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HQ 223268


October 15, 1991

FOR-2-03-CO:R:C:E 223268 PH

CATEGORY: FOREIGN TRADE ZONE

District Director
Savannah, Georgia 31401

RE: Transportation via Bonded Pipeline of Jet Fuel from Foreign Trade Zone; 19 U.S.C. 81c; 19 U.S.C. 1309(a)(3); C.D. 3260- 34

Dear Sir:

With your memorandum of June 5, 1991 (File: CLA-2- SV:I:LCD), you forwarded a letter dated May 14, 1991, from Dennis T. Snyder, Esq., on behalf of Citgo Petroleum Corporation, describing the proposal of Citgo to remove jet fuel from the Lake Charles, Louisiana, foreign trade zone (FTZ) subzone and transport it by bonded pipeline to Hartsfield Airport in Atlanta, Georgia, for loading onto aircraft qualifying for relief from duties under 19 U.S.C. 1309. You asked a number of questions about the proposal and asked that we issue a decision on the proposal. Our ruling follows.

FACTS:

The inquirer states that his client (to be identified as the "producer" in this ruling) activated a FTZ subzone at Lake Charles, Louisiana, and plans to manufacture aircraft turbine fuel commonly known as "Jet A." The product will have the FTZ status of privileged foreign. The producer proposes to remove the product from the subzone and transport it by a bonded carrier pipeline to Hartsfield Airport in Atlanta. There, the inquirer states that the product is to be exported as aircraft fuel under 19 U.S.C. 1309. The inquirer provides proposed procedures for the handling and control of the product. The inquirer states that all Customs documentation at Lake Charles and Atlanta will be handled by licensed Customs brokers.

(NOTE: THE PROCEDURES PROPOSED BY THE INQUIRER ARE OUTLINED BELOW. THIS RULING IS BASED ON THIS DESCRIPTION OF THESE PROCEDURES. IF THE INQUIRER DESIRES COMMENTS ON OTHER PROCEDURES, INCLUDING ANY WHICH MAY BE IN HIS PROPOSAL BUT MAY NOT BE OUTLINED BELOW, HE MAY REQUEST SUCH COMMENTS IN A SUPPLEMENTAL INQUIRY.)

Under the procedures proposed by the inquirer, the producer would remove product from the FTZ under established FTZ procedures and transport it in bond from the FTZ to Atlanta via a pipeline which is a bonded common carrier. The producer would prepare and sign the transportation entry on Customs Form 7512. Surety would be on the producer's Code 2 bond in the amount of $700,000. The producer's liability would be for the entire amount removed from the FTZ.

While moving through the pipeline, the product would be segregated from other product having a Customs bonded or domestic status. On arrival in Atlanta, the product would be temporarily stored in segregated, non-bonded tanks pending introduction into refueling hydrants. Upon receipt of the product in Atlanta, the producer would notify Customs of the quantities received. Any shortage between the quantity received by the producer in Atlanta and the quantity removed from the FTZ would be entered on a Customs Form 7501, filed by the producer in Atlanta, and subject to duty.

A Certificate of Use on an appropriate form would be maintained in Atlanta for each Customs Form 7512. Pumping tickets for product uplifted into qualified aircraft, and duty payments for shortages on Customs Form 7501 would be recorded on the Certificates of Use on a first-in, first-out (FIFO) basis. Customs Forms 7512 would be closed out within 60 days from the date of removal of product from the FTZ. Certificates of Use and all supporting documents would be delivered to Customs in Atlanta within 10 days after the final close-out.

No pumping ticket would be validated against an open Customs Form 7512 unless a quantity of privileged foreign product at least in equal amount was physically present in segregated storage and/or the hydrant system in Atlanta at the time the aircraft was refueled. Pumping tickets for privileged foreign product removed from an aircraft after refueling would be cancelled and the product would be returned to segregated storage or duty paid.

The producer would maintain records and conduct operations in a manner that would permit the producer to demonstrate to Customs on demand that quantities of privileged foreign product on hand in segregated storage and in refueling hydrant line fill equal the amount on open Customs Forms 7512 which have been received in Atlanta from the bonded carrier and not yet laden aboard qualifying aircraft. On the first day of operations, refueling hydrant line fill would be the next day's anticipated uplift of foreign privileged product and thereafter line fill would be quantities uplifted during the previous 24-hour period. Duty-paid quantities in excess of 1 percent on any given Customs Form would be considered to have been irregularly delivered unless satisfactorily explained to Customs.

ISSUES:

(1) May privileged foreign status aircraft turbine fuel be transported from a FTZ subzone in Lake Charles, Louisiana, to Hartsfield Airport in Atlanta, Georgia, via a bonded carrier pipeline and on arrival in Atlanta be temporarily stored in segregated, non-bonded tanks under the procedures described in the FACTS portion of this ruling?

(2) Does the aircraft turbine fuel described in ISSUE (1) qualify for duty-free treatment under 19 U.S.C. 1309 if, from the temporary holding tanks it is introduced into an aircraft refueling hydrant and pumped into qualifying (under 19 U.S.C. 1309) aircraft under the procedures described in the FACTS portion of this ruling?

LAW AND ANALYSIS:

Pursuant to section 309(a), Tariff Act of 1930, as amended (19 U.S.C. 1309(a)), "[a]rticles of foreign or domestic origin may be withdrawn ... from [an FTZ] free of duty and internal- revenue tax" for supplies of foreign or United States vessels or aircraft "actually engaged in foreign trade or trade between the United States and any of its possessions, or between Hawaii and any other part of the United States or between Alaska and any other part of the United States." The Customs Regulations pertaining to sections 1309 and 1317 are found in 19 CFR 10.59 through 10.65.

The statutory authority for FTZ's is found in the Foreign Trade Zones Act of 1934, as amended (48 Stat. 998; 19 U.S.C. 81a through 81u). The Customs Regulations providing for the administration and interpretation of the laws relating to FTZ's are found in 19 CFR Part 146. The transfer of merchandise from an FTZ is governed by 19 CFR Part 146, Subpart F. It is specifically provided in 19 CFR 146.69 that "[a]ny merchandise which may be withdrawn duty and tax free in Customs territory under [19 U.S.C. 1309 or 1317 and 19 CFR 10.59 through 10.65] may similarly be transferred from [an FTZ], regardless of its zone status, under those statutes and regulations."

The regulatory provisions for withdrawal of vessel or aircraft supplies under 19 U.S.C. 1309 are found in 19 CFR 10.60. Under paragraph (f) of this section:

... when articles are withdrawn from continuous Customs custody elsewhere than in a bonded warehouse for lading at another port, the procedure set forth in [19 CFR 18.26] shall be followed, except that the withdrawal when filed shall be supported by a bond on Customs Form 301, containing the bond conditions set forth in [19 CFR 113.62]. There shall be such examination of the articles as may be necessary to satisfy the district director that they are subject to the privileges of [19 U.S.C. 1309] and that the value and quantity declared for them are correct.

We have long held that privileged foreign status merchandise may not be transferred from a FTZ to a Customs bonded warehouse (see C.S.D. 81-8; see opinion letter 212503, dated January 26, 1981, for the explanation of this position). However, consistent with the authorities cited above, we have also held that privileged foreign status merchandise may be transferred from a FTZ under an entry for transportation and exportation under 19 U.S.C. 1309, assuming that the merchandise meets the requirements of that provision (see opinion letter 212503, referred to above, and ruling letter 222291, dated May 14, 1990). This position is, of course, conditioned on compliance with the applicable Customs Regulations (referred to above).

Accordingly, with regard to the proposal and procedures under consideration, the privileged foreign status aircraft turbine fuel could be removed from a FTZ and transported by bonded carrier pipeline to the Atlanta airport and there used as aircraft fuel under the duty-free provisions of 19 U.S.C. 1309, provided that the applicable requirements and procedures are complied with. If, as appears to be the case, the producer is one of the parties listed in 19 CFR 18.11(b), the producer could prepare and sign the transportation entry on Customs Form 7512 (19 CFR 18.26, 18.20). The producer would be required to have a basic importation and entry bond (19 CFR 113.62) instead of a basic custodial bond (19 CFR 113.63) (see 19 CFR 10.60(f)). The sufficiency of the bond amount is a question for the appropriate district director or regional commissioner (see 19 CFR 113.13 and Customs Directive 3510-04, dated July 23, 1991). The producer would be liable for the entire amount of fuel removed from the FTZ. (See 19 CFR 146.71(a) (applicable to an entry for transportation and exportation, see 19 CFR 18.2(a)(4)) for procedures for the release and removal of merchandise from a FTZ.)

Shipments of aircraft turbine fuel would be required to be delivered to Customs at Atlanta within 30 days after the date of withdrawal of the fuel from the FTZ (19 CFR 18.2(c)(2). No more than two working days after arrival at Atlanta of any portion of the fuel in an in-bond shipment, the producer would be required to surrender the required forms to Customs (see 19 CFR 18.2(d), 18.7(a)). The producer would be liable for any shortages between the quantity received by the producer in Atlanta and the quantity removed from the FTZ. The producer's liability would be governed by 19 CFR 18.8 and 113.62.

In the procedures for retention of goods at dock (or airport) (see 19 CFR 18.24 and Customs Directive (C.D.) 3260-34, May 9, 1991), Customs has developed procedures which may be used with the temporary storage of the aircraft turbine fuel in segregated, non-bonded tanks at Atlanta before the pumping of the fuel in qualified aircraft. We are enclosing a copy of the Customs Directive for your assistance. Please note that facilities approved for these procedures need not be bonded (see paragraph C., under the Action section of the C.D.) (as noted above, privileged foreign status merchandise may not be transferred from a FTZ to a Customs bonded warehouse).

Under 19 CFR 18.24 and C.D. 3260-34, the producer (or other person operating the temporary holding tanks) would apply for the use of the retention procedures described therein (see paragraph C., under the Action section of the C.D.). The tanks would be subject to review by Customs for compliance with the security standards and specifications in Treasury Decision 72-56. The use of Certificates of Use described by the inquirer is consistent with the C.D. (see paragraph F., under the Action section of the C.D.), although the other information described in the C.D. would also be required on those Certificates. The use of FIFO procedures in accounting for the use of the fuel, as described by the inquirer, is consistent with the C.D., provided that the fuel shipments are fungible (see paragraph E., under the Action section of the C.D.).

As stated above, shipments of aircraft turbine fuel would be required to be delivered to Customs at Atlanta within 30 days after the date of withdrawal of the fuel from the FTZ. Acceptance by Customs of an entry (in this case, the Customs Form 7512) for a shipment of aircraft turbine fuel for retention at a dock or airport would constitute such delivery to Customs. The close-out procedures described by the inquirer are consistent with those in the C.D. (which has a 1-year period for close-out (see Background section and paragraph H. of the Action Section of the C.D.).

As for the pumping of the fuel from the temporary holding tanks, assuming that Customs approves the use of the procedures in 19 CFR 18.24 and C.D. 3260-34, the procedures therein (record- keeping and otherwise) would be applicable (see paragraph E., under the Action section of the C.D., for record-keeping requirements). Note that, as stated in paragraph F. under the Action section of the C.D., fuel uplifted into an aircraft under 19 U.S.C. 1309 may only be removed from the aircraft under Customs supervision, with a proper permit, and will be treated as an importation (see also 19 U.S.C. 1309(c) and 19 CFR 10.63). Note that under paragraph E. in the Action section of the C.D., the producer would be required to ensure that inventory records of the temporary storage facility are capable of maintaining an audit trail between the specific shipment (with allowances for FIFO procedures for fungible fuel, see above) in the facility and the Certificate of Use or other document showing lading on board the aircraft for a qualified use). Note also that responsibility for the fuel and compliance with the Customs Regulations and the C.D. remains with the principal on the bond covering the merchandise (the producer in this case) while the fuel is in the temporary holding tanks (paragraph C in the Action section of the C.D.).

So far as we are aware, the equation of line fill with quantities of fuel uplifted in the previous 24 hour period, as suggested in the inquirer's proposal, is inappropriate, in view of the procedures available under the C.D. Further, we are unable to agree on the limitation (to 1 percent) for duty-paid quantities on any given Customs Form 7512.

The foregoing procedures are applicable if the hydrants from which the aircraft turbine fuel is pumped into the aircraft or trucks carrying fuel to aircraft receive the fuel only from the temporary holding tanks. If fuel from other sources is commingled with the fuel from the temporary holding tanks in a common hydrant, more restrictive procedures would be applicable. In a series of recent rulings on the use of a single hydrant fueling system to transported bonded (from a Customs bonded warehouse) and non-bonded jet fuel, we described such procedures (see letter 222914, dated April 29, 1991, and related materials referred to therein, copies enclosed). The essential requirements developed in this correspondence may be applied in this case.

Basically, these requirements are that an issue meter (for the aircraft turbine fuel) must be at or immediately before the point where the fuel from the temporary holding tanks and other fuel are commingled and in close proximity to the hydrant of the refueling system. At the point of commingling, the issue meter and the fuel line for the other fuel must be equipped with check valves or similar devices to prevent any back-flow of the fuel from the temporary holding tanks. The system downstream of the issue meter must be configured in such a manner so that the fuel from the temporary holding tanks introduced into the system cannot be removed other than by being pumped into aircraft. Any fuel from the temporary holding tanks commingled in the system which is not laden on a qualified aircraft in the 24-hour period in which it was introduced into the system must be entered and duty thereon must be paid (Note: the 24-hour period, as used in this case, is defined as a 24 hour period beginning at 12:01 a.m. and ending at 12:00 midnight). Additionally, there must be satisfactory (to Customs) reconciliation of the use of the bonded fuel. Such reconciliation could consist of the bills for fuel withdrawn from the system by airlines using the fuel, including fuel for both qualifying and non-qualifying flights. Satisfactory evidence would also be required of any fuel which could be withdrawn from the system for other purposes downstream of the control points (described above) in the system and of the quantity of all fuel entering the controlled parts of the system.

With specific regard to the questions you raised in your memorandum transmitting the inquirer's proposal--

1. Temporary storage in non-bonded tanks is acceptable, under the terms outlined in this ruling.

2. You may ascertain the ownership and location, as well as any other facts about which you are concerned with regard to the temporary holding tanks, in the approval process for the tanks (see 19 CFR 18.24 and C.D. 3260- 34).

3. Metering gauges or other measuring devices and their location must be satisfactory to you. At a minimum, satisfactory measuring devices must be located at the exit to the FTZ, at the entry to the temporary holding tanks, at the exit from the temporary holding tanks, and at the point where the fuel is pumped into aircraft. If the fuel from the temporary holding tanks is commingled with other fuel, additional measuring devices, as described above, must be in the system. You may accept the producer's readings of the meters or Customs may do them (or do spot checks) (see 19 CFR 146.71(a), 18.7(b)).

4. The use of hydrants and/or tank trucks to fuel aircraft must be satisfactory to you. If other fuel is not commingled with the fuel from the temporary holding tanks in the refueling system, there should be tickets, or other documentation (showing quantity) for fuel pumped into trucks and bills for the fuel when it is pumped from the trucks into aircraft. If other fuel is commingled with the fuel from the temporary holding tanks, reconciliation would be as described above and in the materials enclosed on this kind of system. HOLDINGS:

(1) Privileged foreign status aircraft turbine fuel may be transported from a FTZ subzone in Lake Charles, Louisiana, to Hartsfield Airport in Atlanta, Georgia, via a bonded carrier pipeline and on arrival in Atlanta be temporarily stored in segregated, non-bonded tanks under the procedures described in the FACTS portion of this ruling, as modified and/or restricted in the LAW AND ANALYSIS above, (see cited Customs Regulations in 19 CFR Parts 10, 18, 113, and 146 and C.D.'s 3510-04 and 3260- 34).

(2) The aircraft turbine fuel described in ISSUE (1) may qualify for duty-free treatment under 19 U.S.C. 1309 if, from the temporary holding tanks it is introduced into an aircraft refueling hydrant and pumped into qualifying (under 19 U.S.C. 1309) aircraft under the procedures described in the FACTS portion of this ruling, as modified and/or restricted in the LAW AND ANALYSIS above, (see 19 CFR 18.24 and 10.63 and C.D. 3260- 34). If other fuel is commingled with the fuel from the temporary holding tanks in a common hydrant, more restrictive requirements (as described) would be applicable (i.e., basically, there must be a satisfactory measurement device for the fuel from the temporary holding tanks at or immediately before the commingling point and in close proximity to the hydrant, there must be some sort of satisfactory back-flow valve at the point of commingling to prevent any back-flow of the fuel to the temporary holding tanks, the system must be configured so that fuel from the temporary holding tanks cannot be removed other than being pumped into aircraft, fuel from the temporary holding tanks not pumped into a qualifying aircraft in the 24-hour period (as defined in this ruling) in which it was introduced into the system must be entered and duty paid, and there must be satisfactory reconciliation of the use of the bonded fuel).

Sincerely,

John Durant, Director

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