DRA-4-R:C:E 226074 JRS
Ms. Nora Ehrlich
Chief, Drawback Liquidation Branch
Southeast Region
U.S. Customs Service
909 S.E. 1st Avenue
Miami, FL 33131-2595
RE: Request for Internal Advice; Commercial interchangeability; Methyl Tertiary Butyl Ether (MTBE); 19 U.S.C. 1313(j)(2)
Dear Madame:
This is in response to your memorandum dated March 14, 1995 (FILE: DRA-4-O:C:L JTS), requesting internal advice with respect to whether International Petrochemical, Division of PMC, Inc., qualifies for substitution unused merchandise drawback under 19 U.S.C. 1313(j)(2) based upon the specifications provided in the company's letter dated February 13, 1995. Our advice follows.
FACTS:
International Petrochemical is a trading company engaged in the exporting and importing of various chemicals. International Petrochemical both imported 6,253.845 metric tons of MTBE (which is equivalent to 1,876,153.5 gallons as there are 300 gallons per metric ton) from the Netherlands on January 25, 1994 for $1,250,769.00, and exported almost a year later on
January 23, 1995, 223,033.17 barrels of MTBE (which is equivalent to 9,367,393.085 gallons as there are 42 gallons per barrel) to Venezuela for $9,260,500.40. Certificates of analysis for the imported and exported MTBE have been provided as well as the import and export invoices and a sample order blank.
We note that MTBE is almost exclusively used as a gasoline blending component for octane enhancement. The foreign customer is a gasoline producer and requires MTBE for their finished gasoline. International Petrochemical states that all customers accept MTBE products equally and that the exported chemical is exactly the same type of product that was imported.
ISSUE:
Whether the imported and substituted exported methyl tertiary butyl ether (MTBE) are commercially interchangeable for purposes of 19 U.S.C. 1313(j)(2).
LAW AND ANALYSIS:
Under 19 U.S.C. 1313(j)(2), as amended, substitution unused merchandise 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 statute did not define commercially interchangeable.
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.
In order to determine whether MTBE is commercially interchangeable, an analysis of the following factors must be done:
1. Governmental and Recognized Industry Standards
The broker, on behalf of the company, did not provide any information on this criterion, with the exception of submitting the commercial specifications for both the imported and exported MTBE. The import specification taken on four samplings varied in purity between 98.0 to 98.8 wt. %, in water between 0.003 to 0.008 wt. %, and in methanol between 0.03 and 0.31 wt. %. The export specification taken on two samplings varied in purity between 98.02 and 98.73 wt. %, in water content between 51ppm and 491ppm, and in methanol between 0.21 and 0.33 wt. %.
In order to review this matter, the Worldwide Standard Service ("WSS") data base was searched. The "WSS" contains over 150,000 industry/international standard specifications from over 400 leading standards organizations including ASTM, ISO, API (American Petroleum Institute), BPI (British Petroleum Institute). We have found no published standard which applies to this product. However, ASTM is currently developing standard specifications for gasoline grade MTBE. The completion date for this standard is unknown.
Ullmann's Encyclopedia of Industrial Chemistry lists the following specifications for MTBE which they claim have been adopted worldwide for use in the fuel sector.
Minimum purity 98 % by weight
Alcohol max. content 0.5 - 1.5 % by weight
Water max. content 50 - 1500 ppm by weight
Further, the Encyclopedia of Chemical Technology, Kirk-Othmer, states that the typical specifications of fuel grade MTBE is 95% minimum purity in the United States and 98% minimum in Europe. The maximum amounts for methanol and water allowable in the product are 0.5% by weight and 1500 ppm, respectively.
We forwarded for technical review the Certificates of Analysis that were submitted by the company in this internal advice request to our Customs laboratory at Headquarters, the Office of Laboratories and Scientific Services ("OLSS"). The following pertinent comments were provided by OLSS:
Without the guidance of a government or industry standard for MTBE, and in order to corroborate the technical information found in the technical literature, we contacted several local producers to identify trading rules and/or commercial practices used in the United States for this product. We note that seven of the sixteen contacted producers submitted technical data. Review of the data shows that MTBE is marketed as having two different minimum purity values, 95 and 98 wt. % and containing no more that 0.5 wt. % methanol and 1500 ppm water. This information confirms the information found in the technical literature. . . The provided certificates of analysis show that the imported and exported products [MTBE] have a minimum purity value greater than 98% by weight, a methanol content below 0.5% by weight and a water content below 1500 ppm. . .
Since there is no government standard or recognized industrial standard at the present time, this criterion cannot be used to make the commercial interchangeability determination. However, the commercial specifications on both the imported and exported MTBE appear to fall well-within the range of existing commercial standards as specified in the technical literature and accepted by the commercial trading industry, i.e, the import and export specifications were at the high or stringent end of the minimum 98% purity. In spite of the fact that there are no government or industry standards for MTBE, the existing commercial standards tends to establish the commercial interchangeability of the MTBE.
2. Tariff Classification
With respect to the tariff classification, both the imported and substituted MTBE are classified under subheading 2909.19.10.10, Harmonized Tariff Schedule of the United States (HTSUS). The tariff classification criteria, therefore, has been met.
3. Part Numbers
Based on the evidence presented by the company, part numbers do not appear to be a relevant criterion in this case. We conclude that this criterion is not useful in determining the commercial interchangeability of MTBE.
4. Relative Values
Based on the information provided in the invoices, the exported product was sold at a price of 0.96¢ per gallon, and the imported product was purchased for $200.00 per metric ton, or 0.66¢ per gallon, the equivalent measurement unit. Thus, the value of the exported merchandise was 45.4% greater than the value of the imported merchandise. Under the criteria of relative value, the fluctuation of the market forces, such as supply and demand, for such merchandise should be considered. A company representative stated that in January of 1994, it was the lowest market for MTBE in years and that by January of 1995 the market had improved and the prices for MTBE were a lot higher than the previous year. We found no evidence to contradict these statements made by the company.
This seemingly large disparity in the relative values of the export and the import in this instance appears to be due solely to the market forces of supply and demand at the time of purchase rather than attributable to any difference in the quality of the imported or exported merchandise. As such, the price differential between the import and export does not appear to be significant with respect to the relative value criterion. This appears not to be a case where an inferior product has been substituted for the higher-quality imported product; for example, where a Yugo valued at $1,000 is exported for an imported Rolls Royce valued at $100,000. Based on the commercial specifications, the imported and substituted MTBE are of the same quality. Thus, the disparity in price appears to be the result of the market at the time of purchase and not of the products themselves.
Accordingly, in this case, the relevant criteria used to evaluate the "commercial interchangeability" do support a finding of commercial interchangeability of the said MTBE.
HOLDING:
Based on the foregoing, we conclude that the imported and exported shipments of MTBE are commercially interchangeable for purposes of the substitution unused merchandise drawback law of 19 U.S.C. 1313(j)(2).
The Office of Regulations and Rulings will take steps to make this decision available to Customs personnel via the Customs Rulings Module in ACS and to the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels within the 60 days from the date of this decision.
Sincerely,
John Durant, Director Commercial Rulings Division