[Federal Register Volume 59, Number 43 (Friday, March 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5023]
[[Page Unknown]]
[Federal Register: March 4, 1994]
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DEPARTMENT OF THE TREASURY
Customs Service
19 CFR Part 146
RIN 1515-AB20
Petroleum Refineries in Foreign Trade Subzones
AGENCY: U.S. Customs Service, Department of the Treasury.
ACTION: Proposed rule.
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SUMMARY: This document invites public comment on a proposed revision of
the notice of proposed rulemaking published in the Federal Register on
August 10, 1992 (57 FR 35530), which would add special procedures and
requirements to the Customs Regulations governing the operations of
crude petroleum refineries approved as foreign trade subzones. The
proposed rule is necessary to implement a section of the Technical and
Miscellaneous Revenue Act of 1988 which amended the Foreign Trade Zone
Act to make specific provision for petroleum refinery subzones. Customs
has significantly revised the initial notice of proposed rulemaking as
a result of the extensive and varied input received from the oil
refinery and foreign trade zone communities, as well as from other
interested parties, in response to the initial notice.
DATES: Comments must be received on or before May 3, 1994.
ADDRESSES: Comments (preferably in triplicate) must be submitted to
U.S. Customs Service, ATTN: Regulations Branch, Franklin Court, 1301
Constitution Avenue, NW., Washington, DC 20229, and may be inspected at
the Regulations Branch, 1099 14th Street, NW., suite 4000, Washington,
DC.
FOR FURTHER INFORMATION CONTACT: Legal aspects: Cari Berdut, Entry
Rulings Branch, (202-482-7040).
Operational aspects: Louis Hryniw, Office of Regulatory Audit,
(202-927-1100).
SUPPLEMENTARY INFORMATION:
Background
On August 10, 1992 (57 FR 35530), Customs published a document in
the Federal Register, proposing to amend the Customs Regulations to add
special procedures and requirements governing the operations of crude
petroleum refineries approved as foreign trade subzones, in
implementation of section 9002 of the Technical and Miscellaneous
Revenue Act of 1988, which amended the Foreign Trade Zones Act, 19
U.S.C. 81c(d), to make specific provision for petroleum refinery
subzones.
Briefly, as stated in the August 10, 1992, notice of proposed
rulemaking, the amendment obviates the need to determine exactly when
and where in the manufacturing process crude and other feedstocks
become other products. In so doing, it permits refiners as well as
Customs to assess the relative value of such multiple products at the
end of the manufacturing period from which such products were produced,
when the actual quantities of these products resulting from the
refining process can be measured with certainty. Also, the amendment
permits the products refined in a subzone during a manufacturing period
to be attributed to given crude or other feedstocks introduced into
production during the period, to the extent that such products were
producible (could have been produced) therefrom in the quantities
removed from the subzone.
By a document published in the Federal Register on September 14,
1992 (57 FR 41896), Customs extended the public comment period for the
proposed rule until December 8, 1992. Subsequently, by a document
published in the Federal Register on November 24, 1992 (57 FR 55198),
Customs further extended the public comment period until February 8,
1993, and gave notice of a public meeting which was held on December 15
and 16, 1992, concerning the proposed amendments.
As a result of the extensive and varied input received from the oil
refinery and foreign trade zone communities, as well as from other
interested parties, in response to the initial notice of proposed
rulemaking and the public meeting, Customs has decided to significantly
revise its initial notice, and is requesting additional public comment
on the revised proposed rule.
The following discussion includes a summary of the various comments
received in response to the August 10, 1992, notice of proposed
rulemaking, together with an explanation and analysis regarding the
sections proposed to be added, eliminated or further revised. The
proposed rule as revised is thereafter set forth.
Discussion of Comments
Comment: Most commenters favor deletion of proposed Sec. 146.92(a),
involving the definition of ``Assay''.
Response: Customs agrees. Laboratory analyses are sufficient to
verify feedstock characteristics and provide API gravity.
Comment: Most commenters indicated that the cumulative entry
activity report defined in proposed Sec. 146.92 (c) is only required in
the Houston District and, therefore, favor its deletion because the
information is already contained in the subzone activity report.
Response: Upon further consideration, Customs has determined to
delete proposed Sec. 146.92 (c), (d), (h) and (l), involving the report
in question, as well as certain related reports, specifically, the duty
and user fee report, the inventory disposition report, and the product
shipment report, all of which were principally addressed in proposed
Sec. 146.96 which, as a result, is also deleted from the proposed rule.
Comment: Commenters indicated that the definition in proposed
Sec. 146.92(e) concerning ``feedstock'' should be expanded to include
natural gas and other hydrocarbons to comply with EPA regulations.
Response: Customs agrees and has so modified the wording of
proposed Sec. 146.92(e) (now redesignated as Sec. 146.92(b)).
Comment: Many commenters noted that proposed Sec. 146.92(f)
defining ``final product'' should also include products consumed in the
zone.
Response: Customs agrees with this suggestion and has so changed
proposed Sec. 146.92(f) (now redesignated as Sec. 146.92(d)).
Comment: Most commenters indicated that fungibility is already
defined in Sec. 146.1(b), and that a definition for this term is not
needed in the proposed subpart if the assay requirement is deleted.
Response: Customs agrees. Proposed Sec. 146.92(g) has been
eliminated.
Comment: A majority of commenters propose that the ``manufacturing
period'' coincide with the normal accounting cycle.
Response: After reviewing the comments, particularly those of the
Congressional sponsors of the legislation, Customs is convinced that a
literal interpretation of the statutory language would not be
appropriate. Therefore, proposed Sec. 146.92(i) (now redesignated as
Sec. 146.92(e)) dealing with this matter has been reworded. The
definition allows an operator to make the attribution of a final
product either during the period in which the final product was
produced (even if not consumed or removed from the refinery subzone
during that same period) or the period in which the final product was
consumed or removed from the zone (even if the final product was made
in a prior period). The selection of the method is at the operator's
option, but once selected, the method must be used consistently.
Comment: Most commenters suggested that they should be permitted to
use standard product values, based on published prices.
Response: Customs agrees that standard product values, based on
published prices, may be utilized, but that this must be done on a
consistent basis. Thus, proposed Sec. 146.92(j) (now redesignated as
Sec. 146.92(g)), involving the price of products in the subzone, has
been reworded.
Comment: Most commenters suggested rewording proposed
Sec. 146.92(n) which defined the ``relative value'' of products
produced in the subzone.
Response: The definition of ``relative value'' proposed by the
commenters has been included in proposed Sec. 146.92(n) (now
redesignated as Sec. 146.92(i)) because it states the same information
as the proposed regulation, albeit more succinctly.
Comment: Many commenters noted that, generally, the ``time of
separation'' will coincide with the ``manufacturing period''.
Response: Customs agrees that the ``time of separation'' coincides
with the ``manufacturing period''. Therefore, proposed Sec. 146.92(p)
(now redesignated as Sec. 146.92(k)) defining the time of separation
has been modified accordingly.
Comment: Most commenters favor deletion of proposed Sec. 146.92(q)
which defines the term ``unique identifier'' (UIN) because this term is
already defined in Sec. 146.1(b)(19).
Response: Customs agrees and, therefore, this definition has been
deleted.
Comment: Most commenters proposed eliminating proposed
Sec. 146.93(a)(1) regarding the use of the UIN (unique identifier)
because this matter is already covered elsewhere in part 146.
Response: Customs agrees that existing Sec. 146.22 adequately
addresses this matter, and, therefore, paragraphs (a), (a)(1) and
(a)(2) of proposed Sec. 146.93 have been eliminated.
Comment: A number of commenters suggested that proposed
Sec. 146.93(b)(1) be deleted because zone admittance is already covered
in subpart C of part 146.
Response: Customs agrees. Proposed Sec. 146.93(b)(1) has been
deleted.
Comment: Most commenters suggest deletion of the requirement that
domestic feedstock be assigned a UIN, as provided in proposed
Sec. 146.93(c)(1), because existing regulations do not require that a
Customs Form (CF) 214 be filed on domestic feedstocks.
Response: Customs agrees that a CF 214 is not required, and,
therefore, proposed Sec. 146.93(c)(1) has been deleted. Nevertheless,
it must be noted that a domestic feedstock must be assigned a UIN under
existing regulations.
Comment: A few commenters suggested that references to T.D. 66-16
concerning the attribution of final product to given feedstock be
eliminated from proposed Sec. 146.93(d)(1) because this is already
discussed elsewhere in the proposed regulations.
Response: Customs agrees and, therefore, the proposed language has
been duly modified and the section redesignated as proposed
Sec. 146.93(a)(1). Also, proposed Sec. 146.93(d)(2) (now redesignated
as Sec. 146.93(a)(3)) dealing with attribution using alternative
inventory control has been revised to make reference to the use of
FIFO; the use of FIFO is illustrated in an Appendix which has been
added to the revision of proposed subpart H. In addition, proposed
Sec. 146.93(d)(3) dealing with ``stock in process'' has been deleted,
in concert with the deletion of this term from the definition section;
in its place, a new proposed Sec. 146.93(a)(2) makes reference to the
use of actual production records in attributing product to feedstock.
Comment: Commenters suggested that products consumed within the
zone should be included in proposed Sec. 146.93(e).
Response: This suggestion has been incorporated in proposed
Sec. 146.93(e) (now redesignated as Sec. 146.93(b)).
Comment: Commenters objected to the language of proposed
Sec. 146.94(a) regarding the introduction of feedstock into the
refining process because they believe it requires a direct
identification system.
Response: The commenters have misread this section, the purpose of
which is to establish the amount and identity of the feedstocks
available for attribution during each manufacturing period. The
proposed language has been modified to eliminate any such
misunderstanding.
Comment: Most commenters suggested deletion of the sentence, ``This
date establishes the end of the manufacturing period.'', in proposed
Sec. 146.94(b).
Response: Given the proposed definition of ``manufacturing period''
this suggested change has been adopted.
Comment: Commenters indicated that the language contained in
proposed Sec. 146.94(c) regarding the removal of product from a
refinery subzone is specific to a calendar week. However, an accounting
period may be greater than a week.
Response: While a manufacturing or accounting period may be greater
than a week, there is no authority to permit a consumption entry
covering products removed from a zone to exceed one week. Thus, the
language of Sec. 146.94(c) remains in substance as originally proposed.
However, Customs will reevaluate the possibility of permitting monthly
entries, in light of the Customs modernization portion of the recently
passed North American Free Trade Agreement Implementation Act,
particularly Sec. 637.
Currently, a refiner who desires to make attributions on the basis
of a monthly manufacturing or accounting period must attribute and make
any required relative value calculation by attributing current removals
or consumptions to final products that were produced in a prior
manufacturing or accounting period. A refiner who reports removals and
consumption on a weekly basis and who elects to attribute a final
product that is removed or consumed, in the same week that it is
produced, must make the appropriate attribution and relative value
calculation for that week.
Comment: Commenters noted that attribution is more appropriately
dealt with in proposed Sec. 146.99 (now redesignated as proposed
Sec. 146.96), rather than in proposed Sec. 146.95 titled ``Feedstock
inventories''.
Response: Customs agrees with the comments that attribution can be
dealt with more appropriately in proposed Sec. 146.99 (now redesignated
as Sec. 146.96); therefore, proposed Sec. 146.95 concerning feedstock
inventories has been deleted. Proposed Sec. 146.97 titled
``producibility'' is now renumbered as Sec. 146.95.
Comment: Commenters suggested deleting the last sentence and four
reports listed in proposed Sec. 146.96 concerning a subzone activity
report.
Response: As already stated above, this proposed section has been
deleted in its entirety.
Comment: Commenters noted that proposed Sec. 146.97(a) must provide
for products consumed within the subzone.
Response: Customs agrees with the comments that proposed
Sec. 146.97(a) must provide for consumption within the zone. Therefore,
appropriate language has been included in proposed Sec. 146.97(a) (now
redesignated as Sec. 146.95(a)).
Comment: Comments indicated that, as currently worded, proposed
Sec. 146.98(a) is limited to operators using producibility.
Response: Proposed Sec. 146.98(a) (now redesignated as
Sec. 146.93(c)) has been modified to avoid any misunderstanding in this
respect.
Comment: Commenters stated that attributions are binding except for
adjustments needed upon reconciliation.
Response: Proposed Sec. 146.99(a) (now redesignated as
Sec. 146.96(a)) has been modified to address this concern.
Reconciliation is limited to changes in amounts, and mathematical and
clerical errors, but does not include changes in the identity of the
feedstock.
Comment: Commenters noted that other inventory control methods are
already covered in proposed Sec. 146.93(d)(2), so there is no need for
proposed Sec. 146.99(c).
Response: Customs has decided to essentially revise former proposed
Sec. 146.99(c) and to make it the subject of a new Sec. 146.97
regarding the approval of other recordkeeping systems for subzone oil
refinery operations. As already noted above, proposed Sec. 146.93(d)(2)
(now redesignated as Sec. 146.93(a)(3)) has been revised to refer
exclusively to the use of the FIFO method of inventory accounting.
Comment: Commenters also indicated that the proposed regulations do
not take into account the three relative value methods listed in
proposed Sec. 146.98(b). Commenters also pointed out that the proposed
regulation does not provide a mechanism to attribute consumption within
the zone.
Response: Customs agrees and has determined to eliminate proposed
Sec. 146.98(b) from the revised proposed rule; and proposed
Sec. 146.98(c) is now redesignated as Sec. 146.93(e). In addition, as
previously emphasized, revised Secs. 146.93, 146.95 and 146.96 now
provide for consumption within the subzone. Moreover, Customs has
decided to add an Appendix to proposed subpart H as revised in order to
give detailed examples of attribution as well as the relative value
calculation.
Conclusion
After careful consideration of the comments received and further
review of the matter, it has been determined to republish the proposal
with the modifications noted and to allow interested persons an
additional opportunity to submit comments on the proposal. Also,
Customs has determined to add definitions in the revised proposed rule
for ``feedstock factor'', ``petroleum refinery'', and ``refinery
operating unit'', and to eliminate the definitions for ``protection of
the revenue'' and ``stock in process'' formerly set forth in proposed
Sec. 146.92(m) and (o), respectively. Commenters on the original
proposal need not resubmit their comments. They will be considered
along with any new comments received in response to this notice.
Comments
In developing the final regulations, any written comments
(preferably in triplicate) that are timely submitted to Customs will be
given consideration, along with the comments already submitted in
response to the August 10, 1992, notice of proposed rulemaking.
Comments submitted will be available for public inspection in
accordance with the Freedom of Information Act (5 U.S.C. 552),
Sec. 1.4, Treasury Department Regulations (31 CFR 1.4), and
Sec. 103.11(b), Customs Regulations (19 CFR 103.11(b)), during regular
business days between the hours of 9 a.m. and 4:30 p.m., at the
Regulations Branch, 1099 14th Street, NW., suite 4000, Washington, D.C.
Regulatory Flexibility Act and Executive Order 12866
For the reasons explained in the peamble to the prior notice of
proposed rulemaking and to this document, pursuant to the provisions of
the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), it is hereby
certified that the proposed amendments set forth in this document, if
adopted, will not have a significant economic impact on a substantial
number of small entities. Accordingly, they are not subject to the
regulatory analysis or other requirements of 5 U.S.C. 603 and 604. This
proposed rule is not a ``significant regulatory action'' under E.O.
12866.
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking is in Secs. 146.93-146.97. The respondents would be
businesses. The information is necessary in order to effectively
supervise and control the activities of oil refineries operating in
foreign trade subzones, and to ensure compliance with the requirements
of law as well as the protection of the revenue.
The collection of information contained in this notice of proposed
rulemaking has already been approved by the Office of Management and
Budget (OMB) under 1515-0189, in connection with the prior notice of
proposed rulemaking.
Estimated total annual reporting and/or recordkeeping burden: 18,824
hours
Estimated average annual burden per respondent and/or recordkeeper:
2,353 hours
Estimated number of respondents and/or recordkeepers: 8
Estimated annual frequency of responses: 52
Comments on the collection of information should be sent to the
Office of Management and Budget, Attention: Desk officer for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, D.C. 20503, with copies to the U.S. Customs
Service at the address previously specified.
Drafting Information
The principal author of this document was Russell Berger,
Regulations Branch, U.S. Customs Service. However, personnel from other
offices participated in its development.
List of Subjects in Part 146
Customs duties and inspection, Exports, Foreign trade zones,
Imports, Reporting and recordkeeping requirements.
Proposed Amendment
For the reasons set forth in the preamble, it is proposed that part
146, Customs Regulations (19 CFR part 146) be amended as follows:
PART 146--FOREIGN TRADE ZONES
1. The general authority citation for part 146 is revised to read
as follows:
Authority: 19 U.S.C. 66, 81a-u, 1202 (General Note 17,
Harmonized Tariff Schedule of the United States), 1623, 1624.
* * * * *
2. It is proposed to amend part 146 by adding a new subpart H
thereto to read as follows:
Subpart H--Petroleum Refineries in Foreign Trade Subzones
Sec.
146.91 Applicability.
146.92 Definitions.
146.93 Inventory control and recordkeeping system.
146.94 Records concerning establishment of manufacturing period.
146.95 Producibility.
146.96 Methods of attribution.
146.97 Approval of other recordkeeping systems.
Appendix to Subpart H--Examples of Attribution and Relative Value
Subpart H--Petroleum Refineries in Foreign Trade Subzones
Sec. 146.91 Applicability.
This subpart applies only to a petroleum refinery (as defined
herein) engaged in refining petroleum in a foreign trade zone or
subzone. This subpart also applies only to feedstocks (crude petroleum
and derivatives thereof) which are introduced into production in a
refinery subzone. Further, the provisions relating to zones generally,
which are set forth elsewhere in this part, including documentation and
document retention requirements, and entry procedures, such as weekly
entry, shall apply as well to a refinery subzone, insofar as applicable
to and not inconsistent with the specific provisions of this subpart.
Sec. 146.92 Definitions.
The following definitions are applicable to this subpart H:
(a) Attribution. ``Attribution'' means the association of a final
product with its source material by application of:
(1) Actual operating records;
(2) Producibility under T.D. 66-16; or
(3) Other Customs approved method.
(b) Feedstocks. ``Feedstocks'' means crude petroleum or
intermediate product that is used in a petroleum refinery to make a
final product.
(c) Feedstock factor. ``Feedstock factor'' means the relative value
of final products utilizing T.D. 66-16 (see Sec. 146.92(h)), and which
takes into account any loss or gain.
(d) Final product. ``Final product'' means any petroleum product
that is produced in a refinery subzone and thereafter removed therefrom
or consumed within the zone.
(e) Manufacturing period. ``Manufacturing period'' means a period
selected by the refiner which shall not exceed a calendar month, for
which attribution to a source feedstock must be made and, if required,
a relative value assigned for every final product made, consumed in or
removed from the refinery subzone.
(f) Petroleum refinery. ``Petroleum refinery'' means a facility
that refines a feedstock listed on the top line of the tables set forth
in T.D. 66-16 into a product listed in the left column of the tables
set forth in T.D. 66-16.
(g) Price of product. ``Price of product'' means the average per
unit market value of each final product for a given manufacturing
period or the published standard product value if updated each month.
(h) Producibility. ``Producibility'' is a method of attributing
products to feedstocks for petroleum manufacturing in accordance with
the Industry Standards of Potential Production set forth in T.D. 66-16.
(i) Relative value. ``Relative value'' means a value assigned to
each final product attributed to the separation from a privileged
foreign feedstock based on the ratio of the final product's value
compared to the privileged foreign feedstock's duty.
(j) Refinery operating unit. ``Refinery operating unit'' means a
unit in a refinery in which feedstock is processed such as a
distillation tower, cracking tower or reformer.
(k) Time of separation. ``Time of separation'' means the
manufacturing period in which a privileged foreign status feedstock is
deemed to have been separated into two or more final products.
Sec. 146.93 Inventory control and recordkeeping system.
(a) Attribution. (1) Producibility. The producibility method of
attribution requires that records be kept to attribute final products
to feedstocks which have been introduced into a refinery operating unit
during the current or prior manufacturing period.
(2) Actual production records. An operator may use its actual
production records as provided for under Sec. 146.96(b) of this
subpart.
(3) Other inventory method. An operator may use the FIFO (first-in,
first-out) method of accounting (see Sec. 191.22(c) of this chapter).
The use of this method is illustrated in the Appendix to this subpart.
(4) Feedstock not eligible for attribution. Feedstock admitted into
the refinery subzone, until it is introduced into a refinery operating
unit in the subzone, is not eligible for attribution to any final
product.
(b) Consumption or removal of final product. Each final product
that is consumed in or removed from a refinery subzone must be
attributed to a feedstock introduced into a refinery operating unit
during the current or a prior manufacturing period. Each final product
attributed as being produced from the separation of a privileged
foreign status feedstock must be assigned the proper relative value as
set forth in paragraph (c) of this section.
(c) Relative value. A relative value calculation is required when
two or more final products are produced as the result of the separation
of privileged foreign status feedstock. Ad valorem and compound rates
of duty must be converted to specific rates of duty in order to make a
relative value calculation.
(d) Consistent use required. The operator must use the selected
method and the price of product consistently (see Sec. 146.92(g)) of
this subpart).
Sec. 146.94 Records concerning establishment of manufacturing period.
(a) Feedstock charged into a refinery operating unit. The operator
must record the date and amount of each feedstock charged into a
refinery operating unit during each manufacturing period.
(b) Final product consumed in or removed from subzone. The operator
must record the date and amount of each final product consumed in, or
removed from the subzone.
(c) Consumption or removal. The consumption or removal of a final
product during a week may be considered to have occurred on the last
day of that week for purposes of attribution and relative value
calculation instead of the actual day on which the removal or
consumption occurred, unless the refiner elects to attribute using the
FIFO method (see Example II to Appendix to this subpart).
(d) Gain or loss. A gain or loss that occurs during a manufacturing
period must be taken into account in determining the attribution of a
final product to a feedstock and the relative value calculation of
privileged foreign feedstocks. Any gain in a final product attributed
to a nonprivileged foreign status feedstock is dutiable if entered for
consumption unless otherwise exempt from duty.
(e) Determining gain or loss; acceptable methods.
(1) Converting volume to weight. Volume measurements may be
converted to weight measurements using American Petroleum Institute
conversion factors to account for gain or loss.
(2) Calculating feedstock factor to account for volume gain. A
feedstock factor may be calculated by dividing the value per barrel of
production per product category by the quotient of the total value of
production divided by all feedstock consumed. This factor would be
applied to a finished product that has been attributed to a feedstock
to account for volume gain.
(3) Calculating volume difference. Volume difference may be
determined by comparing the amount of feedstocks introduced for a given
period with the amount of final products produced during the period,
and then assigning the volume change to each final product
proportionately.
Sec. 146.95 Producibility.
(a) Industry standards of potential production. The industry
standards of potential production on a practical operating basis
necessary for the producibility attribution method are contained in
tables published in T.D. 66-16. With these tables, a subzone operator
may attribute final products consumed in, or removed from, the subzone
to feedstocks during the current or a prior manufacturing period.
(b) Attribution to product or feedstock not listed in T.D. 66-16.
For purposes of attribution, where a final product or a feedstock is
not listed in T.D. 66-16, the operator must submit a proposed
attribution schedule, supported by a technical memorandum, to the
appropriate district director. If an operator elects to show
attribution on a producibility basis, but fails to keep records on that
basis, Customs shall use the operator's actual operating records to
determine attribution and any necessary relative value calculation.
Sec. 146.96 Methods of attribution.
(a) Producibility. (1) General. A subzone operator must attribute
the source of each final product. The operator is limited in this
regard to feedstocks introduced into a refinery operating unit during
the current or a prior period. Attribution of the final products is
allowable to the extent that the quantity of such products could have
been produced from such feedstocks, using the industry standards of
potential production on a practical operating basis, as published in
T.D. 66-16. Once attribution is made for a particular product, that
attribution is binding. Subsequent attributions of feedstock to product
must take prior attributions into account. Each refiner shall keep
records showing each attribution.
(2) Attribution to privileged foreign feedstock; relative value. If
a final product is attributed to the separation of a privileged foreign
feedstock, their relative values must be assigned.
Example. An operator who elects to attribute on a monthly basis
files the following estimated removal of final products for the
first week in September:
Jet Fuel (deemed exported on international flights).......... 20,000
Gasoline:
Domestic Consumption....................................... 15,000
Duty-free certified as emergency war material.............. 10,000
Petroleum coke exportations.................................. 10,000
Distillate for consumption................................... 5,000
Petrochemicals exported...................................... 10,000
----------
Total removals......................................... 70,000
Because it does not elect to make attributions for feedstocks that
were charged to operating units during the same week, the operator
attributes the estimated removals to final products made during August
from the following feedstocks:
Class II PF (privileged foreign) crude....................... 20,000
Class III PF crude........................................... 35,000
Class III D (domestic) crude................................. 20,000
Class III NPF (nonprivileged foreign) crude.................. 20,000
----------
95,000
During August the operator produced from those feedstocks:
Jet.......................................................... 35,000
Gasoline..................................................... 40,000
Petroleum Coke............................................... 10,000
Distillate................................................... 5,000
Petrochemicals............................................... 15,000
----------
105,000
There is a gain: 105,000-95,000=10,000
Using the tables in T.D. 66-16, the following choices are available
for attribution:
----------------------------------------------------------------------------------------------------------------
Petroleum
Charged Jet Gasoline -------------------------- Petro-
Coke Distillate chemical
----------------------------------------------------------------------------------------------------------------
Class II PF Crude................. 20,000 13,000 17,200 4,400 17,200 5,000
Class III PF Crude................ 35,000 24,500 31,850 14,000 31,150 10,150
Class III D Crude................. 20,000 14,000 18,200 8,000 17,800 5,800
Class III NPF Crude............... 20,000 14,000 18,200 8,000 17,800 5,800
----------------------------------------------------------------------------------------------------------------
Relative value factors are calculated:
----------------------------------------------------------------------------------------------------------------
Feedstock
Barrels Value/barrels Value factors
----------------------------------------------------------------------------------------------------------------
Gasoline.............................................. 40,000 $25 $1,000,000 .9117
Jet Fuel.............................................. 35,000 23 805,000 .8388
Distillate............................................ 5,000 20 100,000 .7294
Petroleum Coke........................................ 10,000 10 100,000 .3647
Petrochemicals........................................ 15,000 40 600,000 1.4587
------------- ----------------
105,000 .............. 2,605,000
Gain.................................................. -10,000 2,605,000
-----------------------------
Total........................................... 95,000 \1\95,000
----------------------------------------------------------------------------------------------------------------
\1\Equals $27.42 average value p/bbl.
Using the feedstock factor
the refiner makes the
following attributions:
Jet Fuel..................... 24,192 (20,291 feedstock attributed to Class III PF Crude.)
10,808 --Class III NPF Crude (attribution of 9066 solely for purpose of
accounting for the amount of NPF used).
-------------
35,000
Gasoline..................... 5,000 (4,559 feedstock attributed to Class III PF Crude.)
5,000 --Class III NPF Crude (attribution of 4599 solely for purpose of
accounting for the amount of NPF used).
15,000 (13,676 feedstock attributed.)
-------------
25,000
Petroleum Coke............... 8,418 (3,070 feedstock attributed to Class II PF Crude.)
1,582 --Class III NPF Crude (attribution of 577 solely for purpose of
accounting for the amount of NPF used).
-------------
10,000
Distillate................... 5,000 (3,647 feedstock attributed to Class III Domestic.)
Petrochemicals............... 3,975 (5,800 feedstock attributed to Class III NPF Crude solely for
purpose of accounting for the amount of NPF used).
6,025 (8,789 feedstock attributed to Class III PF Crude.)
-------------
10,000
(b) Actual production records. An operator may use the actual
refinery production records to attribute the feedstocks used to the
removed or consumed products. Customs shall accept the operator's
recordation conventions to the extent that the operator demonstrates
that it actually uses the conventions in its refinery operations.
Whatever convention is elected by the operator, it must be used
consistently in order to be acceptable to Customs.
Example. If the operator mixes three equal quantities of
material in a day tank and treats that product as a three-part
mixture in its production unit, Customs will accept the resulting
product as composed of the three materials. If, in the alternative,
the operator assumes that the three products do not mix and treats
the first product as being composed of the first material put into
the day tank, the second product as composed of the second material
put into the day tank, and the third product as being composed of
the third material put into the day tank, Customs will accept that
convention also.
Sec. 146.97 Approval of other recordkeeping systems.
(a) Approval. An operator must seek approval of another
recordkeeping procedure by submitting the following to the Director,
Office of Regulatory Audit:
(1) An explanation of the method describing how attribution will be
made when a finished product is removed from or consumed in the
subzone, and how and when the feedstocks will be decremented;
(2) A mathematical example covering at least two months which shows
the amounts attributed, all necessary relative value calculations, the
dates of consumption and removal, and the amounts and dates that the
transactions are reported to Customs.
(b) Failure to comply. Requests received that fail to comply with
paragraph (a) of this section will be returned to the requester with
the defects noted by the Director, Office of Regulatory Audit.
(c) Determination by Director. When the Director, Office of
Regulatory Audit, determines that the recordkeeping procedures provide
an acceptable basis for verifying the admissions and removals from or
consumption in a refinery subzone, the Director will issue a written
approval to the applicant.
Appendix to Subpart H--Examples of Attribution and Relative Value
I. Attribution Using Producibility
Day 1
Transfer, within the refinery subzone, from one or more storage
tanks to the crude distillation unit:
50,000 pounds privileged foreign (PF) class II crude oil
50,000 pounds PF class III crude oil
50,000 pounds domestic status class III crude oil
Day 20
Removal from the refinery subzone for exportation of 50,000
pounds of aviation gasoline.
The period of manufacture for the aviation gasoline is Day 1 to
Day 20. The refiner must first attribute the designated source of
the aviation gasoline.
In order to maximize the duty benefit conferred by the zone
operation, the refiner chooses to attribute the exported aviation
gasoline to the privileged foreign status crude oil. Under the
tables for potential production (T.D. 66-16), class II crude has a
30% potential, and class III has a 40% potential. The maximum
aviation gasoline producible from the class II crude oil is 15,000
pounds (50,000 x .30). The maximum aviation gasoline producible
from the privileged foreign status class III crude oil is 20,000
pounds (50,000 x .40). The domestic class III crude would also
make 20,000 pounds of aviation gasoline.
The refiner could attribute 15,000 pounds of the privileged
foreign class II crude oil, 20,000 pounds of the privileged foreign
class III crude oil, and 15,000 pounds of the domestic class III
crude oil as the source of the 50,000 pounds of the aviation
gasoline that was exported; 35,000 pounds of class II crude oil
would be available for further production for other than aviation
gasoline, 30,000 pounds of privileged foreign class III crude oil
would be available for further production for other than aviation
gasoline, and 35,000 pounds of domestic status class III crude oil
would be available for further production, of which up to 5,000
pounds could be attributed to aviation gasoline.
Day 21
Transfer, within the refinery subzone, from one or more storage
tanks to the crude oil distillation unit:
50,000 pounds PF status class I crude oil
50,000 pounds PF status class IV crude oil
Day 30
Removal from the refinery subzone:
30,000 pounds of motor gasoline for consumption
10,000 pounds of jet fuel sold to the US Air Force for use in
military aircraft
10,000 pounds of aviation gasoline sold to a U.S. commuter airline
for domestic flights
10,000 pounds of kerosene for exportation
To the extent that the crude oils that entered production on Day
1 are attributed as the designated sources for the products removed
on Day 30, the period of manufacture is Day 1 to Day 30. If the
refiner chooses to attribute the crude oils that entered production
on Day 21 as the designated sources of the products removed on Day
30 using the production standards published in T.D. 66-16, the
manufacturing period is Day 21 to Day 30. This 30 choice will be
important if a relative value calculation on the privileged foreign
status crude oil is required, because the law requires the value
used for computing the relative value to be the average per unit
value of each product for the manufacturing period. Relative value
must be calculated if a source feedstock is separated into two or
more products that are removed from the subzone refinery. If the
average per unit value for each product differs between the
manufacturing period from Day 1 to Day 30 and the manufacturing
period from Day 21 to Day 30, the correct period must be used in the
calculation.
In order to minimize duty liability, the refiner would try to
attribute the production of the exported kerosene and the sale of
the jet fuel to the US Air Force to the privileged foreign crude
oils. For the same reason, the refiner would try to attribute the
removed motor gasoline and the aviation gasoline for the commuter
airline to the domestic crude oil.
Accordingly, the refiner chooses to attribute up to 5,000 pounds
of the domestic status class III crude as the source of the 10,000
pounds of aviation gasoline removed from the subzone refinery for
the commuter airline. Since no other aviation gasoline could have
been produced from the crude oils that entered production on Day 1,
the refiner must attribute the remainder to the crude oils that
entered production on Day 21. Again, using the production standards
from T.D. 66-16, the class I crude could produce aviation gasoline
in an amount up to 10,000 pounds (50,000 x .20). Likewise, the
class IV crude oil could 31 produce aviation gasoline in an amount
up to 8,500 pounds (50,000 x .17).
The refiner selects use of the class I crude as the source of
the aviation gasoline. The refiner could attribute up to 27,300
pounds (35,000--5,000 x .91) of the domestic class III crude oil
as the source of the motor gasoline. This would leave 2,700 pounds
of domestic class III crude available for further production for
other than aviation gasoline or motor gasoline. The remaining motor
gasoline removed (also 2,700 pounds) must be attributed to a
privileged foreign crude oil. The refiner selects the privileged
foreign class II crude oil that entered production on Day 1 as the
source for the remaining 2,700 pounds of motor gasoline.
This would leave 32,300 pounds of privileged foreign class II
crude oil available for further production, of which no more than
27,400 pounds could be designated as the source of motor gasoline.
The refiner attributes the jet fuel that is removed from the
refinery subzone for the US Air Force for use in military aircraft
to the privileged foreign class II crude oil. The refiner could
attribute up to 20,995 pounds of jet fuel from that class II crude
oil (32,300 x .65). Designating that class II crude oil as the
source of the 10,000 pounds of jet fuel leaves 22,300 pounds of
privileged foreign class II crude oil available for further
production, of which up to 10,995 pounds could be attributed as the
source of the jet fuel. Because the motor gasoline and the jet fuel,
under the foregoing attribution, would be considered to have been
separated from the privileged foreign class II crude oil, a relative
value calculation would be required.
The jet fuel is eligible for removal from the subzone free of
duty by virtue of 19 U.S.C. 1309(a)(1)(A). The refiner could
attribute the privileged foreign class II crude oil as being the
source of 9,812 pounds of jet fuel (22,300 x .44). The refiner
chooses to attribute the privileged foreign class III crude oil as
the source of the jet fuel. The refiner could attribute to that
class III crude oil up to 15,000 pounds of kerosene (30,000 x
.50).
II. Attribution on a FIFO Basis
Day 1-5
Transfer, within the Refinery Subzone, from one or more storage
tanks into process 150 barrels of Privileged Foreign (PF) Class II
crude oil, equivalent to 50,000 pounds.
Day 6
Removal from the refinery subzone 119 barrels of residual oils
to customs territory, equivalent to 40,000 pounds.
Since the operator uses the FIFO method of attribution, as the
product is removed from the subzone, or consumed or lost within the
subzone, attribution must be to the oldest feedstock available for
attribution. Accordingly, the 40,000 pounds (119 barrels) of
residual oils will be attributed to 40,000 pounds of the PF Class II
crude oil from Day 1-5.
Day 10
Transfer, within the refinery subzone, from one or more storage
tanks 4 barrels of domestic motor gasoline blend stock, equivalent
to 1,000 pounds to motor gasoline blending tank.
Day 6-15
Transfer, within the refinery subzone, from one or more storage
tanks into process 320 barrels of Domestic Class III crude oil,
equivalent to 100,000 pounds.
Day 16
Removal from the refinery subzone 14 barrels of asphalt to
customs territory, equivalent to 5,000 pounds.
The 5,000 pounds of asphalt will be attributed to 5,000 pounds
of PF Class II crude oil from Day 1-5.
Day 17
Removal from the refinery subzone, 324 barrels of motor gasoline
to customs territory, equivalent to 81,000 pounds.
The 81,000 pounds of motor gasoline will be attributed to 1,000
pounds of domestic motor gasoline blend stock from Day 10, to the
remaining 5,000 pounds of PF Class II crude oil from Day 1-5 and
75,000 pounds of domestic Class III crude oil from Day 6-15.
Day 16-20
Transfer, within the refinery subzone, from one or more storage
tanks into process 169 barrels of Privileged Foreign (PF) 34 Class
III crude oil, equivalent to 50,000 pounds.
Day 22
Removal from the refinery subzone, 214 barrels of jet fuel for
exportation, equivalent to 60,000 pounds.
The 60,000 pounds of jet fuel will be attributed to the
remaining 25,000 pounds of domestic Class III crude oil from Day 6-
15 and 35,000 pounds of PF Class III crude oil from Day 16-20.
Day 21-25
Transfer, within the refinery subzone from one or more storage
tanks into process, 143 barrels of domestic Class I crude oil,
equivalent to 50,000 pounds.
Day 30 (End of Manufacturing Period)
It is determined that during the manufacturing period just
ended, that 34 barrels of fuel, equivalent to 10,000 pounds was
consumed, and 5 barrels of oil, equivalent to 1,500 pounds was
irrecoverably lost as provided in Sec. 146.53(c)(1)(iv) of this
part, in the refining production process within the refinery
subzone.
The 10,000 pounds of fuel consumed will be attributed 10,000
pounds of PF Class III crude oil from Day 16-20. The 1,500 pounds of
oil lost in the refining production process will be attributed to
1,500 pounds of PF Class III crude oil from Day 16-20. The remaining
3,500 pounds of PF Class III crude oil from Day 16-20 will be the
first to be attributed during the next manufacturing period.
III. Relative Value Calculation
Because privileged foreign feedstocks transferred into process
during Day 1-5 and Day 16-20 have two or more products attributed to
them, each feedstock will require a relative value calculation.
Relative value calculation for UIN Day 1-5, 50,000 pounds,
equivalent to 150 barrels.
----------------------------------------------------------------------------------------------------------------
G
A lbs B bbls C $/bbl D product E feedstock F r.v. dutiable
value factor bbl bbl
----------------------------------------------------------------------------------------------------------------
Residual, Oil Po;............ 40,000 119 15.00 1,785 .9047 108 108
Asphalt...................... 5,000 14 13.00 182 .7840 11 11
Motor Gasoline............... 5,000 20 26.00 520 1.5682 31 31
----------------------------------------------------------------------------------
Totals................. 50,000 153 ......... 2,487 ........... 150 150
----------------------------------------------------------------------------------------------------------------
A=Pounds Attributed.
B=Equivalent Barrels.
C=Price of Product.
D=B x C.
E=C/(Total of Column D/Attributed Crude BBLS).
Residual Oil Feedstock Factor=15.00/(2,487/150)=.9047.
F=B x E.
G=Dutiable Barrels.
Since all products attributed to the 50,000 pounds (150 BBLS) of
PF Class II crude entered customs territory duty equals $7.88 (150
x .0525).
Relative value calculation for UIN Day 16-20, 46,500 pounds
equivalent to 157 barrels.
----------------------------------------------------------------------------------------------------------------
Product R.V. factor Dutiable
Lbs Bbls $/bbl value R.V. bbl bbl
----------------------------------------------------------------------------------------------------------------
Jet Fuel..................... 35,000 125 27.00 3,375 1.1030 138 0
Fuel......................... 10,000 34 12.00 408 0.4902 17 0
Consumed Process Loss........ 1,500 5 12.00 60 0.4902 2 0
----------------------------------------------------------------------------------
Totals................... 46,500 164 ......... 3,843 ........... 157 0
----------------------------------------------------------------------------------------------------------------
Since jet fuel was exported, no duty is applicable. Fuel consumed
for refinery process was consumed within the subzone premises and did
not enter customs territory, thus no duty is applicable. Likewise, the
process loss occurred entirely within the subzone. Therefore, no duty
is applicable.
Samuel H. Banks,
Acting Commissioner of Customs.
Approved: February 28, 1994.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 94-5023 Filed 3-3-94; 8:45 am]
BILLING CODE 4820-02-P