HQ H319762 September 30, 2021
OT:RR:CTF:VS H319762 RSD
Center Director Petroleum Natural Gas and Mineral Center
Center of Excellence and Expertise U.S. Customs and Border Protection
2350 North Sam Houston Parkway East
Houston, Texas 77032
RE: Internal Advice Concerning the USMCA Eligibility of Natural Gas Imported into the United States from Canada through a Pipeline.
Dear Director McGurk:
This is in response to your memorandum, dated July 22, 2021, forwarding an internal advice request of July 19, 2021, initiated by counsel, on behalf of Emera Energy Services, Inc. (Emera) concerning the eligibility of natural gas that it imported from Canada via pipeline for preferential tariff treatment under the United States-Mexico-Canada Agreement (“USMCA”).
FACTS:
In May of 2021, Emera imported natural gas from Canada at the Massena, New York port of entry via a pipeline. The entry was filed on June 10, 2021. Emera claimed the shipment of natural gas was eligible for the tariff preference under the USMCA. Counsel also indicates that from September 2020 through June 2021, Emera made several other entries of imported natural gas from Canada through pipelines at various ports in Vermont and New York State.
According to the information provided, Emera obtains the natural gas from two sources: third party natural gas suppliers or from the Natural Gas Exchange (NGX). The NGX acts as an anonymous central marketplace for many gas transactions in Canada. When companies purchase gas through the NGX, they do not know the producer of the natural gas, and therefore they are unable to provide a specific source where that natural gas was extracted from the ground or even the producer information. Rather, counsel explains that Emera relies upon "its executives and personnel who have knowledge of the transactions, the movement of gas along the pipelines and the origin of the gas, in addition to the representation and warranty in the NGX Contracting Party Agreement.” In the cases where Emera obtained natural gas from third party suppliers, the actual producers and the source of the natural gas have also not been disclosed to CBP.
In the past, for entries made under the North American Free Trade Agreement, there were concerns that natural gas could lose its originating status due to the possible introduction of nonoriginating Liquified Natural Gas (LNG) that arrived by vessel and was imported into Canada. In a telephone conversation on July 21, 2021, Emera stated that it did not believe re-gasified LNG was present in the entries of natural gas imported from Canada that it delivered through the pipelines into the United States. However, even if this contention cannot be verified, Emera maintains that the imported natural gas in each of its natural gas pipeline entries consisted of either wholly originating natural gas or re-gasified LNG that still would qualify for the tariff preference under the USMCA.
ISSUE:
Whether the natural gas imported from Canada into the United States through a pipeline qualifies for preferential tariff treatment under the USMCA.
LAW AND ANALYSIS:
The USMCA was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11,14 (19 U.S.C. § 4511(a)). General Note (“GN”) 11, Harmonized Tariff Schedule of the United States (HTSUS), implements the USMCA. GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA.
GN 11(b) states, in relevant part:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country … is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a “good originating in the territory of a USMCA country” only if--
(i) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
(ii) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
(iii) the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); ….
GN 11(o) sets forth the applicable tariff shift rule of origin under the USMCA for merchandise classified in subheading 2711.21.00 HTSUS. It provides, in relevant part, for:
A change to subheading 2711.21 from any other subheading.
In this instance, although Emera claims that all the natural gas that it imported into the United States through pipelines was wholly obtained from sources in the territory of a USMCA country, no evidence has been presented to authenticate the source of the imported natural gas. Since we cannot verify that the imported natural gas is wholly obtained in Canada, we examine whether any possible nonoriginating materials contained in the imported natural gas became originating by virtue of having undergone the applicable tariff shift in Canada, as well as meeting all the other applicable requirements provided for in GNs 11(b)(iii) and 11(o).
It is undisputed that the imported natural gas from Canada is classified under subheading 2711.21.00, HTSUS, if it is imported in a gaseous state. It is our understanding that there are only two potential sources for the natural gas in any pipeline located in Canada or in the United States. First, the natural gas imported into the United States could have been obtained through the extraction of the gas from the ground which was in the territory of one of the parties to the USMCA. Second, a portion of the natural gas could have been sourced from natural gas outside the USMCA territory, in which case to be safely transported, the gas would have to be in a liquid state, known as Liquified Natural Gas. Liquified Natural Gas must then be re-gasified before it can be put into a pipeline for importation into the United States. In other words, a portion of the natural gas imported into the United States could have been produced through processing in which nonoriginating LNG imported into Canada was re-gasified in Canada. We have been advised by your office that the LNG is classifiable under subheading 2711.11.00, HTSUS. Accordingly, the natural gas imported into the United States would be classified in a different subheading from any nonoriginating LNG, and the tariff shift rule, which provides for a change to subheading 2711.21 from any other subheading, would be met. Consequently, if the natural gas imported into the United States from Canada contained any nonoriginating LNG that was first re-gasified before being put into the pipeline in Canada, it would satisfy the applicable tariff shift rule.
Therefore, provided all the requirements of the USMCA have been met, we find that the natural gas imported from Canada into the United States through a pipeline qualifies as an originating good under criteria GN 11(b)(iii) of the USMCA and would be eligible for preferential tariff treatment under the USMCA, even if a portion of it was not wholly obtained in Canada or that fact was not established.
Emera should be aware that failure to make entry and to file a USMCA claim within one year after the natural gas was imported into the United States would invalidate a claim for the USMCA, which would result in the requirement to pay the merchandising processing fee. The pipeline operator who introduced the shipment into the United States and/or the importer of record who failed to timely file entry may be subject to liquidated damages.
It should be noted that CBP always reserves the right to conduct verifications and to request documentation from the importer to ensure that the import transactions under consideration fully comply with the requirements of the USMCA. In that event, Emera indicates that there is a concern about providing any requested documents because they could contain proprietary information. Emera is advised that such documents, including documentation from its suppliers, can be submitted directly to CBP without having to be disclosed to any other party. CBP will keep the requested documentation strictly confidential and will not make it publicly available.
HOLDING:
Based on the information provided, the natural gas imported into the United States from Canada would qualify for preferential tariff treatment under the USMCA when it is imported into the United States from Canada via a pipeline.
This decision should be mailed by your office to the importer, through its counsel, no later than 60 days from the date of this letter. On that date, Regulations and Rulings, Office of Trade, will make the decision available to CBP personnel and the public at www.cbp.gov, by means of the Freedom of Information Act and other methods of public distribution.
Sincerely,
Monika R. Brenner, Chief Valuation and Special Programs Branch