DRA-4
RR:CR:DR 229070 IDL
Port Director of Customs
Walter A. Furman, Acting Field Director
Regulatory Audit
10 Causeway St.
Suite 603
Boston, MA 02222
Re: 19 U.S.C. 1313(j)(2); 19 CFR 191.2(1)
Dear Mr. Furman:
This is in response to your internal advice request, dated February 1, 2001, concerning SB International Trading, Inc. (“SBIT”), of Philadelphia, Pennsylvania.
FACTS:
SBIT filed several unused merchandise drawback claims in the Port of Boston for various pharmaceutical related chemicals and products. The Regulatory Audit Division, Boston (“RADB”) initiated a verification of the documents supporting the drawback claims. Review of the drawback related documentation revealed a difference in the imported and exported amoxicillin trihydrate.
The RADB has concluded that there are differences between unmilled amoxicillin trihydrate (“unmilled amoxicillin”) and milled amoxicillin trihydrate (“milled amoxicillin”) in the use in a manufacture process and segregation in inventory. RADB believes that these differences could, potentially, preclude commercial interchangeability (as defined in Section 632(j)(2)(A) of Public Law 103-182 dated December 8, 1993) between these two forms.
SBIT argues that both the milled and unmilled amoxicillin are chemically identical and have the same Chemical Abstract Service (CAS) number, 61336-07-7; that both the milled and unmilled amoxicillin are classified under tariff number 2941.10.5000, penicillins and derivatives; that both the milled amoxicillin and the unmilled amoxicillin were purchased at $X.X.
RADB emphasizes that the two forms are not used interchangeably in production processes (the unmilled amoxicillin must first be milled before it can be used in production); that SBIT assigns different inventory item numbers for the milled amoxicillin/“syrup grade” (as defined by SmithKline Beecham in HQ 228604 and HQ 225360) and the unmilled/oral amoxicillin; and that although SBIT purchased both the milled amoxicillin and unmilled amoxicillin at $X.X, the transaction involved related parties (SmithKline Beecham Pharmaceuticals, of Knoxville, Tennessee).
ISSUE:
Whether the differences between the imported milled amoxicillin and the substituted exported unmilled amoxicillin preclude a finding of commercial interchangeability under 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(1)). 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. HQ 227106.
Government and Industry Standards
SBIT stated that both milled and unmilled amoxicillin are chemically identical and have the same Chemical Abstract Service (CAS) number, 61336-07-7; however they are not used interchangeably in production processes. SmithKline Beecham provided two standard production formulas used to produce amoxicillin trihydrate oral suspension, which is the final product sold to ultimate consumers. The material required for both formulas is amoxicillin trihydrate bulk master blend (inventory item numbers Y135201 and X135400). Both inventory item numbers were identified as milled amoxicillin. In discussions with RADB, company employees indicated that unmilled amoxicillin must first be milled before used in production. That suggests that a manufacturer of the oral suspension product would have to subject the unmilled amoxicillin to an additional process in order to use it in the production process.
Part Numbers
SBIT and SmithKline Beecham plants in the US assign inventory item numbers with the suffix 201 for milled/syrup grade amoxicillin and inventory item numbers with the suffix 202 for unmilled/oral amoxicillin. SmithKline Beecham in Worthing, West Sussex, UK, assigns product code 5021 to milled/syrup grade amoxicillin and product code 5009 for unmilled/oral amoxicillin. That suggests that the company maintains a segregation between the two forms of amoxicillin.
Tariff Classification
Both milled and unmilled amoxicillin are classified under tariff number 2941.10.5000, penicillins and their derivatives. That suggests that the difference in form is not significant to change the tariff classification.
Relative Values
The only information available was purchases from SBIT and its related foreign affiliate SmithKline Beecham Pharmaceuticals, Great Britain. SBIT provided consumption entry number 004-xxxx351-2 dated February 29, 1996. The related invoice showed 5,293.2kg of amoxicillin with product code 5021 (milled) valued at $X.X. Both invoices were from SmithKline Beecham Pharmaceuticals in Great Britain for goods sold to SmithKline Beecham Pharmaceuticals in Knoxville, Tennessee. That suggests that there is not sufficient information available to determine whether the sales price of milled amoxicillin would be different than for unmilled amoxicillin when sold between unrelated parties.
Amoxicillin trihydrate is used to make the commercial products Amoxicillin Oral Suspension, Amoxicillin Tablets and Amoxicillin Capsules. Finely milled amoxicillin is required to make Amoxicillin Oral Suspension. Although SmithKline Beecham claims that “batches may be optionally milled” during the filtration and drying process of production, it is clear that the unmilled amoxicillin cannot be used to make the oral suspension as imported, as provided by SmithKline Beecham under a previous request for same kind and quality substitution, HQ 228604, where particle size was at issue. In that request, the finely milled amoxicillin was listed as “syrup grade”.
Alluding to HQ 225882 and HQ 227106, SBIT argues that Customs has previously approved commercial interchangeability for products of differing forms. Although we held in HQ 225882 that powdered and granular plastic resins were commercially interchangeable, the products in HQ 225882, unlike in this case, were not being used in applications where “form” of the product made a difference. We noted that “in some instances, resins must be in a particular form in order to meet the requirement of a particular standard…., different forms are not commercially interchangeable in certain processes…., [commercial interchangeability is] not mainly based on the customer preference of one form over the other but [suitability]…., material form is a basic recognized industry requirement which is used in the selection of raw materials in certain commercial processes, and therefore, we believe that substitution of different resin forms should not be allowed under substitution unused merchandise drawback….” HQ 225882 (July 19, 1996).
In HQ 227106, powdered and granular aspartame was deemed commercially interchangeable. However, unlike the milled and unmilled amoxicillin in this case, the two forms of aspartame had the same uses.
Having reviewed the documentation that SBIT submitted, we agree with the RADB that the milled amoxicillin and unmilled amoxicillin are not commercially interchangeable. In sum, we believe that the differences between unmilled and milled amoxicillin in usage, manufacturing process, and segregation in inventory precludes a finding of commercial interchangeability, as defined in Section 632(j)(2)(A) of Public Law 103-182 dated December 8, 1993.
HOLDING:
Milled and unmilled amoxicillin trihydrate are not commercially interchangeable for purposes of 19 U.S.C. 1313(j)(2).
Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
John Durant
Director,
Commercial Rulings Division