Customs Ruling HQ 225493 - Protest 2002-93-101825; Substitution Unused Merchandise Drawback; Crude Peanut (Groundnut) Oil; Commercial Interchangeability; 19 U.S.C. 1313(j)(2); Public Law 103-182, Section 632 Dear Sir:

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HQ 225493
Jul 19, 1995

Type : Drawback • HTSUS :
Related: 453730; 629803; 224812; 225815; 222000; 223885; 224401; 224740; 224633

DRA-4-R:C:E 225493 PH

Regional Director
Commercial Operations
New Orleans, Louisiana 70130

RE: Protest 2002-93-101825; Substitution Unused Merchandise Drawback; Crude Peanut (Groundnut) Oil; Commercial Interchangeability; 19 U.S.C. 1313(j)(2); Public Law 103-182, Section 632 Dear Sir:

The above-referenced protest was forwarded to this office for further review. Our decision follows.

FACTS:

The protest is of the liquidation of three drawback entries (or claims) filed on February 1, 1991, November 21, 1991, and January 22, 1992. The drawback claims were liquidated without drawback on August 27, 1993.

The imported merchandise designated in the February 1, 1991, claim consisted of 1,102,300 pounds of crude peanut oil imported from Argentina on the BOW CEDAR on December 6, 1987, for which duty in the amount of $44,092 was paid, and 618,680 pounds of crude groundnut (peanut) oil imported from China on the LIQUID BULK ENCOUNTER on April 6, 1988, for which duty in the amount of $24,747 was paid. There is an "Official Certificate of Analysis" prepared by an independent laboratory in New Orleans and dated December 7, 1987, for the December 6, 1987, importation reporting the following specifications for the Argentine crude peanut oil:

Flavor & Refined Color, F.F.A., Refining Odor Lovibond Oleic Loss

Prime 35 Yellow, 2.64% 6.6% using 39.0 2.3 Red grams of 12% lye.

For the April 6, 1988, importation, there are two "Official Certificate[s] of Analysis" prepared by the same laboratory and dated April 7, 1988, and reporting the following specifications (the specifications are the same in each of the two reports for this importation) for the Chinese crude peanut oil:

Flavor & Refined Color, F.F.A., Refining Odor Lovibond Oleic Loss

Prime 35 Yellow, 1.06% 3.4% using 28.0 1.8 Red grams of 12% lye.

The exports upon which the February 1, 1991, claim are based were by truck or rail car. The documents for the exports in the file consist of the Chronological Summary of Exports, Certificates of Origin, Shipper's Export Declarations, Official Weight Certificates, contracts for the sale of the exported merchandise from the exporter/claimant to the foreign purchaser, completed Notices of Exportation of Articles with Benefit of Drawback forms (Customs Form 7511), and Canadian import documents ("Canada Customs Coding Form"). The contracts for sale provide that "[t]he trading rules that apply are: National Cottonseed Products Association" (see, e.g., protestant's contract 05422 dated August 31, 1988). There are documents for 21 exports between February 3, 1988, and November 24, 1988, consisting of a total of 1,720,980 pounds of crude peanut oil. For the last 16 exports, there are individual "Report[s] of Analysis", on the letterhead of the protestant, with the signature of the person who is stated to have performed the analysis. For the first 5 exports, there is an unsigned table indicated to have been prepared by an individual in the Sales Order Department of the protestant identifying the exports and listing the percentage free fatty acid content, percentage moisture and impurities, refining loss, and other data. The following table summarizes data from the above documents:

Date of Quantity % F.F.A. % Moist. & % Ref. Export in Lbs. Impurities Loss

02/03/88 47,721 1.33 .54 4.66 02/03/88 46,361 1.33 .54 4.66 02/10/88 47,238 1.54 .48 4.93 02/10/88 48,380 1.54 .48 4.93 02/16/88 48,598 1.51 .52 4.33 03/14/88 46,539 1.19 .66 4.58 05/31/88 47,339 1.81 .36 5.06 06/06/88 45,461 1.86 .28 5.26 06/11/88 46,260 1.88 .33 5.01 06/22/88 46,581 2.01 .22 5.17 06/24/88 150,150 1.99 .30 5.29 06/28/88 46,182 2.23 .22 5.22 07/05/88 46,422 2.10 .33 5.22 07/05/88 47,042 1.99 .28 5.12 07/05/88 152,700 1.95 .33 5.27 08/02/88 152,200 2.73 .34 5.66 08/22/88 150,000 3.53 .31 5.88 09/07/88 47,600 3.41 .27 6.01 09/29/88 150,133 2.81 .18 5.75 10/10/88 155,938 2.82 .17 5.44 11/24/88 152,135 1.51 .29 5.51

Total: 1,720,980

The documents described above can be used to trace the exports from the protestant's place of business to exportation and to establish exportation. For example, in the case of the June 11, 1988, export of 46,260 pounds of crude peanut oil, there is a Shipper's Export Declaration dated June 11, 1988, for 46,260 pounds of crude peanut oil, referring to bill of lading no. 453730; a scale ticket dated June 11, 1988, for trailer # 143 from the protestant's Augusta, Georgia, facility for 46,260 pounds of peanut oil, referring to number 453730; a Certificate of Origin dated June 11, 1988, for 46,260 pounds of crude peanut oil shipped by the protestant from Augusta, Georgia, identifying the vehicle as trailer # 143; a Report of Analysis dated "6/11" for one truck, number 7461, invoice number 453730; a Customs Form 7511 dated June 11, 1988, for 46,260 pounds (20,983.4 kilograms) of crude peanut oil carried in Tankwagon No. 143; and a Canadian entry form dated June 28, 1988, for the entry of 20,983.4 kilograms of crude peanut oil, classified under no. 1508.10.00.

For an example of an export by rail, see the August 2, 1988, export. In that case, there is a Shipper's Export Declaration dated August 2, 1988, for 152,200 pounds of crude peanut oil, referring to bill of lading no. 629803; a scale ticket dated August 1, 1988, for car PROX 70300 from the protestant's Augusta, Georgia, facility for 152,200 pounds of peanut oil; a Certificate of Origin dated August 2, 1988, for 152,200 pounds of crude peanut oil shipped by the protestant from Augusta, Georgia, identifying the car carrying the merchandise as car PROX 70300; a Report of Analysis dated "8/2" for tank car PROX 70300, invoice number 629803; a Customs Form 7511 dated August 2, 1988, for 152,200 pounds (69,037.47 kilograms) of crude peanut oil carried in tankcar PROX 70300; and a Canadian entry form dated November 1, 1988, (correction of earlier Canadian entry forms also in file) for the entry of 69,037.47 kilograms of crude peanut oil carried in car PROX 70300, classified under no. 1508.10.00.

There is similar documentation for the other two drawback claims which are protested. In the case of the November 21, 1991, claim, the designated imported merchandise consisted of 153,235 pounds of crude peanut oil imported from China on the LIQUID BULK ENCOUNTER on April 6, 1988 (see above). The export for the November 21, 1991, claim was a November 28, 1988, rail shipment of 153,235 pounds of crude peanut oil to Canada for which there is a "Report of Analysis" stating that the percentage of free fatty acid was 1.73%, the percentage of moisture and impurities was .28%, and the percentage of refining oil loss was 5.78%. According to the Shipper's Export Declaration for the export, the value of the export was $.3875 per pound ($59,326.25 for 153,100 pounds).

In the case of the January 22, 1992, claim, the designated imported merchandise consisted of 3,092,194 pounds of crude peanut oil imported from China on the LIQUID BULK ENCOUNTER on April 6, 1988 (see above, this merchandise was entered on two import consumption entries, but the information regarding the merchandise is the same in all other respects). The exports for the January 22, 1992, claim are listed in the table below:

Date of Quantity % F.F.A. % Moist. & % Ref. Export in Lbs. Impurities Loss

01/26/89 156,351 .93 .18 3.58 01/26/89 156,801 .87 .17 3.21 02/11/89* 150,434 1.3 N/A 3.2 02/11/89* 150,474 1.1 N/A 3.4 03/30/89* 150,060 .8 N/A 2.7 03/30/89* 150,000 .8 N/A 2.6 03/31/89* 150,160 .8 N/A 2.7 04/19/89 152,735 1.56 .31 3.97 05/11/89* 150,060 2.4 N/A 6.0 05/19/89 171,274 1.28 1.01 3.26 06/01/89* 150,040 2.0 N/A 4.9 06/07/89 151,200 1.44 .21 3.01 06/07/89 150,040 No Report in file. 06/07/89 150,040 No Report in file. 11/28/89 152,150 No Report in file. 11/28/89 153,050 No Report in file. 02/23/90 46,698 2.18 .78 7.2 03/13/90* 150,232 2.8 N/A 10.1 03/13/90* 150,193 2.7 N/A 6.0 06/11/90* 150,142 2.9 N/A 7.1 06/11/90* 150,060 1.4 N/A 3.5

Total: 3,092,194

As stated above, on February 1 and November 21, 1991, and January 22, 1992, the protestant filed claims for drawback on the total of 4,966,409 pounds of peanut oil. In the case of each claim, Customs Regional Laboratory reviewed the merchandise in the claim for fungibility. The protestant was given several opportunities to submit additional information. By letter of May 3, 1993, the protestant attempted to address Customs concerns about fungibility (see LAW AND ANALYSIS portion of this ruling). In this letter, the protestant also attempted to redesignate the importations and exports for the protested claims (also discussed in the LAW AND ANALYSIS portion of the ruling).

The submissions in the protestant's May 3, 1993, letter were again reviewed by Customs Regional Laboratory. On August 27, 1993, the protested claims were liquidated without any drawback being granted. In letters of July 27, 1993, Customs had explained, as a courtesy, its reasons for denying drawback.

In each claim, according to the July 27, 1993, letters, drawback was denied because the designated imported crude peanut oil was found to be not fungible with the exported oil. The letters stated that although the redesignations proposed in the May 3, 1993, letter were untimely under 19 CFR 191.61, the redesignations and the arguments in the May 3, 1993, letter were considered (the letters specifically stated that this consideration should not be construed as a waiver or extension of the 3-year period from the date of export for completion of drawback claims under 19 CFR 191.61).

The protestant filed the protest under consideration on November 23, 1993. Further review was requested and granted.

ISSUE:

Is there authority to grant the protest of denial of drawback in this case?

LAW AND ANALYSIS:

Initially, we note that the protest was timely filed under the statutory and regulatory provisions for protests (see 19 U.S.C. 1514 and 19 CFR Part 174). We note that the refusal to pay a claim for drawback is a protestable issue (see 19 U.S.C. 1514(a)(6)).

In regard to the redesignations which the protestant attempted to make with its May 3, 1993, letter, we note, as did Customs regional office when it advised the protestant that the claims were being liquidated without drawback (letters of July 27, 1993, see above), that these proposed redesignations would be amendments of the drawback claims outside the 3-year period beginning with the time of exportation for filing a "completed" claim. This requirement for the timely filing of a completed drawback claim is now a statutory requirement (19 U.S.C. 1313(r)) and, as explained below, this and other statutory provisions enacted in the amendments to the drawback law made by the NAFTA Implementation Act have been made applicable to drawback claims such as those under consideration. Therefore, we are considering the protested claims as of the time that they were required to be completed, although we may also consider information submitted after the 3-year period for completion of drawback claims when such information only "perfects" or "verifies" the claims. (See rulings 224812, February 15, 1995, and 225815, April 11, 1994, for a discussion of the requirement for the timely filing of a completed claim under 19 U.S.C. 1313(r).)

Generally, 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 3 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 be either 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 law was substantively amended by section 632, title VI - Customs Modernization, Public Law 103-182, the North American Free Trade Agreement Implementation Act (107 Stat. 2057), enacted December 8, 1993. The foregoing summary of section 1313(j)(2) is based on the law as amended by Public Law 103-182. Title VI of Public Law 103-182 took effect on the date of enactment of the Act (section 692 of the Act). Except for 19 U.S.C. 1313(p), according to the applicable legislative history, these amendments to the drawback law (19 U.S.C. 1313) are applicable to any drawback entry made on or after the date of enactment as well as to any drawback entry made before the date of enactment if the liquidation of the entry is not final on the date of enactment (H. Report 103-361, 103d Cong., 1st Sess., 132 (1993); see also provisions in the predecessors to title VI of the Act; H.R. 700, 103d Cong., 1st Sess., section 202(b); S. 106, 103d Cong., 1st Sess., section 202(b); and H.R. 5100, 102d Cong., 2d Sess., section 232(b)). The amendment to the drawback law precluding the applicability of section 1313(j)(2) for the exportation to a NAFTA country (section 203(c)(2), title II, Public Law 103-182 (107 Stat. 2057, 2092)) is effective upon the entry into force of the NAFTA (January 1, 1994) (i.e., effective to exportations to a NAFTA country after January 1, 1994). Therefore, section 203(c)(2) of the NAFTA Implementation Act does not affect the issues in this protest.

Compliance with the Customs Regulations on drawback is mandatory and a condition of the payment of drawback (Chrysler Motors Corp. v. United States, 14 CIT 807, 816, 755 F. Supp. 388, aff'd, 945 F.2d 1187 (Fed. Cir. 1991), in which the Court stated: "The Supreme Court held in Swan & Finch Co. v. United States, 190 U.S. 143, 146 (1903) that the right to drawback is a privilege granted by the government and any doubt as to the construction of the statute must be resolved in favor of the government. ... Over the years, the courts have held that the allowance of drawback is a privilege and compliance with the regulations is a prerequisite to securing it where the regulations are authorized and reasonable"; see also, United States v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675 (1976); Guess? Inc. v. United States, 9 Fed. Cir. (T) 111, 115, 944 F.2d 855 (1991) "[w]e are not dealing here with a question of whether a party has satisfied a commercial contract ... [w]e are dealing instead with an exemption from duty, a statutory privilege due only when the enumerated conditions are met. 'Such a claim is within the general principle that exemptions must be strictly construed, and that doubt must be resolved against the one asserting the exemption'" (emphasis added)).

To qualify for drawback under 19 U.S.C. 1313(j)(2):

There must be imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation [Compliance with this requirement is not in dispute];

There must be other merchandise which is commercially interchangeable with the imported merchandise [Compliance with this requirement is in controversy and is discussed below];

The other commercially interchangeable merchandise must be exported or destroyed under Customs supervision within 3 years after importation [Compliance with the requirement for timely export or destruction is not in dispute];

Before exportation or destruction of the commercially interchangeable merchandise, the merchandise may not be used in the United States [Compliance with this requirement is not in dispute]; and

Before exportation or destruction of the commercially interchangeable merchandise, the merchandise must have been in the possession of the party claiming drawback [Compliance with this requirement is not in dispute].

COMMERCIAL INTERCHANGEABILITY

The decisive issue in this protest is whether the exported merchandise was commercially interchangeable with the imported merchandise. Before its amendment by Public Law 103-182, the standard for substitution under section 1313(j)(2) was fungibility. House Report 103-361, supra, contains language explaining the change from fungibility to commercial interchangeability. According to the Report (at page 131), the standard was intended to be made less restrictive (i.e., "the Committee intends to permit the 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 industrial standards, part numbers, tariff classification, and relative values.

Before enactment of the above-described changes to 19 U.S.C. 1313(j)(2) by Public Law 103-182, we ruled on the criteria to be used in determining whether imported crude peanut oil and exported crude peanut oil were fungible, for purposes of the then existing requirement for fungibility in that statute. In ruling 222000, November 5, 1990, we held that two shipments of prime crude peanut oils that met the specifications of Rule 175, National Cottonseed Products Association (NCPA), and which were not subject to contract adjustments provided for in Rule 201, NCPA, were fungible. Under Rule 175, NCPA:

Prime crude peanut oil must be made from sound peanuts, must be sweet in flavor and odor, and must produce prime yellow peanut oil when refined by these rules, with a loss in weight not exceeding 5 percent, provided that any oil that refines with a greater loss than 5 percent, but still makes prime yellow peanut oil shall not be rejected, but shall be settled for in accordance with Rule 201. Combined moisture and insoluble impurities shall not exceed 1.0 percent as determined by AOCS test methods. [Under Rule 201, if the refining loss exceeds 5 percent, the price adjustment is 3/4 of 1 percent of the contract price for each 1 percent reining loss above 5 percent. Under Rules 175 and 176, the maximum refining loss is 12 percent.]

In ruling 223885, September 22, 1992, we ruled that the rules for crude peanut oils of the Federation of Oils, Seeds, and Fats Association Limited (FOSFA) were sufficient as guidelines in determining the fungibility of crude peanut oils for purposes of the drawback law. We stated in the ruling that we understood that under the FOSFA rules:

... two shipments of crude peanut (groundnut) oils are freely interchangeable if they contain 2 percent or less of Free Fatty Acid (FFA), and contain less than 0.5% percent each of moisture and impurities. However, oils that contain between 2 and 3 percent FFA are subject to price adjustments and oils that contain more than 3 percent FFA are subject to rejection by the purchaser. [According to information we have obtained from industry sources and confirmed with Customs laboratory personnel, the price adjustment under the FOSFA rules is provided for in the contract for sale and is not in those rules; compare to NCPA rules (discussed above) which explicitly provide the price adjustment.]

In ruling 223885 (upheld in all respects by ruling 224401, May 24, 1993) we held that:

Two shipments of crude peanut (groundnut) oils that contain 2 percent or less of Free Fatty Acid, and in which the combination of the moisture and insoluble impurities does not exceed 1 percent, are fungible for purposes of ... 19 U.S.C. 1313(j)(2).

In regard to the effect on ruling 222000, we stated in ruling 223885 that:

The unpublished ruling of November 5, 1990 (222000) is modified in accordance with this ruling but it is not revoked. Any claims presented which do comply should be liquidated with the benefit of drawback.

The basis for holding that either standard could be used to establish fungibility was technical advice that crude peanut oils are traded under both sets of rules. We have obtained evidence that this continues to be true and the documents in the file are consistent with this conclusion (see contracts for sale of export merchandise, described above).

Accordingly, before the amendment of 19 U.S.C. 1313(j)(2) to make commercial interchangeability the requirement for substitution instead of fungibility, it was Customs position that crude peanut oil was fungible if it met the FOSFA rules for acceptance without price adjustment (containing less than 2 percent free fatty acid and in which the combination of moisture and insoluble impurities does not exceed 1 percent) or if it met the specifications of rule 175, NCPA, for acceptance without price adjustment (made from sound peanuts, sweet in flavor and odor, producing prime yellow peanut oil with a refining loss not exceeding 5 percent, and in which the combination of moisture and insoluble impurities does not exceed 1 percent).

Insofar as the April 6, 1988, importation from China is concerned, the above-described certificates of analysis report the specifications of the crude peanut oil as prime in flavor and odor with a refining loss of 3.4%, free fatty acid content of either 1.06 or 1.13, and moisture and impurities of 0.18%. Thus, this importation meets both the FOSFA rules and the NCPA rules.

The November 21, 1991, claim, which designated 153,235 pounds of crude peanut oil from the April 6, 1988, importation, claimed drawback on the basis of a November 28, 1988, rail shipment of 153,235 pounds of crude peanut oil to Canada. The report of analysis for this export stated the percentage of free fatty acid to be 1.73%, the percentage of moisture and impurities to be .28%, and the percentage of refining oil loss to be 5.78%.

The "Report of Analysis" for the November 28, 1988, export in the November 21, 1991, claim was prepared by the protestant (i.e., it was an "in-house" report). In our ruling 224740, January 24, 1994, we held that Customs could accept an "in-house" laboratory report for purposes of establishing commercial interchangeability in a drawback claim, unless Customs was not satisfied with such a report (citing the legislative history to the amendment of 19 U.S.C. 1499 by section 613, title VI, Public Law 103-182; House Report 103-361, page 110: "This section is not intended to preclude Customs from accepting a company's in-house laboratory report or analyses pertaining to its own imports"). In our ruling 224633, May 6, 1994 (copy enclosed), we further addressed the issue of the acceptance of "in-house" laboratory reports. We held that:

A drawback claimant's laboratory analysis is acceptable to show fungibility if the claimant shows that the analysis was done in the ordinary course of business, identifies the analyst, and offers to provide the analyst's work papers to Customs for review.

The "Report of Analysis" for the November 28, 1988, export appears to meet these criteria. It appears to have been prepared in the ordinary course of business and it identifies the analyst. In regard to "work papers", the Report contains factual statements of free fatty acid content, refining oil loss, moisture and impurities content, moisture and volatile percentage, and flash point. These factual statements are, themselves, in the nature of work papers, as they do not make a conclusion (see ruling 224633), they simply state the findings of the analyses.

Thus, the imported merchandise (prime in flavor and odor with a refining loss of 3.4%, free fatty acid content 1.06% or 1.13%, and moisture and impurities of 0.18%) designated in the November 21, 1991, claim meets the FOSFA and the NCPA rules for fungibility. The export on which the November 21, 1991, claim is based (free fatty acid content 1.73% and moisture and impurities .28%, refining loss of 5.78%) meets the FOSFA rule, for purposes of fungibility. No evidence has been presented to show that part numbers are applicable as a criterion for this merchandise. The tariff classification of the imported merchandise and the substituted exported merchandise was the same (subheading 1508.10.00, HTSUS). The contract-price for the importation was $.2585 per pound ($570/metric ton) and the value of the export was $.3875 (according to the Shipper's Export Declaration, see FACTS portion of this ruling). We note that there is a broad range in the contract-prices and values of the merchandise under consideration (i.e., the price per pound of the December 6, 1987, importation was $.2268 ($500/metric ton), that of the April 6, 1988, importation was $.2585 ($570/metric ton), that of the exportations for the February 1, 1991, claim from $.3000 to $.3700, that of the exportation for the November 21, 1991, claim $.3875, and that of the exportations for the January 22, 1992, claim from $.245 to $.45, with no apparent connection between the specifications of the merchandise and the prices). We note that there is persuasive evidence that the merchandise under consideration is traded on the basis of the FOSFA and/or NCPA rules (in addition to the evidence described above in this regard, we have been advised by a technical expert in another agency of the Government that generally the FOSFA rules are used for international trading and the NCPA rules are used in domestic trading). In a case such as this, in which there are accepted industry standards (which were accepted for purposes of fungibility, a more restrictive standard than commercial interchangeability (see above)) and those standards are demonstrated to be used in trading of the commodity covered by the standards, and there is such a broad range in value of the merchandise, the standards are entitled to great weight as a criterion for determining commercial interchangeability. Since the imported merchandise and the export in the November 21, 1991, both met the FOSFA standards (and the imported merchandise also met the NCPA standards), without price adjustment, they are commercially interchangeable, for drawback purposes. The protest is GRANTED insofar as the November 21, 1991, claim is concerned.

The January 22, 1992, claim designated 3,092,194 pounds of crude peanut oil from the April 6, 1988, importation which, as shown above, meets the requirements for fungibility under both the FOSFA and NCPA rules. In the case of both January 26, 1989, exports, the April 19, 1989, export, and the June 7, 1989, export of 151,200 pounds of crude peanut oil (the first of the June 7, 1989, exports listed in the table of exports for this claim in the FACTS portion of this ruling), both the FOSFA standards and the NCPA standards are met. The tariff classification of the imported and the substituted exported merchandise was the same and the relative values of the imported merchandise ($.2585) and the exports (ranging from $.245 to $.31) vary no greater than in the November 21, 1991, claim, discussed above. Therefore, on the basis of the same reasoning used in regard to that claim (see above), drawback may be granted in regard to these exports. The protest is GRANTED in regard to these exports, insofar as the January 22, 1992, claim is concerned.

In the case of the February 23, 1990, export, the purchaser would not have the right of rejection under the NCPA or FOSFA rules (see above), but the crude peanut oil would be subject to a price adjustment. The price adjustment under the NCPA rules for the excess over 5 percent refining loss is explicitly provided for in the NCPA rules (3/4 of 1 percent of the contract price for each 1 percent refining loss over 5 percent). In the case of the February 23, 1990, export, the price adjustment under the NCPA rules would have been 1.65% of the contract price (the refining loss was 7.2%).

Thus, under the NCPA rules, crude peanut oil otherwise meeting those rules (less than 1% combined moisture and impurities and less than 3.25% free fatty acid content (see NCPA rule 201, section 3, quoted below)) with a refining loss greater than 5 percent but less than 12 percent must be accepted by a purchaser, with a price adjustment explicitly provided for in the rules. Such an industry standard provides the certainty and objectivity required for the determination of Customs issues (including drawback) (see Guess? Inc. v. United States, supra (quoted above), see also United States v. Lineiro, 37 CCPA 5, 10, C.A.D. 410 (1949), "[d]etermination of issues in [C]ustoms litigation may not be based on supposition"). As noted above, the reported intent of the change in the standard for substitution under section 1313(j)(2) from fungibility to commercial interchangeability was to make the standard less restrictive (see quoted material from House Report 103-361, page 131, above; "the Committee intends to permit the substitution of merchandise when it is 'commercially interchangeable,' rather than when it is commercially identical'"). Therefore, we conclude that in this instance (when the export must be accepted under accepted industry standards, subject to a price adjustment provided for and specified in the standards), commercial interchangeability is not precluded (as we ruled was true for fungibility). (Parenthetically, we note the FOSFA rules do not provide the same sort of certainty and objectively provided by the NCPA rules, since the price adjustment is not provided in the FOSFA rules, but may be provided in contracts for sale.)

In the case of the February 23, 1990, export, the tariff classification of the imported and the substituted exported merchandise was the same. The relative values of the imported merchandise ($.2585) and the exports ($.45) vary more than is true of the November 21, 1991, claim but, as discussed above in regard to that claim, in cases such as this, in which there are accepted industry standards which were accepted for purposes of fungibility and there is a broad range in the value of the merchandise (with no apparent connection between the specifications of the merchandise and prices), the standards are entitled to great weight as a criterion for determining commercial interchangeability. As stated above, the imported merchandise meets both accepted industry standards without a price adjustment, and the export meets one of the industry standards with a price adjustment of 1.65 percent of the contract price, as provided for and specified in the industry standards. Therefore, on the basis of the same reasoning used in regard to that claim (see above), drawback may be granted in regard to this export. The protest is GRANTED in regard to the February 23, 1990 export, insofar as the January 22, 1992, claim is concerned.

In the case of the May 19, 1989, export, although the free fatty acid content (1.28%) and the refining loss (3.26%) meet the FOSFA and NCPA rules, the moisture and impurities (1.01%) does not. According to the FOSFA rule (as described in ruling 223885, see above), shipments of crude peanut oil are "freely interchangeable" if they contain 2% or less free fatty acid (with a price adjustment for free fatty acid content between 2% and 3%) and less than 0.5% each of moisture and impurities (Customs adopted a criterion of 1% combined moisture and impurities for fungibility purposes in ruling 223885). No price adjustment is provided for excessive moisture and impurities. Since crude peanut oil meeting these criteria is "freely interchangeable", we assume that crude peanut oil not meeting these standards, without right of price adjustment, is not. The NCPA rules are similar in this regard.

In regard to the relative values for the importation and the May 19, 1989, export, as stated above, the contract-price for the April 6, 1988, importation was $.2585 per pound. The value for the export, according to the Shipper's Export Declaration, was approximately $.32 per pound (an approximation is used because there are minor discrepancies in the weight reported in the export documents). This discrepancy in relative values is less than that in the November 21, 1991 claim (discussed above). However, in the case of the May 19, 1989, export, neither industrial standard is met and there is no provision for acceptance by a buyer of the merchandise with a price adjustment. For the reasons discussed above (i.e., the great weight to which industry standards are entitled in this case), we conclude that the importation and May 19, 1989, export are not commercially interchangeable. The protest is DENIED in regard to the May 19, 1989, export, insofar as the January 22, 1992, claim is concerned.

In the cases of both February 11, 1989, exports, both March 30, 1989, exports, the March 31, 1989, export, the May 11, 1989, export, the June 1, 1989, export, both March 13, 1990, exports, and both June 11, 1990 exports (the values for these exports range from $.245 to $.45 per pound, according to the export documents, compared to the contract-price of $.2585 per pound for the April 6, 1988, importation), no data regarding moisture and impurities is provided. The protestant contends that the moisture and impurities may be determined on the basis of the free fatty acid content, refining loss, and other information in the reports of analysis but, based on our consultation with industry sources, confirmed by Customs and other Government personnel, we are not satisfied that this is so. In this regard, we note that "[d]etermination of issues in [C]ustoms litigation may not be based on supposition" (United States v. Lineiro, supra). On the basis of the same reasoning as was used in regard to the May 19, 1989, export (see above), we conclude that these exports are not commercially interchangeable with the importation. The protest is DENIED in regard to these exports, insofar as the January 22, 1992, claim is concerned.

In the cases of the second and third of the June 7, 1989, exports, as listed in the table of exports in the FACTS portion of this ruling (above), and both November 28, 1989, exports (the values for these exports range from $.3425 to $.41, compared to the contract-price of $.2585 for the April 6, 1988, importation), no reports of analysis are in the file. On the bases set forth or referred to in the preceding paragraph, since the protestant has failed to establish commercial interchangeability in regard to these exports, the protest is DENIED in regard to these exports, insofar as the January 22, 1992, claim is concerned.

In conclusion, in regard to the January 22, 1992, claim, of the 3,092,194 pounds of crude peanut oil on which drawback was claimed, drawback is denied, and the protest is DENIED, on 2,428,409 pounds and drawback is granted, and the protest is GRANTED, on the remaining 663,785 pounds (figures based on the figures in the Chronological Summary of Exports).

In the February 1, 1991, claim, 618,680 pounds of crude peanut oil were designated from the April 6, 1988, importation from China. The exports upon which the claim for drawback on the 618,680 pounds of crude peanut oil must be those after March 14, 1988 (the other exports occurred before the April 6, 1988, date of importation). On the basis of the same reasoning as used above, we conclude that all of the exports for this claim between May 31, 1988 and November 24, 1988, are commercially interchangeable with the April 6, 1988, importation except for the August 22, 1988, export and the September 7, 1988, export. That is, in the case of the exports found to be commercially interchangeable with the imported merchandise, all (with the exceptions noted) met the FOSFA standards without price adjustment and the NCPA standards with a price adjustment explicitly provided for in the standards (May 31, 1988, June 6, 1988, June 11, 1988, June 24, 1988, second July 5, 1988, third July 5, 1988, and November 24, 1988, exports) or met the NCPA standards with a price adjustment explicitly provided for in the standards (June 22, 1988, June 28, 1988, first July 5, 1988, August 2, 1988, September 29, 1988, and October 10, 1988, exports); the tariff classification of the imported merchandise and the substituted exported merchandise was the same; and the discrepancies in the relative values of the April 6, 1988, importation ($.2585 per pound) and the eligible exports ($.3050 to $.3550 per pound) discussed in this paragraph are not as great as that in the February 23, 1990, export). Drawback, and the protest, are GRANTED in regard to the qualifying exports (i.e., exports between May 31 and November 24, 1988, except for the August 22 and September 7, 1988, exports) and the April 6, 1988, importation in the February 1, 1991, claim.

In the cases of the August 22, 1988, export and the September 7, 1988, export, the free fatty acid contents were, respectively 3.53% and 3.41%, which is grounds for rejection under both the FOSFA standards and the NCPA standards (see NCPA Rule 201, section 3, under which "[o]il, in which free fatty acid exceeds 3.25 percent and/or which, when refined, is not sweet in flavor or odor, shall be graded off in flavor and odor"; see also the requirement in Rule 175 for sweetness in flavor and odor). The contract-prices of these exports were $.3050 and $.3550; the contract-prices for the importations were $.2268 and $.2585 (see above). On the basis of the same reasoning as in regard to the May 19, 1989, export in the January 22, 1992, claim (see above), drawback, and the protest, are DENIED in regard to these exports.

The February 1, 1991, claim also designated 1,102,300 pounds of crude peanut oil from the December 6, 1987, importation. For the reasons given above (i.e., the exports were before the date of the April 6, 1988, importation), the February 3, 1988, through March 14, 1988, exports must be claimed against this importation. In the cases of the first five exports (both February 3, 1988, exports, both February 10, 1988, exports, and the February 16, 1988, exports), the only indication of the results of analysis of the merchandise is a table indicated to have been prepared by an individual in the Sales Order Department of the Protestant, but not signed or dated, listing the free fatty acid content, moisture and impurities, and other data. Such a document is unacceptable for establishing commercial interchangeability (see rulings 224740 and 224633, discussed above). The contract-price for these exports was $.3700 and the contract-price of the December 6, 1987, importation was $.2258. On the basis of the same reasoning as in regard to the exports in the January 22, 1992, claim for which data regarding moisture and impurities was not provided (see above), drawback, and the protest, are DENIED in regard to these exports.

In the case of the December 6, 1987, importation, the free fatty acid content was 2.64% (2.36% according to the samples taken from the vessel in Argentina), moisture and impurities were .17% (according to the Argentine samples; the U.S. report of analysis does not report on moisture and impurities), and the refining loss was 6.6% (refining loss was not reported on the Argentine samples). The exports on which the February 1, 1991, claim is based (except for the August 22, 1988, and September 7, 1988, exports and the February 3, February 10, and February 16, 1988, exports, in regard to which drawback must be denied as discussed above) were reported to have a free fatty acid content of from 1.19% to 2.82%, moisture and impurities between .17% and .66%, and a refining loss of 4.58% to 6.01%. According to contracts and other information in the file, the relative values of the merchandise were, for the December 6, 1987, importation $.2268 per pound ($500/metric ton) and, for the qualifying exports, from $.30 to $.3550 per pound. On the basis of the reasoning set forth above, we conclude that all of the exports upon which the February 1, 1991, claim is based (except for the non-qualifying exports, see above) are commercially interchangeable with the December 6, 1987, importation from Argentina. That is, the importation met the NCPA standards with a price adjustment explicitly provided for in the standards. The exports met the FOSFA and NCPA standards without price adjustment (March 14, 1988, export), met the FOSFA standards without price adjustment and the NCPA standards with a price adjustment explicitly provided for in the standards (May 31, 1988, June 6, 1988, June 11, 1988, June 24, 1988, second July 5, 1988, third July 5, 1988, and November 24, 1988, exports), or met the NCPA standards with a price adjustment explicitly provided for in the standards (June 22, 1988, June 28, 1988, first July 5, 1988, August 2, 1988, September 29, 1988, and October 10, 1988, exports). For both the importation and the qualifying exports, the tariff classification criterion is met and the discrepancies in relative value are within ranges found not to preclude commercial interchangeability elsewhere in this ruling (see, e.g., the February 23, 1990, export in the January 22, 1992, claim). The protest is GRANTED in this regard.

In conclusion, in regard to the February 1, 1991, claim, of the 1,720,980 pounds of crude peanut oil on which drawback was claimed, drawback is denied, and the protest is DENIED, on 435,898 pounds and drawback is granted, and the protest is GRANTED, on the remaining 1,285,082 pounds (figures based on the figures in the Chronological Summary of Exports).

HOLDING:

There is authority to grant the protest of the denial of drawback in regard to the November 21, 1991, claim in its entirety, and to grant in part and deny in part the January 22, 1992, and the February 1, 1991, claims, depending on whether the imported merchandise designated for drawback and the exports upon which the claims were based are commercially interchangeable. Specifically, on the basis of the figures in the Chronological Summaries of Exports:

In regard to the February 1, 1991, claim, of the 1,720,980 pounds of crude peanut oil on which drawback was claimed, drawback is denied, and the protest is DENIED, on 435,898 pounds and drawback is granted, and the protest is GRANTED, on the remaining 1,285,082 pounds.

The November 21, 1991, claim on 153,235 pounds of crude peanut oil is granted in its entirety.

In regard to the January 22, 1992, claim, of the 3,092,194 pounds of crude peanut oil on which drawback was claimed, drawback is denied, and the protest is DENIED, on 2,428,409 pounds and drawback is granted, and the protest is GRANTED, on the remaining 663,785 pounds.

The protest is GRANTED in part and DENIED in part. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed, with the Customs Form 19, by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision 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 the public via the Diskette Subscription Service, Freedom of Information Act, and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

Enclosures