## Facts

- The Foreign-Trade Zones Act authorizes foreign-trade zones and single-enterprise “subzones,” which receive favorable customs treatment for certain imported merchandise.
- Citgo operated an oil refinery in Lake Charles, Louisiana, importing foreign crude oil, refining it, and selling refined products domestically and abroad.
- Some intermediate product from the first refining stage was consumed as fuel to run the refinery.
- The Lake Charles Harbor and Terminal District applied to the Foreign-Trade Zones Board (FTZ Board) to designate Citgo’s refinery as a subzone.
- The FTZ Board approved the subzone subject to a condition that import duties be paid on foreign crude oil used as fuel in the refinery.
- Citgo objected, arguing the fuel consumed within the subzone should be treated as not entering U.S. customs territory and therefore not dutiable.
- Citgo also argued the condition was inconsistent with prior subzone approvals for other refineries (including in Hawaii and Puerto Rico) that allegedly lacked a similar requirement.
- The FTZ Board justified the condition as serving the public interest by preventing an unfair competitive advantage.

## Issues

1. Whether the FTZ Board had statutory authority under the Foreign-Trade Zones Act to condition subzone approval on paying duties for foreign crude oil used as fuel within the refinery.
2. Whether imposing the fuel-duty condition was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, including due to allegedly different treatment of other refineries.

## Decision

- The Federal Circuit affirmed the Court of International Trade’s judgment upholding the FTZ Board’s condition.
- The court held the FTZ Board may impose operational conditions on subzone approvals to protect the public interest, including requiring duties on imported crude consumed as refinery fuel.
- The court held the FTZ Board’s action was not arbitrary or capricious because it was supported by a rational explanation focused on competitive effects and the public interest, and the agency could refine or change its approach if adequately explained.

## Legal Principles

- Under the Foreign-Trade Zones Act, the FTZ Board has discretion to approve subzones subject to conditions that it finds necessary to serve the public interest.
- The FTZ Board may distinguish among uses of imported merchandise within a zone (including internal consumption as fuel) when setting the scope of duty-related benefits.
- Under APA arbitrary-and-capricious review, an agency action is upheld if the agency considered relevant factors and articulated a rational connection between the facts found and the choice made.
- An agency may modify or clarify prior practice if it provides a reasoned explanation and applies the policy choice consistently with statutory objectives.

## Conclusion

The Federal Circuit upheld the FTZ Board’s authority to condition Citgo’s subzone approval on paying duties for imported crude oil consumed as refinery fuel and sustained the condition as a reasoned public-interest determination, not arbitrary or capricious.


Citgo Petrol. Corp. v. U.S. Foreign-Trade Zones Bd., 83 F.3d 397 (Fed. Cir. 1996)