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HQ 228616

July 1, 2002

Mr. David A. Jacober

El Dorado Refining Company Division of
Equilon Enterprises LLC
P.O. Box 1121
El Dorado, Kansas 67042

RE: FTZ admission of petroleum products transported in bond through pipelines

Dear Mr. Jacober:

This is in response to your letter dated September 27, 1999, in which you request on behalf of Equilon Enterprises LLC a ruling “to determine the proper API, Harmonized Tariff Schedule (HTSUS) and TD 66-16 producibility factor to be used for admissions of crude that has been transported under the bonded pipeline procedures contained in 19 C.F.R. § 18.31.”


Using identifiers and data as exemplars of general events, you advise us that petroleum product (“Leona crude”) is unladed from transoceanic vessel to transcontinental pipeline at the port of Port Arthur (Nederland), Texas. As part of the process, a commercial gauger reports that the product tests at 24.4 degrees API.

We note that, for purposes of tariff classification and dutiability under the Harmonized Tariff Schedule of the United States (HTSUS), petroleum oils and oils obtained from bituminous minerals, whether “crude” of heading 2709, HTSUS, or “other” of heading 2710, HTSUS, are separated into mutually exclusive subheadings under each provision, depending upon the degrees A.P.I. at which they should test, the point of demarcation being at 25 degrees (testing < 25 degrees ≥ testing).

Following the unlading, 350,000 barrels (by volume of oil) of the more than 530,000 barrels (b.v.) are transported in bond by pipeline to be admitted to (Foreign Trade Zone) FTZ Subzone 161B at El Dorado, Kansas. To that end, a Customs Form 7512 (Transportation Entry and Manifest of Goods Subject to Customs Inspection and Permit) is completed by the bonded carrier (Texaco Refining and Marketing, Inc.) As part of the “DESCRIPTION AND QUANTITY OF MERCHANDISE, NUMBER AND KIND OF PACKAGES (Describe fully as per shipping papers)” the pipeline operator has included the data “API 24.4”, the notation “FTZ MERCHANDISE IN NON-PRIVILEGED FOREIGN STATUS – VIA MOBIL PIPELINE TO FTZ SUBZONE 161B (TEXACO)” and a tariff classification number, in this example “HTSUS no. 2709.00.1000”, the provision descriptive of crude petroleum oils testing less than 25 degrees A.P.I.

It is in the commercial nature of pipeline transportation of petroleum oils, crude or otherwise, that molecular tracking is not feasible; thus, the product unladed from a vessel and fed into a pipeline is not identical, is not the same as that product fed out of a pipeline. Because of this, a pipeline operator’s delivery ticket/s for petroleum oils on account of Customs at El Dorado, KS, would show, among other data, observed/ corrected specific gravities (or APIs) other than those noted for the product fed into the pipeline once unladed from a vessel. Examples in your scenario are 24.4 degrees API reported by the unlading gauger and 25.5 to 27.4 degrees API reported by the gauger at the time of admission into the FTZ. This “before and after” circumstance is referred to by you as “a shift in API gravity [that] occurred during the movement.” The contracts among Texaco Refining and Marketing, Inc., the pipeline operator, G.A. Becnal, Inc., the importer as identified on the CF-7512, Osage Pipe Line company, the carrier at the El Dorado terminal, and Equilon have not been furnished. Also not furnished was the contract of sale between Equilon and the foreign supplier of the crude oil in issue. It is stated that (because of this transportation shift) it is the accepted practice of the industry to consider the unladed product (with API of 24.4) and the subzone admitted product (varying API in excess of 25 API) as being commercially interchangeable; for purposes of this decision, we take that statement at face value. The movement is metered and the API is recorded by a Customs approved custody quality meter at the boundary of the FTZ. One or more of Customs Form 214 are generated for admission of the product into the FTZ and product data set forth on a given CF-214 are obtained from this boundary/admission metering. The one or more CF-214s yield a total quantity of product admitted to the refinery subzone and this total quantity matches (with overages or shortages properly documented and explained) the quantity of product set forth on the CF-7512 and covered by the transportation bond.

Equilon purchases crude types with API ranging between 23 and 27, inclusive, for processing in the El Dorado subzone, based on the production characteristics of the crude and the existing regional market demands. This API range, as a whole, falls under two, mutually exclusive HTSUS provisions, heading 2709.00.1000 (below 25 API) and heading 2709.00.2000 (API of 25 or more). In addition to the HTSUS determination, the API is also the determinative in categorizing the producibility characteristics of the feedstock for FTZ accounting purposes under 19 CFR § 146.95(a)(1). In particular, crude with 12 < API < 25 is a Class II Crude under T.D. 66-16 and crude with 25 ≤ API < 45 is a Class III Crude under T.D. 66-16.


Whether the petroleum product specific gravity found at the time of receipt by the pipeline or the specific gravity found at the zone is to be used for the admission of petroleum product admitted in non-privileged foreign status.


Title VI of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182 (December 8, 1993), popularly known as the Customs Modernization Act (Mod Act), significantly amended certain Customs laws. Section 664 added a new section 553a to the Tariff Act of 1930 (19 U.S.C. 1553a), to account for bonded merchandise transported by pipeline.

The background to, and reasons for, the addition of 19 U.S.C. 1553a to the Customs laws are explained in the legislative history for the Act (H.Rep.No. 361, ibid., and S.Rep.No. 189, ibid.). Prior to enactment of § 1553a, there was no provision in the Customs laws or regulations governing the transportation of bonded merchandise by pipeline. The general provisions governing transportation in bond (entry for immediate transportation and entry for transportation and exportation; sections 552 and 553, Tariff Act of 1930, as amended (19 U.S.C. 1552, 1553)), did not authorize the commingling of bonded merchandise with non-bonded merchandise in the transportation. Most merchandise transported by pipeline is commingled and is susceptible to quantitative accounting (see H.Rep.No. 189, ibid.). The new provision permits the effective use of modern fuel transportation systems and will reduce administrative costs and paperwork for the industry and the Government.

Under the new 19 U.S.C. 1553a, merchandise in Customs custody that is transported by pipeline may be accounted for on a quantitative basis. The term "merchandise in Customs custody," is meant to comprise bonded merchandise (e.g., merchandise which has not been entered for consumption, including merchandise transported in bond, merchandise from a Customs bonded warehouse, or merchandise from a foreign trade zone) (see legislative history for this provision in H.R.Rep.No. 103-361, 103d Cong., 1st Sess., Pt. 1, 150-151 (1993), and S.Rep.No. 103-189, 103d Cong., 1st Sess., 97 (1993)). Section 1553a provides for the use of the bill of lading or equivalent document of receipt, issued by the pipeline carrier to the shipper and accepted by the consignee, to account for the quantity of merchandise transported and to maintain the identity of that merchandise. As provided in Section 18.31, Customs Regulations, 19 CFR 18.31,

When a pipeline is the only carrier of bonded merchandise and there is no transfer to another carrier, the bill of lading or equivalent document or receipt issued by the pipeline operator to the shipper shall be included with, and made a part of, the Customs in-bond document (see § 18.2(b)). . . . The pipeline operator shall be responsible for any discrepancies, including shortages, irregular deliveries, or nondeliveries at the port of destination or exportation (see § 18.8).

19 CFR 18.31(c).

The initial bonded carrier shall be responsible for shortage, irregular delivery, or nondelivery at the port of destination or exportation of bonded merchandise received by it for carriage. An acceptable proof of proper delivery of bonded merchandise to customs at the port of destination or exportation is a properly receipted copy of the in-bond document (the appropriate Customs Form 7512 or 7520, or the carnet). . . .

In addition to the penalties [liquidated damages] described in paragraph (b) of this section, the carrier shall pay any internal-revenue taxes, duties, or other taxes accruing to the United States on the missing merchandise, together with all costs . . . .

19 CFR 18.8(a),(c).

Section 146.22 "Admission of merchandise to a zone", 19 CFR 146.22, provides, in part, as follows:

(a) Identification. All merchandise will be recorded in a receiving report or document using a zone lot number or unique identifier. All merchandise, except domestic status merchandise for which no permit for admission is required under § 146.43, will be traceable to a Customs Form 214 and accompanying documentation.

(b) Reconciliation. Quantities received will be reconciled to a receiving report or document such as an invoice with any discrepancy reported to the port director as provided in § 146.37.

Compliance with the foregoing procedures lay the groundwork for applying for admission of merchandise into a zone. Generally, see "Subpart C - Admission of Merchandise to a Zone", 19 CFR Part 146, Subpart C. In particular,

Merchandise may be admitted into a zone only upon application on a uniquely and sequentially numbered Customs Form 214 ("Application for Foreign Trade Zone Status Designation") and the issuance of a permit by the port director. Exceptions to the customs Form 214 requirement are for merchandise temporarily deposited (§ 146.33), transiting merchandise (§ 146.34), or domestic merchandise admitted without permit (§ 146.43). The applicant shall present the application to the port director and shall include a statistical copy on Customs Form 214-A for transmittal to the Bureau of Census, unless the applicant has made arrangement for the direct transmittal of statistical information to that agency.

19 CFR 146.32(a).

A direct reading of the foregoing regulations leads us to the following conclusions. First, in recognition of the intent of the drafters of new section 1553a, Customs addressed with specificity the question of accounting on a quantitative basis for pipeline petroleum; thus, the "pipeline operator shall be responsible for any discrepancies, including shortages, irregular deliveries, or nondeliveries at the port of destination or exportation." 19 CFR 18.31(c), supra. cf. 19 CFR 18.8(a) for nearly identical language on the responsibility of other common carriers. Second, the language in various regulations pertaining to zone admission requirements and procedures is repetitive and mandatory: "All merchandise . . . will be traceable to a Customs Form 214 . . .", 19 CFR 146.22(a); "Merchandise may be admitted into a zone only upon application on a uniquely and sequentially numbered Customs Form 214 . . ." 19 CFR 146.32(c).

Finally, we note that, while no deposit of estimated duties is applicable in the case of merchandise entered for transportation under bond (see 19 CFR 141.101(e)), this does not excuse the pipeline operator from estimating the amount of duties, in order to properly secure his bond, the chief purpose of which is to protect the revenue. In this process, testing for the API is necessary to properly suggest the correct classification from which duties would flow. The test at the port is for purposes of the pipeline operator's bond; the test at the zone for admission thereto is for an entirely different purpose - to secure the base data to apply to the producibility formulation set forth in T.D. 66-16.


Based upon Equilon's explanation for the discrepancy between the petroleum's specific gravity reported at the time of the bonded movement and the petroleum's specific gravity reported at the time of admission into the foreign trade zone, the latter reported specific gravity is to be used for admission and producibility purposes.


William G. Rosoff, for

John A. Durant, Director
Commercial Rulings Division

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