Category: Commercial Interchangeability
DRA-4-RR:CR:DR
228575 CK
AEI Drawback Services, Inc.
Attn: Wes Herndon
20501 Katy Freeway
Suite 214
Katy, Texas 77450
RE: Ruling Request; Commercial Interchangeability; Eastman Chemical Co.; 19 U.S.C. 1313(j)(2); Toluhydroquinone (THQ)
Dear Mr. Herndon:
This is in reply to your request for a ruling of commercial interchangeability on behalf of your client Eastman Chemical Co. dated April 15, 1999. We have considered the arguments raised, and the facts presented, and our decision follows.
FACTS:
Eastman is engaged in the purchase and resale of toluhydroquinone (THQ). Eastman will be the exporter of the merchandise. Eastman purchases imported material from third party suppliers, such as Nagase America Corporation, which imports toluhydroquinone under the trade name methylhydroquinone. When Nagase America is the importer Eastman obtains a certificate of delivery. Eastman also sells both imported and substituted merchandise to domestic companies for export, in which cases proof of exportation and drawback endorsement are obtained from the exporter.
The imported and substituted merchandise will be THQ. The substituted merchandise can be a product of the United States or could be other imported material. Eastman states that substitution is made only
when the specifications of the exported and substituted THQ are identical, which also means that the exported and substituted THQ carry the same part number in its inventory.
In a letter dated August 25, 2000 you state that Eastman uses two material numbers to trace THQ through their manufacturing system using the product code GMN (Global Material Number) P0101002. This GMN code is tied to a Sales Product Code (SPC) in their sales system. The SPC number for THQ is 16305. Both the imported and domestic THQ are given the same numbers.
Attached is a CF 7501 for entry 588-5 dated December 11, 1998. Nagase America Corp. is the importer of record. The first line of merchandise is “phenols, other, other,” classified as 2907.29.9000, HTSUS, with a duty rate of 5.8% ad valorem.
Also attached is a Certificate of Delivery from Nagase America Corporation to Eastman Chemical Co. The merchandise is for 14,400 kgs of methylhydroquinone (THQ), classified under subheading 2907.29.9000, HTSUS. The merchandise was imported on December 11, 1998, entry number 588-5. The purchase order is number 45807515, and ID number is 023217-1-1.
Attached is an invoice from Nagase America Corp. number 45807515, with invoice number ID 023-217-1-1. The invoice is for 14,400.00 kgs of methylhydroquinone (THQ), GMN P0101002. The invoice also references entry 588-5 dated December 11, 1998.
Also attached is a screen print of THQ purchase orders receipts for the year ending 1998. Purchase order 45807515 is highlighted and is for 14,400.000 kgs of Toluhydroquinone packed in 50 kg fiber drums.
Attached is Eastman sales invoice number 03-38058349, Eastman order 03-02937969, ordered on February 9, 1999, for sale to Easchem located in Taiwan. One line of merchandise is for 100 kgs of Toluhydroquinone, GMN P0101002, packed in 2 fiber drums.
Also attached is a copy of a bill of lading for order 0302937969 from Eastman to Easchem, dated February 25, 1999. The fourth line is for 2 fiber drums loaded onto 1 pallet loaded into 1 40’ container of hydroquinone & derivatives toluhydroquinone.
Also attached is a certificate of analysis done by Seiko Chemical Co., Ltd. for THQ, dated March 24, 1999. The quantity tested is 14,400 kgs. The THQ was divided into seven lots, and each show an assay of between 99.8 to 99.9% purity.
Also attached is a certificate of analysis from Eastman for the sale of toluhydroquinone dated July 28, 1999 to Typical Cofa. The THQ is described as white to off-white crystalline powder and with an assay of 99.9 purity. This certificate of analysis also matches Eastman’s sales specification sheet.
ISSUE:
Is the merchandise commercially interchangeable?
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 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. 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). The 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)).
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, prior to their amendment in 1998 (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. The amended Customs Regulations, 19 C.F.R. §191.32(c), provide that in determining commercial interchangeability:
...Customs shall evaluate the critical properties of the substituted merchandise and in that evaluation factors to be considered include, but are not limited to, Governmental and recognized industrial standards, part numbers, tariff classification and value.
In order to determine commercial interchangeability, Customs adheres to the Customs regulations, which implement the operational language of the legislative history. The best evidence whether those criteria are used in a particular transaction are the claimant’s transaction documents. Underlying purchase and sales contracts, purchase invoices, purchase orders, and inventory records show whether a claimant has followed a particular recognized industry standard, or a governmental standard, or any combination of the two, and whether a claimant uses part numbers to buy, sell, and inventory the merchandise in issue. The purchase and sale documents also provide the best evidence with which to compare relative values. Also, if another criterion is used by the claimant to sort the merchandise, the claimant’s records would show that fact which will enable Customs to follow the Congressional directions.
Our review of the aforementioned commercial documentation with respect to the above-referenced criteria for commercial interchangeability yields the following analysis.
1. Government or Industry Standards
In regard to this criterion, no evidence was submitted regarding the existence of government or industry standards for THQ. However, a product data sheet found on the Eastman Chemical website, which also corresponds to the purchase specification sheet provided for the toluhydroquinone contains the following information.
Molecular weight
124.13
Empirical Formula
C7H8O2
Assay
99%
The CAS number for toluhydroquinone is 95-71-6. The color is described as white to off-white crystalline powder.
The two certificates of analysis, described in the FACTS portion of this ruling, both state the assay for THQ as 99.8 to 99.9% purity.
Two other commercial certificates of analysis for the sale of methylhydroquinone and toluhydroquinone, both CAS number 95-71-6, were compared to the ones supplied by Eastman.
One for methylhydroquinone contained the following information.
Molecular weight
124.14
Formula
C7H8O2
Assay
100.6%
Appearance
White crystalline powder
One for toluhydroquinone contained the following information.
Molecular weight
124.14
Formula
C7H8O2
Assay
99.7
Appearance
Faintly beige fine crystals
Comparing Eastman’s THQ to the commercial sales certificates of analysis, it is clear that purity is the determining factor in the sale of THQ. It is also clear that the purity range with which Eastman deals is within the range used by other companies in the business of the sale and purchase of THQ. Furthermore, it is also apparent from the certificates of analysis supplied by Eastman that the imported THQ which it buys, and the THQ it sells are well within the same purity range. Additionally Eastman states that the specifications of the imported and substituted merchandise will be identical. Therefore, based on Eastman’s sales and purchase specifications, and in comparison to the specifications used by other companies, which deal in THQ, the THQ would be considered to be of the same quality. However, no government or industry standards exist for THQ, and thus, this criterion must be considered neutral for purposes of determining commercial interchangeability.
2. Part Numbers
In regards to this criterion, Eastman stated it uses two material numbers to trace THQ through their manufacturing system using the product code GMN (Global Material Number) P0101002. This GMN code is tied to a Sales Product Code (SPC) in their sales system. The SPC number for THQ is 16305. Both the imported and domestic THQ are given the same numbers.
The GMN P0101002 is found in the sales invoice from Nagase America Corp. to Eastman. The GMN P0101002 is also on the sales invoice from Eastman to Easchem. Therefore, the Global Material Number satisfies this criterion. However, the Sales Product Code referred to above is not found on any of the documents submitted, therefore we are unable to comment on that number.
Tariff Classification
In regards to this criterion, Eastman states that the THQ is classified under subheading 2907.29.9000, HTSUS. Furthermore, Eastman has provided a CF 7501 for entry 588-5, and a Certificate of Delivery for the THQ from Nagase America Corp., the importer of record. The THQ was classified under subheading 2907.29.9000, HTSUS. Additionally, Eastman stated that both the imported and substituted THQ will have the same tariff classification. While we do not have any export documentation stating the tariff classification of the THQ, the import documents show that THQ is classified under one subheading. Therefore, at most, this criterion would be indeterminate.
Relative Values
According to sales invoice number 03-38058349, described above, which details the sale of 100 kgs to Easchem from Eastman, the THQ is sold for $xx.xx per kg.
We are unable to verify the purchase price of the THQ from the Nagase America Corp. purchase order, described above, since that invoice was paid in Yen. However, according to the screen print of THQ purchase orders receipts for the year ending 1998, which has purchase order 45807515 highlighted and is for 14,400.000 kgs of Toluhydroquinone packed in 50 kg fiber drums, the amount per unit is $xx.xx.
The difference in value of the imported and substituted merchandise may be expressed for in percentages. In this case, the percentage would represent how much greater the export value is in comparison to the import value. In this case that percentage is 64%.
The differences in values do not support a finding of commercial interchangeability, however, the value difference does not preclude a finding of commercial interchangeability. Instead, we fine this criterion to be inconclusive, and therefore of little weight.
Upon thorough review of the evidence submitted, we find that Eastman’s imported and substituted THQ is of the same standard and quality. However, since no government of industry standards exist this criterion is neutral. We conclude that Eastman uses its Global Material Number as a part number for both its imported and substituted THQ, and therefore this criterion is met. In this case the tariff classification and the relative values criteria do not support nor do they preclude a finding of commercial interchangeability. Both of those criteria should be given little weight in the analysis. We therefore conclude, that the imported and substituted THQ are commercially interchangeable for purposes of 19 U.S.C. 1313(j)(2).
HOLDING:
The imported and substituted toluhydroquinone (THQ) are commercially interchangeable for purposes of 19 U.S.C. 1313(j)(2).
Sincerely,
William G. Rosoff, Chief
Duty and Refund Determination Branch