HQ 223419: Request for internal advice concerning 19 U.S.C. 1313(p) andthe commingling of imported merchandise prior to initial receiptby the producer; substitution same condition drawback; LOOP;commingled storage; crude oil; petroleum; HRL 221794

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 223419

                         March 18, 1992


DRA-2-02 CO:R:C:E 223419 C

CATEGORY:  Drawback

Director, Commercial Operations
U.S. Customs Service
Southwest Region
Houston, Texas 77057

RE:  Request for internal advice concerning 19 U.S.C. 1313(p) and
the commingling of imported merchandise prior to initial receipt
by the producer; substitution same condition drawback; LOOP;
commingled storage; crude oil; petroleum; HRL 221794

Dear Sir:

     This responds to your memorandum of August 19, 1991,
regarding the referenced subject.  We have reviewed the matter
and our response follows.

     Your inquiry concerns the following situation:  An importer
arranges for its imported crude oil to be discharged from the
importing tanker into the Louisiana Offshore Oil Pipeline (LOOP);
it is then transported via the LOOP into an underground salt dome
(or salt domes) where it is commingled with other crudes of the
same class (which are owned by other parties); later, a quantity
of crude oil is taken from commingled storage in the salt dome,
in place of the original imported input, and transported to the
importer's refinery for processing.

     The question is whether or not such commingling is permitted
under the authority of 19 U.S.C. 1313(p).  Section 1313(p)
provides a system, based on monthly accounting records, to
identify eligible drawback petroleum products which lost their
identity by commingling in common storage with petroleum products
that are not eligible for drawback.  The provision is designed,
in part, to simplify drawback and recordkeeping procedures for
certain goods produced from crude petroleum or its derivatives.

     You referred to a Headquarters internal advice memorandum,
dated November 24, 1989, that addressed the same fact situation -
our file 221794.  Therein, we concluded that the substitution
provision of the manufacturing drawback law, 19 U.S.C. 1313(b),
did not encompass the above commingling process.  More
specifically, we concluded that the principle of same kind and
quality (SKAQ) was inapplicable to the LOOP commingling process
because this commingling takes place prior to receipt of the
imported designated merchandise by the manufacturer/producer. 
The principle of SKAQ applies after receipt of the imported
designated merchandise, when the manufacturer/producer is then
required to use it in production, along with a SKAQ substitute,
within the required time period.  The statute unambiguously
requires receipt and use of the imported duty-paid merchandise by
the manufacturer/producer.  The issue involved in 221794 was
characterized as one involving proper identification and
designation of the actual imported merchandise that will form the
basis for drawback.

     We agree with your view that 19 U.S.C. 1313(p) is not
applicable to the LOOP commingling process as described above and
considered in 221794.  The commingling permitted by, and the
recordkeeping procedure provided for under, section 1313(p)
pertains to a stage in the petroleum production process that
takes place after initial receipt of the imported merchandise by
the manufacturer/producer.  Moreover, drawback under section
1313(p) is paid on merchandise withdrawn from common storage for
export.  In the scenario of the instant case, merchandise is
withdrawn from common storage in the LOOP for transport to the
refinery and use in production.  Section 1313(p) therefore does
not affect the conclusion of 221794, nor does the Customs
directive soon to be issued to assist the field in implementing
section 1313(p). 

     If you have additional questions regarding the above, please
contact this office.

                               Sincerely,




                               John Durant, Director
                               Commercial Rulings Division