DRA-4 CO:R:C:E 224003 AJS
Regional Director
Commercial Operations
U.S. Customs Service
423 Canal Street
New Orleans, LA 70130
Re: Request for internal advice; premium gasoline; unleaded
gasoline; jet fuel; substitution same condition drawback; 19
U.S.C. 1313(j)(2); fungibility; 19 CFR 191.2(l); C.S.D. 85-52;
Guess? Inc. V. U.S.; C.S.D. 91-21; ASTM D 4814; 19 CFR
151.13(i)(5)(vi); ASTM D 1322; ASTM 1655.
Dear Regional Director:
This is in reply to your Internal Advice request of June 2,
1992, regarding the fungibility of certain petroleum products for
substitution same condition drawback claims filed under 19 U.S.C.
1313(j)(2) by the Citgo Petroleum Corporation.
FACTS:
Claim number C20-xxxxxxx-x concerns premium gasoline.
Customs denied fungibility of the imported and substituted
exported gasoline because they failed to satisfy the same
American Society for Testing Materials (ASTM) D 4814 volatility
requirements. Customs laboratory findings indicate that the
volatility of the imported gasoline is class B and the volatility
of the exported gasoline is class C.
Claim number E88-xxxxxxx-x deals with unleaded gasoline.
Customs denied fungibility of the imported and substituted
exported gasoline due to insufficient information provided in the
laboratory report for the imported gasoline. The information
presented in the report for the vessel "M/T Wind Spirit" was in
facsimile form, difficult to understand and unsigned.
Claim number E88-xxxxxxx-x involves jet fuel. Customs
denied fungibility of the imported and substituted exported fuel
because the laboratory reports for both fuels did not
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contain sufficient information or were otherwise inadequate for
use in Customs laboratory analysis.
Claim number C20-xxxxxxx-x also concerns jet fuel. Customs
denied fungibility of the imported and substituted exported fuel
based on the failure of the exported fuel to meet the "smoke
point" specifications for ASTM aviation turbine fuel listed
within designation D 1655-90. The "smoke point" specification
for D 1655-90 is a minimum of 25 mm. The imported fuel has a
"smoke point" of 25 mm on test method D 1322 of the ASTM
standard, while the substituted exported fuel possesses only a 24
mm "smoke point".
ISSUE:
Whether the subject petroleum products are fungible and
qualify for substitution same condition drawback treatment under
19 U.S.C. 1313(j)(2).
LAW AND ANALYSIS:
Section 313(j)(2) of the Tariff Act of 1930, as amended (19
U.S.C. 1313(j)(2)), provides that for substitution same condition
drawback purposes, the merchandise substituted for exportation
must be fungible with the duty-paid merchandise and in the same
condition as was the imported merchandise at the time of
importation.
Fungibility is defined in section 191.2(l), Customs
Regulations, (19 CFR 191.2(l)), as "merchandise which for
commercial purposes is identical and interchangeable in all
situations." Customs has interpreted fungibility as not
requiring that merchandise be precisely identical; identical for
"commercial purposes" allows some slight differences. The key is
complete commercial interchangeability. As stated in C.S.D. 85-
52: "[t]he commercial world consists of buyers, sellers,
comminglers, government agencies and others. If these groups
treat articles or merchandise as fungible or commercially
identical, the articles or merchandise are fungible . . . When
two or more units of apparently identical properties are treated
differently by the commercial world for any reason, they are not
fungible." 19 Cust. Bull. 605, 607 (1985). Interchangeability
means that the article, merchandise, or good is treated as
identical for commercial purposes, or in a commercial context, by
those entities that commonly deal in such articles, merchandise,
or goods.
The courts have recently addressed the question of
fungibility in Guess? Inc. v. United States, 752 F. Supp. 463
(Ct. Int'l Trade (CIT) 1990), 24 Cust. Bull. No. 51, 26
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(December 19, 1990), vacated and remanded, No. 1145 (Court of
Appeals for the Federal Circuit (CAFC) September 11, 1991), 26
Cust. Bull. No. 10, 30 (March 4, 1992); See also Tandom Corp. v
United States, Slip Op. 92-197 (CIT, October 29, 1992). The CAFC
essentially agreed with the interpretation of the term "fungible"
as expressed by the CIT, but remanded for procedural reasons. In
Guess?, the plaintiff argued that the fungibility of goods in a
general or contractual sense should suffice to bring them within
the coverage of 19 U.S.C. 1313(j)(2). However, the CIT stated
that "[w]e are not dealing here [i.e., fungibility] with a
question of whether a party has satisfied a commercial contract."
Guess? p. 29, See also CAFC p. 39. The CAFC added that "[w]e are
dealing instead with an exemption from duty, a statutory
privilege due only when enumerated conditions are met." Guess?
p. 33. Further, the CAFC stated that "[s]uch a claim is within
the general principle that exemptions must be strictly construed,
and that doubt must be resolved against the one asserting the
exemption." Guess? p. 34.
In Customs Service Decisions (C.S.D.) 91-21, we ruled that
ASTM standard specifications for aviation turbine fuels are
useful guidelines in determining the fungibility of such fuels
for purposes of substitution same condition drawback. 25 Cust.
Bull. No. 32, p. 37 (August 7, 1991). We find no reason not to
also use ASTM specifications as guidelines in determining the
fungibility of gasoline as well.
Claim C20-xxxxxxx-x deals with the fungibility of premium
gasoline. Customs denied fungibility based on the laboratory
finding that the two types of gasoline are of different ASTM D
4814 volatility classes. Counsel claims that the Customs
laboratory did not compare volatility based on geographic
location and month of the year as required by Table 2 of ASTM
Standard Specifications for Automotive Gasoline. The imported
gasoline was tested in New Jersey in July and found to be class
B, while the substituted gasoline was tested in Louisiana in
September and found to be class C. Customs headquarters
laboratory analysis states that the ASTM appendixes to D 4814
indicate that the two different class gasolines would not be
suitable for use under the same climatic conditions. Therefore,
gasoline distributors in different parts of the U.S. could not
buy the gasoline without verifying that the volatility class of
the gasoline would be suitable for that part of the U.S. at that
time of the year. Consequently, the two products could not be
bought and sold interchangeably throughout the U.S. As stated
previously, fungibility requires complete commercial
interchangeability. Thus, the two fuels are not fungible within
the meaning of 19 U.S.C. 1313(j)(2).
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Claim E88-xxxxxxx-x involves unleaded gasoline. Fungibility
was denied due to insufficient information provided in the
laboratory report for the imported gasoline. Counsel asserts
that the report was verified by its actual use as the basis for
acceptability of the product by the buyer. However, as stated in
both Guess? cases, "[w]e are not dealing here [i.e., fungibility]
with a question of whether a party has satisfied a commercial
contract." We are instead dealing with a statutory privilege
administered by Customs which must meet certain enumerated
conditions. 19 CFR 151.13(i)(5)(vi) states that Customs
accredited laboratory reports must have "the initials or
signature of the person accepting technical responsibility for
the gauging or analysis report (i.e., an approved signatory)."
The subject report was neither signed nor initialed. Customs is
not required to accept reports which have not complied with the
above regulation. 19 CFR 151.13(a). Therefore, Customs is not
required to accept the subject laboratory report. Without a
properly prepared laboratory report, we are unable to make a
determination regarding the fungibility of the unleaded gasoline.
Claim E88-xxxxxxx-x deals with jet fuel. Fungibility was
denied because the laboratory reports for both the imported and
exported fuel did not contain sufficient information or were
otherwise inadequate for use in Customs analysis. Customs
headquarters laboratory review of the reports supports this
conclusion. This review indicates that the specifications
relating to aromatic content, sulfur content and viscosity were
not provided in the subject reports. In the absence of these
specifications, it is not possible to determine if the products
meet the industry standard for jet fuel. Consequently, we are of
the view that fungibility cannot be determined in this instance
until the appropriate information is provided.
Counsel asserts that inasmuch as the laboratory reports were
sufficient to verify to the seller and buyer that the imported
and substituted exported fuel were both commercially acceptable
jet fuel that fungibility is established. While this acceptance
may establish that a contract was satisfied, it does not in and
of itself establish fungibility. As discussed beforehand, "[w]e
are not dealing here [i.e., fungibility] with a question of
whether a party has satisfied a commercial contract." We are
dealing with a statutory privilege administered by Customs which
is due only when enumerated conditions are met. One of these
conditions is that the substituted merchandise must be fungible
with the imported merchandise. If sufficient information is not
provided to enable the Customs laboratory to determine
fungibility, this privilege should not be granted until the
information is provided.
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Claim C20-xxxxxxx-x also deals with jet fuel. Customs
denied fungibility due to the failure of the exported fuel to
meet the ASTM "smoke point" specifications for D 1655. ASTM test
method D 1322 was used to determine this specification. Counsel
argues that Customs did not apply "reproducibility" when
calculating the "smoke point" specification. Reproduci-bility
states that the difference between two single and independent
results obtained by different operators working in different
laboratories would, in the long run, exceed the value of 3 only
in one case in twenty. In this case, however, counsel is mixing
test methods with specifications. The requirements for D 1655
are absolute and are not subject to correction for tolerance of
the test methods. ASTM D 1655, Standard Specification for
Aviation Turbine Fuels, Table 1, Note A. Therefore, the issue of
reproducibility is not applicable in this case.
Counsel claims that the buyer and seller used reproduci-
bility to determine that the fuel was acceptable for their
commercial transaction. As stated earlier, we are not dealing
here with the question of whether a party has satisfied a
commercial contract. Rather, we are concerned with a statutory
privilege administered by Customs which requires that the
merchandise be fungible. Substituted jet fuel which does not
satisfy the required ASTM "smoke point" specification is not
fungible with an imported fuel which does satisfy the required
specification.
HOLDING:
Claims number C20-xxxxxxx-x and C20-xxxxxxx-x do not consist
of fungible merchandise and are not entitled to substitution same
condition drawback under 19 U.S.C. 1313(j)(2).
Claims number E88-xxxxxxx-x and E88-xxxxxxx-x do not contain
sufficient information to enable Customs to determine whether the
merchandise at issue is fungible. Therefore, we cannot rule on
the applicability of 19 U.S.C. 1313(j)(2) in these cases.
Sincerely,
John Durant, Director
Commercial Rulings Division