DRA-4-RR:IT:EC 227106 IOR
Lynn S. Baker, Esq.
Baker & McKenzie
One Prudential Plaza
130 East Randolph Drive
Chicago IL 60601
RE: Unused merchandise drawback; Commercial interchangeability; Aspartame - powder and granular; 19 U.S.C. §1313(j)(2)
Dear Ms. Baker:
This is in response to your ruling request dated July 12, 1996, on behalf of your client Monsanto Company and its business unit, the NutraSweet Kelco Company (hereinafter “NutraSweet”), concerning whether certain imported and domestic aspartame is “commercially interchangeable” for purposes of substitution, unused merchandise drawback under 19 U.S.C. §1313(j)(2). In addition to your ruling request, you have provided us with additional information by letter dated September 20, 1996.
By our letter of August 6, 1996, we granted your request for confidential treatment of the subject entry numbers, client names, and invoice prices of the subject merchandise. In your submission of September 20, 1996, by bracketing certain information, you also requested confidential treatment for the name of the process involved in the production of aspartame, the name of NutraSweet’s foreign supplier, the quantities of aspartame contained in bottling “kits,” and the name of a foreign distributor for NutraSweet. In your submission of December 23, 1996, by bracketing the cost to NutraSweet for granulating aspartame as compared to the total cost of manufacturing granular aspartame, you requested confidential treatment of this information. In your submission of March 16, 1997, by bracketing certain information, you also requested confidential treatment for the names and locations of NutraSweet’s customers, affidavits of NutraSweet’s personnel regarding sales to customers, and the percentage of aspartame which is sold for use in carbonated soft drinks, and the percentage that is sold for use in other products. We conclude that it is appropriate under 19 CFR 177.2(b)(7) to grant confidentiality for the above-specified information. This decision is written in such a manner that the confidential information is not disclosed.
FACTS:
The imported and exported merchandise in this case consists of aspartame, which is composed of two naturally occurring amino acids, aspartic acid and phenylalanine. Aspartame is an intense sweetener (180-200 times as sweet as sugar) which is used as an ingredient in reduced calorie foods and beverages. NutraSweet manufactures aspartame at its plant in Augusta, Georgia, and also imports aspartame into the U.S. from Japan.
Both imported and domestically (U.S.) produced aspartame is available in two forms, powder and granular. Both forms are manufactured using the same process. Aspartame is produced by means of a chemical reaction, followed by purification, crystallization and drying steps, at which point powder aspartame exists. Granular aspartame is produced by the exact same process, except for an additional final step, where the powder is granulated. The granulation process is said to consist of powered screws that deaerate the powder aspartame by centrifugal action. The centrifuged powder is then compressed into sheets by rollers. The compressed sheet is broken into granules by a hammer mill. The granules are sorted by particle size by use of a vibrating mesh screen. You state that your client estimates that the cost of granulation is a small percentage of the total cost of manufacturing aspartame.
NutraSweet seeks a ruling that imported granular and exported powder aspartame is commercially interchangeable under 19 U.S.C. §1313(j)(2). NutraSweet states that both forms of aspartame are manufactured to the same standard for aspartame set out in the U.S. Pharmacopeia and the Food Chemicals Codex; both forms are covered by a single approval of the U.S. Food & Drug Administration (“FDA”); the Chemical Abstract Service Number (CAS) for both granular and powder aspartame is the same: CAS 22839-47-0; the molecular structure of both forms is the same: C14 H18 N2 O5; both have a molecular weight of 294.3; both the imported and substituted aspartame are manufactured in accordance with the specifications contained on the NutraSweet Ingredient Bulletin, Product Specification sheets (exhibit 1).
NutraSweet states that the tariff classification number is the same for both forms of aspartame. NutraSweet states that it does not use part numbers to identify powder or granular aspartame. Identification numbers used are simply to denote form, rather than any difference in product characteristics. NutraSweet uses the following lot coding system for all the aspartame it sells:
G = Granular (no letter if powder)
A = Plant Code
3 = Year manufactured (i.e. 1993)
05 = Month manufactured (i.e. May 1993)
11 = Day manufactured (ie. 11 May 1993)
In the example, the lot code would be GA30511. Lot coding is only required by the Food and Drug Administration for recall purposes. For this reason, granular aspartame is separately identified, solely in case the problem causing the recall involves the granulation process. The purchase orders submitted contain codes such as: A00120J25 or A00121J500. According to counsel for NutraSweet, these are not part numbers but are identification codes used for purposes of ordering merchandise, as the lot numbers are not known until the orders are filled. The A00 part of the code is a filler for the computer field and does not mean anything. The 120 indicates the powder form and the 121 indicates the granular form. The J indicates that the merchandise is from Japan. The remaining numbers indicate the type of packaging. A twenty five kilogram drum of aspartame is indicated by a 25 and a nonreusable custom “supersack” is indicated by a 500. These records are also kept for drawback purposes.
Exhibit 1, indicates that the part numbers for the granular aspartame are A00121, A00122 and A00123, and for the powder aspartame is A00120. The sales documents show that part numbers are used and also that the purchaser and seller specify whether the aspartame is to be granular or powder. For example, the sales invoices to NutraSweet, from its supplier specify either “granular aspartame” or “aspartame powder”, and refer to lot numbers but not to part numbers. The purchase order from NutraSweet to its supplier uses the part numbers in describing each item. NutraSweet’s warehouse receipts indicate the form of the aspartame and include the lot numbers. The purchase orders to NutraSweet specify the form of the aspartame to be purchased and NutraSweet’s invoices to its purchasers describe the form of the aspartame sold as either powder or granular.
NutraSweet claims that both forms of aspartame have exactly the same commercial purpose, namely, for use in sweetening foods, beverages, dietary supplements (vitamins) and medicines. According to NutraSweet, although customers may specify a preference as to the form of aspartame they desire, either form can be and has been used interchangeably. For example, aspartame was first approved for use in carbonated soft drinks in 1984. From 1984 to 1990 powder aspartame was sold to carbonated soft drink manufacturers, who took 25 Kg drums of powder aspartame to make “kits” for their bottling customers. The “kits” comprised varying amounts of aspartame and containers of syrup. Once granulated aspartame became available in 1990, some carbonated soft drink manufacturers expressed a preference for granular aspartame, because there was a smaller “yield loss” when packaging the kits for the bottling companies. Also the bottling companies experienced less “dusting” when manufacturing the finished product.
NutraSweet takes the position that the preference for a particular form of aspartame is solely due to the desire of some customers to maximize production cost-savings. Both forms of aspartame can and have been historically used. NutraSweet has submitted an exhibit showing a sales invoice from a foreign distributor of NutraSweet to its customer, a drink manufacturer, for aspartame. However, the invoice does not indicate the form of the aspartame. NutraSweet has also submitted commercial invoices showing that both powder and granular aspartame has been shipped to the same customers. For example, according to invoices attached as Exhibit 1A (from the March 18, 1997 submission), on April 29, 1993, NutraSweet shipped powder aspartame to the foreign customer, and on July 2, 1993 NutraSweet shipped granular aspartame to the same customer. Invoices attached as Exhibit 1B (from the March 18, 1997 submission), show that on January 20, 1994, NutraSweet shipped powder aspartame to its foreign customer, and on February 24, 1994, NutraSweet shipped the same quantity of granular aspartame to the same customer. The unit prices shown on the invoices are the same for the granular and powder aspartame, however they vary between the customers.
NutraSweet has submitted three confidential affidavits which address customer use of powder and granular aspartame. The affidavit submitted as Exhibit 3 (with the March 18, 1997 submission) contains the statements of a NutraSweet employee responsible for technical services to one of NutraSweet’s customers. Exhibit 3 states that in manufacturing ready-to-drink beverages, the customer can use both forms of aspartame interchangeably: the weight per batch is the same, the order of ingredient addition is the same, the need for dispersion and agitation is the same, and the identical analytical methods to measure aspartame in the finished product are used.
The affidavit submitted as Exhibit 5 (with the March 18, 1997 submission) contains the statements of a NutraSweet employee in sales. Exhibit 5 states that granular and powder aspartame can be used interchangeably; the majority of aspartame sold by NutraSweet is for use in carbonated soft drinks; equal percentages of aspartame are sold for use in powdered soft drinks and low calorie tabletop products (tablets or jars for use by retail customers); and the remaining aspartame is sold for use in yogurt and miscellaneous applications, such as chewing gum, vitamins, mints and ice cream. According to the affiant in Exhibit 5, both powder and granular aspartame are used by powdered soft drink manufacturers (and provides an example of one manufacturer that uses the granular form and one manufacturer that uses the powder form); both granular and powder aspartame has been used in the manufacture of yogurt (and provides an example of a manufacturer that has used granular, and an example of a manufacturer that has purchased both granular and powder).
The affidavit submitted as Exhibit 7 (with the March 18, 1997 submission) contains the statements of a NutraSweet employee in customer service. According to Exhibit 7, NutraSweet customers have manufactured tabletop products using both powder and granular aspartame; NutraSweet customers have manufactured powdered soft drink mixes using granular aspartame; a NutraSweet customer has manufactured yogurt using powdered aspartame.
NutraSweet manufactures, exports and imports both granular and powder aspartame. NutraSweet seeks a ruling that the imported granular aspartame is commercially interchangeable with the exported powder aspartame. NutraSweet claims that there is no difference in the relative values between the two forms, because granular and powder aspartame are both sold at the same price. One of the sample entries provided shows a slight difference in the per kilogram price. The difference is said to be due to the cost of the packaging, some aspartame being packaged in the nonreusable custom “supersack” which is more expensive than the reusable fiber drums. NutraSweet states that any disparity between the relative values of the export and import transactions is due solely to market forces of supply and demand, and is not due to any difference in the quality of the product. In addition, with respect to both domestic and export sales, the price from individual customer to customer may vary, due to the manufacturing cost savings inherent in volume purchases made by large customers.
ISSUE:
Whether the imported granular and substituted powder aspartame is commercially interchangeable for purposes of 19 U.S.C. §1313(j).
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 addition, the Senate Report states that Customs “should evaluate the critical properties of the substituted merchandise, rather than basing its determination on subjective standards.” Senate Report, at page 83.
In order to determine whether the aspartame is commercially interchangeable, an analysis of the following factors must be done:
1. Governmental and Recognized Industry Standards
The NutraSweet product specification sheets, FDA provision, Food Chemicals Codex and U.S. Pharmacopeia on aspartame, that were submitted by NutraSweet, and the ruling request, were forwarded to the Customs laboratory at Headquarters, the Office of Laboratories and Scientific Services (“OLSS”). The following comments were provided by OLSS in its memorandum dated October 31, 1996:
As requested, we have reviewed the drawback proposal submitted by Monsanto Company for commercial interchangeability of granular aspartame and powder aspartame. Both forms of aspartame meet the specifications as described in the Food Chemical Codex and US Pharmacopeia. The manufacturing process employed is the same with an additional step of granulation for the granular aspartame. The uses of each form are also the same, as a sweetener for foods, soft drinks, medicines, etc. Based on this information, it is our opinion that granular aspartame and powder aspartame are commercially interchangeable.
The FDA regulations §172.804, provides requirements for the use of aspartame. One of the requirements is that the aspartame must meet the specifications of the Food Chemicals Codex. Both forms of the aspartame meet the specifications of the Food Chemicals Codex. The NutraSweet Ingredient Bulletin, Product Specification sheets for both forms of aspartame state that the aspartame meets compendial monographs for aspartame in the U.S. Pharmacopeia/National Formulary and Food Chemical Codex. NutraSweet’s domestically produced aspartame meets the specifications of the Ingredient Bulletin, and it requires the imported aspartame to meet those specifications as well.
OLSS, has also reviewed the description of the granulation expense and the estimated additional cost of the granulation process. The description of the process is acceptable to OLSS and the cost estimate appears to be reasonable.
As both forms meet the foregoing governmental (FDA requirement that specific industry standards be met) and industry standards, we find that the imported and exported merchandise meet this criterion.
2. Tariff Classification
With respect to the tariff classification, both the imported granular aspartame and the exported powder aspartame are classified under subheading 2924.29.1000, Harmonized Tariff Schedule of the United States (HTSUS), as aspartame. You have provided us with copies of Entry Summaries, CF 7501, and their accompanying invoices and purchase orders, which show both powder and granular aspartame classified under subheading 2924.29.1000. Exhibits 6,9 and 9A. You have also provided us with HQ 081875, dated March 14, 1989, which states that aspartame is classified in subheading 2924.29.0700, HTSUS (the prior subheading for aspartame which is now 2924.29.1000, HTSUS). The ruling letter does not make any distinction between granular and powder aspartame. We have confirmed that the form of the aspartame is irrelevant to the classification of the aspartame.
3. Part Numbers
According to NutraSweet, the aspartame does not have part numbers. However, according to the manufacturing specifications (Exhibit 1), the aspartame does have part numbers, and the part numbers are different for powder (A00120) and granular (A00121, A00122 and A00123). The September 20, 1996 submission refers to these numbers as “identification numbers.” These part numbers are used on NutraSweet’s purchase orders to its suppliers, and on purchase orders for aspartame ordered from NutraSweet. One of the purchase orders to NutraSweet, exhibit 8A, does not include a part number or form specification on the order form, although the copy of the order form has a part number handwritten onto the margin of the copy. It is not clear whether the customer specified the form of aspartame. NutraSweet does not include part numbers on its invoices to foreign customers, but does include the part numbers on the invoices to domestic customers. Part numbers are not included on invoices to Nutrsweet for imported aspartame. There is no explanation for the different part numbers for the granular aspartame. As a bulk material, the aspartame can be ordered in different types of packaging, and the part number includes the packaging designation. Since the part numbers are not included in all of the transaction documents, we conclude that the existence of the part numbers and use of the part numbers does not preclude a finding that the merchandise is commercially interchangeable.
The imported and exported aspartame is identified by a lot coding system. According to NutraSweet, the lot coding is required by the FDA for recall purposes and granular aspartame is identified separately only in the event the problem causing the recall involves the granulation process. As there is some indication that some clients prefer granular aspartame over powder, we believe that the separate identification of granular aspartame would be necessary for reasons other than recall, however, we are satisfied that the lot codes are for the purpose of identifying the source, date of manufacture and packaging of the aspartame received or shipped. Some of the invoices to NutraSweet’s customers have neither lot codes nor part numbers. The lot numbers and part numbers are not used consistently in the sales documents.
In Premier Graining Company, Inc., et al. v. United States, 57 Cust. Ct. 32 (1966), the Court stated that commercial paper, such as billings, price lists, purchase orders, invoices, bills of lading, etc., like the people who use them, speak the “language of commerce.” The information contained in NutraSweet’s purchase orders and invoices speaks the “language of commerce.” The fact that the part numbers and lot codes are not used on all documents, but are used only in some, supports the view that the part numbers and lot codes do not preclude a finding of commercial interchangeability.
In a similar instance, where resins were distinguished by “GR” meaning granular, and “PR” meaning powder, Customs found the product codes to be meaningless other than for identification purposes, and therefore not a relevant criterion in the analysis of commercial interchangeability . See, HQ 225882, dated July 19, 1996. In HQ 225882, the merchandise could also be ordered according to form. As such, we find the lot numbers and part numbers in this case are also not a relevant criterion in the analysis of commercial interchangeability. In this case also, the aspartame could be ordered according to form and type of packaging, without reference to a part number. This case is distinguishable from HQ 226625, dated July 3, 1996, which found that underwear which was identified by a style number and color code was not commercially interchangeable due to the variations in the color codes. This case, as well as HQ 225882, involves a bulk commodity, which HQ 226625 did not. Additionally, the area of textiles and fabric colors is substantively different from that of bulk commodities such as aspartame.
4. Relative Values
With respect to imported aspartame, NutraSweet has provided Exhibits 6 and 6A, which consist of invoices, dated March 8, 1996, and a purchase order, dated December 1, 1995, for granular aspartame from a foreign supplier. The price per kilogram varies slightly among these imports due to packaging, according to NutraSweet. The invoices do reflect the supersack packaging for the higher priced aspartame. The quantities are in the tens of thousands. Exhibit 9A, which consists of a change order dated May 17, 1996, to a purchase order dated May 7, 1996, shows that the per kilogram purchase price for aspartame imported from a foreign supplier, is the same for both granular and powder aspartame. The purchase order is for both granular and powder aspartame. Again the quantities are in the tens of thousands.
NutraSweet has provided evidence that both powder and granular domestic aspartame sell for the same price in export sales. NutraSweet’s Exhibit 7 is an invoice, dated November, 1994, to a foreign company, and is for exported granular and powder aspartame, and the price per kilogram is the same for both. The quantities are in the thousands of kilograms. Exhibits 1A, 1B, with the submission of March 18, 1997, show that two exports of aspartame to the same customer, over a three month period, for powder and granular aspartame have the same invoice price. The quantities are in the thousands of kilograms.
NutraSweet has provided copies of invoices dated July 1996, for two domestic sales of aspartame, and on those invoices the price for granular and powder aspartame is the same. NutraSweet Exhibits 8 and 8A. These domestic orders are for less than one hundred kilograms.
The prices of the exported powder aspartame are 75% to 137% greater than the prices of the imported granular aspartame. The packaging does not account for the substantial range in price. According to NutraSweet, any disparity between the relative values of the export and import transactions is due solely to market forces of supply and demand, and is not due to any difference in the quality of the product. In addition, with respect to both domestic and export sales, the price from individual customer to customer may vary, due to the manufacturing cost savings inherent in volume purchases made by large customers. This statement regarding the relative values is supported by the invoices and purchase orders submitted by NutraSweet. The import prices are significantly lower than the export prices, however, the quantities of the imported aspartame are significantly larger than those of the aspartame exported. The imports are in the tens of thousands, while the export quantities are several thousand or less. The export sales are 1% to 37% higher than the domestic sales. The difference in quantity is significantly less between the domestic sales and the export sales, than between the import sales and the export sales.
With regard to the broad range in prices, in HQ 225290, dated November 8, 1996, we stated as follows:
In other rulings on commercial interchangeability for purposes of 19 U.S.C. §1313(j)(2), when a criterion other than relative value clearly represents a critical property, we have found merchandise to be commercially interchangeable when there was a relatively broad range between the contract price of the imported merchandise and that of the exported merchandise (see, e.g., ruling HQ 225493, July 19, 1995, copy enclosed, in which a range in prices of upwards to 50%, with no apparent connection between specifications and prices, was found not to be fatal to commercial interchangeability). As is true of tariff classification, we do not have the information available to us to compare relative values (such information should be in your office). If you are satisfied that in this case, in which the part numbers and the industry standards (included in the part numbers under our interpretation) are clearly critical properties, the range in values of the imported merchandise and exported merchandise is no greater than in ruling HQ 225493, and there is no apparent connection between specifications and/or part numbers and prices, such a range in values would not be fatal to commercial interchangeability. As was true with tariff classification, if you have doubt as to this matter (i.e., if you believe the relative values of the imported and exported merchandise, as shown on the entry and export documents, and any other pertinent documents, in your office, differ so greatly as to preclude commercial interchangeability), you may use random sampling methods for verification of this issue (see above).
In HQ 225493, commercial interchangeability was found because both the imported and exported merchandise qualified under the applicable industry standards. In this case, the value of the exported powder aspartame is 73% - 137% greater than that of the imported granular aspartame. In this case, as in HQ 225493, where there are accepted industry standards, those standards are entitled to great weight as a criterion for commercial interchangeability. In this case, as both the imported granular aspartame and exported powder aspartame meet the industry standards, we find this relative value criteria to be of minimal weight, and inconclusive, or, at best, neutral on the issue of commercial interchangeability, with respect to the facts presented. In addition, in this case there is evidence that the granular and powder aspartame both sell for the same price, in both import and export sales. That evidence alone is sufficient to establish that the relative value criteria is inconclusive.
However, when a drawback claim is made, we recommend that the documents supporting the claim be examined closely with respect to the relative values. If the quantity of imported granular aspartame is similar to the quantity of exported powder aspartame, and the difference in value between the exported merchandise and the imported merchandise is not significantly lower than the 73% -137% range, we may have to reconsider the relative value factor.
5. Critical Properties
In addition to the foregoing criteria, an examination of the critical properties of the granular and powder aspartame is in order. In this case, the fact that the prices for powder and granular aspartame are the same, is a significant consideration. It supports NutraSweet’s claim that the two are commercially interchangeable. Another critical property is that, other than some handling differences, both forms of aspartame have the same commercial purpose. Although there is some indication of customer preference for the granular form for purposes of making bottling kits, it appears to be limited and unrelated to quality, and once the aspartame is entered into the production process, the difference in form becomes irrelevant. Evidence has also been submitted that both the granular and powder aspartame are used in the production of carbonated soft drinks, powdered soft drinks, tabletop products, and yogurt. These products account for the nearly all of the uses for which NutraSweet’s aspartame is sold. Unlike in HQ 225882, supra, in which a bulk commodity could be ordered according to its form (pelletized vice granulated), in this case there is not even a price difference between the two forms.
Applying the prior standard of fungibility, the Court of International Trade found that for merchandise to be fungible the substituted merchandise must not be more desirable than the imported merchandise. Guess? Inc. v. United States, 752 F. Supp. 463, 466 (Ct. Int’l Trade 1990), vacated and remanded on other grounds, 994 F.2d 855 (Fed. Cir. 1991). However, in HQ 224985, dated September 6, 1994, Customs stated that under the less strict standard of commercial interchangeability, Guess? Inc. would no longer apply. We do not find that in this case the customer preference precludes a finding of commercial interchangeability. However, a prevalent preference of one form of product over another may be evidence that merchandise is not commercially interchangeable in other cases. Finally, both forms of aspartame are produced using the same process, until the final step in which the imported aspartame is subjected to the granulation process.
Based on the analysis of the Governmental and Recognized Industry Standards and Tariff Classification criteria, and the critical properties of the aspartame, we find that the commercial interchangeability of imported granular aspartame and exported powder aspartame has been established.
HOLDING:
Based on the analysis of the Governmental and Recognized Industry Standards and Tariff Classification criteria, and the critical properties of the aspartame, we conclude that the imported
granular aspartame and domestic powder aspartame is commercially interchangeable for purposes of the substitution unused merchandise drawback law of 19 U.S.C. §1313(j)(2).
Sincerely,
Director, International Trade
Compliance Division