Customs Ruling HQ 229838 - Protest number 5301-01-100036; commercial interchangeability; 19 USC § 1313(j)(2); substitution unused merchandise drawback; methyl tertiary butyl ether; MTBE; the denial of drawback claim; ASTM D 5983-96.

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HQ 229838
May 30, 2003

Type : Protest • HTSUS :
Related: 430923; 414523; 226074; 225166; 224103; 224541

DRA-4 RR:CR:DR 229838 RDC

Port Director of Customs
Houston Service Port
2350 N. Sam Houston Parkway East
Suite 1000
Houston, Texas 77032-3126

RE: Protest number 5301-01-100036; commercial interchangeability; 19 USC § 1313(j)(2); substitution unused merchandise drawback; methyl tertiary butyl ether; MTBE; the denial of drawback claim; ASTM D 5983-96.

Dear Sir or Madam:

Protest number 5301-01-100036 was forwarded to this office for further review. We note that the Protestant has filed two other protests, numbers 5301-00-100223 and 5301-00-100263, with respect to identical goods and issues. We have considered the evidence provided and the points raised by your office and the Protestant in the instant Protest. Our decision follows.

FACTS:

The Protestant and drawback claimant, Ecofuel S.p.A., (Ecofuel), through its agent AEI Drawback Services, Inc. (AEI), protests the denial of drawback claim number AA6-0304203-4. This drawback claim was received July 30, 1998, and filed per 19 USC § 1313(j)(2), substitution unused merchandise drawback.

Attached to the provided CF 7551, drawback entry, are two pages of computer printouts labeled as prepared by Gulf Coast Drawback Services (Gulf Coast) for Ecofuel. Both pages are dated July 28, 1998. The first page details the information regarding the imports of methyl tertiary butyl ether (“MTBE”). There are four entries and all four reference 2909.19.10, HTSUS (Harmonized Tariff Schedule of the United States). Total kilograms of MTBE imported is shown as 18,445,057.34. The second page attached to the CF 7551 is labeled “exporters chronological summary by part” and also is prepared by Gulf Coast. This printout shows that on December 19, 1997, 18,445,057.34 kilograms of MTBE, reference number 409097L, unique export identifier BLNO, were exported on the Team Troma and destined for Venezuela. (18,445,057.34 kilograms is equivalent to 18,445.05734 metric tons or 18,153.7458362 long tons or 40,664,390.6730618 pounds.)

IMPORT ENTRY U63xxxxx942 Included in the file as evidence of entry number U63xxxxx942 is the CF 7501 showing Ecofuel at the importer of record. The entry date was November 17, 1995, and 11,104,898 kilograms of MTBE were imported on the same date. The value is also shown and thus, the per kilogram value can be calculated. A copy of a facsimile dated October 31, 1995, from American Agip Co. Inc., (“American Agip”), buyer, to Ecofuel confirms the sale of MTBE from Ecofuel to American Agip Co., Inc. This fax states that the MTBE will possess the following specifications:

MTBE content 95.0 W Min Methanol 0.5% W Max Water 1500 PPM Max

There is also a facsimile dated October 31, 1995, from Ecofuel to American Agip labeled “sale order no. 1228/95” which contains the same terms as stated above.

Also included as evidence of entry number U63xxxxx942 is a copy of a document labeled “SGS Redwood Trade Inspection Certificate, NO. 430923.” This certificate is issued by SGS Control Services, Inc. of Bridgeport, N.J. It is addressed to American AGIP Co., Inc. of New York, N.Y. The cargo is described as MTBE discharged on November 19, 1995, to November 18, 1995, at Paulsboro, N.J. per order number 2849-95M, from the ship T/V Bow Panther to shore tank 175,179. Quantity discharged is 11,104.898 metric tons (11,104,898 kilograms). The certificate is signed, dated November 20, 1995, and states “quality based upon vessel composite before discharge: report attached.” The following table contains the pertinent information regarding the laboratory analysis of the MTBE entered:

METHOD TEST RESULTS visual appearance slight green tint, free of sediment, free water ASTM D-1209 color, PT-CO 30 APHA ASTM D-891A relative density 60/60 F 0.07465 ASTM D-1364 water by Karl Fischer PPM WT 42 ASTM D-5441 purity WT% 98.9 methanol WT% .36 C-4 hydrocarbons WT% .04 ASTM D-5191 Grabner vapor pressure PI 8.17 IMPORT ENTRY 458xxxxx591 As evidence of entry number 458xxxxx591 there is the CF 7501. This CF 7501 states that the entry date is June 25, 1996, and 10,355,340 kilograms of MTBE was entered. The total value is stated and the importer of record is Ecofuel. The vessel is the Jo Breid. There is a document from American Agip to Bayway Refining labeled Ecofuel Sale Order No. AA/96085 and dated June 7, 1996. The buyer, Bayway Refining and the seller, Ecofuel, agree to trade MTBE at the following specifications:

MTBE content 95.0 W Min Methanol 0.5% W Max Water 1500 PPM Max.

There is also a document labeled “shore tank gauging report” issued by Saybolt, Inc., New Jersey office, dated June 25, 1996, and the vessel is identified as M/T Jo Breid. The gauging report shows among other things that 10,355.177 metric tons of MTBE were unladen. Further, there is a “laboratory analysis report” also issued by Saybolt, and dated June 25, 1996. It lists the vessel as M/T Jo Breid, laboratory number 0696936, and invoice number: “EB-37860A thru EB-37860B.” The sample is designated as MTBE; identifying marks are described as: “analysis based on a volumetric composite prior to discharge.” The lab analysis reports also states that the sample was “taken by our Saybolt Rep. at BRC Linden NJ” for client, Ecofuel S.P.A. and Tosco Corp. The following table contains all the analysis information that appears on this report:

TEST METHOD RESULT GRAVITY, api AT 60f D-1298 58.3 WATER BY Karl Fisher, PPM D-1744 305 methyl tertiary butyl ether (MTBE), WT% G.C. 98.36 methyl alcohol, WT% G.X. 0.23 IMPORT ENTRY 916-xxxxx603 As evidence of entry number 916-xxxxx603 there is the CF 7501 which states that 16,309,594 kilograms of MTBE was entered on February 25, 1997. The value of the MTBE is stated and the vessel is Bow Tribute. The importer of record is Ecofuel. A copy of a facsimile dated January 9, 1997, from American Agip Co. Inc., buyer, to Ecofuel confirms that the sale of MTBE from Ecofuel to American Agip Co., Inc. This fax states the MTBE will possess the following specifications:

MTBE content 95.0 W Min Methanol 0.5% W Max Water 1000 PPM Max Sulfur 10 PPM Max RVP 9.0 Max

There is also a “SGS Redwood Loss Control Report” number 414523 issued by SGS Control Services, Inc. of Torrance, California. This report states that 16,279.594 metric tons of MTBE was discharged from the Bow Tribute on February 25, 1997, to February 27, 1997, at Long Beach, California. The report also shows the results of a laboratory analysis which are reproduced below and states, “quality based upon vessel’s volumetric composite sample: report on file.”

METHOD TEST RESULTS ASTM D-287 API @ 60 DEG F ASTM D-5441 M.T.B.E. wt% 98.8 ASTM D-5441 methanol, wt% 0.5 ASTM D-5453 sulfur, ppm wt <1 ASTM D-1744 water by Karl Fischer PPM WT 186 IMPORT ENTRY 916-xxxxx218 As evidence of entry number 916-xxxxx218, there is the CF 7501 which states that 8,659,539 kilograms of MTBE was entered on April 10, 1997. The importer of record is Ecofuel and the vessel was the Port Albert. The value of the MTBE is stated. There is also a “SGS Redwood Loss Control Report,” number 469912B, issued by SGS Control Services, Inc. of Torrance, California. This report states that 8,693.066 metric tons of MTBE was discharged from the Port Albert on April 14, 1997, to April 15, 1997, at PDTC berth 83, Long Beach, California. The report also shows the results of a laboratory analysis which are reproduced below and states, “quality based upon vessel’s volumetric composite sample: report on file.”

METHOD TEST RESULTS ASTM D-5453 sulfur, ppm wt 2 ASTM D-1744 water by Karl Fischer PPM WT 186 ASTM D-5441 G.C. analysis, methanol content, wt% 0.50 ASTM D-5441 G.C. analysis, M.T.B.E. purity wt% 97.6 ASTM D-5191 Reid vapor pressure, PI 8.06 ASTM D-5441 C4, wt% <0.01 ASTM D-5441 C5, wt% 1.34 There is also a copy of a facsimile dated February 3, 1997, from American Agip, buyer, to Ecofuel, seller, reference number 0283-97S, which contains the terms of the sale. This letter includes the specifications of the MTBE:

MTBE content 95.0 W Min. Methanol 0.5% W Max. Water 1,000 PPM Max. Sulfur 10 PPM Max RVP 9.0 Max

EXPORT

The exported MTBE was sold by Valero Refining & Marketing of Houston, Texas, (“Valero”), to Ecofuel, which then sold the MTBE to Lagoven, S.A.

SALE FROM VALERO TO ECOFUEL

As evidence of the sale from Valero to Ecofuel there is a copy of a facsimile, dated December 5, 1997, reference number 3915-97J, which memorializes a conversation of that date between representatives of Ecofuel, the buyer, and Valero, the seller. This facsimile was prepared by American Agip, is addressed to Valero and labeled “Ecofuel Purchase Order No. AA/97058(P).” The fax contains the terms of the sale between Valero and Ecofuel and evidences that Ecofuel agreed to buy MTBE with the following specifications:

MTBE Content 95.0 Wt. Min. Methanol 0.5% Wt. Max. Water 1500 PPM Max.

The terms of delivery are described as “F.O.B. O.S.B. (One Safe Berth) Corpus Christi, Texas, into Buyer’s vessel / barge during December 15-25, 1997, at Buyer’s Option.” Notice of a three day loading window is specified. The payment terms are described as “net cash 10 days from bill of lading date and presentation of the invoice, certificate of quality and certificate of quantity. There is another fax from American Agip to Valero dated December 8, 1997, confirming receipt of Valero’s fax and adjusting the price calculation.

There is also a fax where only “December 1997” of the date is legible, the day is obscured. This fax is from Valero, addressed to Ecofuel and labeled “Valero contract no. S123103-97.” This fax also contains the same terms of the sale as the above described fax, including the MTBE specifications and states specifically, “title to and risk of loss or damage to the product will pass at the flange connection between the vessel’s permanent manifold connection and the shore line at Corpus Christi, Texas,” where Valero’s refinery is located.

There are three lab analysis reports issued by Saybolt, Corpus Christi, dated December 17, 1997, December 18, 1997, and December 19, 1997, respectively. All three reports show the vessel as Team Troma, the sample is described as MTBE, the customer reference numbers are the same. All three reports reference the same invoice numbers. The reports dated 12/18 and 12/19 state “identifying marks: shore tank 64 @Valero Marketing & Supply Co. Port, Corpus Christi, TX.” The report dated 12/17 shows the same identifying marks except that the shore tank is 65. The client is “Valero Marketing & supply Ecofuels c/o American Agip Co.” The reports state “shore analysis prior to loading vessel Team Troma” and show the following:

Dates of reports: 12/17 12/18 12/19 water by Karl Fisher, ppm D-1744 38 110 179 methyl tertiary butyl ether D-4815 96.41 96.59 96.0 methanol, WT PCT GC 0.44 0.46 0.46 2-methyl 2-propanol (TBA), WT PCT GC 0.30 .27 0.28 The shore tank gauging report is issued by Saybolt, Inc., Corpus Christi office. The report is dated December 19, 1997, and shows the vessel as Team Troma and the cargo as MTBE. Total barrels is stated as 156,337.579 and total gallons is stated as 6566178.318, both measured at 60°F. Total metric tons laden is 18,445.057 which is equal to 18,445,057 kilograms.

As evidence of the transaction between Ecofuel and Lagoven are the following: a document labeled “amendment to MTBE supply agreement between Lagoven S.A. and Ecofuel S.p.A.,” (“amendment”); a copy of the “M.T.B.E. supply agreement between Lagoven S.A. and Ecofuel S.p.A.” (“supply agreement”); a “tanker bill of lading,” and two invoices.

According to the “amendment to MTBE supply agreement between Lagoven S.A. and Ecofuel S.p.A.,” the seller is Ecofuel and the buyer is Lagoven, a Venezuelan company. This amendment amends, effective January 1, 1997, the quantity and delivery provisions of the supply agreement which is called (in the cover letter prepared by Ecofuel and dated February 16, 2001) the 1996 Term Lagoven Contract. The amendment describes the delivery terms of the MTBE as “shall be delivered by Seller to Buyer D.E.S. O.S.B. (One Safe Berth) Amuay, Venezuela . . . .” Alternative amounts may be delivered to Jose, Venezuela. Article 5, labeled “product,” of the supply agreement provides the following specifications with regard to the MTBE:

MTBE content 95.0% Wt. Min. Methanol 0.5% Wt. Max. Water 1000 PPM Max.

Article 5 also contains the statement: “seller guarantees that the MTBE will conform to the above specifications at the time and place of delivery.”

The tanker bill of lading is dated December 19, 1997, and shows the shipper as Ecofuel “c/o American Agip Oxygenate Div.” The commodity shipped is described as 18,449.057 metric tons of bulk MTBE aboard the Team Troma (18,449,057 kilograms). The MTBE was laden at Corpus Christi, Texas and was to be unladen at Amuay Bay, Venezuela. The bill of lading also states “consignee / order of Ecofuel.”

The two invoices from Lagoven to Ecofuel are the same in the following respects: both are dated January 6, 1998; both reference “Ecofuel Sale Order #AA97193; the price is the same cents per gallon; the payment terms are 30 days from NOR [Notice of Readiness, i.e., when the ship is ready to load] at discharge. One invoice states “MTBE DES Amuay, Venezuela per ‘Team Troma.’” This invoice describes NOR as December 25, 1997, at 23:30 hours, the payment due date as January 24, 1998, and 70,282 barrels (8,287,455 kg) were discharged. The second invoice states “MTBE DES Punta Cardon, Venezuela per ‘Team Troma.’” This invoice describes NOR as December 27, 1997, at 04:20 hours, the payment due date as January 26, 1998, and 87,258 barrels (10,322,621 kg) were discharged.

Subsequent to the filing of the protested drawback claim, a memorandum dated June 26, 2000, was sent from the Houston drawback center to the Customs Laboratory at New Orleans requesting a determination of commercial interchangeability of the imported and substituted MTBE with reference to drawback claim number AA6-03042034. By ccmail dated August 3, 2000, the laboratory responded to this request. The report date was July 7, 2000, laboratory number 5 2000 20341. The sample was described as MTBE, the claimant was Ecofuel S.P.A. The lab stated:

per guidelines set forth in U.S. ruling #226074, in our opinion, the exportation of 12/19/97 is not commercially interchangeable with any of the incident importations (11/17/95, 6/25//96, 1/22/97, or 3/16/97). The drawback claim should be denied. The HQ ruling describes two qualities of MTBE, namely one with 95-98% purity MTBE and one with greater than 98% purity MTBE. The incident exportation has an MTBE purity of 95-98% while the incident importations have MTBE purities of greater than 98%.

On November 3, 2000, the Houston drawback center sent a letter to AEI advising that drawback entry number AA6-03042034, claiming drawback in the amount of $242,192.31 was liquidated with zero drawback allowed. The letter stated, “imported and exported products were found to be not commercially interchangeable as per lab report #5200020341. The incident exportation has an MTBE purity of 95-98% while the incident importations have MTBE purities of greater than 98%.”

The instant Protest, number 5301-01-100036 was filed on February 21, 2001, by Ecofuel through its agent AEI, and addressed the only issue for denial of the drawback claim as stated by Customs at that time, lack of commercial interchangeability of the imported and substituted MTBE. The Port states, “once the claims were found not to be commercially interchangeable by the lab, the claims were disallowed without further review. Upon further review of the disallowed / protested claims, additional concerns arose, namely possession and expand[ed] the disallowance reasons.”

A series of e-mail communications, copies of which are included in the file, between a drawback specialist at the Houston Port and Ecofuel’s customs’ broker took place between October 9, 2002, and November 8, 2002. In the first message (October 9, 2002) the drawback specialist refers to an “audit of Ecofuel” during which, apparently, whether or not Ecofuel met the possession requirement of 19 USC 1313(j)(2) was questioned. Several questions pertaining to the issue of possession are asked in this e-mail. On October 11, 2002, the customs broker attached a letter to one of these messages and stated that the letter “responds to each question [asked by the drawback specialist in an e-mail dated October 9, 2002] and it discusses the issue of possession.” This e-mail and letter responded to an e-mail from the drawback specialist dated October 10, 2002, wherein the drawback specialist stated, “ I am trying to ensure that Ecofuel had possession of the substituted merchandise.”

Finally, the port requests our opinion on the validity of the documents provided by the drawback claimant as evidence. Specifically, the port requests guidance regarding the extent to which the documents evidencing the transaction which resulted in the import of the MTBE may be relied upon, since the transaction was not at “arm’s length. Further, the port requests guidance as to the persuasiveness of the facsimile from Valero to Ecofuel, dated December 5, 1997, reference number 3915-97J, as evidence of the sales contract between Valero and Ecofuel because it is not signed by both parties. On February 7, 2003, the Protest was forwarded to this office for further review.

ISSUES:

1. Can Customs raise additional issues for rejection of a drawback entry more than 90 days after the drawback entry was liquidated when a protest under § 1514 has been timely filed?

2. Whether the imported and substituted MTBE are commercially interchangeable for purposes of 19 U.S.C. § 1313(j)(2). 3. Whether the drawback claimant has satisfied the possession requirement of 19 U.S.C. § 1313(j)(2).

LAW AND ANALYSIS:

We note initially that the instant Protest was timely filed, i.e., within 90 days of the refusal to pay the drawback claim (19 U.S.C. § 1514(c)(3)(B)). Under 19 U.S.C. § 1514(a)(6) “decisions of the Customs Service, including the legality of all orders and findings entering into the same, as to . . . the refusal to pay a claim for drawback . . . “are final unless a protest of that decision is filed within 90 days of the decision (19 U.S.C. §1514(c)(3)(B)). The port refused to pay the claim for drawback on November 3, 2000, and this Protest was filed on February 1, 2001. Further, the issue raised in the instant Protest is protestable per 19 USC § 1514(a)(6).

The criteria required for granting a Request for Further Review are set forth in 19 C.F.R. § 174.24, which states, inter alia,

Further review of a protest which would otherwise be denied by the port director shall be accorded a party filing an application for further review which meets the requirements of §174.25 when the decision against which the protest was filed: (a) Is alleged to be inconsistent with a ruling of the Commissioner of Customs or his designee, or with a decision made at any port with respect to the same or substantially similar merchandise; . . .

19 C.F.R. § 174.24(a). The Protestant contends and it is the opinion of your office that this Protest warrants further review because it meets the criteria of §174.25 and “is alleged to be inconsistent with a ruling of the Commissioner of Customs or his designee, or with a decision made at any port with respect to the same or substantially similar merchandise” per 19 C.F.R. § 174.24(a). This office agrees that this Protest is entitled to further review.

In response to the port’s request for guidance regarding the reliability of certain documents offered as evidence of the importations, we note that Customs accepted those documents on the import entry to assess duty. Customs liquidation of the import entry therefore, binds Customs since no protest against the import liquidation was filed. With regard to the December 5, 1997, facsimile to Valero from American Agip, because this document memorializes a conversation of that date between representatives of Ecofuel and Valero and was prepared by a third party, Agip, it is acceptable as evidence of the export transaction.

1. Can Customs raise additional issues for rejection of a drawback entry more than 90 days after the drawback entry was liquidated?

In a subsequent submission dated March 10, 2003, the Protestant states that, “Customs is legally barred from raising additional issues supporting denial of the drawback claim once the drawback claim has been liquidated and 90 days have passed.” Further, Ecofuel argues that “[f]or Customs, [§1501] provides Customs’ actions are final once 90 days from liquidation has passed.” The Protestant also states that 19 U.S.C. § 1501 “govern[s] liquidation.” Ecofuel also contends that its position - that § 1501 renders Customs’ actions final 90 days after liquidation - “is fully supported by the courts.” None of the Protestant’s contentions with regard to the application of 19 U.S.C. § 1501 are supported by the statutory language or judicial interpretation. Customs may raise additional issues for rejection of a drawback claim more than 90 days after the claim was liquidated if a protest was filed within those ninety days.

The Protestant’s statements “that 19 U.S.C. § 1501 “govern[s] liquidation” and “[f]or Customs, [§1501] provides Customs’ actions are final once 90 days from liquidation has passed” are incorrect legally. Neither of these conclusions are supported by the text of the statute. First, entries of merchandise liquidate per 19 U.S.C. § 1500, not § 1501. Section 1501, provides in part,

A liquidation made in accordance with section 500 [19 USCS § 1500] or any reliquidation thereof made in accordance with this section may be reliquidated in any respect by the Customs Service, notwithstanding the filing of a protest, within ninety days from the date on which notice of the original liquidation is given or transmitted to the importer, his consignee or agent.

Hence, § 1501, “voluntary reliquidations by the Customs Service” gives Customs the authority to reliquidate i.e., liquidate again, an entry that has already been liquidated in accordance with 19 U.S.C. § 1500 (or already reliquidated per § 1501).

Section 1500 provides, in pertinent part:

The Customs Service shall, under rules and regulations prescribed by the Secretary-- (a) fix the final appraisement of merchandise . . . ; (b) fix the final classification and rate of duty applicable to such merchandise; (c) fix the final amount of duty to be paid on such merchandise . . . ; (d) liquidate the entry and reconciliation, if any, of such merchandise; and (e) give or transmit, pursuant to an electronic data interchange system, notice of such liquidation to the importer, his consignee, or agent in such form and manner as the Secretary shall by regulation prescribe.

(Emphasis added.) As is made clear from the italicized text above, § 1500 applies to entries of merchandise. Since § 1501 applies only to liquidations per § 1500, § 1501 applies only to entries of merchandise and, consequently, authorizes reliquidation of an entry of merchandise, whether or not a protest has been filed, within 90 days of the original liquidation. Since Ecofuel protests the “refusal to pay a claim for drawback” there is no entry of merchandise at issue in the instant Protest, and thus, no reason to conclude that § 1501 applies. In addition, drawback claims, such as the one at issue here, liquidate per 19 CFR 191.81, as authorized by 19 U.S.C. § 1313(l). Drawback claims do not liquidate under 19 U.S.C. § 1500 since they are not entries of merchandise. Moreover, an importer, consignee or an agent of either is not involved. Therefore § 1501 cannot apply to drawback claims.

Moreover, the Protestant’s statement that “[§1501] provides Customs’ actions are final once 90 days from liquidation has passed” is also incorrect legally. Section § 1514(a) provides in part:

(a) Finality of decisions; return of papers. Except as provided in subsection (b) of this section, section 501 [19 USCS § 1501] (relating to voluntary reliquidations), section 516 [19 USCS § 1516] (relating to petitions by domestic interested parties[.]), and section 520 [19 USCS § 1520] (relating to refunds and errors) of this Act, decisions of the Customs Service, including the legality of all orders and findings entering into the same, as to-- (6) the refusal to pay a claim for drawback; . . .

shall be final and conclusive upon all persons (including the United States and any officer thereof) unless a protest is filed in accordance with this section, . . . .

Consequently, § 1514(a) provides that a Customs decision relating to the refusal to pay a drawback claim becomes final by action under 19 U.S.C. § 1514(a)(6) unless a protest is filed within ninety days after notice of liquidation (see also 19 C.F.R. § 174.12(e)). Section 1514(c)(3) provides,

A protest of a decision, order, or finding described in subsection (a) shall be filed with the Customs Service within ninety days after but not before-- (A) notice of liquidation or reliquidation, . . . .

Therefore, the refusal to pay the drawback claim at issue here would have been final and conclusive on all parties, Customs and Ecofuel, 90 days after the notice of liquidation if a protest had not been filed. Since Ecofuel filed the instant protest on February 21, 2001, the refusal to pay the instant drawback claim is not final.

Ecofuel cites the Federal Circuit Court of Appeals’ decision in United States v. Utex International, 857 F.2d 1408 (U.S. App. 1988) and Computime, Inc. v. United States, 772 F.2d 874 (U.S. App. 1985) for support of its position - that § 1501 renders Customs’ actions final 90 days after liquidation - “is fully supported by the courts.” There is no such support in the cases cited. The facts of these cited cases are different from those at issue in critical aspects, and both of these cases turn on the application of 19 U.S.C. § 1514 – not § 1501. Further, both cases involved entries of merchandise, frozen shrimp in Utex International and watches in Computime, not drawback claims. Thus, neither of these cases supports any contention by the Protestant with regard to § 1501 or liquidation or claims for drawback.

Specifically, the Protestant states that the following language from Utex International supports its position:

But absent timely reliquidation or protest [the liquidation] was final as to all aspects of the entry. The importer, the surety, and the government are bound by and have the right to rely on the finality of liquidation

857 F.2d 1408, 1412 (emphasis added). However, we draw the Protestant’s attention to the italicized text. In Utex International, Customs liquidated the entry on February 29, 1980. The liquidation subsumed the issue of admissibility of the imported goods. Customs demanded exportation of the goods on March 12, 1980 without reliquidation, a position inconsistent with the liquidation approving admissibility on February 29, 1980. No protest was filed. The court held that the unprotested liquidation of February 29, 1980, became final and bound all parties, including the U.S., to the position taken as to admissibility.

Because no protest was filed in Utex International, per § 1514 the liquidation was final after 90 days. In Ecofuel’s case, unlike the case in Utex International, there was a protest filed; therefore, the liquidation did not become final per § 1514 after 90 days. Additionally, Utex International involved an entry of merchandise – frozen shrimp – not a drawback claim as in Ecofuel’s Protest.

Ecofuel also cites this statement in Computime, Inc. as support for its contention that, after denying its claim for drawback, additional reasons for denial cannot be raised: In short, the court emphasized that a protest following reliquidation can contest only those points raised by the Customs Service's decision on the initial protest.

772 F.2d 874, 878. In Computime, there was a timely protest to the classification of watch modules. Customs granted the protest and reliquidated and classified the watch modules and watch cases in the entry even though only the classification of the watch modules was protested. Computime protested the classification of watchbands following the first protest reliquidation.

Hence, the issue before the Computime court was whether the classification claim as to the modules included the claim that the watch modules, cases and bands were a unit. This issue dealt with the effect of a reliquidation following a protest. In the instant Protest by Ecofuel, there was no reliquidation. There was only one liquidation and that liquidation has not become final under the express words of 19 U.S.C. § 1514 on finality, as a result of the Protestant’s action in filing the Protest. Section 1514 does not state that the liquidation binds one party only.

In the language cited by Ecofuel, the CAFC in Computime was referring to the court in F.W. Woolworth Co. v. United States, 26 C.C.P.A. 157 (1938), in which decision this court considered the effect of § 1514 on a § 1501 reliquidation following a granted protest. The F.W. Woolworth Co. court held that “a protest following reliquidation can contest only those points raised by the Customs Service's decision on the initial protest.” Id.; see also 19 C.F.R. § 174.16. Again, the facts in Computime are not similar to those in the instant Protest. In Computime there was an entry of merchandise not a drawback claim, a granted protest and a reliquidation – none of which apply to the facts of the instant Protest. Further, this case considered the relationship between § 1514 and § 1501. Section 1501 is inapplicable in Ecofuel’s case.

The Protestant asserts that, based on the reasoning in Computime, 90 days after liquidation “the Protestant is barred from raising additional issues.” Ecofuel concludes that “it would be an unjust anomaly if Customs could expand the reason for the drawback denial more than 90 days after liquidation and bar as untimely the Protestant’s challenge to the new reasons for denial.” The reasoning in Computime does not apply to the instant Protest because the facts are different in critical respects. Ecofuel’s Protest does not involve entries of goods whereas Computime involved entries of watches. Further, there was no protest following a reliquidation in the instant Protest as in Computime.

Additionally, § 1514 provides that, unless a timely protest or court action is filed, within 90 days, the named decision of Customs are final and binding on all parties to the transaction, including Customs. Thus, § 1514 preserves equality of treatment as between Customs and those engaged in Customs transactions. We also draw the Protestant’s attention to 19 C.F.R. § 174.28, “consideration of additional arguments” which provides,

In determining whether to allow or deny a protest filed within the time allowed, a reviewing officer may consider alternative claims and additional grounds or arguments submitted in writing by the protesting party with respect to any decision which is the subject of a valid protest at any time prior to disposition of the protest.

19 C.F.R. § 174.28.

Therefore, the submission of additional arguments or grounds and alternative claims with regard to the decision which is being protested are allowed until the final disposition of the protest.

Finally, the Protestant also states, “Customs considered the issue of the interaction between a protest and Customs ability to reliquidate an entry under 19 U.S.C. § 1501 in a series of memorandums . . . .” We do not here address these memorandums nor Ecofuel's analysis of them because since § 1501 does not apply to the instant Protest there is no need to discuss this issue or the memoranda.

2. Whether the imported and substituted MTBE is commercially interchangeable for purposes of 19 U.S.C. § 1313(j)(2).

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. With regard to the instant Protest, the port has questioned whether the imported MTBE and substituted MTBE are commercial interchangeable, and whether Ecofuel had possession of the exported MTBE.

Compliance with the Customs Regulations on drawback is mandatory and a condition of payment of drawback (United States v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675; see also, Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) "We are dealing [in discussing drawback] with an exemption from duty, a statutory privilege due only when the enumerated conditions are met."

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).

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 CFR 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.

The statutory provision for substitution unused merchandise drawback, 19 U.S.C. § 1313(j)(2)(ii), is the following:

(2) If there is, with respect to imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation, any other merchandise (whether imported or domestic) that-- (A) is commercially interchangeable with such imported merchandise; . . . (C) before exportation or destruction-- . . . (ii) is in the possession of, including ownership while in bailment, in leased facilities, in transit to, or in any other manner under the operational control of, the party claiming drawback under this paragraph, if that party- (I) is the importer of the imported merchandise, . . .

In order to determine whether the imported and substituted MTBE is commercially interchangeable, an analysis of the following factors is required:

1. Governmental and Recognized Industry Standards

The New Orleans laboratory relied on HRL 226074, September 29, 1995, to conclude that the imported and substituted MTBE was not commercially interchangeable because “the incident exportation has an MTBE purity of 95-98% while the incident importations have MTBE purities of greater than 98%.” However, in HRL 226074 the MTBE was imported in 1994 and exported in 1995. Because there were no government or industry standards for MTBE at that time, resort was had to identifying trading rules and commercial practices used in the U.S. The Office of Laboratory and Scientific Services at Customs Headquarters found, by asking local producers that MTBE was marketed as having two different minimum purity values, 95% and 98%, and containing no more than 0.5 wt. % methanol and 1500 ppm water. In that case, it was determined that the imported and substituted exported MTBE met the governmental and recognized industry standard criteria of commercial interchangeability, because both had a minimum purity value greater than 98%, a methanol content below 0.5 wt.% and a water content below 1500 ppm. That MTBE was found to be commercially interchangeable because all four of the criteria (recognized industry standards, relative value, tariff classification and part numbers) were met.

There is now an American Society for Testing and Materials (ASTM) standard for MTBE, D 5983-96; it was approved on November 10, 1996 and published in January, 1997. The standard specification for MTBE for “downstream blending with automotive spark ignition fuel,” i.e., D 5983-96, are as follows:

Property Limits Appearance Clear and bright Color, Saybolt, min +5 Sulfur, mg/kg, max 300 Solvent-washed gum content, mg/100 ml, max 5.0 Copper strip corrosion, max 1 MTBE, mass % min 95.0 Methanol, mass % min 0.5 Vapor pressure, KA (pi), max 62 (9.0) Water, mass %, max 0.10 API gravity at 15.8°C (60°F) Report We asked Customs’ Headquarters Laboratories and Scientific Services to review the documents provided by Ecofuel, specifically the laboratory analysis reports with regard to the imported and exported MTBE. The Headquarters laboratory determined that the four entries of MTBE for which Ecofuel was the importer of record and the MTBE that Ecofuel exported to Venezuela met the published standard, i.e., ASTM D 5983-96, for MTBE, with regard to the three most important properties: water content, methanol content and purity. Consequently, the Headquarters lab concluded that the imported and exported MTBE met the “governmental and recognized industry standards” prong of the commercial interchangeability criteria.

2. Tariff Classification

According to Ecofuel's submissions, both the imported and substituted domestic MTBE is classified in subheading 2909.19.1010, HTSUS. As both the imported and domestic MTBE are classified under the same HTSUS subheading, a finding of commercial interchangeability is supported by this criterion.

3. Part Numbers From the documents submitted it appears that MTBE is traded in bulk and thus does not have any part numbers, nor similar identification assigned for either the imported or exported MTBE. We find this criterion to be inconclusive on the issue of commercial interchangeability.

4. Relative Values

The value per kilogram of MTBE is shown on the respective 7501s, therefore the value per kilogram of MTBE is stated. In order to calculate the value per kilogram of the export the two export invoices were used. These invoices state that 3,664,386 and 2,951,844 U.S. gallons, equaling a total of 6,616,680 U.S. gallons were exported. The total metric tons are also shown: 8287.455 plus 10,322.621 equals 18,610.076 metric tons, which equals 18,610,076 kilograms. Thus the total kilograms exported was 18,610,076. The total price paid is $x. Thus a total of $x was paid for a total of 18,610,076 kilograms which equals .y cents per kilogram.

When the price paid per imported kilogram and the price paid per corresponding exported kilogram are compared, the average cents per imported kilogram is 8.3171720 % less than the cents per kilogram paid for the exported MTBE. Because we find the relative value is at an acceptable range, and allowing for profit and costs, this criterion supports a finding of commercial interchangeability. Therefore, since the imported and exported MTBE have satisfied the government and industry standards, tariff classification and value criteria required for a finding of commercial interchangeability, the imported and exported MTBE are commercially interchangeable.

3. Whether the drawback claimant has satisfied the possession requirement of 19 U.S.C. § 1313(j)(2).

Under 19 USC § 1313(v), multiple claims based on the same exported merchandise are prohibited. The definition of "exporter" in 19 CFR § 191.2(m)(2) provides for only one exporter to exist with respect to drawback claims, in part, to prevent the same merchandise from being identified as the exported merchandise for multiple drawback claims. Unlike the identification or designation of an import entry, which has a unique number, there are multiple ways to identify goods covered by an export shipment. Generally, the bill of lading and the sales documents are used to show that particular merchandise left the US with the intention of being severed from the commerce of the US and being joined to the commerce of another country. However, since the provisions of 19 USC § 1313 do not provide for an exclusive means to show exportation, other evidence can be used to satisfy that statutory requirement. See 19 CFR § 191.2(m)(1) and subpart G, Part 191. Consequently, the verification of export evidence should focus on whether acceptance of that evidence is able to preclude the possibility of two or more persons being able to identify the same merchandise on two different claims.

The text of 19 U.S.C. § 1313(j)(2) requires possession in the U.S. before export. The substituted goods must “ before the close of the 3-year period . . . [be] exported . . . ; and (C) before such exportation . . . [be] (ii) is in the possession of, . . . , the party claiming drawback . . . .” (19 U.S.C. § 1313(j)(2)(B)(ii)). We have held that a situation where the exporter of the imported merchandise attempts to export the merchandise without actually taking possession constitutes "a sham" and does not satisfy the possession requirement. C.S.D. 87-18; C.S.D. 89-108. In these cases, the claimant never actually took legal possession of the exported merchandise despite an agreement to purchase such in the first case and an arrangement to export the merchandise directly to the foreign buyer from the seller's storage facility without first taking possession.

Customs has defined possession for purposes of drawback, in C.S.D. 85-52, which holds that ownership of a commodity is not necessarily possession of that commodity for purposes of drawback:

Possession . . . means complete control over the articles or merchandise on premises or locations where the possessor can put the articles or merchandise to any use chosen. It does not mean that by trading commercial paper, e.g., purchase orders or bills of lading, between brokers or others in a commodity while that commodity winds its way across America by train or truck, possession is somehow created. Transactions made in order to create a climate for drawback will not support drawback.

In HQ 225166 (April 10, 1996) (also addressed in HQ 224103 (October 19, 1992) and HQ 224541 (October 14, 1993), collectively referred to as "Astra decision")), title and risk of loss passed to both the claimant (Astra) and foreign purchaser as the merchandise passed the ship's rail in the port of shipment, the bills of lading identified the claimant as the shipper and were given to the claimant upon issuance, and the exporting vessel upon which the merchandise was delivered directly by the seller of the merchandise to the claimant, was chartered by the foreign purchaser.

The documentation in the Astra decision showed that the shipment of the exported merchandise was for the account of the foreign purchaser. On this basis, in HQ 224541, Customs concluded that the claimant acted as an agent for the foreign purchaser, and there was no evidence that the claimant exercised any control over the merchandise apart from directions provided to it by the foreign purchaser. Therefore, Customs concluded that the claimant had not established that it had possession of the exported merchandise prior to its exportation.

In HQ 224103, Customs concluded that under the above facts, where the exporting vessel was chartered by the foreign purchaser, in the absence of documentary evidence such as a sub-charter agreement or a contract setting forth the responsibilities and rights of the claimant and the foreign purchaser between the time the merchandise is loaded on the exporting vessel and the time the vessel departs the U.S., the claimant had not possessed the exported merchandise within the meaning of 19 U.S.C. § 1313(j)(2)(C)(ii). The documentation submitted by the claimant showed that the claimant acted as the foreign purchaser's agent. This is not the case in the instant Protest.

The exported MTBE was purchased from Valero by Ecofuel and then sold to Lagoven. As evidence by the facsimiles exchanged between Valero and Ecofuel, the terms of sale between Valero as seller and Ecofuel as buyer were “F.O.B. O.S.B. (One Safe Berth) Corpus Christi, Tx.” According to “Incoterms 2000” published by the International Chamber of Commerce, F.O.B. means Free on Board.” This means that the seller delivers when the goods pass the ship’s rail at the named port of shipment, that the buyer has to bear all costs and risks of loss of the goods from that point. Further, the buyer must arrange and pay for the carriage of the goods from the named port of shipment. Therefore, Valero delivered when the MTBE passed the ship’s rail at Corpus Christi, and that Ecofuel had to bear all costs and risks of loss of the MTBE from that point until the title and risk of loss passed to Lagoven as described below. Further, Ecofuel had to arrange and pay for the carriage of the MTBE from Corpus Christi.

From Ecofuel to Lagoven The exported MTBE was purchased from Ecofuel by Lagoven. The terms of that sale were “shall be delivered by Seller to Buyer D.E.S. O.S.B. (One Safe Berth) Amuay, Venezuela. According to Incoterms 2000, D.E.S. means “Delivered Ex Ship” which means that the seller delivers when the goods are placed at the disposal of the buyer on board the ship but not cleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging. Thus, Ecofuel delivered when the MTBE was placed at the disposal of Lagoven on board the ship not cleared for import at the port of Amuay, Venezuela. Ecofuel had to bear all the costs and risks involved in bringing the MTBE to the port of Amuay, Venezuela before discharging.

There are however two invoices to Lagoven from Ecofuel. Both are dated January 6, 1998; both reference “Ecofuel Sale Order #AA97193; the price is the same cents per gallon; the payment terms are 30 days from NOR[Notice of Readiness, i.e., when the ship is ready to load] at discharge. But one invoice states “MTBE DES Amuay, Venezuela per ‘Team Troma.’” This invoice describes NOR as December 25, 1997 at 23:30 hours, the payment due date as January 24, 1998, and 70,282 barrels (8,287,455 kg) were discharged. The second invoice states “MTBE DES Punta Cardon, Venezuela per ‘Team Troma.’” This invoice describes NOR as December 27, 1997 at 04:20 hours, the payment due date as January 26, 1998, and 87,258 barrels (10,322,621 kg) were discharged.

Notwithstanding that Punta Cardon as a port of unlading does not seem to be mentioned elsewhere, the evidence shows that from the time the MTBE was laden on December 19, 1997, at Corpus Christi until, at earliest, it was unladen on January 24, 1998, at Amuay, Venezuela, the Protestant did have title and operational control over the MTBE while it was on board the Team Troma being carried to Venezuela. Since Ecofuel did receive meaningful title and risk of loss of the MTBE on December 19, 1997, at Corpus Christi, before the MTBE was exported until January 24, 1998, at Amuay, Venezuela, the Protestant therefore had title plus risk of loss, thus possession of the MTBE before exportation and within the meaning of § 1313(j)(2).

HOLDING:

1. Customs may raise additional issues for rejection of a drawback claim more than 90 days after the claim was liquidated when a protest under § 1514 has been timely filed.

2. The imported and substituted MTBE are commercially interchangeable for purposes of 19 U.S.C. § 1313(j)(2).

3. The drawback claimant has satisfied the possession requirement of 19 U.S.C. § 1313(j)(2).

Therefore, the Protest should be GRANTED in full. Consistent with the decision set forth above, you are hereby directed to grant the subject protest. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision 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 the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Myles Harmon, Director
Commercial Rulings Division