Petroleum and Chemicals Industry Update

Kelley Drye Client Advisory

Recent Customs Rulings

Revocation of Classification Ruling Letter on Microcrystalline Cellulose Reduces Applicable Duty Rate

Customs recently ruled that microcrystallinecellulose(“MCC”)isproperlyclassified under HTS subheading 3912.90.00 which provides for “[c]ellulose and its chemical derivatives, not elsewhere specified or included, in primary forms: [o]ther,” dutiable at 5.2 percent ad valorem. See HQ 966069 (Feb. 24, 2003). In so doing, Customs revoked an earlier ruling letter, NY H87232 (Jan. 31, 2002), which held that microcrystalline cellulose was classified in HTS subheading 3913.90.20, the provision for “[n]atural polymers (for example, alginic acid) and modified natural polymers (for example, hardened proteins, chemical derivatives of natural rubber), not elsewhere specified or included, in primary forms: [o]ther: [p]olysaccharides and their derivatives,” at the dutiable rate of 5.8 percent ad valorem.

MCC is a highly purified particulate form of cellulose that is used in producing pharmaceutical intermediates. Cellulose is a natural carbohydrate high polymer (polysaccharide). As the former is a derivative of the latter, MCC and cellulose share the same chemical formula, CAS number, and absolute density and solubility properties. Based on these similarities, Customs determined that MCC was more specifically provided for in HTS heading 3912 as cellulose, than in HTS heading 3913 as a natural polymer, not elsewhere specified or included. In addition to its General Rules of Interpretation analysis, Customs also relied on interpretive guidance. In support of its revocation determination, Customs pointed to Explanatory Note 39.12 stating that “[c]ellulose not elsewhere specified or included, in primary forms, fall[] in this heading,” and a World Customs Order Classification Opinion finding that MCC is classified in HTS subheading 3912.90. Importers of MCC may rely on this Customs ruling as the basis for importing this product under HTS 3912 at the lower duty rate.

Chemical Import-export Issues

On December 19, 2002, the International Trade Commission published a Notice of Determination regarding its Investigation of Ethyl Alcohol for Fuel Use: Determination of the Base Quantity of Imports (Inv. 332-288). The ITC’s Determination is in connection with Section 7 of the Steel Trade Liberalization Program Implementation Act (19 U.S.C. 2703 note), which requires the Commission to determine annually the U.S. domestic market for fuel ethyl alcohol during the 12-month period ending on the preceding September 30.

Draft legislation sponsored by Rep. Eliot Engel (D-NY) would add a licensing and distribution requirement to current Bureau of Industry and Security (“BIS”) regulations – formerly the Bureau of Export Administration (“BXA”) – in order to reduce accessibility to chemical weapons precursors. Chemical industry representatives believe that the legislative proposal is over-inclusive and would restrict the movement of legitimate domestic goods.

The Chemicals, Petroleum, and Bulk Materials Committee of the American Association of Exporters and Imports (“AAEI”) is lobbying U.S. Customs to accept electronic submissions indicating whether imported chemicals are subject to the Toxic Substances Control Act (“TSCA”). The request would require changes in the ACS system that Customs may be reluctant to make.

AAEI is also attempting to obtain an agreement from EPA regarding its requirement that an originally signed or faxed certification Form 3540-1 must accompany each individual entry of registered pesticides in order for Customs to release the material. The agreement would allow EPA to accept from importers an annual blanket release for multiple imports of the same good by the same company.

About the International Trade & Customs Practice

As one of the largest and most highly regarded international trade practices in the United States, Kelley Drye assists clients with a full range of importing and exporting activities. We are experts in protecting domestic manufacturers against unfairly traded goods and helping companies overcome barriers to entry in foreign markets.

About Kelley Drye & Warren LLP

Kelley Drye & Warren is an international, multidisciplinary law firm that solves competitive problems for Fortune 500 companies, privately-held corporations, government entities, and trade associations. Founded more than 170 years ago, Kelley Drye & Warren has approximately 400 attorneys and professionals practicing in eight locations around the world and specializing in: Advertising and Marketing; Antitrust and Competition; Communications; Corporate; Employee Benefits and Executive Compensation; Environmental; Government Contracts; Government Relations and Public Policy; Homeland Security; Intellectual Property; International Trade; Labor and Employment; Litigation; Private Clients; Real Estate; Restructuring, Bankruptcy, and Creditors’ Rights; Tax; Technology; and Trade Associations.

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