OT:RR:CTF:ER LIQ-15 HQ W231595 ECD
Mr. Robert Blanchard
Assistant Port Director, Trade
U.S. Customs and Border Protection
198 West Service Road
Champlain, New York 12919
RE: Application for Further Review of Protest No. 0712-06-100148: Requirement for Country of Origin Certificate for Natural Gas Importations from Canada Pursuant to the North American Free Trade Agreement
Dear Mr. Blanchard:
The following is our decision regarding the Application for Further Review (“AFR”) of Protest No. 0712-06-100148 (the “Protest”) filed by Constellation Energy Commodities Group Inc. (“Constellation Energy” or “protestant”), which we received from your office on October 18, 2006. We have completed our review of this protest and are returning to you the protest and appropriate documents, which were forwarded for review. We are also including directions for disposition of the protest, as discussed below.
FACTS:
On April 4, 2006, Constellation Energy submitted a post-importation refund claim, pursuant to the North American Free Trade Agreement (“NAFTA”), 19 U.S.C. § 1520(d), and 19 C.F.R. § 181.31, for a refund of Merchandise Processing Fees (“MPF”) paid on entries from Canada filed at the Service Port of Champlain (the “Port”). The entries covered natural gas imported via pipeline from April 1, 2005, through February 28, 2006. Constellation Energy did not provide any NAFTA Certificates of Origin, stating that it was unable to obtain them from its suppliers, but requested that CBP waive the requirement pursuant to 19 C.F.R. § 181.22(d)(1)(i). The Port denied the claim on May 17, 2006. Some of the entries were liquidated on August 11, 2006, and the rest were liquidated on August 18, 2006.
On August 15, 2006, Constellation Energy filed a protest, objecting to the rejection of its claim. It argued that that it was unable to obtain certification that its natural gas is of Canadian origin from its natural gas suppliers, because of the intangible nature of natural gas, its manner of transportation, and because it is traded on in a secondary market. Constellation Energy argues that certification should not be required because most natural gas in the pipelines originated either from Canada or the United States. Constellation Energy asserts that the natural gas is “unquestionably NAFTA-qualifying”; therefore, MPF should not be assessed on its imports of natural gas.
The following entries are listed in its Protest:
Entry No.
Import Date
(mo./yr.)
Aggregate Entry Date
(mo./day/yr.)
Liquidation Date
(mo./day/yr.)
551-xxxxx584
4/2005
10/3/2005
8/18/2006
551-xxxxx592
5/2005
10/3/2005
8/18/2006
551-xxxxx600
6/2005
10/3/2005
8/18/2006
551-xxxxx618
7/2005
10/3/2005
8/18/2006
551-xxxxx907
8/2005
10/3/2005
8/18/2006
551-xxxxx949
9/2005
10/25/2005
8/11/2006
551-xxxxx012
10/2005
11/30/2005
8/18/2006
551-xxxxx087
11/2005
12/20/2005
8/11/2006
551-xxxxx152
12/2005
1/23/2006
8/18/2006
551-xxxxx277
1/2006
2/22/2006
8/11/2006
551-xxxxx350
2/2006
3/21/2006
8/11/2006
These entries are the same entries listed in the April 6, 2006, post-importation NAFTA refund claim.
On September 19, 2006, the Port approved the application for further review as a “no precedent issue.”
According to Constellation Energy, there are three sectors in the natural gas industry: the upstream sector, which covers the discovery and initial stages of production of natural gas; the midstream sector, which covers the processing of natural gas; and the downstream sector, which covers the transportation and use of natural gas. Natural gas can be distributed either via pipeline as a gas, or in tanks as liquefied natural gas (“LNG”). Natural gas enters the pipeline either directly from natural gas producers who have obtained the gas from wells, or is injected into the pipeline from storage facilities, and from LNG regasification facilities, or “peaking facilities.” As explained in the Energy Information Administration, U.S. Department of Energy (“EIA”) June 2007 Report, “About Natural Gas Pipelines,” the natural gas industry uses underground natural gas storage and LNG peaking facilities to meet surges in demand for natural gas in “climate-sensitive markets such as the Midwest and Northeast” United States. EIA, “About Natural Gas Pipelines” at 32-33, 41, 55 available at http://www.eia.doe.gov/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/fullversion.pdf (last visited May 16, 2008, printout in file).
The North American natural gas pipeline is not unidirectional; it is an extensive network, extending from Mexico, through the United States, and throughout Canada, and is referred to as a pipeline grid, through which natural gas flows continuously, and includes the Champlain delivery point. According to the EIA, natural gas flows in both directions along various points along the United States and Canadian border, although it is an import delivery point in Champlain, New York. See EIA Report, “Locations of U. S. Natural Gas Import & Export Points, 2008,” available at http://www.eia.doe.gov/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/impex_list.html (accessed May 16, 2008, printout in file)(“Natural Gas Import/Export Locations List”).
Ownership of the natural gas at any given point in the pipeline is determined by contractual rights, which may be traded in a secondary market and imported into the United States. Pipeline operators monitor the flow of gas, and maintain records as to what parties have contractual rights over the natural gas flowing through the pipeline at a given time. Importers receive a report indicating the quantity of natural gas, which is based on the amount of natural gas it requested be delivered based on its contractual rights. Although the pipeline operator may not know from whom the importer purchased the contractual right to the natural gas, the importer knows from whom it purchased its right to the natural gas.
Although some importers may be from the upstream or midstream sectors, or importers that purchase natural gas directly from the natural gas producers, all of which may be able to obtain NAFTA Certificates of Origin, Constellation Energy purchases natural gas contractual rights that are traded on the secondary market. According to Constellation Energy, it purchases its natural gas rights from traders who do not produce natural gas and those traders cannot certify the origin of the natural gas they sell, because they have no records indicating the origin of the gas. Furthermore, the contractual rights are traded through many different parties, and NAFTA Certificates of Origin do not travel with the natural gas rights purchased in a secondary market.
Constellation Energy admits that some of the natural gas in the general pipeline pool of natural gas it purchases may have been imported from the United States, and may be from a non-NAFTA country. As already discussed, the natural gas pipeline grid allows natural gas to flow both into and out of Canada. According to a search on the United States International Trade Commission’s DataWeb, “HTS – 271121: Natural Gas, Gaseous” available at http://dataweb.usitc.gov , in 2005 the United States exported nearly $3 billion of natural gas to Canada, and in 2006 exported more than $2 billion of natural gas to Canada. The United States imported nearly $27 billion in natural gas from Canada in 2005, and in 2006, it imported more than $24 billion. Of that amount, some may be regasified LNG.
The natural gas Constellation Energy purchased in Canada may have originated from a non-NAFTA country in two ways: it may have been exported as LNG and regasified into natural gas in Canada, or LNG could have been imported into the United States, regasified and injected into the pipeline, exported into Canada, and reimported into the United States. According to a search on DataWeb, “HTS-271111: Natural Gas, Liquefied”, in 2005 the United States exported $27,041,331 of LNG to Canada, and in 2006, the United States exported only $2,006,891. It is unclear whether any non-NAFTA LNG was imported into Canada from the United States; however, according to another EIA report, the United States exported 60,938 million cubic feet of LNG in 2006, and 65,367 million cubic feet of LNG in 2005, and all of it was exported either to Japan or to Mexico. EIA, Office of Oil and Gas, “U.S. Natural Gas Imports and Exports: 2006” at Table SR8 (March 2008) available at http://www.eia.doe.gov/pub/oil_gas/natural_gas/feature_articles/2008/ngimpexp/ngimpexp.pdf (last visited May 19, 2008, in file)(“2005-2006 Natural Gas Export Table”). Therefore, based on the information in the file, it is not clear whether non-NAFTA LNG was exported into Canada, regasified, injected into the pipeline, and ended up being imported as gas into the United States.
Furthermore, although there are no LNG marine terminals in Canada, the amount of LNG imports may soon increase dramatically: with the demand for natural gas exceeding the supply, there are several proposed sites for LNG marine terminals in Canada. One proposal is Rabaska, a project to build an LNG marine and regasification terminal in Lévis, Québec, Canada, less than 200 miles from Champlain, New York. Rabaska has announced it has received all necessary government approvals to begin construction, it anticipates receiving LNG tankers in 2014, and that it intends to import LNG from Russia. See Press Release, “Gazprom US Based Subsidiary and Rabaska Reach Agreement; GMTUSA to Subscribe for 100% of Capacity in North American LNG Terminal,” (May 15, 2008), available at http://www.rabaska.net/docs/press-release_gazprom-rabaska_20080515.pdf (accessed May 16, 2008, in file).
The LNG the United States imported in 2005 and 2006 was primarily from non-NAFTA countries. Another search of United States imports of LNG on the DataWeb revealed that in 2005, the United States purchased more than $5 billion of LNG, from, in descending order, Trinidad & Tobago, Algeria, Egypt, Nigeria, Qatar, Oman, Venezuela, and Mexico. In 2006, the United States imported nearly $4.6 billion of LNG from, in descending order, Trinidad & Tobago, Egypt, Nigeria, Algeria, Iraq, Mexico, Venezuela, Norway, Libya, Oman, Saudi Arabia, Equitorial Guinea, and Tunisia.
The location of LNG marine terminals in the United States increases the likelihood of non-NAFTA natural gas entering the pipeline in Canada and being imported or re-imported into the United States at the Champlain delivery point. Of the five marine terminals in the United States that import LNG, two are located in the Northeastern United States. One terminal, Everett Marine Terminal, is operated by Distrigas of Massachusetts LLC, which owns and operates the LNG import and regasification facility in Everett, Massachusetts. It delivers regasified LNG into, among other pipelines, the Tennessee Gas Pipeline Company. The Tennessee Gas Pipeline connects to the TransCanada Pipeline Ltd pipeline at the Niagara Falls delivery point, and the Niagara Falls delivery point operates as both an import and export point, although it primarily imports natural gas. See Natural Gas Import/Export Locations List. The TransCanada Pipeline Ltd pipeline is the Canadian pipeline that connects to the North Country Pipeline at the Champlain delivery point. We note that no natural gas was exported from Niagara Falls in 2005 or 2006; however, the information in the file does not eliminate the possibility that regasified LNG entered the Canadian pipeline grid via another export point, such as St. Clair, Michigan or Sault Ste. Marie, Michigan, and was imported into the United States through Champlain. See 2005-2006 Natural Gas Export Table.
ISSUES:
Whether the Port properly denied a request that it reliquidate entries to refund MPF paid for imports of natural gas made via pipeline from Canada, when the importer failed to provide copies of applicable NAFTA Certificates of Origin or other certifications of origin, pursuant to 19 U.S.C. § 1520(d).
Whether the Port is required to grant a request that it waive the requirement for a NAFTA Certificate of Origin or other certification, pursuant to 19 C.F.R. § 181.22(d), when the importer alleges that the nature of its merchandise should obviate the need for certification, but the importer cannot provide verifiable certification that all of its natural gas imports originated from Canada.
LAW AND ANALYSIS:
As an initial matter, Constellation Energy’s Protest is timely, pursuant to 19 U.S.C. § 1514(c)(3)(B), because it was filed on August 15, 2006, which is within 180 days of the date CBP denied the request for refund of MPF, on May 17, 2006.
The Port properly granted the application for further review. Further review is appropriate when the Port considers a protest should be denied, but the protest involves issues that have not been the subject of a CBP Headquarters ruling or a court decision. See 19 C.F.R. § 174.26(b)(1)(iv). In this Protest, no prior rulings or court decisions have addressed the issue of whether the nature of merchandise could render unnecessary any kind of certification as to the merchandise’s origin. Therefore, pursuant to 19 C.F.R § 174.26(b)(1)(iv), we are addressing first, whether the Port properly denied a request to refund MPF paid for imports that were uncertified as originating from Canada, and second, whether the nature of the imports renders unnecessary any requirement for a NAFTA Certificate of Origin.
Part of the Request Was Properly Denied as Untimely
Any post-importation refund request that concerns importations made more than one year before the date of refund request must be denied as untimely. The statute allows for post-importation requests for refunds of duties and MPF, if the importer demonstrates that its imported merchandise qualifies according to the rules of origin delineated by a fair trade agreement and the importer files its request within one year after the date of importation. See 19 U.S.C. § 1520(d). The statute states:
(d) Goods qualifying under free trade agreement rules of origin
Notwithstanding the fact that a valid protest was not filed, the Customs Service may, in accordance with regulations prescribed by the Secretary, reliquidate an entry to refund any excess duties (including any merchandise processing fees) paid on a good qualifying under the rules of origin set out in section 3332 of this title, section 202 of the United States-Chile Free Trade Agreement Implementation Act, or section 4033 of this title for which no claim for preferential tariff treatment was made at the time of importation if the importer, within 1 year after the date of importation, files, in accordance with those
regulations, a claim that includes—
(1) a written declaration that the good qualified under the applicable rules at the time of importation;
(2) copies of all applicable NAFTA Certificates of Origin (as defined in section 1508(b)(1) of this title), or other certificates or certifications of origin, as the case may be; and
(3) such other documentation relating to the importation of the goods as the Customs Service may require.
Id. The request Constellation Energy submitted was dated April 4, 2006.
According to a prior CBP ruling, if a request includes imports made more than one year prior to the date on its request, those entries may not be refunded, even if there is an otherwise complete request for refund. See HQ 227990 (June 8, 2000). CBP Regulations permit the aggregation of the ad valorem fee for daily importations of natural gas into a monthly consolidated pipeline entry made at an individual port by the same importer or exporter. See 19 CFR § 24.23(d). In this case, any imports of natural gas that were made on or before April 3, 2005, even as part of the consolidated monthly Entry No. 551-xxxxx584, may not be considered as part of this request, because they were imported more than one year prior to the date Constellation Energy made the request. However, as discussed in Ruling HQ 231489, the consolidated monthly entry represents multiple releases or entries made on a daily basis, so Entry No. 551-xxxxx584 will be considered for purposes of this protest to the extent that it includes any releases made on April 4, 2005 through April 30, 2005.
Without Certification of Origin or an Existing Waiver, CBP Will Not Refund MPF
As discussed above, section 520(d) of the Tariff Act of 1930 (the “Act”) allows for post-importation refund requests. See 19 U.S.C. § 1520(d). The regulation for filing a post-importation refund claim states that a Certificate of Origin is required for a post-importation refund claim, unless the Port Director has waived that requirement:
(b) Contents of claim. A post-importation claim for a refund shall be filed by presentation of the following:
(1) A written declaration stating that the good qualified as an originating good at the time of importation and setting forth the number and date of the entry covering the good;
(2) Subject to §181.22(d) of this part, a copy of each Certificate of Origin (see §181.11 of this part) pertaining to the good;
19 C.F.R. § 181.32(b)(1)-(2). The waiver provision cited in the regulations states:
(d) Certificate not required —(1) General. Except as otherwise provided in paragraph (d)(2) of this section, an importer shall not be required to have a Certificate of Origin in his possession for:
(i) An importation of a good for which the port director has in writing waived the requirement for a Certificate of Origin because the port director is otherwise satisfied that the good qualifies for preferential tariff treatment under the NAFTA;
19 C.F.R. § 181.22(d)(1)(i). Thus the statute states that a Certificate of Origin is required in a NAFTA post-importation claim unless the Certificate was waived, which is not the case here. Constellation Energy does not claim that it has a Certificate of Origin; in fact, it admits that it cannot provide a verifiable certification of origin of its natural gas. Constellation Energy does not claim that it has obtained a waiver of the Certificate of Origin requirement. Therefore, Constellation Energy has not met the requirements of section 520(d) of the Act, and its claim must be denied.
The Absence of a Waiver Is Not An Abuse of Discretion
The facts in this case demonstrate that the Port of Champlain’s refusal to waive the Certificate of Origin requirement, pursuant to 19 C.F.R. § 181.22(d)(1)(i), was not an abuse of discretion. To waive means voluntarily to give up a right or a claim. See “Waive”, American Heritage Dictionary of the English Language (4th ed. 2000); “Waiver” Webster’s Third New International Dictionary for the English Language Unabridged (1993). Thus, in giving port directors the authority to voluntary relinquish a claim to demand that a Certificate of Origin be in an importer’s possession, the regulations allow Port Directors to act or not as they deem proper. As a discretionary act, CBP Headquarters is reluctant to overturn Port Directors’ waiver decisions unless there is a showing of an abuse of discretion. See HQ 222609 (November 7, 1990). An abuse of discretion is a decision
“Made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis, such as an invidious discrimination against a particular race or group, or in Judge Learned Hand’s words, on other ‘considerations that Congress could not have intended to make relevant.’”
Suwanee Steamship Co. v. United States, 435 F. Supp. 389, 395 (Cust. Ct. 1977)(quoting Wong Wing Hang v. Immigration and Naturalization Service, 360 F.2d 715, 719 (2d Cir. 1966)).
Congress provided a general description of what considerations it considered relevant, when it created the Certificate of Origin requirement in section 520(d) of the Act. See 19 U.S.C. § 1520(d). In delegating authority to CBP to enforce the NAFTA country of origin requirements, Congress stated that the “rules are essential to ensure that the benefits of the NAFTA accrue primarily to North American producers, and the Committee intents that the Customs Service vigorously enforce them.” S. Rep. 103-189 at 14 (Nov. 18, 1993); see also id. at 21 (tariffs on non-NAFTA components to “create an incentive to use North American inputs and . . . help guard against the establishment of export platforms in Mexico by companies seeking to take advantage of NAFTA tariff preferences.”). Constellation Energy states that it cannot provide a “verifiable Certificate of Origin for its entries,” because of the way natural gas is traded in a secondary market. It alleges that its treatment is unfair, because it favors those that purchased natural gas on the primary market, i.e. only Canadian natural gas producers and importers that purchase natural gas directly from Canadian producers can obtain NAFTA Certificates of Origin. However, that inability reflects a defect in the chain of trades in the secondary market, not an impermissible basis for the Port’s refusal to waive the requirement. Congress intended for North American producers to obtain the benefit of the NAFTA, and North American natural gas producers are benefiting from the NAFTA. Therefore, the Port of Champlain’s denial of the waiver was based on considerations Congress considered relevant.
Overall import and export statistics do not support Constellation Energy’s argument that any non-NAFTA natural gas it imports must be below de minimis, pursuant to General Note 12 (“GN 12”) HTSUS. See GN 12 HTSUS (f)(i). GN 12(f) requires that “if the transaction value is unacceptable . . . the value of all such non-originating materials is not more than 7 percent of the total cost of the good”. Constellation Energy concedes that it is possible that non-NAFTA-origin regasified LNG is intermingling with Canadian natural gas, and is flowing into the United States. Constellation Energy argues, however, that because Canada has no LNG terminals for receiving large shipments of LNG, any natural gas that is non-NAFTA origin, according to Constellation Energy, would be below de minimis. In this case, we have no data as to what percentage of non-originating materials is included in the natural gas the protestant imported, and thus Constellation Energy’s argument must fail. To claim that the value of non-NAFTA originating goods is de minimis, the claimant must first know what portion of its commingled merchandise is non-NAFTA originating, not what percentage of overall imports into its country are non-NAFTA originating. See, e.g. HQ 563310 (May 19, 2006). Constellation Energy cannot certify that the specific natural gas rights it purchases covers natural gas that originated from Canada Furthermore, there is a possibility that non-NAFTA regasified LNG is flowing from the United States, into Canada, is sold in the secondary market, and then imported into the United States. As discussed above, two major LNG terminals are located on the east coast of the United States, and at least one is injecting regasified LNG, or natural gas, into the pipline grid, which flows into Canada. Thus, given the possibility that non-NAFTA natural gas is in the North American pipeline grid, and Constellation Energy may have imported it into the United States; and that Constellation Energy does not know the country of origin of the natural gas to which it purchased the rights, the Port did not abuse its discretion in refusing to waive the requirement for a NAFTA Certificate of Origin for Constellation Energy’s imports of natural gas.
CBP Regulations permit an individual port to waive the requirement for a NAFTA Certificate of Origin. Although circumstances could possibly exist that would obviate the need for certification, Constellation Energy has not provided such information to cause us to conclude that the Port of Champlain abused its discretion in denying the waiver request. Because the waiver is discretionary, Constellation Energy is not foreclosed from requesting a waiver in the future from the Port of Champlain or any other port, and our denial of Constellation Energy’s claim with respect to this particular waiver cannot be construed as an ultimate denial of any waiver request it could make for future entries.
This Ruling Constitutes Written Explanation for Denial of This Request in This Case
The regulations require a written explanation for the original denial of the post-importation refund request; however, this ruling remedies any failure to provide a written explanation. Specifically, CBP must provide an explanation in writing, pursuant to 19 C.F.R. § 181.33(d), for the reasons for denying a claim for a refund, and provide a statement regarding the right to file a protest. In this case, the Port stamped the letter “denied” and returned the letter, but did not provide an explanation or a statement. The courts have held that in the absence of consequential language, failure to meet a statutory deadline does not lead to CBP being compelled to grant a protestant’s request. See Fujitsu Gen. Am. Inc. v. United States, 283 F.3d 1364, 1382 (Fed. Cir. 2002). In this case, an absence of any consequence to the failure to provide an explanation or a protest statement, CBP is not required to set aside the denial of the refund.
Furthermore, the timely filing of the Protest, and the decision here, demonstrate that Constellation Energy has suffered no prejudice as a result of the original omission of an explanation. The courts have held that CBP’s procedural missteps are “harmless unless the errors are ‘prejudicial to the party seeking to have the action declared invalid.’” Am. Nat’l Fire Ins. Co. v. United States, 441 F. Supp. 2d 1275, 1287 (Ct. Int’l Trade 2006). By forwarding this letter to Constellation Energy, CBP is now providing a written explanation, which Constellation Energy may appeal to the Court of International Trade.
HOLDING:
You are instructed to DENY the protest in full. The Port properly denied the request for a post-importation refund of MPF for monthly entries of natural gas, because the request with respect to some of the releases was untimely, and for the rest of the releases, Constellation Energy failed to obtain either a Certificate of Origin or a waiver of the certification requirement. The refusal to waive the certificate was not an abuse of discretion. Because the Port Director has the discretion to waive the requirement of a Certificate of Origin, Constellation Energy is free to request a waiver from the Port Director in the future.
This decision will result in the assessment of MPF, and any reliquidation of the entries in accordance with the decision must be accomplished prior to mailing of the decision, in accordance with Section IV of the Customs Protest/ Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21). You are to mail this decision, together with CBP Form 19, to the protestant no later than 60 days from the date of this letter.
No later than 60 days from the date of this letter, Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and by other means of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division