OT:RR:CTF:VS: H328382 RSD
Center Director
U.S. Customs and Border Protection
Petroleum, Natural Gas and Minerals
2350 N. Sam Houston Pkwy, Ste. 1000
Houston, TX 77032
Attn: Tiffany D. Hemmes, Import Specialist
RE: Application for Further Review of Protest No. 3302-18-100018; NAFTA
Eligibility of Natural Gas Imported from Canada; NAFTA Certificates of Origin; Demonstration of Producers and Production Records for Imported Natural Gas
Dear Center Director:
This is in response to the Application for Further Review of Protest Number 3302-18-100018 timely filed on December 20, 2018, by Livingston International (Livingston) on behalf of Sierra Pacific Power Co. concerning whether importations of natural gas from Canada were eligible for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”). Our decision follows.
FACTS:
The Protestant, Sierra Pacific Power Co., imported a series of shipments of natural gas into the United States from Canada through pipelines. This protest concerns the liquidation of five entries of natural gas shipments imported from Canada and the denial of the claims for NAFTA benefits on these entries. The five specific protested entries concern the importations of natural gas that crossed at Kingsgate, British Columbia and Eastport, Idaho via the NOVA Gas Transmission Limited Pipeline. The five entries of natural gas were originally imported into the United States on the following dates: September 8, 2017, October 10, 2017, November 9, 2017, December 8, 2017, and January 10, 2018. All the imported merchandise was entered through a
broker and were classified in subheading 2711.21.00, Harmonized Tariff Schedule United States (“HTSUS”), as “Natural Gas,” with a free rate of duty, as NAFTA-eligible.
The record shows that the five entries of natural gas involved in this protest were imported via the NOVA Gas Transmission Limited Pipeline from four suppliers: Enstor, IGI (BP), Powerex, and EDF. CBP received two certificates of origin from the suppliers, Enstor and IGI (BP ). Certificates of origin were not received for the suppliers Powerex and EDF. The supplier certificates of origin received by CBP do not provide any information regarding the producer of the natural gas.
On March 1, 2018, U.S. Customs and Border Protection (“CBP”) in the port of entry, at Pembina, issued a Customs Form (CF) 28, Request for Information, requesting documents necessary to support the importer’s claim for NAFTA for the importation of November 9, 2017. Specifically, CBP requested: (1) a copy of the entry summary and commercial invoices for the entry, (2) descriptive literature substantiating the use of HTSUS classification 2711.21.00, and (3) the CF 434 NAFTA Certificate of Origin used to substantiate the claim. A response to this request was tendered by the importer on April 2, 2018, which included all the requested documents. On April 2, 2018, CBP initiated a NAFTA verification via a CF 28, Request for Information. In this instance, the importer did not provide a response. Therefore, on May 3, 2018, CBP issued a CF 29 Notice of Action (Proposed), again requesting that the importer submit information and documentation supporting their claim for NAFTA. On June 4, 2018, on behalf of the importer, its representative, Livingston, provided invoices between the four suppliers and the importer, a NOVA Gas Transmission Ltd pipeline report, and a certificate of origin completed by the supplier Enstor. The certificate states “No-1” in the producer field and Country of Origin USA. The response includes the statement that neither the importer nor the supplier was the producer of the merchandise in question. Therefore, the importer did not have access to the following requested information: who was the producer of the natural gas; information and evidence where the natural gas was brought from underground up to the wellhead; a manufacturing process flow chart and narrative, lab analysis and gauger reports; information where the field processing was accomplished; where the complete processing took place; and bills of materials for the subject merchandise. On June 26, 2018, CBP issued a CF 29 Notice of Action (Taken) stating that CBP was denying NAFTA eligibility of the merchandise on the one entry and rate advancing with a charge of the Merchandise Processing Fee (MPF). Specifically, CBP stated that the response to the CF 29 Notice of Action (Proposed) from May 3, 2018, did not provide a sufficient response to verify NAFTA eligibility, because the importer did not provide information related to the producer’s name, wellhead locations (extraction location), manufacturing process flow chart.
In addition to the CF 29 Notice of Action (Taken) against the entry denying NAFTA eligibility, on June 26, 2018, CBP issued a CF 29 Notice of Action (Proposed) against the other four entries. This CF 29 Notice of Action (Proposed) stated that, based upon the findings from the previous NAFTA verification (including the fact that the producer names, wellhead locations, and manufacturing flow chart associated with the goods were not provided), CBP concluded that NAFTA did not apply to the merchandise on these entries as well.
On July 26, 2018, Livingston again provided a NAFTA Certificates of Origin from Enstor and another one from IGI (completed by BP) stating the origin as Canada, which Livingston claimed covered most of the imported natural gas. Acknowledging that not all supplier certificates had been obtained, Livingston also provided reconstructed entries, in excel format, calculating the actual MPF owed.
On August 10, 2018, CBP issued a CF 29 Notice of Action (Taken) against the four entries. Additionally, CBP provided an email explanation of the CF 29 Notice of Action (Taken), which stated that because the importer did not provide producer names, wellhead locations, and manufacturing process flow charts, NAFTA eligibility cannot be verified.
A protest was timely filed on December 20, 2018. In connection with the protest, the importer once again provided the same NAFTA Certificates of Origin for two of the four suppliers. In the protest, the protestant states that the importer incorrectly completed the NAFTA Certificates of Origin by mistakenly completing the producer field as “No-1”, when it should have indicated it as “No-3.”
ISSUE:
Whether the entries of imported natural gas from Canada were eligible for preferential tariff treatment under NAFTA.
LAW AND ANALYSIS: Under NAFTA, goods produced in Canada, Mexico, or the United States wre eligible for preferential tariff treatment upon importation into one of the three countries if they satisfied certain rules. General Note (GN) 12, HTSUS (2018). The corresponding regulations are set out in Part 181 of the CBP Regulations (19 C.F.R. Part 181).
With respect to the NAFTA Certificate of Origin, Section 181.21(a) of the CBP Regulations (19 C.F.R. § 181.21(a)) states, in pertinent part, that:
In connection with a claim for preferential tariff treatment, or for the exemption from the merchandise processing fee, for a good under the NAFTA, the U.S. importer must make a formal declaration that the good qualifies for such treatment . . . the declaration must be based on a complete and properly executed original Certificate of Origin, or copy thereof, which is in the possession of the importer and which covers the good being imported.
In the instant case, whether the importer possessed a NAFTA Certificate Origin at the time the claim for NAFTA was made is not at issue. However, pursuant to GN 12, HTSUS, for an article to be eligible for NAFTA preference, two criteria must be satisfied. First, the article in question must be “originating” under the terms of GN 12, and second,
the article must qualify to be marked as a good of a NAFTA country under the NAFTA Marking Rules contained in 19 C.F.R. § 102.20. Regarding the first criteria, GN 12(b) provides, in pertinent part, as follows:
For purposes of this note, goods imported into the customs territory of the U.S. are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as goods originating in the territory of a NAFTA party only if they are goods wholly obtained or produced in the territory of Canada, Mexico and/or the U.S.; or they have been transformed in the territory of Canada, Mexico, and/or the U.S. so that each of the non-originating material used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s), and (t) of this note or the rules set forth therein, or the goods otherwise satisfy the applicable requirements of subdivisions (r), (s), and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of the note; or they are goods produced entirely in the territory of Canada, Mexico and/or the U.S. exclusively from originating materials.
General Note 12(b)(i) provides as follows:
Goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if— (i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or….
Section 181.71 of the CBP Regulations (19 C.F.R. § 181.71), provides as follows:
…Customs shall deny preferential tariff treatment on an imported good, or shall deny a post-importation claim for a refund filed under subpart D of this part, only after initiation of an origin verification under section 181.72(a) of this part which results in a determination that the imported good does not qualify as an originating good or shall not be accorded such treatment for any other reason as specifically provided for elsewhere in this part.
Section 181.72(a), CBP regulations (19 C.F.R. § 181.72(a)), provides as follows:
…Customs may initiate a verification to determine whether a good imported into the United States qualifies as an originating good for purposes of preferential tariff treatment under the NAFTA as stated on the Certificate of Origin pertaining to the good. Such a verification (1) May also involve a verification of the origin of a material that is used in the production of a good that is the subject of a verification under this section;…
Section 181.75(a), CBP Regulations (19 C.F.R. § 181.75(a)), requires that CBP provide the exporter or producer with a written determination of whether the good qualifies as originating which sets forth the findings of fact made in connection with the verification and upon which the determination is based and the legal basis for the determination.
In Headquarters Ruling Letter (“HQ”) H013199, dated March 20, 2008, CBP denied NAFTA eligibility for certain imported articles of clothing based on the totality of the evidence submitted because the exporter failed to supply cutting and sewing records or other production records requested by CBP in the verification it conducted, along with an incorrect NAFTA Certificate of Origin. The protestant submitted affidavits, contracts, invoices, purchase orders, bills of lading employee payment records and an incorrect certificate of origin (which did not contain the correct producer).
In HQ H121475, dated January 5, 2015, CBP considered whether shipments of crude petroleum, imported into the United States from Canada through a pipeline, were eligible for the NAFTA tariff preference. We stated that to establish the eligibility for NAFTA tariff preference of the crude oil shipments, the importer must be able to provide specific evidence which demonstrates the source of all the materials contained in that shipment, including in that case, the specific source of the condensate used in the shipment of petroleum. Since the Protestant was unable to present any records or other information substantiating the source of the precise condensate used in the crude oil shipments under consideration, we concluded that it had not established that the condensate was of Canadian origin. Thus, because the importer was not able to establish that the shipments of crude oil consisted only of materials wholly obtained or produced entirely in the territory of Canada, or that any other GN 12, HTSUS, rules had been satisfied to convey originating treatment, we held that that the crude oil shipments, were not eligible for the NAFTA tariff preference.
In this case, the record shows that there are five entries of natural gas involved in this protest, which were imported via the NOVA Gas Transmission Limited Pipeline from four suppliers: Enstor, IGI (BP), Powerex, and EDF. CBP received two certificates of origin from the suppliers, Enstor and IGI (BP). Certificates of origin were not received for the suppliers Powerex and EDF. The supplier certificates of origin received by CBP do not provide any information regarding the producer of the natural gas. The invoices, contracts, pipeline reports, purchase agreements/statements that were received by CBP only pertained to the transaction between the suppliers and the purchaser, Sierra Pacific Power. Furthermore, CBP was unable to obtain the producer/exporter documents during the verification process.
Through its representative, Livingston, the Protestant claims that CBP was provided with sufficient evidence to show that some of the natural gas at issue was NAFTA eligible. As such, CBP should have accepted the valid CF 434 NAFTA Certificates of Origin from the suppliers/exporters that were provided by the importer instead of denying NAFTA eligibility for all the entries. Specifically, the protestant claims that the Certificates the Certificates of Origin provided from the two suppliers, Enstor and IGI, is sufficient supporting documentation to show that the natural gas was, in fact, purchased from these suppliers and delivered to the importer during the blanket dates on the Certificates of Origin. The protestant further contends that although some of the natural gas imported during the affected time is not eligible for NAFTA does not mean that all the natural gas was not eligible for NAFTA, merely because it was imported through the same pipeline, in accordance with HQ 224628, dated January 10, 1994, and HQ H012415, dated August 3, 2010.
We acknowledge that there is evidence of sales between the protestant and its suppliers. However, there is no evidence to corroborate that the natural gas shipments originated or were obtained from a source located in Canada. During the verification process, CBP requested additional records to establish that the source of the imported natural gas was Canada. The Request for Information specifically requested that the importer furnish records from the actual producer of the natural gas to show that it was produced in Canada. This information was not provided. Instead, the Protestant only furnished copies of NAFTA Certificates of Origin from two suppliers from which the Protestant purchased natural gas that it eventually imported into the United States. CBP did not receive any documentation indicating the names of the actual producers, certificates or other production records which would verify that the natural gas was taken from wells or fields in Canada. Without evidence that the natural gas shipments in question were wholly obtained or produced entirely in the territory of Canada, or that any of the other GN 12, HTSUS, rules that convey originating treatment have been satisfied, we find that the natural gas shipments, are not eligible for the NAFTA tariff preference. Since the protestant has failed to support its claim of eligibility for preferential tariff treatment under the NAFTA for the imported natural gas, this protest is denied.
HOLDING:
Based on the evidence presented, after conducting a NAFTA verification, we find that CBP has been unable to verify that the natural gas was originating. Since insufficient documentation was presented to substantiate the origin of the imported natural gas shipments, these shipments are ineligible for the NAFTA duty preference and the protest is denied in full.
You are instructed to notify the Protestant of this decision no later than sixty (60) days from the date of this decision. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to this notification. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the
decision available to CBP personnel and the public on the Customs Rulings Online Search System (CROSS) at https://rulings.cbp.gov/, or other methods of public distribution.
Sincerely,
For Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division