DRA-4-RR:IT:EC 227220 IOR
John S. Rode, Esq.
Rode & Qualey
295 Madison Avenue
New York, NY 10017
RE: Ruling request; Drawback; 19 U.S.C. 1313(j)(2); Commercial
interchangeability; Denatured fuel ethanol; substitution
unused merchandise
Dear Mr. Rode:
This is in response to your letter of August 30, 1996,
requesting a ruling on behalf of Phibro Inc. ("Phibro"). You
request a ruling on the commercial interchangeability of
denatured fuel ethenol under 19 U.S.C. 1313(j)(2).
FACTS:
Phibro proposes to substitute for denatured fuel ethanol,
which has been imported by Phibro, other imported or domestic
ethanol owned by Phibro in the United States, for purposes of
obtaining drawback upon the exportation of the other imported or
domestic denatured fuel ethanol. You state the following with
respect to the subject denatured fuel ethanol:
Denatured fuel ethanol is composed of fuel ethanol
and denaturant. The fuel ethanol component of the
merchandise which is the subject of this ruling request
contains not less than 98% by volume of ethanol,
C2H5OH; the balance of this component consists of
impurities, including not more than 0.5% by volume of
methanol, or ketones, or both.
Fuel ethanol is derived principally from the
fermentation of grain, sugar cane, or other
agricultural wastes, but may be obtained by enzymatic
hydrolysis of cellulose, or the catalytic hydration of
ethylene. The fuel ethanol is denatured, i.e., made
unfit for beverage use, by the addition of 2-4%
unleaded gasoline; the end product contains not less
than 95% by volume of fuel ethanol. Although the
denatured fuel ethanol imported by Phibro may be
obtained from raw materials other than those used to
produce the denatured fuel ethanol which is exported by
our client, both the imported and the exported ethanol
are intended to be, and are in fact, used
interchangeably for blending with unleaded or leaded
gasolines, because both the imported and the exported
materials conform to the American Society for Testing
Materials Standard D 4806-92: Standard Specification
for Denatured Fuel Ethanol for Blending with Gasolines
for Use as Automotive Spark-Ignition Engine Fuel.
(Emphasis supplied.)
With respect to "Recognized Industry Standards" you state
that ASTM Standard D 4806-92, is the only standard used by
Phibro, its customers, and vendors, to describe the
specifications for the subject denatured fuel ethanol. You state
that part numbers are inapplicable to the subject merchandise.
With respect to tariff classification, you state that it would be
the same for both the denatured fuel ethanol which Phibro
proposes to import and the denatured fuel ethanol which will be
exported by Phibro, that is subheadings 2207.20.00 and
9901.00.50, Harmonized Tariff Schedule of the United States
(HTSUS). With respect to relative values, you state:
At any given time, the market price of ethanol,
including denatured fuel ethanol, depends primarily on
the contemporaneous relationship between the supply
which is available for purchase in the marketplace, and
the demand for such ethanol from potential customers.
Over the course of the most recent year, our client
notes, the market price of denatured fuel ethanol has
fluctuated between $1.05 and $1.30 per gallon, whereas,
by contrast, the price at which denatured fuel ethanol
was sold in any given market on any given day during
the last year generally did not vary by more than $0.02
- $0.03 per gallon.
You state that any difference between the price paid by your
client for denatured fuel ethanol and the amount realized upon
the sale for exportation of a like quantity of other imported or
domestic denatured fuel ethanol by Phibro would be "attributable
to factors which are entirely independent of any chemical or
physical difference between the imported merchandise and the
exported merchandise substituted therefor."
ISSUE:
Whether the imported and substituted denatured fuel ethanol
is 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, drawback may be
granted if there is, with respect to imported duty-paid
merchandise, any other merchandise that is commercially
interchangeable with the imported merchandise and if the
following requirements are met. The other merchandise must be
exported or destroyed within three years from the date of
importation of the imported merchandise. Before the exportation
or destruction, the other merchandise may not have been used in
the United States and must have been in the possession of the
drawback claimant. The party claiming drawback must either be
the importer of the imported merchandise or have received from
the person who imported and paid any duty due on the imported
merchandise a certificate of delivery transferring to that party,
the imported merchandise, commercially interchangeable
merchandise, or any combination thereof.
The drawback statute was substantively amended by section
632, title VI - Customs Modernization, Pub. L. No. 103-182, the
North American Free Trade Agreement Implementation ("NAFTA") Act
(107 Stat. 2057), enacted December 8, 1993. The foregoing
summary of section 1313(j)(2) is based on the law as amended by
Public Law 103-182. 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 Joint Report for the NAFTA Act (S. Rep. 103-189, 103d
Cong., 1st Sess., 81-85 (1993)) contains similar language and
states that "among other factors" the same criteria should be
considered by Customs in determining commercial
interchangeability.
In order to determine whether the denatured fuel ethanol is
commercially interchangeable, an analysis of the following
factors must be done:
1. Governmental and Recognized Industry Standards
We forwarded for technical review the ruling request and
accompanying specifications to our Customs laboratory at
Headquarters, the Office of Laboratories and Scientific Services
("OLSS"). The following pertinent comments were provided by
OLSS, in its memorandum dated October 3, 1996:
Industry consensus standards, such as those published
by the American Society for Testing and material,
ensure that all products meeting a standard are used in
the same manner, regardless of manufacturer. Under
normal circumstances, products that meet the same
industry accepted standard can be used to produce the
same products or utilized for the same purposes. These
uses are normally stated in the standard. Examples of
such standards are Society of Automotive Engineer bolt
standards (SAE) which indicate that bolts meeting
certain standards can be safely used in certain
products; ASTM standards ensure that gasoline blends
meeting specific standards can be used in certain
trucks and cars without ruining the engine; American
Petroleum Institute (API) standards ensure that
metering equipment used on pipelines provide accurate
measurement of certain types of products.
Phibro, Inc. petitions U.S. Customs to allow drawback
under 1313(j)(2) on exports of fuel ethanol, in which
both the exported and imported product meet ASTM
standard D-4806-92 for fuel ethanol. We note that the
ASTM specifications for fuel ethanol are fairly rigid.
Specifically, ASTM D-4806 requires that fuel ethanol
contain by volume more than 95% ethanol (the ethanol
component must have a minimum ethanol volume of 98%);
contain 2% to 5% of either unleaded gasoline or rubber
hydrocarbon solvent as the denaturant; and contain by
volume no more than 1.25% water.
Since the ASTM standard for fuel ethanol represents
normal industry practices and is highly specific, it is
our opinion that U.S, Customs can use it as a guide in
establishing commercial interchangeability for ethanol
used in the production of motor fuel. Therefore, it is
our opinion that if it can be established that both the
imported and exported products meet the specifications
for fuel ethanol as stated in ASTM D-4806-92 they can
be considered commercially interchangeable for the
purposes of drawback under 1313(j)(2). Under ASTM D-4806, no distinction is made between grain ethanol and
synthetic alcohol. Therefore, either source of ethanol
may be used to produce fuel ethanol.
We emphasize, however, that this opinion applies only
to ethanol that meets the specifications for ASTM
D4806-92. We note that in ethanols other than fuel
ethanols, synthetic ethanol and grain ethanol cannot be
freely interchanged, as grain ethanol is a potable
product and synthetic ethanol is not. In fuel ethanol,
the adulterant (gasoline or hydrocarbon solvent)
dictates that the solvent be used only in the
production of motor fuel. However, other types of
adulterants will allow for different uses. Further,
the presence of even trace amounts of water may not
allow the ethanol to be used in certain chemical
syntheses. Therefore, the opinion should be strictly
applied.
It is significant that the subject ASTM standard is "fairly
rigid" and "highly specific," represents normal industry
practices, and such fuel ethanol, due to the gasoline or
hydrocarbon solvent adulterant, can be used only in the
production of motor fuel. In this case, the denatured fuel
ethanol is intended to be used for blending with unleaded or
leaded gasolines. The laboratory report also emphasizes that the
opinion stated therein applies only to ethanol that meets the
specifications for ASTM D-4806-92. Based on the foregoing
laboratory report, and the assertion that the ASTM D-4806-92
standard is the only one used by Phibro, its customers and
vendors to buy and sell the subject denatured fuel ethanol, and
that the denatured fuel ethanol is to be used for blending with
unleaded or leaded gasolines, we find that the subject denatured
fuel ethanol meets the Governmental and Recognized Industry
Standards criteria for commercial interchangeability. However,
this finding is limited to denatured fuel ethanol which meets the
ASTM D-4806-92 standard, that is ethanol containing gasoline or
hydrocarbon denaturant, and is used for fuel. It is understood
that the standard would be the relevant criterion in the import
and export purchase and sales documents.
2. Tariff Classification
With respect to the tariff classification, both the imported
and domestic denatured fuel ethanol are classified under
subheadings 2207.20.00 and 9901.00.50, HTSUS (subheading
9901.00.50, HTSUS contains temporary duty legislation applicable
to merchandise entered under subheading 2207.20.00, HTSUS), as
"ethyl alcohol and other spirits, denatured, of any strength."
This criterion therefore has been met.
3. Part Numbers
It is represented that part numbers are inapplicable to the
subject merchandise.
4. Relative Values
According to the information provided in the ruling request,
the market price of denatured fuel ethanol fluctuated between
$1.05 and $1.30 per gallon over the year preceding the submission
of the ruling request. The higher price was approximately 24%
over the lowest price. This means that the maximum price
difference between an import and export is 24%. In this case,
where there are accepted industry standards, and those standards
are used in trading of the subject commodity, and there is a
range in the value of the merchandise, the standards are entitled
to great weight as a criterion for determining commercial
interchangeability. See HQ 225493 dated July 19, 1995 (at p.12).
In this case, we conclude that where the imported and
exported denatured fuel ethanol meet the ASTM D-4806-92 standards
and is used for fuel, the merchandise is commercially
interchangeable for purposes of 19 U.S.C. 1313(j)(2). This
decision is limited to the specific facts set forth herein. If
the terms of the import or export contracts vary from the facts
stipulated to herein, this decision shall not be binding on the
Customs Service as provided in 19 CFR 177.2(b)(1), (2) and (4)
and 177.9(b)(1) and (2).
HOLDING:
Based on the facts that both the imported and exported
denatured fuel ethanol meet the applicable ASTM standard and are
used for fuel, and so show on the purchase and sales documents
for each import and export, we conclude that the imported and
domestic or other imported denatured fuel ethanol exported are
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