OT:RR:CTF:FTM H325687 JER
Mr. Matthew Thomas
Blank Rome, LLP
1825 Eye St., NW
Washington, DC 20006
RE: Classification of Agricultural Oil Feedstock
Dear Mr. Thomas:
This is in response to your request, dated June 8, 2022, on behalf of your client, [******] (“Importer”), in which you request a binding ruling regarding the classification of processed agricultural oil feedstock under the Harmonized Tariff Schedule of the United States (“HTSUS”). In reaching the determination below, we have considered information presented in your initial correspondence (hereinafter “ruling request”) as well as your supplemental submissions dated September 12, 2022, and November 14, 2022. Within your request for a binding ruling, you asked that certain information submitted in connection with this request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), your request for confidentiality is approved. The information contained within the brackets of your request will not be released to the public.
FACTS:
The merchandise to be imported is described as comingled crude soybean oil, tallow, and distiller’s corn oil (“DCO”). The tallow and DCO are obtained from waste streams from the food processing industry while the soybean oil is obtained in its crude form. The three agricultural oils are obtained in Country A (the United States) and then shipped to Country B [******] for processing. According to the submission, while in Country B [******], each agricultural oil will undergo a separate four-step treatment process to remove contaminants such as metals (calcium, magnesium, and others), phosphorus, free fatty acid, and chlorides. The four-step treatment process consists of: (1) acid pretreatment, used to dissociate phospholipid metal salts and degumming, i.e., the process of hydrating phosphatides present in the oil by adding water, followed by centrifugation; (2) water washing, which further reduces metals and soaps; (3) silica purification with silica gel, which involves the filtering of silica through bleaching filters; and (4) bleaching, using acid activated earth. During the acid treatment and degumming process, the oils undergo heating and cooling, and are channeled through an acid mixer, an acid reactor, a hydration reactor, and a centrifugal separator.
After treatment, the oils are mixed together into one feedstock product consisting of [******] soy oil, [******] tallow, and [******] DCO. The feedstock is made up of primarily triglycerides (70-90%) and trace amounts of fatty acids (less than 1%), phosphorus (less than 1%), iron (less than 1%), nitrogen (less than 10%), sulphur (less than 5%), potassium (less than 1%), magnesium (less than 2%), calcium (less than 3%), and trace metal elements and small quantities of mono-alkyl esters. After importation the treated agricultural oil will be processed in a petroleum refinery to make renewable diesel.
ISSUE:
What is the tariff classification of the processed agricultural oil feedstock under the HTSUS?
LAW AND ANALYSIS:
Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRI). GRI 1 provides that classification 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 HTSUS provisions under consideration are as follows:
1502: Fats of bovine animals, sheep or goats, other than those of heading 1503:
1502.10.00: Tallow. . . .
1507: Soybean oil and its fractions, whether or not refined, but not chemically modified:
1507.10.00 Crude oil, whether or not degummed. . . .
1515: Other fixed vegetable or microbial fats and oils (including jojoba oil) and their fractions, whether or not refined, but not chemically modified:
Corn (maize) oil and its fractions:
1515.21.00: Crude oil . . . .
1518: Animal, vegetable or microbial fats and oils and their fractions, boiled, oxidized, dehydrated, sulfurized, blown, polymerized by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516; inedible mixtures or preparations of animal, vegetable or microbial fats or oils or of fractions of different fats or oils of this chapter, not elsewhere specified or included:
1518.00.40: Other . . . .
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:
3826: Biodiesel and mixtures thereof, not containing or containing less than 70 percent by weight of petroleum oils or oils obtained from bituminous materials:
* * * * * *
Note 2 to Chapter 27, HTSUS, provides that:
References in heading 27.10 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.
Note 7 to Chapter 38, HTSUS, provides that:
For the purposes of heading 38.26, the term “biodiesel” means mono-alkyl esters of fatty acids of a kind used as a fuel, derived from animal or vegetable fats and oils, whether or not used.
* * * * * *
The Harmonized Commodity Description and Coding System Explanatory Notes
(“ENs”) constitute the official interpretation of the HTSUS. While not legally binding or
dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS
and are generally indicative of the proper interpretation of these headings at the
international level. See T.D. 89-80, 54 Fed. Reg. 35127 (August 23, 1989).
General EN(A) to Chapter 15 provides, in pertinent part, as follows:
This Chapter covers: (1) Animal, vegetable or microbial fats and oils, whether or not purified or refined or treated in certain ways (e.g., boiled, sulphurised or hydrogenated).
General EN(B) to Chapter 15 provides, in pertinent part, as follows:
Headings 15.07 to 15.15 of this Chapter cover the single (i.e., not mixed with fats or oils of another nature), fixed vegetable fats and oils mentioned in the headings, together with their fractions, whether or not refined, but not chemically modified.
Vegetable fats and oils occur widely in nature and are found in the cells of certain parts of plants (e.g., seeds and fruit), from which they are extracted by pressure or by means of solvents.
EN 15.07 provides, in pertinent part, as follows:
Subheading 1507.10
Fixed vegetable oils, fluids, obtained by pressure, shall be considered “crude” if they have undergone no processing other than decantation, centrifugation or filtration, provides that, in order to separate the oils from solid particles only mechanical force, such as gravity, pressure or centrifugal force, has been employed, excluding any adsorption filtering process, fractionation or any other physical chemical process. If obtained by extraction an oil shall continue to be considered as “crude”, provided it has undergone no change in colour, odour or taste when compared with the corresponding oil obtained by pressure.
EN 15.15 provides, in pertinent part, as follows:
This heading covers single, fixed vegetable or microbial fats and oils and their fractions (see the General Explanatory Note, Part (B)) other than those specified in headings 15.07 to 15.14. The following are of particular commercial importance:
…
Maize (corn) oil, obtained from the kernels of maize, most of the lipids (around 80%) being contained in the germ. The crude oil has many industrial uses, e.g., in making soap, lubricants, leather dressing, etc. The refined oil is edible and is used for cooking, in bakeries, for mixing with other oils, etc. Maize oil is a semi drying oil.
EN 15.18 provides, in pertinent part, for:
(A) Animal, vegetable or microbial fats and oils and their fractions, boiled, oxidized, dehydrated, sulpherised, blown, polymerized by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of 15.16.
This part covers animal, vegetable or microbial fats and oils and their fractions which have been subjected to processes which modify their chemical structure thereby improving their viscosity, drying power (i.e., the property of absorbing oxygen when exposed to the air and forming elastic films) or modifying their other properties, provided they retain their original fundamental structure and are not more specifically covered elsewhere.
(B) Inedible mixtures or preparations of animal. vegetable or microbial fats and oils and their fractions of different fats or oils of this Chapter, not elsewhere specific or included.
The heading also includes hydrogenated, inter-esterified, or re-esterified or elaidinised fats and oils or their fractions, where modification involves more than one fat or oil.
* * * * * *
In your request, you explain that three commodities: (1) crude soybean oil; (2) tallow; and (3) DCO will be exported from Country A (the United States) to Country B [******]. These commodities will then be processed through a treatment facility to remove contaminants. The resulting product is then imported into Country A (the United States) for use as a refinery feedstock in the production of biofuel. You also clarify that the untreated exported product is not suitable for use as a refinery feedstock due to the high levels of metals and acids. Yet, the imported processed product is reliably used as a refinery feedstock used to produce biodiesel.
In determining the classification of the subject agricultural oil feedstock we first look to whether it qualifies as a petroleum oil or oil obtained from bituminous minerals under heading 2710, HTSUS. Note 2 to Chapter 27, HTSUS, provides that references in heading 2710 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. In Headquarters Ruling Letter (“HQ”) H258443, dated October 10, 2016, for example, CBP classified a renewable biofuel (NEXBTL R100) derived from Hydrotreated Vegetable Oil (“HVO”) under heading 2710, HTSUS. Similar to the subject agricultural oil feedstock, the HVO in HQ H258443 was used to produce imported biodiesel. In HQ H258443, we note the U.S. Department of Energy’s (“DOE”) explanation regarding the production of renewable biodiesel, which can be produced from soybean, palm, canola, rapeseed oil, animal tallow, vegetable oil waste, or brown trap grease, and other fats and vegetable oils. We further reflect on DOE’s explanation that producing renewable diesel involves hydrogenating triglycerides to remove metals and compounds with oxygen and nitrogen using refinery infrastructure. The American Society for Testing and Materials (“ASTM”) Standard establishes the standards for diesel fuel according to various criteria. This criterion includes boiling range, cetane number, lubricity, cloud point, flash point, viscosity, aniline point, sulfur content, water content, ash content and carbon residue. In HQ H258443, we found that the NEXBTL R100 derived from vegetable and animal oils feedstock qualified as a “similar oil” because it had characteristics in common with or is alike in substance or essentials to petroleum oils and oils of bituminous minerals. Specifically, the NEXBTL R100: (1) could be substituted directly for petroleum diesel without modification to a vehicle’s engine; (2) could be produced using existing refinery infrastructure; and (3) could be transported and distributed in existing infrastructure such as pipelines and fuel dispensaries. Moreover, in HQ H258443, we stated that the NEXBTL R100 would meet the ASTM D975 standard once it is withdrawn from the pipeline and a lubricity additive is mixed in at the retail juncture.
Unlike the biofuel in HQ H258443, the subject agricultural oil feedstock does not qualify as a “similar oil” because it does not have the characteristics in common with petroleum oil or oils of bituminous minerals as outlined in HQ H258443. Moreover, it is not a petroleum oil as it does not contain any petroleum-based hydrocarbons, is not fully deoxygenated, and does not consist of any cetane content, methanol, ash content, or any aliphatic hydrocarbon chains. As such, it does not consist of any of the fundamental chemical compounds necessary to meet the ASTM D975 specifications. Accordingly, because the feedstock cannot be considered a “similar oil” and is not a petroleum oil, the subject agricultural oil feedstock does not meet the terms of heading 2710, HTSUS.
Similarly, the subject agricultural oil feedstock is not a biodiesel fuel and therefore is not classified in heading 3826, HTSUS. Explanatory Note 7 to Chapter 38, HTSUS states that the term “biodiesel” means mono-alkyl esters of fatty acids of a kind used as a fuel, derived from animal, vegetable, or microbial fats and oils. EN 38.26 states that 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. Transesterification is a process where nonedible agricultural oil such as soybean oil is chemically neutralized, combined with methanol or ethanol, and catalyzed in a chemical transformation resulting in methyl esters (biodiesel). In order to be classified as a biodiesel, the product must have undergone transesterification. Based on the Importer’s description of the refining process of the three agricultural oils, each oil undergoes: (1) an acid pretreatment and acid degumming to remove metal content; (2) water washing; (3) silica purification; and (4) bleaching. These processes, while extensive, do not involve transesterification as there is no chemical reaction between the subject fatty oils and an alcohol (as there is no methanol or ethanol present in the process). As a result, no mono-alkyl esters or methyl-esters are formed to generate biodiesel. In sum, because these oils have not undergone transesterification, they cannot be classified as a biodiesel under heading 3826, HTSUS.
Instead, the subject agricultural oil feedstock remains an oil for purposes of classification as the mixture consists primarily of triglycerides, which have not been converted to into a mono-alkyl ester. These triglycerides can be used as a feedstock to produce mono-alkyl esters of fatty acids (biodiesel) through transesterification. However, despite its intended use as refinery feedstock, the subject oil-based feedstock is not yet a biofuel but rather a pre-treated agricultural oil blend to be used as a precursor for biofuel. Triglycerides, fats, and other vegetable oils are commonly classified in Chapter 15, HTSUS. The General ENs to Chapter 15 state, in relevant part, that “animal, vegetable or microbial fats and oils and their fractions are classified in this Chapter whether used as foodstuffs or for technical or industrial purposes.” Similarly, General EN A to Chapter 15 states that, “This Chapter covers: (1) Animal, vegetable or microbial fats and oils, whether crude, purified or refined or treated in certain ways…” Additionally, General EN B to Chapter 15 explains that “[t]hese headings cover crude fats and oils and their fractions, as well as those which have been refined or purified.” The agricultural oil feedstock at issue is subjected to a four-step refining process to remove containments such as chlorides, insoluble impurities, polyethylene and phospholipids by cleaving these compounds from the fats and oils to maximize the yield of triglycerides. Based on this four-step process we find that this agricultural oil feedstock meets the descriptions set forth in the General ENs to Ch. 15 as the vegetable oils and crude fats, are purified and refined for an industrial purpose (i.e., to produce biodiesel).
CBP has encountered similar agricultural oil feedstock products and classified these commodities under Chapter 15, HTSUS. For instance, in New York Ruling Letter (“NY”) N026489, dated September 9, 2008, CBP classified a Jathropha oil to be used as feedstock for biodiesel B100 under heading 1515, HTSUS. Likewise, in HQ 958779, dated June 26, 1996, CBP classified a soybean oil product which was subjected to a refining process resulting in distilled and deodorized soybean oil in heading the 1519, HTSUS (presently, 1507, HTSUS). The distilled and deodorized soybean oil in HQ 958779 was described as a mixture which included, monocarboxylic fatty acids (free fatty acids), carotenes, ketones, aldehydes, and tocopherols, and natural antioxidants. Similarly, in HQ H076733, dated November 18, 2009, CBP classified a blended corn oil in Chapter 15 (1515.21, HTSUS). The blended corn oil in HQ H076733 was a mixture of 51% crude corn oil and 49% refined corn oil.
The subject oil-based feedstock undergoes a refining process that results in an oil-based product that is similar to the oil products in NY N026489, HQ 958779, and HQ H076733. The refining process, which involves centrifugal separator, filtration, density-based separation, crystallization, chemical and enzymatic reaction, distillation and absorption, removes contaminants such as chlorides, insoluble impurities, polyethylene, phospholipids and other phosphorus compounds, animal proteins, metals, moisture, free fatty acids, nitrogen, and sulfur compounds. The subject fats and oils are primarily composed of triglycerides but have other chemical species and contaminants. The four-step refining process modifies the oil by removing the contaminants yet allows the oil to retain its fundamental nature as triglycerides. As a result of the refining process, the quality and purity of the oil is maximized, yielding a triglyceride content of 70 to 90%. Each individual oil undergoes the refining process separately and thereafter the oils are blended together to form one oil-based feedstock. Once the treated soy oil is mixed with the treated tallow and DCO (both of which stem from waste streams from the industrial food processing industry), the feedstock no longer contains edible oils. Thus, these oils are now only suitable for industrial use. Inasmuch as the subject oil feedstock consists of a mixture of three different oils of Chapter 15, soy oil (1507), tallow (1502), and DCO (1515) and has been treated such that it is only suitable for industrial use, then it falls under the category of an inedible oil mixture of Chapter 15. EN 15.18(B) explains that this heading covers inedible mixtures of animal, vegetable or microbial fats, and oils where the treatment or modification involves more than one fat or oil, which is the case here. Based on the foregoing, we find that the subject agricultural oil-based feedstock is described by the terms of heading 1518, HTSUS.
HOLDING:
Based on the facts submitted, by application of GRI 1, the agricultural oil feedstock is classified in heading 1518, HTSUS. It is specifically classified in subheading 1518.00.40, HTSUS, which provides for, “Animal, vegetable or microbial fats and oils and their fractions, boiled, oxidized, dehydrated, sulfurized, blown, polymerized by heat in vacuum or inert gas or otherwise chemically modified, excluding those of heading 1516; inedible mixtures or preparations of animal, vegetable or microbial fats and oils and their fractions of different fats or oils of this chapter, not elsewhere specified or included: Other.” The column one, general rate of duty is 8% ad valorem.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided online at https://hts.usitc.gov/current.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Sarah Kafka, Chief Food, Textiles, and Marking Branch