HQ 111367: Coastwise Trade; Fuel Oil Blending; 46 U.S.C. App. 883

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 111367

                          March 5, 1991

VES-3-CO:R:IT:C 111367 GEV

CATEGORY:  Carriers

Beverly J. Rudy, Esq.
Milgrim, Thomajan & Lee, P.C.
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036-5405

RE:  Coastwise Trade; Fuel Oil Blending; 46 U.S.C. App. 883

Dear Ms. Rudy:

     This is in response to your letter dated October 26, 1990
(your file no. 2545-5) regarding the applicability of the
coastwise laws to a proposed fuel oil blending operation.

FACTS:

     The blending operation in question involves slurry oil, a
crude oil refining byproduct which is a heavy residue, or
bottoms.  This product typically has the following
specifications:

          Sulfur Content                     1.75%
          API Gravity @ 60F                  -1
          Viscosity                          140 (SSF @ 122F)
          Pour Point, F max 60

     Your client wishes to transport the slurry oil from Houston,
Texas, where it is currently located, via foreign-flag vessel to
Freeport, Bahamas, where the slurry oil will be discharged into
storage tanks.  The slurry oil will then be blended with a
Peruvian origin blend of light fuel oils with the following
specifications:

          Sulfur Content                     1.17%
          API Gravity @ 60F 13.1
          Viscosity                          329 (SSF @ 122F)
          Pour Point, F max 30

The proportion of the two components in the final product will
be 40% slurry oil (approximately 200,000 barrels) and 60% of the
light fuel oil blend (approximately 250,000 barrels).

                              - 2 -

     The resulting product will be no. 6 residual fuel oil, which
is to be sold to a Puerto Rican utility to generate electricity.
This heavy industrial fuel oil will have the following
specifications:

          Sulfur Content                     1.5%
          API Gravity @ 60F 8 min
          Viscosity                          500 max
          Pour Point, F max 75

Subsequent to the processing operation, the resulting residual
fuel oil will be laden upon the foreign flag vessel and
transported to Puerto Rico for delivery to the utility.

ISSUE:

     Whether the fuel oil blending operation described above is
sufficient to create a "new and different product" within the
meaning of 19 CFR 4.80b(a) so that the proposed transportation of
the resultant blend by a foreign-flag vessel is not in violation
of 46 U.S.C. App. 883.

LAW AND ANALYSIS:

     Title 46, United States Code Appendix, 883 (the merchandise
coastwise law often called the "Jones Act") prohibits the
transportation of merchandise between United States coastwise
points, either directly or via a foreign port, or for any part of
the transportation, in any vessel other than a vessel built in
and documented under the laws of the United States and owned by
persons who are citizens of the United States.

     In interpreting 883, Customs has ruled that a point in
United States territorial waters is a point in the United States
embraced within the coastwise laws.  The territorial waters of
the United States consist of the territorial sea, defined as the
belt, 3 nautical miles wide, seaward of the territorial sea
baseline, and to points located in internal waters, landward of
the territorial sea baseline, in cases where the baseline and the
coastline differ.

     Section 4.80b(a), Customs Regulations, provides, in part,
that:

          A coastwise transportation of merchandise
          takes place, within the meaning of the
          coastwise laws, when merchandise laden at
          a point embraced within the coastwise laws
          ("coastwise point") is unladen at another
          coastwise point, regardless of the origin
          or ultimate destination of the merchandise.
          However, merchandise is not transported
                              - 3 -

          coastwise if at an intermediate port or
          place other than a coastwise point (that
          is, at a foreign port or place, or at a
          port or place in a territory or posses-
          sion of the U.S. not subject to the
          coastwise laws), it is manufactured or
          processed into a new and different pro-
          duct, and the new and different product
          thereafter is transported to a coastwise
          point.


     In applying 4.80b(a), Customs has held that merchandise
manufactured or processed into a new and different product must
be landed and processed at an intermediate port or place other
than a coastwise point.  The manufacturing or processing may not
take place on board a vessel.  We note that for the purpose of
determining whether a new and different product has occurred as a
result of a particular fuel oil blending operation, Customs has
looked to whether the resultant product has differed from the
original product in the following characteristics:  sulfur
content, specific gravity, pour point, and viscosity.

     However, by a notice published in the Federal Register on
November 1, 1989 (54 FR 46075) we informed the public that we
were reviewing our position on this matter.  We stated that we
were of the opinion that not all blending operations which change
the above four characteristics may result in a new and different
product.  The notice stated that prior to reaching future
determinations that a new and different product has in fact been
created by a blending operation for purposes of 4.80b(a), the
procedures and specific data of such operations should be
submitted by the party seeking such a determination.  Customs
will then review the data and make the necessary determination
which will form the basis for a decision regarding any possible
violation of 883.  The final Federal Register package on this
matter is currently in review.  In the interim, notwithstanding
our statement in the notice that Customs has suspended all
rulings on this matter until the issue has been finally resolved,
in view of the time that has elapsed since the publication of our
original proposal we will now consider requests for rulings
regarding this matter.

     Upon reviewing the specifications of this particular fuel
blending operation, we have determined that they are essentially
inadequate in describing the character of the products involved.
Accordingly, until such time as more complete specifications are
submitted for our review, we are unable to issue a definitive
ruling on this matter.

     We note, however, that we have been able to formulate a non-
binding advisory opinion based on the resultant product's
                              - 4 -

anticipated properties after blending.  Our review of the
submitted information shows that the slurry oil will probably
meet the ASTM D 396 specification for the no. 6 low pour fuel
oil.  The specifications also indicate that the slurry oil is a
low pour fuel oil with a maximum pour point of 60 F.  This oil
is blended off-shore with a Peruvian blend light oil which does
not meet the ASTM D 396 specifications for fuel oil.  The
resulting 40/60 slurry oil/Peruvian blend is shown to have a
maximum viscosity of 500 (it is not specific as to what this
amount reflects; we assume SSF at 122 F) and a maximum pour
point of 75 F.  The pour point value indicates that the product
is a high pour point fuel oil.

     We emphasize that the values given for the blended product
are maximum values and the actual values may, indeed, be lower.
Interpolating the values in the 40/60 blend, we anticipate the
final viscosity value will range from 140 to 329, most likely
below 300 (SSF at 122 F) and the pour point will most likely
have a maximum range of 30-60 F.  Thus, based on the
interpolated values of the blend, rather than the vague maximum
values submitted, the 40/60 fuel oil blend will probably meet the
ASTM D specification for no. 6 low pour fuel oil.

     Therefore, based on our interpolated values, since both the
final blend and original slurry oil in most instances will
probably meet the ASTM D 396 specifications for low pour point
no. 6 fuel oil, the final blend will in most instances not be
considered a "new and different product" within the meaning of
4.80b(a).  However, a review of the accredited laboratory
reports from the commercial laboratories that test the products
will eliminate the need for interpolation of the specifications
submitted and allow Customs to issue a definitive ruling on this
matter.

HOLDING:

     The information presented is insufficient to determine
whether the proposed fuel oil blending operation will create a
"new and different product" within the meaning of 19 CFR 4.80b(a)
so that the proposed transportation of the resultant blend by a
foreign-flag vessel is not a violation of 46 U.S.C. App. 883.
That vessel may therefore not be used for the transportation.

                                   Sincerely,




                                   B. James Fritz
                                   Chief
                                   Carrier Rulings Branch