HQ 224103

October 19, 1992

DRA-4-CO:R:C:E 224103 PH

CATEGORY: Drawback

Deputy Regional Director

Commercial Operations Division

Pacific Region

RE: Internal Advice Request; Same Condition Substitution

Drawback; Possession; B. F. Goodrich Co. v. United States;

19 U.S.C. 1313(j)(2)

Dear Sir:

In your memorandum of June 11, 1991 (File: DRA-2-O:C:T:L

RMA), you requested a ruling on whether certain operations of

Astra Oil, Inc. (the Claimant) meet the possession requirements

for same condition substitution drawback. By memorandum of July

15, 1991 (File: DRA-4-CO:R:C:E 223292 TG), we returned the

request, pending a decision on the possession issue by the Court

of International Trade (CIT) in the case of B. F. Goodrich v.

United States. The Court has now issued a decision in that case

(Slip Op. 92-68, May 12, 1992, published in Vol. 26 Cust. Bull. &

Dec. No. 24, June 10, 1992, at page 11; modified by Slip Op. 92-

87, June 9, 1992, published in Vol 26 Cust. Bull. & Dec. No. 27,

at page 37). In view of the Court\'s decision in this case, you

again forwarded the internal advice request to this office for

our disposition with your memorandum of July 22, 1992 (File:

DRA-2-O:C:T:L RMA:dd).

We have considered the arguments made and the materials

submitted by the Claimant, as well as your comments. Our advice

follows. If you have any questions, please call on William G.

Rosoff or Paul G. Hegland of the Entry Rulings Branch in this

Division (202-927-0820).

FACTS:

The Claimant states that it is engaged in the business of

buying and selling petroleum products, such as gasoline,

kerosene, jet fuel, diesel oil, No. 2 and No. 6 oils, and other

products obtained from the distillation of crude oil. The

Claimant purchases foreign petroleum products for importation

into the United States. With regard to these petroleum products,

the Claimant is the importer of record into the United States and

makes entry and pays the applicable Customs duties. (In view of

the decision in B. F. Goodrich, supra, material relating to how

the Claimant may or may not possess the foreign petroleum

products after their importation is not set forth in this

ruling.)

The Claimant purchases domestic petroleum products from

United States producers and refiners for resale to domestic and

foreign buyers. The Claimant states that its purchases in the

United States are generally on an FOB basis and that it takes

physical delivery of the domestic products, obtains title and

assumes risk of loss directly from the seller\'s refinery or

terminal as the products pass the flange connection between the

supply facility and the receiving vessels at the load port.

Occasionally, the merchandise is first delivered to barges or

ships chartered by the Claimant or to shore tanks leased by the

Claimant for lightering or temporary storage. The Claimant

supervises and controls the receipt and loading of all of the

domestic products. It hires an inspector to gauge the quantity

and quality of the cargoes as they are loaded on board vessels in

the United States. The Claimant exclusively directs and controls

the movement of the vessels to the ports, terminals, and berths;

the date, time, and duration of loading; the quantity of domestic

cargoes loaded; and the dispersion (distribution) of the cargoes

on board the vessels and the tank-by-tank sequence and plan of

vessel loading.

The Claimant states that its domestic cargoes for export are

resold on a C&F United States port basis. The Claimant

negotiates and concludes the vessel charters and has the

exclusive right to direct and control the vessels until they are

prepared to depart United States waters. The Claimant generally

loads the exporting vessels at different United States ports or

terminals. The loading generally lasts several days. The

Claimant directly instructs the vessel masters regarding the

movement of the vessels and the loading of the cargoes and does

not relinquish control over the cargoes until the vessels are

fully loaded and the cargoes are tested. At that time the

Claimant\'s inspectors issue certificates of quality and quantity

covering the export cargoes and the vessel masters issue the

export bill of lading to the Claimant or to its bank or its

order. The Claimant transfers title and delivery to its foreign

customer at the port of exportation when the vessels are fully

loaded and the export bills of lading are issued. The Claimant

is the exporter and so identified on the bills of lading and the

Shipper\'s Export Declarations.

In addition to selling domestic cargoes for export on a C&F

United States port basis, the Claimant sells the cargoes to

foreign parties on a CIF, C&F or out-turn foreign port basis. In

these cases, the Claimant charters the ocean vessels, directs the

vessels to load cargoes at one or several United States locations

and completely controls the loading of such cargoes on board the

vessels and their transport to the foreign customers (usually in

Canada or Mexico). In the case of the C&F and CIF foreign port

sales, the Claimant receives the bill of lading and maintains

complete control over the vessels and the export cargoes until

the vessels arrive at their foreign destination(s) and the

merchandise is discharged. In the case of out-turn sales, the

Claimant maintains complete control until the cargoes are

actually received by the foreign purchaser(s). The Claimant is

the exporter and relinquishes title and delivery only when the

cargoes are discharged abroad.

The Claimant has filed and intends to file claims for

drawback, under the same condition substitution drawback law, for

the above-described operations. The Claimant asks that we

assume, for purposes of our consideration of this issue, that the

substituted merchandise (i.e., the merchandise to be exported) is

fungible with the designated imported merchandise, is exported

within three years of the date of importation of the designated

merchandise, is not used in the United States before such

exportation, and is in the same condition at the time of

exportation as was the designated merchandise at the time of its

importation. We so assume, although we note that the Claimant

must establish compliance with these and any other applicable

requirements in the law and regulations (see 19 CFR Part 191).

ISSUE:

May same condition substitution drawback under 19 U.S.C.

1313(j)(2) be granted in the situations described in the FACTS

portion of this ruling?

LAW AND ANALYSIS:

Under section 313(j)(2), Tariff Act of 1930, as amended (19

U.S.C. 1313(j)(2)), \"\[i\]f there is, with respect to imported

merchandise on which was paid any duty, tax, or fee imposed under

Federal law because of its importation, any other merchandise

(whether imported or domestic) that\-- (A) is fungible with such

imported merchandise; (B) is \[timely\] exported or destroyed under

Customs supervision; (C) before such exportation or destruction-

\- (i) is not used within the United States, and (ii) is in the

possession of the party claiming drawback \...; and (D) is in the

same condition at the time of exportation or destruction as was

the imported merchandise at the time of its importation; then

upon the exportation or destruction of such other merchandise

\[drawback may be granted\], but in no case may the total drawback

on the imported merchandise \... exceed 99 percent of that duty,

tax, or fee.\"

Before the decision in the B. F. Goodrich case, supra,

Customs had interpreted 19 U.S.C. 1313(j)(2) to require that the

designated imported merchandise and the substitute merchandise to

be exported both must be possessed by the same person during the

3-year period after importation of the designated imported

merchandise (see 19 CFR 191.141(h)). In B. F. Goodrich, supra,

the Court held that a drawback claimant under 19 U.S.C.

1313(j)(2) is not required to have possessed the designated

imported merchandise. The Court stated that \"it is clear that

the possession requirement attaches only to the exported goods,

not to the imported goods (Vol. 26 Cust. Bull. & Dec. No. 24, at

page 13, emphasis in original). The Court held that the

provision in the Customs Regulation concerning same condition

substitution drawback (19 CFR 191.141(h)) is invalid and must

have no force and effect (supra, at page 19; note, however, that

in the Supplemental Order modifying Slip Op. 93-68 (i.e., Slip

Op. 93-87) the Court enjoined Customs from enforcing section

191.141(h) \"to the extent that it requires possession of imported

merchandise and is inconsistent with this decision\", Vol. 26

Cust. Bull. & Dec. No. 27, at page 38). The Court stated that

\"\[section\] 1313(j)(2) requires only that a drawback claimant have

paid the duty, tax or fee for the privilege of importing the

goods\" (Vol. 26 Cust. Bull. & Dec. No. 24, at page 13). The

Court ordered Customs to \"continue to grant substitution same

condition drawback claims based on the requirements established

by 19 U.S.C. 1313(j)(2), and the case law construing it\" (Vol. 26

Cust. Bull. & Dec. No. 27, at page 38).

Accordingly, under 19 U.S.C. 1313(j)(2), a drawback claimant

is no longer required to have possessed the designated imported

merchandise. He or she is only required to \"have paid the duty,

tax or fee for the privilege of importing the goods\", as the

Court stated in B. F. Goodrich, supra, in addition to having

possessed the exported merchandise. In this case, the Claimant

did pay the duty for the privilege of importing the goods.

Therefore, assuming that all other requirements are met (as we

are asked to assume in this case), we must determine whether the

merchandise which was exported in this case was in the possession

of the Claimant before it was exported.

Initially, we note that \"exportation\" is defined as \"a

severance of goods from the mass of things belonging to this

country with the intention of uniting them to the mass of things

belonging to some foreign country\" (19 CFR 101.1(k), see also

Swan v. Finch v. United States, 190 U.S. 143 (1903), and 17 Op.

Att\'y Gen. 579 (1883)). The date of exportation has been held to

be \"that time at which the goods in question finally depart the

country of exportation\" (National Sugar Refining v. United

States, 84 Cust. Ct. 118, 120, C.D. 4849; 488 F. Supp. 907

(1980); see also, Roessler & Hasslacher Chemical Co. v. United

States, 1 Cust. Ct. App. 290, T.D. 31353 (1911), and Ruth F.

Sturm\'s Customs Law and Administration, pp. 274, 275 (1980)).

According to the last cited authority\--

In the case of merchandise imported by water, the

date of exportation is the date of the last

sailing of the importing vessel from the country

of exportation. Until the vessel finally clears,

there is no complete act of exportation, the

goods are still subject to control by the country

of exportation.

In this case, the Claimant states that it takes delivery,

obtains title, and assumes risk of loss with regard to the

domestic petroleum products to be exported at the time that the

products pass the flange connection from the refinery to: (1)

the exporting vessels at the port of loading; (2) barges or other

vessels chartered by the Claimant and used to lighter or

temporarily store the products before being loaded in the

exporting vessels at the port of loading; or (3) shore tanks

leased by the claimant for temporary storage of the products

before they are loaded in the exporting vessels at the port of

loading. In most cases, several cargoes at several different

United States ports will be loaded in the exporting vessels

before those vessels proceed to the foreign port(s) to which the

products are to be transported. However, in a few instances,

exporting vessels will be entirely loaded at one United States

port. The cargoes to be exported will be resold on either a C&F

United States port basis or a CIF, C&F, or out-turn foreign port

basis. In the case of foreign port basis resales, the Claimant

charters the exporting vessels as the charterer and in the case

of the United States port basis resales, the Claimant negotiates

and concludes the vessel charters but, apparently, the foreign

purchaser of the products is the charterer of the vessels.

In the instances in which the products are stored in shore

tanks leased by the Claimant for temporary storage before the

products are loaded in the exporting vessels at the port of

loading, the arrangement is tantamount to a \"bailment\". We have

addressed the applicability of the possession requirements for

same condition substitution drawback in a bailment situation (see

ruling 222500 dated July 16, 1990, referred to by the Claimant,

copy enclosed for your information). In this ruling we noted

that a bailment, in its ordinary legal signification, imports the

delivery of personal property by one person to another in trust

for a specific purpose, with a contract, express or implied, that

the trust shall be faithfully executed, and the property returned

or duly accounted for when the specific purpose is accomplished,

or kept until the bailor reclaims it, citing 8 Am. Jur. Bailment,

section 2 (1980). In this ruling we concluded that the fact that

merchandise was held in a bailment did not result in failure to

meet the possession requirements for same condition substitution

drawback, so long as the bailor (the party for whom the goods

were stored) had complete control and dominion over the

merchandise and was able to put it to any use chosen. Based on

the information available in the file, and in the absence of

evidence to the contrary, we conclude that the Claimant did have

possession with regard to the products stored in shore tanks

leased by the Claimant for temporary storage before the products

were loaded in the exporting vessels at the port of loading.

Similarly, we conclude that the Claimant did have possession

with regard to the products temporarily stored or lightered in

barges or other vessels chartered by the Claimant before they

were loaded in the exporting vessels at the port of loading. We

so conclude on the basis of the nature of vessel charters.

Basically, a charter is an agreement under which \"an entire ship

or some principal part thereof is let to a merchant\" (Great

Circle Lines, Ltd., v. Matheson & Co., Ltd., 681 F. 2d 121, 124

(1982), quoting from E. Jhirad and A. Sann, 1 Benedict on

Admiralty Sec. 225 (7th ed. 1981); see also Black\'s Law

Dictionary, pages 235-236 (6th ed. 1990), and Thomas J.

Schoenbaum, Admiralty and Maritime Law Sec. 10-1 (1987)).

Three general types of vessel charters may be distinguished,

according to the last-referenced authority (Schoenbaum, Sec. 10-

1). Those three varieties of vessel charters are demise or

bareboat charters, time charters, and voyage charters. It is

generally settled law that under a demise or bareboat charter,

\"the owner of the vessel must completely and exclusively

relinquish \'possession, command, and navigation\' thereof to the

demisee \... It is therefore tantamount to, though just short of,

an outright transfer of ownership\" (Guzman v. Pichirilo, 369 U.S.

698, 699-670 (1962); see also, Schoenbaum, Sec. 10-1, \"For most

purposes, the charterer in a demise is treated as an owner \...\").

The other two general types of vessel charters are described as

\"a contract to use a vessel for a particular period of time,

although the vessel owner retains possession and control\" (time

charter) and \"a contract for the hire of a vessel for one or a

series of voyages\" (voyage charter) (Schoenbaum, Sec. 10-1).

With regard to both of these kinds of vessel charters, it has

been stated that \"a bailment is created and the shipowner as

bailee is liable for any negligent damage to the goods carried\"

(Schoenbaum, Sec. 10-7).

Accordingly, unless the terms of the charters under

consideration provide otherwise, the Claimant, as charterer of

the barges or other vessels chartered by the Claimant for use in

lightering or temporarily storing the products before they were

loaded in the exporting vessels at the port of loading, possessed

the petroleum products to be exported (i.e., if the charters were

bareboat or demise charters, the products would have been in

vessels in which the claimant was tantamount to the owner (of the

vessels) and if the charters were time or voyage charters, the

products would have been held in the vessels in an arrangement

tantamount to a bailment). The same is true of the products

loaded in vessels chartered by the Claimant to transport (on a

CIF, C&F, or out-turn foreign port basis) them (i.e., the

products) to the foreign purchaser (i.e., whether the charters

were bareboat or demise charters, or time or voyage charters, the

Claimant possessed the products to be exported before they were

exported).

The remaining situation for consideration is that of

products which are not temporarily stored in shore tanks leased

by the Claimant or in barges or other vessels chartered by the

Claimant and are not lightered to the exporting vessels in barges

or other vessels chartered by the Claimant but are loaded in the

exporting vessels at the port of loading on a C&F United States

port basis. In these cases, although the Claimant may negotiate

and conclude the charter, the Claimant does so on behalf of the

foreign purchaser of the products and the foreign purchaser is

the charterer. In these cases, the Claimant states that it

supervises and controls the receipt and loading of the products

and it hires an inspector to gauge the products as they are load

in the exporting vessels. The Claimant states that it

exclusively directs and controls the movement of the vessels and

the loading of the products. Only when the vessels are fully

loaded and a bill of lading is issued (by the Claimant) and the

vessels are prepared to commence their ocean voyages, does

delivery occur.

In these instances the Claimant is arguing, in effect, that

it possessed the domestic petroleum products before exportation,

even though the products were, during the claimed possession, en

route to (apparently, via pipeline) and in the vessels in which

they were to be exported. The latter vessels were chartered by

the foreign party to which the products were to be exported. The

Claimant states that it had control over the products before they

were delivered to the foreign party. The control described by

the Claimant appears to be sufficient so that the Claimant could

have been, in effect, a sub-charterer (i.e., a charterer of the

vessels from the foreign purchaser charterer). If that was the

case, the Claimant would be considered to have possession of the

products in this circumstance as well. However, in the absence

of documentary evidence (e.g., a charter agreement or a contract

setting forth the responsibilities and rights of the Claimant and

the foreign purchaser between the time that the products are

loaded in the exporting vessels and the time that the vessels

finally depart from the United States), we are unable to rule on

this issue. Unless the Claimant can provide such evidence,

drawback should be denied (for lack of possession of the

merchandise to be exported) in this circumstance.

As you are probably aware, the recent court decisions

regarding same condition substitution drawback (i.e., B. F.

Goodrich, supra, and Central Soya Co., Inc. v. United States, 761

F. Supp. 133 (CIT 1991), affirmed, Appeal. No. 91-1324, January

28, 1992, Vol. 26 Cust. Bull. & Dec. No. 7, February 12, 1992,

page 9) have caused uncertainty in this area. Therefore, in

addition to meeting the requirements described above, with each

drawback claim the Claimant should be required to provide a

written statement that no drawback rights have been transferred

or will be transferred to any other party with regard to either

the imports or the exports which provide the basis for drawback

in the claim.

HOLDING:

Same condition substitution drawback under 19 U.S.C.

1313(j)(2) may be granted, assuming compliance with all other

applicable statutory and regulatory requirements, regardless of

whether the Claimant had possession of the imported merchandise,

when the Claimant imported the import merchandise and paid the

duties thereon and\--

\(1\) took delivery and obtained title of the substitute

domestic merchandise to be exported and stored that

merchandise in shore tanks leased by the Claimant prior to

loading the merchandise in the exporting vessels at the port

of loading,

\(2\) took delivery and obtained title of the substitute

domestic merchandise to be exported and stored that

merchandise in barges or other vessels chartered, under a

bareboat or demise charter, or a time or voyage charter, by

the Claimant prior to loading the merchandise in the

exporting vessels at the port of loading,

\(3\) took delivery and obtained title of the substitute

domestic merchandise to be exported and loaded that

merchandise in barges or other vessels chartered, under a

bareboat or demise charter, or a time or voyage charter, by

the Claimant for lightering the merchandise to the exporting

vessels at the port of loading, or

\(4\) took delivery and obtained title of the substitute

domestic merchandise to be exported and loaded that

merchandise in the vessels in which the merchandise was to

be transported to the foreign purchaser, if those vessels

were chartered by the Claimant under a bareboat or demise

charter, or a time or voyage charter.

Such drawback may not be granted, although the Claimant

imported the import merchandise and paid the duties thereon, with

regard to the substitute domestic merchandise which was loaded in

the vessels in which the merchandise was to be transported to the

foreign purchaser, if those vessels were chartered by the foreign

purchaser, and not the Claimant, in the absence of documentary

evidence such as a sub-charter agreement or a contract setting

forth the responsibilities and rights of the Claimant and the

foreign purchaser between the time that the merchandise is loaded

in the exporting vessels and the time that the vessels finally

depart from the United States.

Sincerely,

John Durant, Director

Commercial Rulings Division