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HQ 556059

August 9, 1991

CLA-2 CO:R:C:S 556059 WAW


District Director of Customs
#1 La Puntilla
Old San Juan, Puerto Rico 00907

RE: Request for Internal Advice regarding the country of origin of blended fuel oil from the Netherlands Antilles and the Bahamas; 19 U.S.C. 58c(a)(9); 071357; 544195; Coastal States Marketing

Dear Sir:

This is in response to your memorandum of November 14, 1990, concerning the country of origin of blended fuel oil from the Netherlands Antilles and the Bahamas. You state that your office has received a substantial number of fuel oil importations which raise the issue of the applicable country of origin of blended fuel oil.


Statia Terminals, Puerto Rico (P.R.) is an importer of fuel oils and marine gas oils into Puerto Rico. The information provided indicates that it is a growing operation of storage, blending and bunkering activities. Statia Terminals, P.R. owns several storage tanks for the purpose of buying and selling products in and out of Puerto Rico. Statia Terminals, P.R. is related to Statia Terminals, Netherlands Antilles (N.A.) which operates a large tankage/blending operation on the island of St. Eustatius, in the Netherlands Antilles. Statia Terminals, P.R. has been importing exclusively from Statia Terminals, N.A.

Statia Terminals, P.R. is claiming the Netherlands, Antilles as the country of origin for the petroleum products which are blended in their facilities in the Netherlands. Statia Terminals, P.R. states that they are exempt from paying merchandise processing user fees on all their entries, since products of the Netherlands Antilles (a designated beneficiary country (BC) under the Caribbean Basin Economic Recovery Act (CBERA)) are exempt from paying the merchandise processing user fees pursuant to 19 U.S.C. 58c(b)(7)(B)(iii). The importations being made by Statia Terminals, P.R. are fuel oils and gas oils blended into what Statia Terminals, N.A. claims is a new and different article of commerce with a new name, character and use. Certificates of origin were provided which state that the fuel oil is from two or more different countries (e.g., Saudi Arabia, Spain and Puerto Rico), each portion being offloaded from separate vessels into a shoretank and then reloaded on board a vessel mixed or blended together.

The Bahamas Oil Refining Company (BORCO), located in Freeport, Bahamas is another producer of blended fuel oils. BORCO is a wholly-owned subsidiary of the Chevron Corporation. A refinery exists in the Bahamas, but has remained idle since the summer of 1985. The information submitted indicates that the facility continues to be used for storage, blending and bunkering activities. Based on the certificate of origin associated with the BORCO importation, fuel oil from both Colombia and the United States was imported into the Bahamas, blended together, and then shipped to the United States.


Whether the blending of non-BC fuel oils in a BC constitutes a substantial transformation, thereby, warranting the conclusion that the fuel oil is solely a "product of" the BC for purposes of the exemption from the merchandise processing user fee.


Pursuant to 19 U.S.C. 58c(b)(7)(B)(iii), in addition to any other fee authorized by law, the Secretary of the Treasury is authorized to charge and collect fees for the processing of any merchandise imported into the U.S. However, this provision states that an article which is "a product of any country listed in general note 3(c)(V)" of the Harmonized Tariff Schedule Annotated (HTSUSA) is exempt from the merchandise processing fee. The Netherlands Antilles and the Bahamas are designated as BC's for purposes of the CBERA under Note 3(c)(V), HTSUSA. Accordingly, if the fuel oil under consideration here is a "product of" the Netherlands Antilles or the Bahamas, it will be exempt from any merchandise processing user fee upon importation into the U.S.

An article will be considered a "product of" a BC if it is either wholly the growth, product, or manufacture of a BC or a new or different article of commerce which has been grown, produced, or manufactured in the BC. See section 10.195(a), Customs Regulations (19 CFR 10.195(a)). Accordingly, the materials imported into the Netherlands Antilles and the Bahamas which are used in the production of the blended fuel oils must be substantially transformed into a new and different article of commerce to be considered a "product of" the BC.

The test for determining whether a substantial transformation occurs is whether an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. Texas Instruments, Inc. v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982).

To find a substantial transformation in this case, it is necessary to conclude that the blending of the fuel oil from non- BC's in the Netherlands Antilles and the Bahamas results in a new and different article of commerce. In the first case, the certificate of origin filed by Statia Terminals, P.R. in regard to one importation, indicates that the origins of the fuel oil are: 32.4% Saudi Arabia, 57.6% Spain and 10% Puerto Rico. Regarding the importation from the Bahamas, the only information we have states that the fuel oil originates from Colombia and the United States. Generally, Customs has held that the mere mixing of two substances in a BC, not involving a chemical reaction and without additional processing, does not result in a product of that BC. See 19 CFR 10.195(a)(2)(i) (articles which have undergone only a simple combining or packaging operation in a BC, such as the addition of anti-caking agents, preservatives, wetting agents, etc., are precluded from duty-free treatment under the CBERA).

However, in Headquarters Ruling Letter (HRL) 071357 dated July 18, 1983, Customs held that the mixing of gasoline from the Virgin Islands with foreign ethyl alcohol in a 9 to 1 ratio in the Virgin Islands results in an article which is considered to be produced in the Virgin Islands based on the fact that 90 percent of the content thereof was subjected to a substantial manufacturing process in the Virgin Islands. [See also HRL 544195 dated February 26, 1990 which held that although the addition of non-BDC gelling agent to ethanol produced in St. Kitts may not constitute a substantial transformation, the ethanol, which constitutes over 95 percent of the content of the products and the largest percentage of its value, is the result of a substantial manufacturing operation in St. Kitts from cane grown in St. Kitts.] Therefore, de minimis amounts of non-BC material included in the products should not preclude their duty-free treatment under the CBERA.

In Coastal States Marketing, Inc. v. United States, 646 F. Supp. 255 (CIT 1986), the court addressed the issue of whether the blending of gas oil from the Soviet Union and fuel oil from Italy constituted a substantial transformation so as to render the oil a "product of" Italy. Because there was no change in the appearance, character, identity or use of the Russian oil, the court held that the blending of gas oil from the Soviet Union and fuel oil from Italy did not result in a substantial transformation. The court stated that the imported components were each simply variant grades of the same product identified as fuel oil, with the resulting blend also identified as merely commingled fuel oil and not a new product distinct from the original Russian gas oil.

In the instant case, the mere blending of the fuel oils in the Bahamas does not constitute a substantial transformation. The information submitted does not indicate that there was a change in the appearance, character, identity or use of the fuel oil from the non-BC's to warrant the conclusion that the imported blend is solely a product of the Bahamas. There is no evidence that any processing was done to the product in the Bahamas other than the simple mixing of the fuel oils, or that the value was enhanced by this process. The de minimis principle that we applied in HRL's 071357 and 544195 would not apply in this case because the final product is not the result of any substantial manufacturing operation in the Bahamas. In addition, although a change in tariff classification is not determinative of a substantial transformation, here, the same classification of the component products and the final product indicates that the imported blend is not a new and different product. The imported component products as well as the blend are simply variant grades of the same product identified as fuel oil, with the resulting blend also identified as fuel oil and intended for essentially the same uses.

The above conclusion also applies to the petroleum products which are merely blended at the facility in St. Eustatius, Netherlands Antilles. However, the information submitted by Statia Terminals, N.A. on the processing methods used at the oil facility indicates that, at least in regard to some petroleum products, more than mere blending takes place. Statia Terminals, N.A. states that, under certain circumstances, the processing includes heating and the addition of various chemicals. Therefore, where the processing involves more than mere blending, we will require more detailed information concerning the nature and purpose of the additional processes before we are able to determine whether the resulting petroleum product constitutes a "product of" the Netherlands Antilles.


Based on the foregoing analysis, the mere blending of non- BC fuel oil in a BC does not constitute a substantial transformation of the fuel oil into a "product of" the BC. Therefore, the resulting blended product is not entitled to an exemption from merchandise processing user fees when imported into the U.S. Where the processing in the BC involves more than mere blending, a determination regarding whether the resulting product constitutes a "product of" the BC should be made on a case-by-case basis.


John Durant, Director

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