DRA-4-R:C:E 225409 GOB
Regional Commissioner of Customs
Drawback Liquidation Branch
Southeast Region
909 S.E. 1st Avenue
Miami, Florida 33131-2595
RE: Request for internal advice; Drawback; 19 U.S.C. 1313(j)(2); Commercial interchangeability; Cranberry concentrate
Dear Sir:
FACTS:
This is in response to your memorandum dated May 9, 1994, requesting internal advice with respect to whether certain substituted cranberry concentrate is commercially interchangeable with certain imported cranberry concentrate within the meaning of 19 U.S.C. 1313(j)(2).
By letter dated March 31, 1994, Lykes Pasco, Inc. ("Lykes") advised the Acting Regional Commissioner that it was exporting 103,258 pounds of cranberry concentrate and that it wished to file for same condition substitution drawback on April 15, 1991 Entry No. 03201583980. We note that drawback under 19 U.S.C. 1313(j)(2) is now called "Unused merchandise drawback." The amended statute no longer requires that the merchandise be in the "same condition" as when imported. The statute still requires that the substituted article not be "used."
The documentation submitted by Lykes includes the following statements:
5. The imported product was 65º brix cranberry concentrate meeting the specifications of Lykes Pasco Quality Assurance Ingredient Specification LPS- 033 (attached). The imported product was of European origin. The exported product is 58º brix cranberry concentrate meeting the specifications of Lykes Pasco Quality Assurance Ingredient Specification LPS-029 (attached). The exported product is produced in the United States...
7. Cranberry concentrate has several quality characteristics which are important to end users. Color, acidity, turbidity (clarity), absence of defects, and astringency are typically the most important characteristics...
Customers do not differentiate between imported merchandise and substituted merchandise. Cranberries are grown in several parts of the United States (extensively in Massachusetts, New Jersey, Wisconsin, Washington, and Oregon), and in northern and central Europe, and northern Asia. Preferences would generally be between flavor and astringency which would be more affected by growing conditions in a particular year or growing region. Juice from these various regions can be substituted and blended by end users to produce the particular flavor and astringency profile desired.
...
9. The concentrates are utilized in the production of cranberry juice cocktails. The imported merchandise has been utilized by Lykes Pasco, Inc., to produce cranberry juice cocktails for the domestic and international market...
Lykes has submitted an invoice dated March 28, 1991 for cranberry concentrate on the letterhead of "Obstverwertung Int. Transports." This invoice reflects a price of $61 per gallon for certain of the cranberry concentrate listed on the invoice and $62 per gallon with respect to certain other cranberry concentrate listed on the invoice. A handwritten notation on this invoice reflects that the cranberry concentrate is 65º brix.
Lykes has also submitted an invoice reflecting a "change order" to its U.S. supplier of cranberry concentrate. This invoice, dated March 8, 1994, states a price of $59 per gallon for "Cranberry Concentrate - 58 Brix - LPS-020."
ISSUE:
Are the imported and substituted cranberry concentrate commercially interchangeable for the purpose of 19 U.S.C. 1313(j)(2)?
LAW AND ANALYSIS:
Under 19 U.S.C. 1313(j)(2), as amended, drawback may be granted if there is, with respect to imported duty-paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise and if the following requirements are met. The other merchandise must be exported or destroyed within three years from the date of importation of the imported merchandise. Before the exportation or destruction, the other merchandise may not have been used in the United States and must have been in the possession of the drawback claimant. The party claiming drawback must either be the importer of the imported merchandise or have received from the person who imported and paid any duty due on the imported
merchandise a certificate of delivery transferring to that party, the imported merchandise, commercially interchangeable merchandise, or any combination thereof.
The drawback statute was substantively amended by section 632, title VI - Customs Modernization, Pub. L. No. 103-182, the North American Free Trade Agreement Implementation ("NAFTA") Act (107 Stat. 2057), enacted December 8, 1993. Before its amendment by Public Law 103-182, the standard for substitution was fungibility. House Report 103-361, 103d Cong., 1st Sess., 131 (1993) contains language explaining the change from fungibility to commercial interchangeability. According to the House Ways and Means Committee Report, the standard was intended to be made less restrictive, i.e., "the Committee intends to permit substitution of merchandise when it is ‘commercially interchangeable,' rather than when it is ‘commercially identical'" (the reference to "commercially identical" derives from the definition of fungible merchandise in the Customs Regulations (19 CFR 191.2(l)). The report, at page 131, also states:
The Committee further intends that in determining whether two articles were commercially interchangeable, the criteria to be considered would include, but not be limited to: Governmental and recognized industry standards, part numbers, tariff classification, and relative values.
The Senate Report for the NAFTA Act (S. Rep. 103-189, 103d Cong., 1st Sess., 81-85 (1993)) contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability.
Part Numbers
No sales or purchase contracts were provided. Copies of Lykes' inventory records which might show the use of part numbers were not provided. However, from the material which was provided it is apparent that Lykes distinguishes the two types of cranberry concentrate at issue on the basis of internal company specifications. That evidence does not support a conclusion that Lykes treats the imported and substituted cranberry concentrate as being interchangeable.
Although Lykes, in its letter of March 21, 1994, asserts that its customers do not differentiate between the imported and substituted merchandise, it has provided absolutely no evidence in support of that assertion. We would expect to see representative contracts of purchase and sale in order to evaluate the basis of this assertion.
Tariff Classification
With respect to tariff classification, both the imported and substituted cranberry concentrate are classified under subheading 2009.80.60, Harmonized Tariff Schedule of the United States ("HTSUSA").
Relative Values
With respect to to the relative values of the imported and substituted merchandise, we note, as stated supra, that the record indicates that the imported cranberry concentrate had prices of $61 and $62 per gallon in March 1991. The substituted cranberry concentrate had a price of $59 per gallon in March 1994. No information has been provided with respect to whether, during the pertinent three-year period, cranberry concentrate prices increased or decreased, and the degree of increase or decrease.
The drawback claim indicates that the value, in single strength liters, of the designated cranberry concentrate is $2.01, and the corresponding value of the exported concentrate is $2.25. The difference between these value is about 12 percent, which could well be considered a material difference.
Governmental and Recognized Industry Standards
Governmental and recognized industry standards are generally considered the most important of the four criteria with respect to the issue of commercial interchangeability. We referred the matter at issue to the Office of Laboratories & Scientific Services for its comment and determination.
In a memorandum dated August 4, 1995, that office stated, in pertinent part:
...European and North American cranberry juice concentrates are produced from different varieties of cranberries. Further, we note that technical information indicates that European, Vaccinium oxycoccus, and North American, Vaccinium macrocarpon, cranberries are different in many aspects, such as variety, chemical composition, taste and price.
Additionally, we found two government specifications that list the varietal name for cranberries as Vaccinium macrocarpon, USDA document A-A-20201 and 22 F.R. 5853...The USDA reference states that cranberry juice or concentrate shall be produced from cranberries of the variety macrocarpon.
In our previous memorandum we may have emphasized that the criteria in disallowing this request was the difference in Brix values but in fact our main concern is the difference in variety between both products, regardless of the country of origin of the juice concentrates.
We believe that in order for juice concentrates to be considered "commercially interchangeable" they must be of the same variety. Therefore, based mainly on the fact that the imported cranberry juice concentrate is made from a different "variety" than the domestic concentrate, we are of the opinion that the European product should not be considered as "commercially interchangeable"...with domestic product.
In a memorandum dated January 24, 1995, the Office of Laboratories & Scientific Services stated as follows, in pertinent part:
U.S. cranberry juice concentrate is produced from native North American berries that are botanically identified as Vaccinium macrocarpon variety. On the other
hand, the European concentrate is produced from a different berry variety, Vaccinium oxycoccus...
Technical data shows that both varieties, i.e., macrocarpon & oxycoccus, contain different chemical composition, e.g., acids and sugars content. We note that the applicant states that "Customers do not differentiate between imported merchandise and substituted merchandise." However, we found technical data indicating the taste of these varieties are all different and distinguishable from each other.
There are no trading rules, industry and/or government standards for cranberry juice concentrate. However, we found that the USDA document A-A-20201 published June 24, 1985 which covers the commercial item description for cranberry juice cocktail states that cranberry juice or concentrate used in the manufacture of cranberry juice cocktail shall be produced from fresh or frozen cranberries of the variety macrocarpon...
Based on the difference in variety, degree of concentration (Brix value), chemical composition, taste and price, we are of the opinion that the European frozen cranberry juice concentrate is not "commercially interchangeable" with U.S. products as defined by Public Law 103-182.
(All emphasis in original.)
The Office of Laboratories & Scientific Services also directed us 7 CFR 51.2775(a), with respect to United States Consumer Standards for Fresh Cranberries, which states:
These standards apply only to the commonly cultivated cranberry (Vaccinium macrocarpon).
The governmental and recognized industry standards criterion is the most important of the four criteria with respect to the subject issue. The tariff classification criterion is not persuasive with respect to the result here because all cranberry concentrate is classified under the same HTSUSA subheading and it simply is not informative with respect to any potential difference between the imported and the substituted merchandise. Lykes has not provided pertinent information with respect to the part numbers criterion. Similarly, complete information has not been provided with respect to the relative values criterion.
After a review of the available evidence, we are unable to conclude that such evidence supports a finding that the imported and substituted cranberry concentrate are commercially interchangeable. In particular, we note that evidence detailed in the Governmental and Recognized Industry Standards section indicates that the imported and substituted cranberry concentrate are not commercially interchangeable.
HOLDING:
We are unable to conclude that the imported and substituted cranberry concentrate are commercially interchangeable for the purpose of 19 U.S.C. 1313(j)(2).
This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access channels.
Sincerely,
John Durant
Director
Commercial Rulings Division