H308129

HQ H308129 August 7, 2020 RR:CTF:VS H308129 AP CATEGORY: Special Programs John P. Donohue, Esq. Neville Peterson LLP Two Logan Square 100 N. 18th Street, Suite 333 Philadelphia, PA 19103 RE: Petroleum products; U.S. Virgin Islands; insular possession; CBERA; CBTPA; duty-free treatment; General Notes 3(a)(iv)(D) and 12(t), HTSUS; “NAFTA parity” provision; inventory management system Dear Mr. Donohue: This is in response to your November 11, 2019 ruling request, supplemented on May 27, 2020, on behalf of Limetree Bay Refining LCC (“LBR”), regarding whether certain petroleum products, which will be produced from originating materials and from non-originating blendstocks and additives at the company’s refinery in the U.S. Virgin Islands for shipment to the customs territory of the United States, will qualify for duty-free treatment under Section 213 of the Caribbean Basin Economic Recovery Act (“CBERA”), as applied to the U.S. Virgin Islands under General Note (“GN”) 3(a)(iv)(D), Harmonized Tariff Schedule of the United States (“HTSUS”). FACTS: LBR owns petroleum refinery assets in the U.S. Virgin Islands. LBR’s refinery facilities are currently inoperative. The company is in the process of rehabilitating its petroleum refinery and expects to produce conventional gasoline, gasoline blendstocks, RBOB/CBOB/CARBOB, jet fuel, diesel fuels, residual fuel oils, and gas oils, of heading 2710, HTSUS. The company’s refinery contains atmospheric distillation units, a vacuum distillation unit, catalytic hydrotreating units, a catalytic reformer, a delayed coking unit, an isomerization unit, liquid propane gas fractionation unit, and a utility fractionation unit. The principal feedstock used in the production will be imported foreign and U.S. origin crude oil. The imported foreign and U.S. origin crude oil will be stored and subjected to a “desalting” process by which inorganic salts are removed. After desalting, the crude oil will be fed to an atmospheric distillation unit where, through the application of heat, the crude oil will be separated into light ends, heavy naphtha, kerosene, diesel fuel, heavy atmospheric gas oil, and resid. In some cases, fuel oil or resid will be imported for use as feedstock to the atmospheric distillation unit and will be used in the same manner as crude oil. The light ends will be sent to a light-ends treating unit to be further separated into light and heavy naphta and a light-end fraction. The light naphta will be sent to a light naphta catalytic hydrotreater and the heavy naphta will be sent to a heavy naphta catalytic hydrotreater, where unwanted sulfur and other contaminants will be removed. The hydrotreated light naphta will be converted into a gasoline blending stock used in the blending of gasoline. The hydrotreated heavy naphta will be converted into a high-octane gasoline blending stock. The remaining light ends fraction off the light ends treating unit will be sent to a liquid propane gas fractionation unit where it will be separated into plant fuel gas (methane and ethane), propane, and butanes. The fuel gas and propane will be used as fuel for the utilities at the refinery and will not be used in further production or exported The butane may be used as fuel for the utilities, as a blendstock in gasoline blending, or in RBOB/CBOB/CARBOB blending. LBR may import butane that will be blended with the butane off the liquid propane gas fractionator or will be sent to gasoline blending or RBOB/CBOB/CARBOB blending. Light naphta may be imported and sent to the light ends treating unit, followed by treatment in the light naphta catalytic hydrotreater and isomerization unit, or sent directly to gasoline blending or RBOB/CBOB/CARBOB blending. Heavy naphta and a mixture of light and heavy naphta may also be imported and sent to the heavy catalytic naphta hydrotreater for desulfurizing and then sent to the reformer to be processed into reformate. In the alternative, some heavy naphta or a mixture of light and heavy naphta may be sent directly to gasoline blending or RBOB/CBOB/CARBOB blending. The kerosene off the atmospheric distillation unit will be sent to a catalytic hydrotreater where sulfur will be removed and the resulting product will be marketable jet fuel. The heavy atmospheric gas oil off the atmospheric distillation unit will be sent to the gas oil catalytic hydrotreater where the sulfur will be removed resulting in marketable gas oil or it may bypass the hydrotreater and be blended with other gas oil streams to produce high sulfur gas oil. The heaviest product resulting from the atmospheric distillation process will be resid. When resid is produced from low sulfur crude oil, it may be sent directly to a storage tank ready for sale. More often, however, it will be sent to a vacuum distillation unit where it will be subjected to further distillation resulting in its separation into vacuum gas oil and a heavy material known as “vacuum tower bottoms” or “pitch.” The gas oil will be sent to a gas oil catalytic hydrotreater where the sulfur will be removed rendering it ready for sale as vacuum gas oil or for blending with other gas oils. In addition to the resid coming off the crude unit, the company may import resid and fuel oil to be used as feed for the vaccum distillation unit. Some of the LBR-produced resid and the imported resid and fuel oil may be sent to the utility franctionator to be separated into a kerosene fraction and a diesel fuel fraction. The heaviest product off the vacuum unit and the heaviest product off the utility fractionator, which exit the bottom of each unit, will be used as feedstock for the delayed coker unit. The coking process, which takes place in the delayed coker, is a thermal cracking process that converts heavy low-grade products into lighter products. The naphta leaving the coker is sent to one of the hydrotreaters to remove unwanted sulfur. The gas oil is either sent to the gas oil hydrotreater to remove unwanted sulfur or moved directly to storage. The diesel fuel off the coker unit is routed to the diesel hydrotreater to remove sulfur and then sent to storage for sale. LBR will produce conventional gasoline (regular and premium grades) for sale in the U.S. Virgin Islands, Puerto Rico and other Caribbean countries, and blendstock for oxygenate blending (“BOB”) consisting of RBOB/CBOB/CARBOB, for sale in the U.S. Conventional gasoline is ready for use in motor vehicles in its condition as it leaves the refinery. BOBs must be blended with renewable biofuel oxygenate before being distributed to gas stations. BOBs are produced using the same production process and materials as conventional gasoline. BOBs are a blend of several blendstocks mixed in certain volume and ratios to meet certain specifications. LBR will produce BOBs for shipment to gasoline terminals in the U.S. where the proper amount of ethanol will be blended into the BOB to produce finished gasoline, which will then be loaded into trucks and delivered to retail gasoline stations. BOBs are produced in regular and premium grades. The blendstocks under consideration here include butanes, alkylate, light naphta, heavy naphta, full-range naphta, isomerate, and reformate. Often four or more blendstocks will be needed in blending a BOB. One or more imported foreign or U.S. origin blendstocks may be included in LBR’s blending pool. Any one batch of gasoline may not contain all the blendstocks. The gasoline that results from blending must meet industry standards and specifications such as vapor pressure, distillation points, sulfur content, vapor lock index, octane, and other properties. In producing the BOBs and the conventional gasoline, LBR will often only use the blendstocks that it produces at its refinery. However, it may include one or more imported foreign or U.S. origin blendstocks in its blending pool such as butane, low sulfur light, heavy and full range naphtas, and a high-octane gasoline blendstock. The company will be

Eligibility for duty-free treatment under the CBERA pursuant to GN 3(a)(iv)(D) The U.S. Virgin Islands are among the insular possessions of the United States. See 48 U.S.C. § 1541(a); 19 C.F.R. § 7.2. GN 3(a)(iv)(D) provides that products of U.S. insular possessions may receive tariff status no less favorable than that afforded to beneficiary countries under CBERA. Pursuant to Section 213(b) of CBERA, as amended by CBTPA, the tariff treatment accorded to a CBTPA originating good shall be identical to the tariff treatment that is accorded at such time under Annex 302.2 of the NAFTA to an article described in the same 8-digit subheading of the HTSUS that is a good of Mexico and is imported into the U.S. See Section 213(b)(3)(A) of CBERA, as amended (codified at 19 U.S.C. § 2703(b)(3)(A)). Therefore, petroleum products classified under heading 2710, HTSUS that originate in a CBTPA beneficiary country are entitled to the same preferential treatment accorded to such products when imported into the U.S. from Mexico under NAFTA.A “CBTPA originating good” is defined as a good that meets the rules of origin for a good as set forth in GN 12, HTSUS (19 U.S.C. §1202) and the NAFTA Rules of Origin Regulations in the Appendix to 19 C.F.R. Part 181, as applied under 19 C.F.R. § 10.233(b). See CBERA § 213(b)(3); 19 U.S.C. § 2703(b)(3); 19 C.F.R. §10.232(a). Therefore, in order to decide whether a petroleum product from the U.S. Virgin Islands is eligible for preferential tariff treatment under GN 3(a)(iv)(D), we must first determine the staged duty rate under Annex 302.2, which is determined by examining whether the goods are considered “NAFTA originating.”You state that each of the petroleum products at issue is classifiable under heading 2710, HTSUS, and results from one or more of the NAFTA origin-conferring processes identified in GN 12(t), Chapter 27, Heading Rule 4(A)-(C), and will qualify for duty-free treatment under the CBERA, as applied to the U.S. Virgin Islands under GN