U.S. Customs Ruling Impacts Crude Oil Shipments

U.S. Customs and Border Protection ("CBP") expanded U.S.-flag requirements in a recent ruling requiring shippers to use costly U.S.-flag vessels when shipping processed condensate to and from a foreign country to be blended as a diluent with heavy crude. See HQ H265791 (Sept 14, 2015). This ruling comes as a surprise to many because, among other things, it assumes processed condensate and heavy crude are the same product, contrary to industry standards and rulings by the U.S. Department of Commerce that recognize these commodities as distinct.

The Legal Issue CBP Addressed Under the "Jones Act," the carriage of merchandise between U.S. ports or "coastwise points" must be conducted by U.S.-flag vessels. 46 U.S.C. § 55102. Shippers cannot circumvent this requirement by shipping goods between U.S. ports by way of a foreign country. On the other hand, if a product is exported to a foreign country where it is subjected to processing or manufacturing before being returned