DRA-4-RR:IT:EC 227080 IOR
Joel R. Junker, Esq.
Junker & Thompson
520 Pike Street
Suite 1510
Seattle WA 98101
RE: Reconsideration of HQ 226096 (February 14, 1996);
Ferrophosphorous; Unused substitution drawback; Commercially
interchangeable; 19 U.S.C. 1313(j)(2)
Dear Mr. Junker:
This office has received your request for reconsideration of
the above-referenced Headquarters Ruling (HQ). You have
requested that the terms of the contracts and pricing information
be granted confidentiality under Customs Regulations, 177.2(b)(7)
(19 CFR 177.2(b)(7). We have reviewed the request for
confidentiality and grant the request.
FACTS:
This ruling responds to a request for reconsideration of HQ
226096, dated February 14, 1996, issued by this office. The
inquirer, Continental Resources (hereinafter referred to as
"CR"), has submitted additional information with respect to the
relative value of the subject merchandise, as well as foreign
industrial standards for the merchandise and contract
requirements for the merchandise. The office of Laboratories and
Scientific Services has reviewed the additional information
regarding the merchandise and has provided a report dated March
3, 1997 (LSS report).
CR is an importer of ferrophosphorous. In its previous
ruling request, CR sought a ruling that the ferrophosphorous
imported from Kazakhstan is commercially interchangeable with
domestic ferrophosphorous exported from the United States. In
prior submissions on behalf of CR, we have received sample
domestic purchase invoices and chemical analysis, sample
consumption entries with chemical analysis, specifications on the
phosphorous and silicon content of the imported and domestic
merchandise, and information regarding the relative values of the
imported and domestic merchandise.
According to the specifications previously provided, for the
imported material the phosphorous content ranged from 23.87% to
26.83%, and the silicon content ranged from 1.12% to 2.72%. The
specifications listed for the exported ferrophosphorous are 25.2%
for phosphorous and 3.2% for silicon.
In HQ 226096, we ruled that the imported and domestic
ferrophosphorous was not commercially interchangeable for
purposes of 19 U.S.C. 1313(j)(2). The decision was based on the
factors set forth in Senate Report 103-189 explaining the change
in the standard for substitution drawback under 19 U.S.C.
1313(j)(2), as amended, from fungibility to commercial
interchangeability. Our findings on the factors were as follows:
1) Government and Recognized Industry Standards- Since there
are no government or industry standards for
ferrophosphorous, this criteria cannot be used to make the
commercial interchangeability determination. The commercial
standards contained in the technical literature, however,
would not preclude the imported and exported
ferrophosphorous from being considered commercially
interchangeable.
2) Part Numbers- No evidence has been submitted to suggest
that part numbers are applicable in this case.
3) Tariff Classification- The tariff classification would be
the same for both the imported ferrophosphorous and what is
stated to be the exported ferrophosphorous: subheading
7202.99.5020, Harmonized Tariff Schedule of the United
States (HTSUS).
4) Relative Values- a comparison, based on the information
submitted, shows the value of the imported merchandise
ranging from $120/MT to $142/MT and the value of the
domestic exported merchandise (excluding shipping costs) of
$71/MT. This difference in value of the imported and
domestic ferrophosphorous, therefore, differs from almost
70% to 100%. Clearly, this difference in value is too great
to conclude that the imported and domestic ferrophosphorous
is commercially interchangeable.
In your request for reconsideration you provided additional
information regarding the shipping costs of the exported and
imported merchandise, and you reiterated information submitted
previously regarding the manufacture of ferrophosphorous. You
submit that:
1) Ferro Phosphorous is a by-product of elemental
Phosphorous production by the electric furnace method. In
broad terms, Phosphate rock, Silica, and Coke are blended
and charged in electric furnaces which are of the submerged
arc type, which results in the production of Elemental
Phosphorous. Slag and Ferro Phosphorous are residual by-products of this primary production process.
2) Production of Elemental Phosphorous with resulting by-products takes place in the United states, in Western
Europe, in the CIS Republics, and in the People's Republic
of China.
***
8) Continental Resources imports Ferro Phosphorous from
Kazakhstan where it has a... contract with a phosphorous
producer. The phosphorous producer's identity changed with
the dissolution of the Soviet Union, and Continental
Resources' contract for supply changed from a single
contract to contracts with individual plants following
Kazakhstan's independence. ***
9) Ferro Phosphorous imported from Kazakhstan travels by
rail to a Baltic port, typically Ventspils, for ocean
transfer to Bremen or Rotterdam for further ocean
transportation to the United States. The delivery terms of
sale for Kazakhstan product will either be CIF Bremen or FOB
Ventspils with additional freight charges to Rotterdam or
Bremen.
10) Continental Resources has a ... contract for purchase of
U.S. Ferro Phosphorous from a supplier in Pocatello, Idaho.
[Citation omitted] Continental Resources' substitution
drawback claims are based on exports of domestic product
from this supplier. These exports took place out of the
Port of Vancouver, Washington.
You take the position that in HQ 226096, Customs compared
the price of the imported ferrophosphorous at the point of FOB
port of export, to the domestic product at the point of ex
factory interior U.S., and that Customs should have compared the
import at its FOB port of export cost with the domestic
merchandise's FOB port of export cost. You submit, with
supporting documentation, that the cost of rail freight,
stevedoring and inspection/surveys raised the price of the
domestic product. In addition you provided the shipping costs
from Ventspils to Bremen, per metric ton, and in order to arrive
at an accurate port of export price, subtracted the shipping
costs from the CIF Bremen prices. The remaining prices, which
are already FOB Ventspils would not need to be adjusted. Using
these adjusted figures, the lower priced imports are priced 7% to
18% higher than the domestic merchandise (FOB port of export
price) and the higher priced imports are 41% to 43% higher than
the domestic (FOB port of export price) merchandise. You state
that the differences in the price of the ferrophosphorous are a
natural and expected phenomenon for competing by-products of an
essentially identical character. You state that the factors
affecting price include the seller's profit expectation, normal
fluctuations of supply and demand, dissolution of the Soviet
Union and privatization of Kazakhstan production. You state that
the pricing patterns of the imported ferrophosphorous bear out
the foregoing, and demonstrate increases and decreases in the
price of the imports. The shipments upon which you rely are
contained in your Exhibit A, which consists of a chart of the
imports. The purchases do show some price fluctuation. In
addition, you take the position that straight price comparisons
alone are not a valid indicator of relative value in a by-product
market, and that such an analysis is inconsistent with
Congressional intent behind the "commercially interchangeable"
standard.
ISSUE:
Whether the imported and domestic ferrophosphorous is
commercially interchangeable for purposes of 19 U.S.C.
1313(j)(2)?
LAW AND ANALYSIS:
The drawback law was substantially amended by section 632 of
Title VI (Customs Modernization) of the North American Free Trade
Agreement (NAFTA) Implementation Act, Pub. L. 103-182, 107 Stat.
2057, 2192 (1993). As amended, 19 U.S.C. 1313(j)(2) provides
that drawback may be granted if, among other requirements, there
is, with respect to imported duty-paid merchandise, any other
merchandise that is commercially interchangeable with the
imported merchandise. To qualify for drawback, the other
merchandise must be exported or destroyed within 3 years from the
date of importation of the imported merchandise.
Consequently, the standard for substitution drawback under
19 U.S.C. 1313(j)(2), as amended, has been changed to commercial
interchangeability from fungibility. House Report 103-361 and
Senate Report 103-189 contain language explaining this change.
Concerning commercial interchangeability, Senate Report 103-189
states, at page 83, "[t]he Committee intends that, in determining
the commercial interchangeability of two articles, the Customs
Service should consider the following criteria, among other
factors: governmental and recognized industry standards, part
numbers, tariff classification, and relative values." The House
Report language explaining this change is very similar.
C.R. cites the Senate Report in support of its position that
the straight price comparison is a subjective standard which does
not take into consideration the nature of the product and its
market, in this case. In ruling on substitution drawback under
19 U.S.C. 1313(j)(2) since passage of the above-described
amendment to 1313(j)(2) by the NAFTA Implementation Act, Customs
has followed the legislative history quoted above, including
evaluation of the critical properties of the substituted
merchandise, using the criteria specifically listed by the House
and Senate Reports.
The analysis of two factors, part numbers and tariff
classification, is not at issue, and our findings from HQ 226096
remain as discussed in the FACTS section above. With respect to
governmental and recognized industry standards, as additional
information has been provided, the finding will be reconsidered.
Governmental And Recognized Industry Standards
In response to our request for information on how the
merchandise is bought and sold, we were provided with copies of
contracts which provided specifications for the ferrophosphorous.
Several of the contracts for the imported merchandise referred to
"OST 113-25-44-86." According to you OST refers to
specifications that are identical with GOST 113-25-44-86, which
are specifications from the Kazakhstan producer. You have not
provided any information as to the use of OST standards such as
the organization that developed the standards and Customs
scientists were unable to determine the origin of those
standards. As stated, the standards appear to be a company
specification rather than a government or recognized industry
standard. A company standard does not satisfy the criterion of a
government or recognized industry standard. However, in absence
of a government or recognized industry standard, Customs will
consider a match with the company specifications as evidence of
commercial interchangeability.
The OST specifications provide for four grades of
ferrophosphorous, which include specifications for phosphorous,
silicon, manganese and sulfur content. You have also provided a
contract for the export sale of ferrophosphorous , which provides
specifications with no reference to any standard. From review of
the specifications, it appears that the exported merchandise,
according to its test results, would not fall within the
requirements of any one of the four OST grades, and based on the
requirements specified, the export should have met the FF 20-6
OST Grade. The imports, based on either the requirements
specified in the contract or the test results, fall within the
following OST Grades:
Import Requirement Test
xxx-xxxx063-4 ----- FF 25-2
xxx-xxxx966-5 FF 25-1, 25-2 or 20-6 ------
xxx-xxxx695-8 FF 25-1, 25-2 or 20-6 FF 25-2
xxx-xxxx825-1 FF 25-2 fits within no grade
xxx-xxxx354-0 FF 25-2 ----
xxx-xxxx249-0 FF 25-2 ----
The LSS report states with respect to the OST specifications:
In our opinion, the grades provided by the applicant
are reasonable and can be used to differentiate between
various ferrophosphorous products. We believe that
substitution should be based on a grade for grade basis
(i.e. FF25-1 for FF25-1).
The imports are purchased by reference to OST standards, and
generally they appear to fit within the FF 25-2 Grade, either by
requirements or test results. The export however, is required to
meet the FF 20-6 Grade according to the contract, and by its test
results does not fit into any of the OST Grades. Therefore,
although the OST contract specifications may be sufficient as a
substitute for the criterion of a match by reference to
governmental and recognized industry standards, according to the
documents submitted, the imports do not match the export grade
for grade of ferrophosphorous.
Before HQ 226096 was issued, the evidence submitted was
reviewed by our office of Laboratory and Scientific Services. A
report was issued, dated October 31, 1995. In addition to the
portion of the report that was cited in HQ 226096, the report
also addressed the vanadium content of ferrophosphorous:
We note, that although ferrophosphorous is described in
the technical literature as "an alloy of iron and
phosphorous used in the steel industry for adjustments
of the phosphorous content of special steels", the
material is also used to recover metals such as
vanadium if in sufficiently high concentration. Mr.
Jerry Sproul of the FMC Corporation, a producer of
ferrophosphorous, has indicated that ferrophosphorous
material is also used in the recovery of metals such as
vanadium. Additionally, the technical literature also
states that "Valuable metals such as vanadium, can be
recovered economically from the ferrophosphorous if
they are present in unusually high concentrations.
Vanadium is recovered together with chromium by blowing
with oxygen."
Therefore, in certain instances (high vanadium and/ or
chromium content) the ferrophosphorous material is used
in the recovery of vanadium and chromium, instead of
being used in the adjustment of the phosphorous content
in special steels. The specification sheets provided
by the applicant are inconsistent in that the type of
elements tested vary for each shipment. Three of the
four specification sheets for the imported
ferrophosphorous do not list the vanadium or chromium
content. One of the imported ferrophosphorous
specification sheets list the vanadium and chromium
content as 0.30% and 0.37% respectively. However, from
the compositional breakdown listed in the specification
sheets we can conclude that the vanadium and chromium
concentrations of the imported ferrophosphorous are
much lower than the domestic ferrophosphorous, which
are listed as 4.71% vanadium and 4.04% chromium.
Additionally, Mr. Sproul (FMC Corporation) has
indicated that past usage of ferrophosphorous for
vanadium recovery was usually in the range four to five
percent vanadium.
Summary:
In our opinion, the imported and domestic
ferrophosphorous are not commercially interchangeable.
The imported product appears to be suitable for use
solely in the production of special steels (addition of
phosphorous), whereas the domestic merchandise may be
used for vanadium recovery or as a source of
phosphorous (special steel). Therefore, the imported
and exported merchandise listed by the applicant may
not be commercially interchangeable in all instances
for purposes of 1313(j)(2). (Emphasis supplied).
In the LSS report, of March 3, 1997, the vanadium content of
the merchandise was addressed again:
The vanadium content of the imported and domestic
ferrophosphorous, however, is a subject of concern.
Vanadium is a metal of commercial importance. The
specification (113-25-44-86) provided in the proposed
contract does not include specifications for vanadium,
although it is listed (when applicable) in the shipment
invoices. The domestic ferrophosphorous which is mined
in Idaho, contains a high vanadium content (designated
export merchandise). The exported ferrophosphorous is
a vanadium rich product that can be used for vanadium
recovery, whereas the imported ferrophosphorous
contains little or no vanadium. Therefore the imported
ferrophosphorous cannot be used for vanadium recovery.
The applicant indicates that ferrophosphorous is being
used for the addition of phosphorous to steel. Steel
may or may not require the addition of phosphorous,
depending on the grade of steel being manufactured. A
researcher with U.S. Steel has indicated his opinion
that the content of vanadium (4-5%) in ferrophosphorous
should not really matter since the vanadium also has a
strengthening effect on steel. This is especially true
for certain low carbon steel grades. Therefore, it
appears that the vanadium content of the exported
ferrophosphorous would not preclude its use as an
additive in steel.
Mr. Mark Wolff of Continental Resources states that
both the domestic and imported ferrophosphorous are
used domestically for the production of steel.
However, since the price of vanadium has risen, there
is concern as to whether the exported material (high
vanadium content) will be used for vanadium recovery,
instead of being added to steel for strengthening
purposes.
The difference in vanadium content and the failure of the
imports and exports to fall within the grade-for-grade criteria
of the OST specifications you provided indicate that the
criterion of a match within a government or recognized industry
standard has not been met by the imports and exports. Based on
the information available, we believe that an import and export
that met a grade-for-grade OST specification and had less than 4%
vanadium or chromium content would satisfy the criterion.
Relative Value
With regard to the relative value analysis, we disagree with
CR's position that the prices upon which the relative value
determination is based should be adjusted as set forth by CR.
The applicable provision of the drawback statute, 19 U.S.C.
1313(j)(2), requires that the comparison be made between the
designated import and the export:
...with respect to imported merchandise on which was
paid any duty,...any other merchandise...that is
commercially interchangeable with such imported
merchandise...is...either exported or destroyed....
Nothing in the statute or legislative history compels the
comparison of any values other than the import value shown on the
entry documents and the export value which should also be the
value reported to Census on the Shipper's Export Declaration and
which is used for trade statistics. However, Customs can only
make such comparisons when the facts are made available to it.
Customs will make a relative value analysis based on the
information provided by the drawback claimant. A ruling request
must set forth all relevant facts. See, Customs Regulations,
177.2(b)(1), (2) and (4). There is no congressional direction
for Customs appraisement of the export article. The sales
documents to the overseas customer should suffice. If
insufficient information is provided, Customs may be precluded
from making a finding of commercial interchangeability. Written
statements made by counsel, without supporting evidence are not
sufficient.
Where Congress wanted complicated appraisement to be done,
it provided for that appraisement in the statute. By way of
comparison, unlike the simple use of the relative value criterion
without more in the committee reports, Congress provided explicit
valuation comparison criteria for dumping duties. See, 19 U.S.C.
1675a, 1677a and 1677b.
Our decision on the relative value criterion remains
unchanged from that set forth in HQ 226096, supra, and that
decision is incorporated herein.
In this case, without meeting the OST specification grade
for grade, without a vanadium or chromium content of less than 4%
and without additional evidence regarding the relative values, we
cannot find that the criteria are met in order to establish
commercial interchangeability of the subject merchandise.
HOLDING:
The imported and domestic exported ferrophosphorous is not
commercially interchangeable for purposes of the substitution
unused merchandise drawback law under 19 U.S.C. 1313(j)(2).
Sincerely,
Director,
International Trade
Compliance Division