DRA-4 CO:R:C:E 224223 AJS
Deputy Regional Director
Commercial Operations
U.S. Customs Service
One World Trade Center, Ste. 705
Long Beach, CA 90831-0700
Attn: Elizabeth Thorton
RE: Request for Internal Advice; avocados; substitution same
condition drawback; 19 U.S.C. 1313(j)(2); fungibility; 7 U.S.C.
608(e)-1; HQ 223291; Federal Register, vol. 55, no. 99; 7 CFR
915.306; 19 CFR 191.2(l); C.S.D. 85-52; C.S.D. 89-108; C.S.D. 89-
126; HQ 224068; HQ 224223; 7 CFR 944.28(a).
Dear Sir:
This is in reply to your Internal Advice (IA) request of
October 1, 1992, forwarded on behalf of Mission Produce, Inc.,
and concerning substitution same condition (SSC) drawback under
19 U.S.C. 1313(j)(2) for fresh avocados from Chile.
FACTS:
Authority for importation of avocados is governed by 7
U.S.C. 608(e)-1. All avocados imported into the United States
must be certified as meeting U.S. import requirements as to
United States Department of Agriculture (USDA) grade number and
maturity. On exported avocadoes it is claimed that the standards
are in practice the same as that for importation, but no
certification is required by the country of exportation (e.g.,
United Kingdom). The IA applicant has provided a statement from
a foreign customer indicating that only avocados that adhere to
the U.S. import standards are acceptable for exportation.
The IA applicant states that many varieties of avocados are
grown but all must meet the same set of minimum import standards.
The IA applicant claims that these standards make no
differentiation between varieties. However, we note that
imported varieties from the northern hemisphere must meet the
same minimum weight and diameter maturity requirements
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specified in 7 CFR 915.332 for Florida avocados and that the
requirements contained in section 915.332(a)(2) do not apply to
imported avocados grown in the southern hemisphere (e.g., Chile).
Federal Register, vol. 55, no. 99, 21004 (Tuesday, May 22, 1990).
All imported avocados must be at least USDA grade No. 2 as
specified in 7 CFR 915.306.
All of the subject avocados will be sold as fresh produce.
The IA applicant intends to substitute California avocados for
Chilean ones. While there are no legal requirements that
California avocados meet the same requirements as Florida
avocados, the IA applicant claims that this is the industry
practice.
Avocados are packed by size in industry standard cartons
consisting of either two layers or of one layer. It is asserted
that marketing requirements regarding the weight for each box
regardless of avocado size is as follows:
Two layer = 25 lbs +/- .5
One layer = 12.5 lbs +/- .25
It is further asserted that all sizes of avocados are imported
and exported within the established weight ranges. The applicant
states that their packing lines are check weighed to monitor and
assure that the weights are correct when shipped. In addition,
they claim that the State of California Avocado Industry enforces
these weight standards.
Both USDA grade No. 2 and USDA grade No. 1 may be mixed together
in the cartons of imported and substituted avocados. The cartons
also do not indicate which grades are contained therein. The
applicant proposes that weights of 24.5 lbs be used for the two
layer cartons and 12.25 lbs for the single layer cartons in order
to establish the weights for exportation when claiming drawback.
The applicant imports and exports all the basic sizes of
avocados to its customers. They assert that no one size is
preferential over another as customers substitute one size for
another depending on market conditions and availability. The
marketing of avocados is claimed to be very similar to the
marketing of lettuce. In HQ 223291 (March 6, 1992), Customs
ruled that lettuce must be substituted on a grade for grade basis
in order to be considered fungible for SSC drawback purposes.
Avocados are classifiable within subheading 0804.40.00,
Harmonized Tariff Schedule of the United States (HTSUS), and are
subject to a specific rate of duty by weight.
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ISSUE:
Whether Chilean avocados of USDA grade No. 2 or better,
packed in either one layer cartons weighing 12.25 lbs or two
layer cartons weighing 24.5 lbs, are fungible with California
avocados of USDA grade No. 2 or better packed in the same manner.
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 SSC 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 its importation.
Fungibility is defined in the Customs Regulations as
"merchandise which for commercial purposes is identical and
interchangeable in all situations." 19 CFR 191.2(l). 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).
The Customs Service has consistently applied the standards
of quality grades of the USDA as guidelines for determining
fungibility. As stated in C.S.D. 89-108, the use of USDA quality
standards are satisfactory for our use as "guidelines" for
determining whether imported designated merchandise and
substituted merchandise are identical for SSC drawback. However,
we may go beyond the standards of quality to determine whether
the merchandise meets the "fungibility" requirements. Regarding
the fungibility requirements for vegetables, we have stated that
substitution must be on a grade for grade basis. See C.S.D. 89-
126, HQ 224068 (July 31, 1992), and HQ 224223 (March 6, 1992).
7 CFR 944.28(a) provides that the importation into the U.S.
of any avocados is prohibited unless such avocados grade at least
USDA No. 2, as such grade is defined in the United States
Standards for Florida Avocados (7 CFR 51.3050
through 51.3069). Because of this regulation, all of the
applicant's imported avocados must grade at least USDA No. 2
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or better. The applicant states that USDA grade No. 1 avocados
may be mixed with USDA grade No. 2 in the imported cartons. The
applicant has submitted information stating that all their
exported avocados in practice will also grade at least USDA No.
2. In addition, USDA grade No. 1 avocados may be mixed with USDA
grade No. 2 in the exported cartons. As stated beforehand
regarding the fungibility of vegetables, we have ruled that
substitution must be on a grade for grade basis. In this case,
the commingling and substitution of different grades of avocados
violates this principle. There is no evidence which establishes
that the USDA grades are ignored by the avocado industry for all
commercial purposes.
The IA applicant proposes that weights of 24.5 lbs be used
for the two layer carton and 12.25 lbs for the single layer
carton as the weights for exportation when establishing drawback.
The applicant states that their packing lines are check weighed
to monitor and assure that the weights are correct when shipped.
In addition, they claim that the State of California Avocado
Industry enforces these weight standards. In HQ 223291, we ruled
that the drawback claimant may claim drawback based on the least
heavy carton of lettuce when the cartons fall within certain
weight ranges. In this instance, the applicant is following this
procedure by using weights of 24.5 lbs and 12.25 lbs.
Accordingly, we find the applicant's proposal regarding the
weights of each carton for exportation acceptable in establishing
the amount of drawback which may be claimed.
HOLDING:
Chilean avocados of USDA grade No. 1 are fungible with
Californian avocados of USDA grade No. 1, and Chilean avocados of
USDA grade No. 2 are fungible with Californian avocados of USDA
grade No. 2. Substitution must be on a grade for grade basis.
If the applicant substitutes avocados on a grade for grade basis
which are packed in either one layer cartoons weighing at least
12.25 lbs or two layer cartons weighing at least 24.5 lbs, then
they would satisfy the fungibility requirements of SSC drawback.
Please forward a copy of this decision to the IA applicant.
Sincerely,
John Durant, Director
Commercial Rulings Division