H285450

90 K Street N.E., Washington, DC 20229 U.S. Customs and Border Protection HQ H285450 December 18, 2020 DRA 1 H285450 SMS OT:RR:CTF:ER John M. Peterson Neville Peterson LLP One Exchange Plaza 55 Broadway, Suite 2602 New York, NY 10006 RE: Charter Brokerage, LLC: Request for a determination of the availability of Drawback for Shipboard Blending of Energy Products Dear Mr. Peterson: This is in response to your application, dated April 10, 2017 and updated on November 10, 2017, on behalf of Charter Brokerage, LLC, (“Charter”), for a formal ruling on the availability of drawback for various situations involving shipboard blending of energy products, under the drawback law as set forth in Section 313 of the Tariff Act of 1930 (“the Tariff Act”), and as amended pursuant to Section 906 of the Trade Enforcement and Trade Facilitation Act of 2015 (“TFTEA”) (19 U.S.C. § 1313). We regret the delay in our response. FACTS: Charter is a licensed Customs broker, which files drawback claims on behalf of various clients. Many of Charter’s drawback transactions involve petroleum and other energy products, which are shipped in bulk via tanker vessels. Charter anticipates to file proposed drawback claims with the Newark, New Jersey; Houston, Texas; and San Francisco, California Drawback Offices. Charter’s petroleum trader clients export products in the same condition as when they are acquired, or after blended with other materials, to make new products prior to exportation. The blending of products either occurs within the tanks, upon the exporting vessels, before the vessels clear from the Unites States ports, or while the vessel is in international waters. These products are actively traded and their ownership may change several times in a short period of time, over the course of the transaction. Charter seeks guidance concerning the availability and type of drawback refunds in the scenario outlined below. Charter asserts that in the proposed scenario, all of the petroleum products laden on the vessels are for commercial exportations as cargo, to non-NAFTA countries, and are not used as vessel supplies. We also assume that all of the merchandise loaded on the vessel for exportation, is imported and duty paid. Proposed Scenario: Company A loads No. 6 fuel oil on board a foreign-flagged vessel at U.S. Port #1, pursuant to an export bill of lading issued by the carrier. Upon lading, Company A sells the No. 6 fuel oil to Company B. Without the knowledge of Company A, Company B loads No. 2 fuel oil on the same vessel, and at Company B’s direction, the two fuel oils are blended to make No. 4 fuel oil (50% each), which is then exported when the vessel sails from Port #1. Charter provided four scenarios all very similar, except that the foreign-flagged vessel moved from different U.S. ports, prior to exportation. Charter contends that Company A can claim drawback on duty paid merchandise, which is commercially interchangeable with No. 6 fuel oil under 19 U.S.C. §§ 1313(p) or (j)(2). However, Charter explains because the No. 6 fuel oil is blended with No. 2 fuel oil, prior to exportation, a “use” has occurred, which would defeat a drawback claim by Company A, pursuant to 19 U.S.C. §§ 1313(p), (j)(1), or (j)(2). Charter explains that in this scenario “the combination of biodiesel and petroleum diesel to create B50 does effect significant changes in character and use of the product” and constitutes a use for drawback purposes. Charter further contends that drawback is available for Company B, pursuant to 19 U.S.C. § 1313(a) and (b), as Company B caused a manufacture by blending the No. 6 and No. 2 fuel oils to form No. 4 fuel oil. Lastly, Charter asserts that Company B may claim unused merchandise drawback under 19 U.S.C. §§ 1313(p), (j)(1) (direct identification) and (j)(2) (substituted), if it possessed “commercially interchangeable” or merchandise “classifiable under the same 8-digit HTS subheading number” as the imported, duty-paid No. 4 fuel oil. Charter explains that the trading and shipboard blending activity, described above, has resulted in confusion concerning when drawback may be claimed on the exported blended products, what type of drawback may be claimed, and by whom, under the law as set forth in the Tariff Act and as amended pursuant to TFTEA. Accordingly, confirmation of Charter’s above analysis, is requested. ISSUE: Whether drawback is applicable in the described scenario, and to whom. LAW AND ANALYSIS: The Tariff Act provides for drawback, which is a refund of certain duties, taxes, and fees imposed on imported merchandise which are paid after timely filing a claim with U.S. Customs and Border Protection (“CBP”), providing sufficient evidence linking to an article’s exportation or destruction. Drawback is a privilege, not a right, subject to compliance with the prescribed rules and regulations. See 19 U.S.C. § 1313(l). The implementing regulations regarding drawback under the Tariff Act are contained in Part 191 of the CBP regulations (19 C.F.R. § 191). On February 24, 2016, the Trade Enforcement and Trade Facilitation Act of 2015 (“TFTEA”) (Pub. L. 114–125, 130 Stat. 122) was signed into law, and regulations were promulgated to implement TFTEA changes on December 18, 2018. See 83 Fed. Reg. 64,942 (Dec. 18, 2018) (19 C.F.R. § 190). Please note that pre-TFTEA provisions of this ruling do not apply to claims filed after February 23, 2019. Id. Pursuant to Section 313 of the Tariff Act, there are two main categories of drawback at issue in this case: manufacturing drawback and unused merchandise drawback. Prior to the implementation of modernized drawback under TFTEA, 19 U.S.C. § 1313(a) and (b)), provided that if imported duty-paid merchandise (direct identification) and any other merchandise (whether imported or domestic, i.e., substitution manufacturing) of the “same kind and quality” are used within three years of the receipt of the imported merchandise in the manufacture or production of articles and the articles manufactured or produced are exported or destroyed, under CBP supervision, without being used in the United States, 99 percent of the duties paid shall be refunded as drawback, even if none of the imported merchandise was actually used in the manufacture or production of the exported or destroyed articles. See Subpart B of Part 191 (19 C.F.R. §§ 191.21 – 191.28). Nineteen U.S.C. § 1313(j)(1) and (j)(2), provided that drawback may be claimed on imported duty-paid merchandise that is directly identified or substituted for “commercially interchangeable” and unused merchandise if the unused merchandise is exported or destroyed within three years from the date of receipt of the imported merchandise. See Subpart C of Part 191 (19 C.F.R. §§ 191.31 – 191.38). Pursuant to 19 U.S.C. § 1313(j), prior to the exportation or destruction, the substituted or directly identified merchandise, must not have been used in the United States and must have been in the possession of the drawback claimant. Id. Section 906 of TFTEA made significant changes to the drawback laws which generally liberalize the standards for substituting merchandise, ease recordkeeping requirements, extend and standardize timelines for filing drawback claims, and simplify the claims process by requiring electronic filing. TFTEA provided for a universal five-year filing deadline for drawback claims. All TFTEA-Drawback claims must be filed no later than five years after the date the merchandise on which drawback is claimed was imported. See 19 U.S.C. § 1313(r)(1). TFTEA provides a new standard for substitution claims which is based, generally, on the 8-digit Harmonized Tariff Schedule of the United States (“HTSUS”) subheading number. This standard replaces the “same kind and quality” and “commercial interchangeability” standards that were applied, respectively, to substitution manufacturing and substitution unused merchandise drawback claims under §§1313(a),(b), (j)(1), and (j)(2). Under TFTEA, c

The Tariff Act provides for drawback, which is a refund of certain duties, taxes, and fees imposed on imported merchandise which are paid after timely filing a claim with U.S. Customs and Border Protection (“CBP”), providing sufficient evidence linking to an article’s exportation or destruction. Drawback is a privilege, not a right, subject to compliance with the prescribed rules and regulations. See 19 U.S.C. § 1313(l). The implementing regulations regarding drawback under the Tariff Act are contained in Part 191 of the CBP regulations (19 C.F.R. § 191). On February 24, 2016, the Trade Enforcement and Trade Facilitation Act of 2015 (“TFTEA”) (Pub. L. 114–125, 130 Stat. 122) was signed into law, and regulations were promulgated to implement TFTEA changes on December 18, 2018. See 83 Fed. Reg. 64,942 (Dec. 18, 2018) (19 C.F.R. § 190). Please note that pre-TFTEA provisions of this ruling do not apply to claims filed after February 23, 2019. Id. Pursuant to Section 313 of the Tariff Act, there are two main categories of drawback at issue in this case: manufacturing drawback and unused merchandise drawback. Prior to the implementation of modernized drawback under TFTEA, 19 U.S.C. § 1313(a) and (b)), provided that if imported duty-paid merchandise (direct identification) and any other merchandise (whether imported or domestic, i.e., substitution manufacturing) of the “same kind and quality” are used within three years of the receipt of the imported merchandise in the manufacture or production of articles and the articles manufactured or produced are exported or destroyed, under CBP supervision, without being used in the United States, 99 percent of the duties paid shall be refunded as drawback, even if none of the imported merchandise was actually used in the manufacture or production of the exported or destroyed articles. See Subpart B of Part 191 (19 C.F.R. §§ 191.21 – 191.28). Nineteen U.S.C. § 1313(j)(1) and (j)(2), provided that drawback may be claimed on imported d