230898 RDC
DRA-1-09 DRA-4 RR:CR:DR
J.W. Brown
Danzas AEI Drawback Services, Inc.
1718 Fry Road
Suite 240
Houston, TX 77084
RE: Unused merchandise drawback; Commercial interchangeability; 19 C.F.R. §191.32(c); 19 U.S.C. §1313(j)(2); propylene oxide.
Dear Mr. Brown:
This is in response to your 3/2/2005 ruling request, on behalf of your client, Lyondell Chemical Company (Lyondell), regarding the commercial interchangeability of imported and domestic propylene oxide for purposes of substitution, unused merchandise drawback per 19 U.S.C. § 1313(j)(2). On 3/17/2005 we called you to request additional information. Subsequently, we received correspondence from you dated 3/30/2005 and 4/6/2005.
FACTS:
Our research indicates that propylene oxide (C.A.S. 75-56-9) is a colorless liquid with an ether-like odor that is used mainly as a chemical intermediate in the production of polyurethane polyols, which are used to make polyurethane foams, coatings, and adhesives.
According to your letter dated 3/2/2005, the domestic propylene oxide is made by Lyondell in Texas. Lyondell imports propylene oxide from its manufacturing subsidiary, “Lyondell Chemi” in The Netherlands. “All imported propylene oxide is discharged and commingled into Lyondell’s dedicated shore tanks” in Houston, “which also contain domestically produced propylene oxide.” You also state that “the product nomenclature propylene oxide is used” by Lyondell to identify the imported and exported merchandise and indicates “the same material with the same specifications, whether of foreign or domestic manufacture.” In your letter dated 3/30/2005, you state, “the propylene oxide manufactured in the U.S. and in Europe are completely interchangeable . . . ” and “the quality of the propylene oxide is identical.”
Import
As evidence of the imported propylene oxide, Lyondell has provided the following documents.
An entry summary for entry K96-xxxxx46-8, entry date of 5/11/2004, reflecting that Lyondell is the importer of record for an amount of “methyloxirane (propylene ox)” classified under subheading 2910.20.00, Harmonized Tariff System of the United States (HTSUS). The country of origin is The Netherlands and the vessel is the Stolt Innovation. The amount of propylene oxide in kilograms and the value are stated. This entry summary references invoice number “5000003862 4/30/04.” The date of import is 5/10/2004.
Also included is a pro-forma invoice, number 50003862, dated 4/30/2004, reflecting the sale of “499221 propylene oxide, bulk” from Lyondell Chemie Nederland B.V. to Lyondell. Delivery is to Deer Park, Texas, and the country of origin is listed as The Netherlands. The “Customer Material” number is given as 000000000000499221. The ship date is 4/20/2004. The quantity in metric tons is given, as is the price in U.S. dollars, per MT.
An inventory report for tank TK916 dated 2/15/2005, from the terminal that received the imported propylene oxide, indicates that it covers the period 12/31/2003 to 12/31/2004. On page 4 the report reflects that an amount of propylene oxide was received from the vessel “St. Innovatin” on 5/10/04 through 5/11/04.
A inventory report for tank TK913 dated 2/15/200, from the terminal that received the imported propylene oxide reflects that it is for the period12/31/2003 to 12/31/2004. Page 3 of the report shows propylene oxide was received from the vessel “St. Innovatin” on 5/10/04 through 5/11/04
A Certificate of Analysis for “Lyondell Material 499221, propylene oxide, bulk” identifies the ship as the “Stolt Innovation” and date of shipment as 4/20/2004. The shipment is destined for Deer Park, Texas and the certificate contains the information, in pertinent part, below:
Test Specifications Test Unit of
Description Minimum Maximum Result Measure
Assay as PO, by GC 99.97 100.00 weight %
Water 0.0200 0.0026 weight %
Appearance Pass Pass
Aldehydes, Total 60 6 weight ppm
Color, Pt-Co 10 4 APHA Color
TYPICAL VALUES SHOWN BELOW
Acidity as Acetic Acid 20 ppm
Chlorides as Cl 10 ppm
Nonvolatile matter 0.0020 g/100 ml
Specific Gravity @ 20/20 °C 0.829 0.831
Distillation DP @ 760 mmHg 35.0 degrees C
Distillation IBP @760 mmHg 33.0 degrees C
Export
The following documents were supplied as evidence of domestic, exported propylene oxide.
A Pro-forma invoice shows a sale of propylene oxide to XXX Corporation which was shipped to Taiwan. The invoice is dated 8/30/2004 and reflects the quantity in metric tons and the price per metric ton in U.S. dollars.
A Tanker bill of lading (BOL) reflects that a quantity of propylene oxide was shipped by Lyondell from Houston to XXX Corporation in Taiwan. The BOL is dated 8/30/2004 and identifies the ship as the Stolt Concept.
A Certificate of Analysis for “Lyondell Material 499378 Propylene Oxide,” shows that is was shipped on 8/30/2004 to XXX Corporation in Taiwan. The following values are given on the certificate:
Test Test Specifications Unit of
Description Result Minimum Maximum Measure
Assay as PO, by GC 99.99 99.97 weight %
Aldehydes, Total 6 30 weight ppm
Water 21 200 weight ppm
Color, Pt-Co 3 10 APHA Color
Appearance Pass Pass
TYPICAL VALUES SHOWN BELOW
Chlorides as CL 0 - 10 ppm
Acidity as Acetic Acid 0 - 10 ppm
Nonvolatile matter 0.0000 - 0.0010 g/100 ml
Distillation IBP @760 mmHg 33.0 - 36.0 degrees C
Distillation DP @ 760 mmHg 33.0 - 36.0 degrees C
Specific Gravity @ 20/20 °C 0.829 0.831
The inventory report for tank TK916 and an inventory report for tank TK 913 dated 2/15/2005, from the terminal where the propylene oxide was received and exported, contain numerous entries labeled “receipt of pipeline” indicating receipt into the tank of propylene oxide manufactured in Texas.
The following specifications for propylene oxide were obtained from www.lyondell.com on 3/17/2005.
U.S. Sales Specification, dated 12/5/2000
Test Specifications Unit of
Description Minimum Maximum Measure
Assay as PO, by GC 99.98
Aldehydes, Total 100 weight ppm
Water 200 weight ppm
Color, Pt-Co 5 APHA Color
Total Impurities (dry basis) 200 ppm
Appearance Pass
TYPICAL VALUES Report
Chlorides as Cl 0 10 ppm
Acidity as Acetic Acid 0 20 ppm
Nonvolatile matter 0.0000 0.0017 g/100 ml
Specific Gravity @ 20/20 °C 0.829 0.831
Distillation IBP @760 mmHg 33.0 37.0 degrees C
Distillation DP @ 760 mmHg 33.0 37.0 degrees C
Europe Sales Specification, dated 5/15/2002
Test Specifications Unit of
Description Minimum Maximum Measure
Assay as PO, by GC 99.97 weight %
Aldehydes, Total 50 weight ppm
Water 0.0200 weight %
Color, Pt-Co 10 APHA Color
Total Impurities (dry basis) 200 ppm
Appearance Pass
TYPICAL VALUES Report
Chlorides as Cl 10 ppm
Acidity as Acetic Acid 20 ppm
Nonvolatile matter 0.0020 g/100 ml
Specific Gravity @ 20/20 °C 0.829 0.831
Distillation IBP @760 mmHg 33.0 degrees C
Distillation DP @ 760 mmHg 35.0 degrees C
Finally, CBP’s Laboratories and Scientific Services reviewed the above sales specifications and determined that the U.S. and European sales specifications “are equivalent for propylene oxide; therefore propylene oxide meeting the U.S. standard would be accepted in lieu of propylene oxide meeting the European standard.”
ISSUE:
Whether the imported and domestic propylene oxide are commercially interchangeable for purposes of 19 U.S.C. § 1313(j)(2)?
LAW AND ANALYSIS:
Substitution, unused merchandise drawback is provided by 19 U.S.C. §1313(j)(2), but the statute does not define “commercially interchangeable.” The CBP Regulations reflect the legislative history that explained the change from fungibility to commercial interchangeability as the standard for substitution. Section 191.32 provides:
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.
(19 C.F.R. § 191.32(c)). In Texport Oil Co. v. United States, (185 F.3d 1291 (Fed. Cir. 1999)) the Federal Circuit Court of Appeals (CAFC) discussed the meaning of “commercially interchangeable.” The CAFC concluded that commercially interchangeable is “an objective, market-based consideration of the primary purpose of the goods in question.” (Id.) The Texport court explained:
Therefore, “commercially interchangeable” must be determined objectively from the perspective of a hypothetical reasonable competitor; if a reasonable competitor would accept either the imported or the exported good for its primary commercial purpose, then the goods are “commercially interchangeable” according to 19 U.S.C. § 1313(j)(2).
(Id. at 1295). Thus, per the Texport decision, commercial interchangeability is determined using an “objective standard.” Accordingly, an exported good is commercially interchangeable with an imported good if a buyer, in an arms’-length transaction, would accept either good at the specified price for the purpose intended. In order to determine if either good at the specified price would be acceptable for the purpose intended, the relevant characteristics of the imported good are compared with those characteristics of the exported good. Those pertinent characteristics include any governmental or industry standards applicable to the good, the tariff classification, part numbers if any, value, and any other characteristics relevant to the good.
Governmental and Recognized Industry Standards
Industry consensus standards ensure that all products meeting a standard are used in the same manner, regardless of manufacturer. Under normal circumstances, materials 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. We are aware of no government or industry standards for propylene oxide. This criterion is therefore irrelevant to this analysis.
Tariff Classification
With respect to the tariff classification, propylene oxide, also called methyloxirane, is classified under subheading 2910.20.00, HTSUS, as methyloxirane. According to the provided entry summary, the imported propylene oxide was classified under that subheading. The export invoice reflecting a sale of propylene oxide evidences that the exported good would also be classified under subheading 2910.20.00, HTSUS, as methyloxirane. The tariff classification criterion, therefore, has been met.
Part Numbers
Based on the evidence presented in the submission, propylene oxide is a bulk commodity and is not assigned a part number. As such, part numbers are not a relevant criterion in this analysis of commercial interchangeability. However, both the U.S. and the European sales specs designate propylene oxide as “Material Number 499221” at the top of the document. Both specifications also contain “Material Number 499221 499222 499354 499356 499378” at the bottom of the page. The import invoice and certificate of analysis use “Material Number: 499221 to refer to propylene oxide. The export certificate of analysis refers to propylene oxide as Lyondell Material: 499378.
According to Lyondell, “the product nomenclature propylene oxide is used” by Lyondell to identify the imported and exported merchandise and indicates “the same material with the same specifications, whether of foreign or domestic manufacture.” Further Lyondell explained, “the quality of the propylene oxide is identical, regardless of product code nomenclature. Lyondell utilizes product codes solely for internal accounting purposes. These product codes help Lyondell distinguish inventory for iso-containers, bulk, location and / or sales volume.” We find that, given that the imported and exported material is consistently described as “propylene oxide” in the provided documents and, since both products specs contain a list of Material numbers 499221 and 499378, that both these material numbers are used to indicate propylene oxide. Therefore, Lyondell’s use of two material numbers to identify propylene oxide does not preclude a finding of commercial interchangeability.
Relative Values
The import transaction, invoice date 4/30/2004 was a sale from Lyondell’s subsidiary to Lyondell. The export sale, invoice date 8/30/2004, was to, ostensibly, a third party. Based on the documents supplied for the import and export transactions, the price paid for the imported propylene oxide was approximately sixteen percent higher than that paid for the exported propylene oxide four months later. In your letter of 4/6/2005, you supplied this explanation of Lyondell’s pricing: “the pricing is determined by the market. We have formulas that take into account the customer ‘basket’ when we ship among our regions internally.”
We have held that a variance in price - like the sixteen percent here - does not preclude a finding of commercial interchangeability, when other critical properties have been met or when sufficient evidence is provided to support the material difference in value. See HRL 228655 (11/2/ 2001) (holding that although the imported and exported merchandise differed in price by more than 32 percent, the merchandise qualified under the critical properties criterion and therefore, value criterion had been met as well); see also, HRL 227220 (2/10/1997) (holding that although the price difference of the imported and exported merchandise was in excess of 24 percent, the imported and exported merchandise qualified under the applicable industry standards and thus, relative value did not have as much weight when determining commercial interchangeability); HRL 226995 (6/ 4/1997) (holding that the 35 percent difference in value was supported by the explanation and evidences a result of market conditions at the time of import and export).
Additional Relevant Factors
Lyondell makes its sales specifications for propylene oxide public on the internet. That these sales specs are published evidences that Lyondell represents to its buyers that the propylene oxide sold by Lyondell will, at least, meet one of these specifications, depending on country of manufacture. Both the U.S. and European sales specs list the purity, appearance and the same four characteristics for propylene oxide, along with the maximum values permitted for those four criteria. In addition, both standards list the ranges for another six features within which the propylene oxide typically falls. The certificate of analysis for the exported propylene oxide shows that it is within the U.S. sales specs. The certificate of analysis for the import reflects that the propylene oxide is within the European sales specs.
Further, CBP’s Lab concluded that the U.S. and European sales specifications “are equivalent for propylene oxide” and that propylene oxide meeting either standard would be equivalent to the other and accepted in lieu of the other. The fact that Lyondell’s sales specs are public and that the evidence for the representative import and export transactions supports the conclusion that Lyondell sells the propylene oxide in accordance with those sales specs, coupled with the fact that CBP’s lab finds the domestically produced and imported propylene oxide equivalent, supports a finding of commercial interchangeability.
We are further persuaded that a buyer, in an arms’-length transaction, would accept either the imported and domestic propylene oxide by the fact that the imported and domestic propylene oxide are commingled in the same tank. On page 4 of the inventory report for tank TK916 it states that propylene oxide from The Netherlands (delivery from the vessel Stolt Innovation) was received into that tank. That report also reflects deliveries into the tank of domestic propylene oxide. This practice evidences that Lyondell considers domestic and foreign propylene oxide interchangeable, if not identical, because it does not distinguish between them when storing the material.
Both the foreign and the domestic propylene oxide are classified under subheading 2910.20.00, HTSUS, as methyloxirane. The foreign and domestic propylene oxide are consistently described as propylene oxide in the transaction documents. The imported propylene oxide meets Lyondell’s sales specifications for European propylene oxide and the domestic propylene oxide is in conformance with the U.S. sales specification. CBP’s lab has concluded that propylene oxide meeting either standard is interchangeable with the other. Further, Lyondell sells the propylene oxide in conformance with these standards and stores the imported and domestic propylene oxide in the same tank. Based on these factors the imported propylene oxide and domestic propylene oxide are commercially interchangeable for purposes of § 1313(j)(2).
HOLDING:
The imported and domestic propylene oxide are 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 C.F.R. §177.2(b)(1), (2) and (4) and 177.9(b)(1) and (2).
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division