DRA-4-RR:IT:EC 226995 IOR
Port Director
U.S. Customs Service
Miami International Airport
P.O. Box 52-3215
Miami, FL 33152-3215
RE: Unused merchandise drawback; Commercial interchangeability;
Polyester staple fiber; 19 U.S.C. 1313(j)(2)
Dear Sir:
This is in response to your May 13, 1996 request for
internal advice (DRA-1 PD:A:TC:D JTS), which request was
initiated by Wonalancet Company ("Wonalancet"), concerning
whether certain imported and domestic high tenacity polyester
staple fibers are "commercially interchangeable" for purposes of
substitution, unused merchandise drawback under 19 U.S.C.
1313(j)(2).
Our file includes Wonalancet's responses to questions listed
in Customs Directive number 099 3740-08, dated April 1, 1993,
samples of the imported and exported product, product
specifications for the imported merchandise, invoices to
Wonalancet for the imported merchandise, specifications for the
domestic merchandise, sales contract and purchase order for the
exported merchandise, purchase contract for the domestic
merchandise, Customs laboratory report, 4-96-11162-002, dated
July 22, 1996 ("Savannah lab report"), and Customs laboratory
report dated January 8, 1997 ("Headquarters lab report").
FACTS:
The imported and exported merchandise in this case consist
of high tenacity polyester staple fibers (hereinafter referred to
as "fibers"). The imported fibers were produced by JCT Fibres
Limited, in New Delhi, India. The domestic fibers were produced
by Wellman, Inc., in Darlington, South Carolina. The imported
fiber is 1.4d x 38mm Semi Dull, High Tenacity Polyester Staple
Fiber, and the exported fiber is 1.2d x 38mm Semi Dull, Optically
Brightened, High Tenacity Polyester Staple Fiber. Wonalancet
states that the differences between the two are very minor denier
(the import has a 1.4 denier and the domestic has a 1.2 denier)
and finish variations. The fibers are used to produce fine count
sewing thread which requires the use of high tenacity fiber.
Wonalancet states that the denier variation and difference in
finish (the domestic fiber has an optically bright finish) does
not in any way affect the processing of the fiber and end use
applications. Wonalancet states that the commercial world
accepts both the substitute and imported fiber as being
interchangeable in all instances. According to Wonalancet, the
prices of the merchandise can vary depending on market conditions
at the time of import and the time of export.
The Savannah lab report found that the differences in the
fibers are as follows:
Drawback Import Domestic Substitution
Fiber diameter 11.34 microns 10.23 microns
Staple length 36.06 millimeters 35.54
millimeters
Denier per filament 1.25 1.02
The report concludes that the fibers are commercially
interchangeable.
The Headquarters lab report has reviewed the fiber
manufacturers' specifications, Wonalancet's request and the
Savannah lab report, and concludes that the specifications given
for the imported and domestic fibers are sufficient to establish
commercial interchangeability. With regard to the specifications
and the Savannah lab report, the Headquarters lab report found as
follows:
The Customs laboratory reviewed the submitted
specifications and tested the imported and domestic
fibers to determine the fiber diameter, staple length,
and denier per filament properties. While there are no
government or industry standards for the merchandise,
Customs has traditionally considered denier, length,
tenacity and luster as critical criteria for "same kind
and quality" drawback. The submitted specifications
include denier, staple length, luster and tenacity.
The denier values are similar according to the
specifications and as tested by the laboratory. The
staple length and luster are essentially identical.
Both the imported and domestic fibers are of high
tenacity, and have tensile strength and elongation
values in the same range. We consider the tenacity to
be the most critical specification because high
strength is an essential property for sewing thread.
The imported and domestic fibers differ in that the
domestic fiber has been optically brightened, while the
imported fiber has not. Optical brighteners or
fluorescent whiteners are applied to polyester in
aqueous dispersions similar to commercial disperse
dyeing processes. The brighteners can be applied to
yarns (thread) as well as to fibers. If the optically
brightened fibers or yarns are dyed a deep or dark
color, the effects of the brightener are essentially
negated. Therefore, we do not consider optical
brighteners to significantly affect the processing of
the imported and domestic polyester staple fibers for
use in sewing thread.
The documents provided indicate that the imported fiber was
purchased pursuant to a November 11, 1993 invoice and the export
fiber was sold on the basis of a December 7, 1995 sales contract.
ISSUE:
Whether the imported and substituted fibers 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 C.F.R. 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 the fibers are commercially
interchangeable, the following factors must be analyzed:
1. Governmental and Recognized Industry Standards
As stated above, the Savannah lab report found the imported
and domestic merchandise to be commercially interchangeable.
However, the Savannah lab report's conclusion is irrelevant as it
does not appear to be based on the Congressional standards set
forth above. The Headquarters lab report is relevant however, as
it made the narrower conclusion that the specifications given for
the imported and domestic fibers are "sufficient to establish
commercial interchangeabilty." As stated by the Headquarters lab
report, there are no recognized industry or government standards
regarding polyester staple fibers. However, the producers'
specifications for 1.4d and 1.2d fiber provides the following
information:
Foreign Domestic
Denier 1.2 1.4 1.2
Tenacity (Gm/den) 6.6-6.9 6.5-6.8 6.8
Elongation at
break % 17-22 19-24 25
Crimps (arcs/cms) 5.8-6.3 5.7-6.2 No specs.
Boiling water
shrinkage max % 1.0 1.0 No specs.
Thermal shrinkage
max % (30 minutes
at 180 deg C) 5.0 5.0 No specs.
From the above foreign producer's specifications, it is evident
that except for the denier, given the ranges in specifications,
the imported and domestic fibers could be identical as to all
remaining specifications, or have variations in specifications
yet meet the criteria for both 1.2d or 1.4d. The domestic
producer's specifications did not include all of the elements as
the foreign producer, however, the tenacity for 1.2 denier fiber
of the domestic producer could meet the specifications of the
imported 1.4 denier fiber. The Headquarters lab report states
that for the imported and domestic fiber the denier values are
similar, the staple length and luster are essentially identical,
both are of high tenacity, and have tensile strength and
elongation values in the same range. The tenacity of the import
and export meets the requirements of either 1.2 or 1.4 denier,
and according to the Headquarters lab report, the tenacity is the
most critical specification, as high strength is an essential
property for sewing thread. According to Wonalancet, fiber
producers have a standard deviation of approximately 20%, or a .2
to .25 range. Under such a range, the sample fibers, tested by
Customs, are within an acceptable range of the producer's
specifications.
An important factor for us in determining commercial
interchangeability is that the processing of the fiber and end
use applications is not affected by the variations in the denier
and the finish. That indicates that either the domestic or the
imported fiber could be purchased for the same purpose. The
Headquarters lab report states that it does not "consider optical
brighteners to significantly affect the processing of the
imported and domestic polyester staple fibers for use in sewing
thread." According to Wonalancet, the "very minor denier
variation and difference in finish...do not in any way affect the
processing of the fiber and end use applications."
Based on the foregoing we find that the requirements for
commercial interchangeability are met with respect to this first
factor.
2. Tariff Classification
With respect to the tariff classification, both the imported
and domestic fibers are classified under subheading 5503.20,
Harmonized Tariff Schedule of the United States (HTSUS), as
"synthetic staple fibers, not carded, combed or otherwise
processed for spinning: of polyesters...." The tariff
classification criterion, therefore, has been met.
3. Part Numbers
The invoices describe the merchandise as 1.2 d or 1.4d, with
no apparent part number. The documents for Wonalancet's sale of
the domestic fiber refers to a "type 4-547." According to
Wonalancet, the company gives a different number to each supplier
and product for identification purposes. A product with
identical specifications from a different supplier would have a
different type number assigned to it. Wonalancet states that the
assigned type numbers have no relation to the characteristics or
specifications of a product. We are satisfied that product codes
are meaningless other than for identification purposes. As
such, part numbers are not a relevant criterion in this analysis
of commercial interchangeability.
4. Relative Values
Based on the price per kilogram of the imported fibers,
purchased in November, 1993, and the exported substitute fibers,
sold in December, 1995, the export price is 35% greater than the
import price. In its submission, Wonalancet does state that the
prices of the merchandise can vary depending on market conditions
at the time of import and the time of export. In an April 10,
1997, telephone conversation with a member of the Entry and
Carrier Rulings Branch, J. Jerry Dunn, President of Wonalancet
described the causes of fluctuations in the price of polyester
staple fiber. According to Mr. Dunn, a fire at a U.S. plant and
an explosion in an Italian plant, occurred in 1993. Both of
these plants manufactured PTA which is a main chemical in the
fiber. As a result of decreased production of PTA, there was a
world shortage of polyester staple fiber beginning in late 1993,
through 1994 and into 1995, during which time the prices for the
fibers increased. At the time of the export sale, the prices of
polyester staple fiber were beginning to become competitive, as a
greater supply of the fiber was becoming available.
As substantiation of the foregoing, by letter dated April
30, 1997, Wonalancet submitted copies of text from the
publication "Nonwovens Markets" and from what appears to be a
different trade publication, dated November, 1993, August, 1994
and October, 1994. The November, 1993 text refers to tight
supply of the basic building block for polyester resin, with no
known expansions, which would result in a price increase for
polyester polymer. The publication also states that
polypropylene polymer prices may increase. The publication
provides a chart comparing September, 1993 prices with those of
October, 1993, and the prices for the 9 materials, appear stable.
The August, 1994 publication states:
Somewhat higher prices also seem to be in store for
manmade fibers. The opening gun was fired a few months
ago when polyester staple producers raised prices about
a nickel, to 76 cents. And there's some talk about
another boost by fall or winter as supplies remain on
the snug side.
The October, 1994 publication includes a chart comparing
September, 1994 prices to October, 1994 prices, and there is a 4%
-5% increase in the price of polyester staple fiber. The text
refers to price increases for polyester resin, and predicts that
from September, 1994 to the end of 1995, polyester resin will
have increased by $0.12/lb. There are no prices to compare the
$0.76 and $0.12/lb figures with, therefore we are unable to
determine the percentage of the increases in price.
There is no apparent connection between the specifications
of the merchandise and the prices. The difference in price for
the imported merchandise and the domestic merchandise appears to
be the result of market fluctuations at the time of purchase and
not of the products themselves. However, none of the evidence
submitted substantiates the shortage of PTA, specifically, and
although there are references to tight supplies of polyester
resin and price increases, none of the information provided
substantiates the 35% price difference. If the price difference
were substantiated by credible evidence, we could conclude that
this criterion is inconclusive or, at best, neutral on the issue
of commercial interchangeability in the instant case because of
the forces driving the fluctuations in market prices for
polyester staple fiber. However until such evidence is provided
to Customs, the relative value criteria for commercial
interchangeability is not met.
After evaluating all the relevant criteria suggested by the
legislative history, we find that commercial interchangeability
of the fibers has not been established because insufficient
evidence has been provided with respect to the relative value of
the merchandise. If sufficient relative value information were
provided, we would find that commercial interchangeability
between the merchandise had been established because (1) the
laboratory concluded that the specifications for the fibers were
sufficient to establish commercial interchangeability; (2) the
variations in the fibers are immaterial to the processing of the
fiber and end use applications of the fiber; (3) the foreign
producer's specifications for 1.2d and 1.4d fibers are nearly
identical; and (4) both the imported and domestic fibers are
classifiable under the same tariff provision.
HOLDING:
Insufficient evidence has been provided on the relative
value criterion and therefore commercial interchangeability of
the subject merchandise has not been established. However, if
the relative value criterion were met, based on the fact that the
laboratory analysis indicates that both products have the same
tensile strength and denier which are the most important
considerations and which are so reflected in the evidence
presented, that the variations in the fibers is immaterial to the
processing of the fiber and end use applications of the fiber and
that the tariff subheading is favorable to the drawback claimant,
we would that the imported and domestic high tenacity polyester
staple fibers are commercially interchangeable for purposes of
the substitution unused merchandise drawback law 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, Freedom of Information Act
and other public access channels.
Sincerely,
Director,
International Trade Compliance
Division