DRA-4-PRO-2-05-CO:R:C:E 224349 SR
Regional Commissioner of Customs
c/o Head Protest and Control Section
N.Y. Seaport
6 World Trade Center
Room 762
New York, N.Y. 10048-0945
RE: Application for Further Review of Protest No. 1001-92-105846
and 1001-92-105847; 19 U.S.C. 1313(j)(2); substitution same
condition drawback; fungibility; 19 CFR 191.2(1); Guess? Inc. v.
U.S.; North American Free Trade Agreement Implementation Act
Dear Sir:
The above-referenced protest was forwarded to our office on
Application for Further Review of Protest No. 1001-92-105846 and
1001-92-105847, dated September 15, 1992. We have considered the
facts and the issue raised; our decision follows.
FACTS:
Protest 1001-92-100846 is against the denial of drawback on
a same condition drawback claim dated November 28, 1990. That
drawback claim was liquidated on August 14, 1992, without
drawback. The protest was filed on September 15, 1992.
Protest 1001-92-105847 is against the denial of drawback on
a same condition drawback claim dated July 30, 1990. That
drawback claim was liquidated on August 14, 1992, without
drawback. The protest was filed on September 15, 1992.
The drawback claim of November 28, 1990, designated an
import entry dated March 25, 1990, designated an import entry
dated March 25, 1988, of titanium dioxide RR2. The export
consisted of titanium dioxide rutile type dupont tipure R-902 of
U.S. origin.
The drawback claim of July 30, 1990, designated an import
entry dated November 30, 1987, of titanium dioxide Tiona 552 T
102 Rutile grade. The export consisted of titanium dioxide
rutile type SCM RCL9.
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The protestant filed a claim for same condition substitution
drawback under 19 U.S.C. 1313(j)(2) for titanium dioxide. Upon
receipt of the claim the protestant was audited by Customs. The
auditors noticed a slight difference in the descriptions of the
imported and exported merchandise and referred the claim to the
Customs New York Laboratory. The Laboratory found that the
specifications for the domestic products that were exported were
not fungible with the designated imports. The laboratory reports
show the following:
- R-902, export of 11/28/90, has 91% minimum requirement for
titanium dioxide content and has a minimum specific
resistance of 4000 ohm-centimeters (ohms-cms) for water-
soluble matter. ASTM D-476 requires a minimum titanium
dioxide content of 92% and a minimum specific resistance of
5000 ohm-cms for water-soluble matter.
- RCL-9, export of 8/5/90, has a minimum specific resistance
of 4000 ohms-cms for water-soluble matter.
- Kemira RR-2, import of 3/25/88 has a moisture and volatile
matter content ranging from 1.3-1.7% whereas ASTM D-476
specifies a maximum of 0.7%.
- Tiona 552, import of 11/27/87, conforms to ASTM
specification D-476 (1089 revision) for Type II titanium
dioxide pigments.
The protestant states that drawback should be allowed
because the imported and substituted titanium dioxide are
commercially interchangeable.
ISSUE:
Whether a claim should be allowed for same condition
substitution drawback under 19 U.S.C. 1313(j)(2) when it was
found by the Customs New York Laboratory that the merchandise
does not meet fungibility requirements.
LAW AND ANALYSIS:
Both protests were filed within 90 days of the liquidation
of the drawback claims and are timely.
For purposes of same condition drawback, fungible
merchandise is defined in 19 CFR 191.2(1) 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
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"commercial purposes" allows some slight differences. The key is
complete commercial interchangeability. The Court of
International Trade has indicated that substituted merchandise is
"commercially identical" when it stands in the place of the
imported merchandise, but is not more desirable than the imported
merchandise. Guess? Inc. v. United States, 752 F. Supp. 463 (Ct.
Int'l Trade 1990), vacated and remanded on other grounds, 994 F.
2d 855 (Fed. Cir. 1991).
Customs uses the ASTM standards to determine fungibility for
certain products; however, we may go beyond the standards of
quality to determine the fungibility requirement. (See C.S.D.
89-108). Fungibility must be determined on a case-by-case basis
in order to ensure that the imported designated merchandise and
substituted merchandise are not only within the ASTM standards
but are also identical with each other for substitution same
condition drawback. Fungibility is a stricter standard than same
kind and quality.
The Office of Technical Services, Headquarters, U.S. Customs
lab found the following:
In this case titanium dioxide pigments that are
designated RCL-9 and R-902 must be fungible with the imports
of titanium dioxide pigments Tiona 552 and Kemira RR-2. The
claimant indicates that all the products are rutile titanium
dioxide pigments used in the production of paint.
ASTM D-476 divides titanium dioxide pigments into
different types, each having different chalk resistance
specifications and vehicle requirements. Therefore, ASTM D-
476 alone is inadequate to show that manufacturers can
freely substitute the four different types of titanium
dioxide pigment.
For example, a Type II pigment can be used for low to
medium percentage polyvinyl chloride enamels and lacquers.
In contrast, Type III pigments are used to produce medium to
high percentage polyvinyl chloride enamels and alkyd type
and emulsion type wall paints. Type IV pigments are highly
chalk resistant and, therefore, used to make exterior paints
requiring extra durability and gloss retention. Type III
pigments are medium chalk resistant and used only for the
production of interior wall paints.
Review of the specifications show that the imported
products, Kemira RR-2 and Tiona 552 meet the ASTM
specifications for a Type II pigment. The exported pigment
called RCL-9 is reported as being out of specification with
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Type II pigments because it has a minimum specific
resistance specification of 4000 ohms-cms for water soluble
matter as compared to the Type II requirement of a minimum
5000 ohms-cms for water soluble matter. Since we are
dealing with minimum specifications, the pigment would be
out of specification with Type II pigments only if it had a
specific resistance in the range of 4000-5000 ohms-cms for
water soluble matter. If the absolute specific resistance
of the exported shipment can be shown to be greater than
5000 ohms-cms for water soluble matter, it would be in
specification for a Type II titanium dioxide pigment and, in
our opinion, would be fungible with the Kemira RR-2 and
Tiona 552. However, the claimant has not provided any
further information to show fungibility requirements are
met.
Similarly, the pigment designated R-902 is reported out
of specification with Type II titanium dioxide in that it
has a titanium dioxide content of a minimum of 91% and a
minimum specific resistance of 4000 ohms-cms for water
soluble matter. Since Type II pigment specifications call
for a minimum titanium dioxide content of 92%, the exported
product would be out of specification only if it contained
91-92% titanium dioxide. Since the claimant gave Customs a
minimum specification, there is a possibility that the
product contained more than 92% titanium dioxide and was
within the specification for titanium dioxide content.
As in the case of the RCL-9 pigment, the specific
resistance for the R-902 is given in terms of a minimum
requirement and the possibility exists that the exported
shipment may have been a titanium dioxide pigment having a
specific resistance within specification for a Type II
pigment: greater than 5000 ohms-cms for water soluble
matter. However, if the claimant cannot state the actual
specific resistance of the export, the original finding of
non-fungibility must be applied. Therefore, to be found
fungible the claimant would have to show that the actual
shipment had a titanium dioxide content of greater than 92%
and a specific resistance of greater than 5000 ohms-cms, the
product would be within specifications for a Type II
titanium dioxide pigment and would be fungible with the
imported Tiona 552.
The R-902 and Kemira-RR-2 are not fungible because the
rutile minimum content is too different (91% minimum versus
94% minimum). The RCL-9 and Kemira RR-2 are not fungible
because the moisture content is too different (0.5 max
versus 1.3% - 1.7%).
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The findings of this lab report confirm that, based on the
information provided, R-902 and RCL-9 are not fungible with the
imported products Kemira RR-2 and Tiona 552. The protestant has
not provided any further information to show that the merchandise
is fungible. The protestant has the burden of showing that
laboratory findings are incorrect.
As stated in the Audit Report the amount of drawback claimed
in Drawback Claim C10-0019074-9 (Protest 1001-2-105847) appears
to be incorrect. The drawback J form claims 40,800 pounds of
titanium dioxide was imported with duty paid in the amount of
$7117.83. It shows that 40,000 pounds of titanium dioxide was
exported. The import entry shows that only $5813.07 was paid in
duty when the merchandise was entered into the United States.
Unless there was an increase in duty at liquidation the amount of
duty claimed on the J form is incorrect.
The next issue is whether the result is affected by Title VI
of the North American Free Trade Agreement Implementation Act
(Act of December 8, 1993, 107 Stat 2057, Pub. L. 103-182). Under
that Act the drawback statute was amended. As amended, under 19
U.S.C. 1313(j)(2) substitution is permitted if the merchandise is
commercially interchangeable. The statute did not define
commercially interchangeable. However, in H. Rept. 103-361, Part
1, 103 D Cong. 131 (1993) the House Ways and Means Committee
stated that the criteria to be considered would include (but is
not limited to): Governmental and recognized industrial
standards, part numbers, tariff classification and relative
value.
Using that criteria it is clear that the different lots of
titanium dioxide do not meet the same ASTM standard, the ASTM
being a recognized industrial grading system. Part numbers would
not appear to be relevant to bulk materials such as lots of
Titanium Dioxide. All titanium dioxide would be classifiable
under the provision for all titanium oxides in subheading
2823.00.00, Harmonized Tariff Schedule of the United States.
Because that subheading covers all oxides (titanium monoxide as
well as titanium dioxide) of titanium that classification is not
useful in determining commercial interchangeability here.
The determination of commercially interchangeable must be
made based on government and industry standards and relative
value. Based on the information provided the exported product
RCL-9 was purchased at a price of $2330 per metric ton, the
export product R-902 was purchased for $2495 per metric ton, and
the imported product Tiona 552 was purchased for $2337 and $2442
per metric ton. No price was provided for the import of Kemira
RR-2. Under the criteria of relative value the Tiona 552 would
be
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commercially interchangeable with the exports.
The ASTM standards are recognized by both the government and
the industry. As stated above ASTM D-476 divides titanium
dioxide pigments into different types, each having different
chalk resistance specifications and vehicle requirements. Each
of the different types of pigments under ASTM D-476 are used to
make different types of paints (e.g. interior and exterior). As
stated above, the imported products meet the standards for ASTM
D-476, Type II pigments, whereas the specifications provided for
the exported products do not show that the standards for ASTM D-
476 Type II pigments are met. Based on the information presented
the protestant has not shown that the specifications of the
merchandise are commercially interchangeable under standards
recognized by the government and the industry.
HOLDING:
Based on the information submitted the R-902 and RCL-9 can
not be found to be fungible or commercially interchangeable with
the Kemira RR-2 or Tiona 552. The protestant has not provided
any further evidence that the titanium dioxide meets fungibility
requirements under 19 U.S.C. 1313(j)(2). This protest should be
denied in full. A copy of this decision should be attached to
the Customs Form 19 and provided to the protestant as part of the
notice of action on the 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 this decision
must be accomplished prior to the mailing of the decision. Sixty
days from the date of this 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 to
the public via the Diskette Subscription Service, Lexis, Freedom
of Information Act and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division