DRA-4:RR:IT:EC 226225 PH
Michael A. Herzberg, Esq.
Matthew J. Clark, Esq.
Howrey & Simon
1299 Pennsylvania Avenue, NW.
Washington, D.C. 20004-2402
RE: Unused merchandise drawback; Commercial interchangeability;
Concentrated orange juice; HQ 226100; HQ 226444; 19 U.S.C.
1313(j)(2); 19 U.S.C. 3333(a)
Dear Messrs. Herzberg and Clark:
In your letter of June 5, 1995, you request a ruling on the
commercial interchangeability, for purposes of drawback under 19
U.S.C. 1313(j)(2), of certain concentrated orange juice. Our
ruling follows:
FACTS:
You state that your client in this matter is the importer of
frozen concentrated orange juice for manufacturing (FCOJM) from
Brazil. You state that the FCOJM was imported into the United
States and entered for consumption with duties paid at the rate
of $.0902 per liter under subheading 2009.11.0060, Harmonized
Tariff Schedule of the United States (HTSUS). The merchandise is
described as United States Department of Agriculture (USDA) Grade
A FCOJM with a Brix concentration in the range of 65.5 degrees to
66.5 degrees. After entry into the United States, you state that
the merchandise is sold to unrelated purchasers in the United
States.
You state that your client in this matter (the importer of the
above-described FCOJM) plans to purchase and take title to United
States-origin FCOJM. That United States-origin FCOJM will be
USDA Grade A FCOJM with a Brix concentration ranging between 64.5
degrees and 66.5 degrees. You state that your client will have
possession of and title to both the imported and substituted
merchandise and that the substituted merchandise will not be used
in the United States. You state that your client intends to
export the United States-origin FCOJM to various countries,
principally Canada, within 3 years of the date on which the
Brazilian FCOJM was imported.
ISSUE:
May substitution unused merchandise drawback, under 19 U.S.C.
1313(j)(2), be granted in the situation described in the FACTS
portion of this ruling?
LAW AND ANALYSIS:
At issue in this case is the applicability of the substitution
unused merchandise drawback law (19 U.S.C. 1313(j)(2)) to FCOJM.
Initially, we note that although some of the exported merchandise
will be shipped to Canada, the restriction on drawback under 19
U.S.C. 1313(j)(2) for shipments to Canada (see section 203(c),
NAFTA Implementation Act (107 Stat. 2057, 2092); 19 U.S.C.
1313(j)(4)) is inapplicable in this case because the merchandise
shipped to Canada is a citrus product (see section 203(a)(7),
NAFTA Implementation Act (107 Stat. 2057, 2086-2087; 19 U.S.C.
3333(a)(7)).
Accordingly, if the requirements in 19 U.S.C. 1313(j)(2) are met
in this case, drawback may be granted. The requirements under 19
U.S.C. 1313(j)(2) are that:
1. There must be imported merchandise on which was paid any
duty, tax, or fee imposed under Federal law because of its
importation;
2. The drawback claimant must have either:
(a) Imported the imported merchandise; or
(b) 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;
3. There must be other (substitute) merchandise which is:
(a) Commercially interchangeable with the imported
merchandise; and
(b) Exported or destroyed under Customs supervision
within 3 years of the date of importation of the imported
merchandise; and
4. Before the exportation or destruction of the other
(substitute) merchandise, that merchandise:
(a) May not be used (except as permitted under section
1313(j)(3)) in the United States; and
(d) Must be in the possession (as described in the
amended section 1313(j)(2)(C)(ii)) of the person claiming
drawback.
You state that your client was the importer of the imported
merchandise in this case and that duties were paid. You state
that your client will have possession of and title to both the
imported and substituted merchandise (possession of the imported
merchandise is not required; see 19 U.S.C. 1313(j)(2), see also,
B.F. Goodrich Co. V. United States, 16 CIT 333, 794 F. Supp. 1148
(1992)). You state that the substituted merchandise will not be
used in the United States. You state that the substituted
merchandise will be exported within 3 years from the date of
importation of the imported merchandise. Provided that the above
statements are true and that your client can establish them to be
correct, all of the requirements for drawback under 19 U.S.C.
1313(j)(2) will have been met, except for the requirement that
the imported merchandise and the substituted merchandise must be
commercially interchangeable.
Commercial interchangeability, as the standard for substitution
under 19 U.S.C. 1313(j)(2), was added by Public Law 103-182.
Before the amendment to section 1313(j)(2) effected by Public Law
103-182, the standard was fungibility. In regard to this change,
Congress stated in the legislative history to the amendment of
the drawback law by section 632 of the NAFTA Implementation Act
(H. Report 103-361, 103d Cong., 1st Sess. (1993)) that:
... The provision is also amended to change the standard for
substitution from "fungible" to "commercially
interchangeable." ...
With respect to same condition or unused merchandise
drawback, the Committee intends to permit the substitution
of merchandise when it is "commercially interchangeable,"
rather than when it is "commercially identical." 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 industrial standards, part
numbers, tariff classification, and relative values. The
test should be applied more stringently if the article is
destroyed rather than exported. [H. Report 103-361 at pp.
129, 131; the Senate Report for the NAFTA Act (Sen. Report
103-189, 103d Cong., 1st Sess. (1993), pp. 81-85) contains
similar language and states that the same criteria should be
considered by Customs in determining commercial
interchangeability.]
In a December 5, 1995, ruling (HQ 226100; copy enclosed), Customs
ruled on the commercial interchangeability of concentrated orange
juice for manufacturing (COJM) (the ruling treats COJM and frozen
concentrated orange juice (FCOJ) in bulk interchangeably; see 7
CFR 146.146 and 146.153). Ruling HQ 226100 is incorporated into
and made a part of this ruling.
In ruling HQ 226100, Customs held that imported merchandise
consisting of FCOJ in bulk, degrees Brix of 65.6 to 65.9 degrees,
meeting USDA Grade A standards and the industry standards of
Contract (1) of the Citrus Associates of the New York Cotton
Exchange, Inc., was commercially interchangeable with exported
merchandise consisting of FCOJ in bulk, degrees Brix of 63.64 to
64.25 degrees, meeting the same standards, when the tariff
classification was the same, part numbers were found not to be
relevant, and the cost of the imported merchandise was $.73 per
pound solid and that of the exported merchandise $.87, $.93, or
$.96 per pound solid. The ruling indicated that imported and
exported FCOJ in bulk meeting the above description except that
both the imported merchandise and the exported merchandise met
the industry standards of Contract (2), instead of Contract (1),
of the Citrus Associates of the New York Cotton Exchange, Inc.,
were also commercially interchangeable.
In ruling HQ 222647/222789, April 24, 1991, on the fungibility of
concentrated orange juice for manufacturing (COJM) for purposes
of 19 U.S.C. 1313(j)(2) before its amendment by Public Law 103-182, Customs described followed the standards of the Citrus
Associates of the New York Cotton Exchange, Inc., for purposes of
fungibility. In the ruling, Customs stated, about the standards:
"[w]e are satisfied that [they] represent industry standards for
COJM." As stated above, these standards were adopted, in ruling
HQ 226100, for purposes of commercial interchangeability under
the amended section 1313(j)(2). These standards are as follows:
[Contract (1)] "U.S. Grade A" with a Brix value of not less
than 57 degrees having a Brix value to acid ratio of not
less than 14.0 to 1 nor more than 18.0 to 1 and a minimum
score of 94, with the minimums for the component factors
fixed at 37 for color, 37 for flavor and 19 for defects.
[Contract (2)] "U.S. Grade A" with a Brix value of not less
than 57 degrees having a Brix value to acid ratio of not
less than 13.0 to 1 nor more than 19.0 to 1 and a minimum
score of 92, with the minimums for the component factors
fixed at 36 for color, 36 for flavor and 19 for defects.
In a February 13, 1996, ruling (226444, copy enclosed), Customs
again addressed the commercial interchangeability of COJM. In
this ruling Customs held that there was not enough "clear and
probative evidence" to determine whether the imported and
substituted COJM were commercially interchangeable. The
information provided and described in the ruling included: (1) no
information regarding part numbers; (2) no information regarding
tariff classification; (3) evidence that the imported and
exported merchandise met USDA Grade A standards for COJM (see 7
CFR 52.1557) but no evidence is provided regarding the standards
of the Citrus Associates of the New York Cotton Exchange, Inc.
(see above); and (4) invoices (with unit prices) for the imported
merchandise ($.8066 to $.9786 per unit) and the exported
merchandise ($.84 per unit).
In this case, the tariff classification of the imported
merchandise is stated but that of the exported merchandise is not
stated. No evidence of cost or value is provided. No evidence
regarding part numbers is provided. It is stated that the
imported merchandise and the exported merchandise meet USDA Grade
standards for COJM and that the degrees Brix for the imported
merchandise is 65.5 to 66.5 degrees and that for the exported
merchandise is 64.5 to 66.5 degrees, but no evidence is provided
regarding the standards of the Citrus Associates of the New York
Cotton Exchange, Inc. (see above). Thus, substantially less
evidence is provided than in ruling HQ 226444, in which we found
that there was not enough "clear and probative evidence" to rule
on commercial interchangeability.
The same (as in ruling HQ 226444) is true in this case (i.e., we
are unable to conclude that the imported and substituted COJM are
commercially interchangeable for purposes of 19 U.S.C.
1313(j)(2)). For your information, based on the evidence
currently available to Customs regarding the commercial
interchangeability of COJM or FCOJ in bulk, for purposes of 19
U.S.C. 1313(j)(2) we are unable to find commercial
interchangeability to exist for imported and exported merchandise
outside the criteria described in ruling HQ 226100. That ruling
continues to be Customs position in this regard.
HOLDING:
Substitution unused merchandise drawback, under 19 U.S.C.
1313(j)(2), may not be granted in the situation described in the
FACTS portion of this ruling. There is insufficient evidence to
determine whether the imported and exported merchandise are
commercially interchangeable under section 1313(j)(2).
Sincerely,
William G. Rosoff
Acting Director
International Trade Compliance Division
Enclosures