOLDING:
CHS's protest should be DENIED IN FULL.
Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System ("CROSS") at https://rulings.cbp.gov/, which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution.
Sincerely,
Yuliya A. Gulis, Director
Commercial & Trade Facilitation Division