DRA-4 RR:CR:DR 227491 CB
Port Director
U.S. Customs Service
610 South Canal Street, Room 602
Trade Compliance- Protest Section
Chicago, ILL 60607
Attn: Patricia D. Moore
RE: Application for further review of Protest No. 3901-97-100320; 19 U.S.C. 1313(j)(2);
Unused Merchandise Drawback; Commercial Interchangeability; Fresh
Asparagus
Dear Sir:
The above-referenced protest was forwarded to this office
for further review. In addition to the Memorandum of Law
(hereinafter "Memorandum") submitted with the protest, protestant
has made two written submissions, dated October 30, 1997 ("the
October submission"), and May 21, 1998 ("the May submission").
Additionally, at protestant's request, a meeting was held on
February 27, 1998. We have considered the evidence provided, and
the points raised, by your office and the protestant. Our
decision follows.
FACTS:
According to protestant, it imported into the United States
certain fresh asparagus grown in Mexico. Protestant claims that,
in its imported condition, the Mexican asparagus conforms to
United States Department of Agriculture Grade U.S. No. 2 or
better. According to protestant, the asparagus is imported in
the form of stalks which are fresh, well-trimmed, relatively
straight and not badly misshapen. The asparagus stalks are free
from decay, and free from serious damage caused by spreading or
broken tips, dirt, disease, insects or other means. Protestant
further states that the imported asparagus stalks were entered in
lengths of approximately 5 1/2, 7 1/2, or 9 1/2 inches, and were
green in color along at least one-half of the stalk length. The
imported designated asparagus is machine-trimmed using a bandsaw
(with the cut generally perpendicular to the length of the
stalk), and packaged in wooden "diamond-shaped" crates.
Furthermore, the asparagus has been hydrocooled prior to packing
to help preserve its freshness during transport. During the
February 27, 1998, meeting protestant's representatives stated
that after it is imported the asparagus is sorted according to
label. According to protestant, the labels are used to identify
who the asparagus was sold to and its destination. Per
protestant, the different labels do not designate quality.
According to protestant, the exported, substituted asparagus
was grown in the State of Washington. After harvesting, it is
also hydrocooled to preserve its freshness during transport. The
exported asparagus is packed in open-topped plastic bins, and
loaded on refrigerated trucks for immediate transportation to
Canada. The substituted asparagus is trimmed in the field twice.
According to protestant, this asparagus is initially harvested
with a field implement, which cuts the asparagus spears at the
base by a pushing action at a downward angle. This initial
cutting yields an asparagus spear which is sometimes referred to
as "field run" asparagus. At protestant's instructions, the
harvester then uses the sharp knife side of the harvesting
implement to cut the butt of the asparagus spear a second time,
at an angle perpendicular to the length of the spear. This
produces a cut which is usually as straight as that accomplished
with the bandsaw. Furthermore, protestant asserts that all of
the exported substituted asparagus is USDA Grade 2 or better.
The asparagus is fresh, well trimmed, and free from defects such
as decay, broken or missing tips, spreading or flowered tips,
dirt, sand, and the like. The exported asparagus is cut in
varying lengths, but most stalks generally measure about 9 1/2
inches in length.
Protestant states that the asparagus was exported to Canada
in fresh condition. In Canada, the asparagus was generally
processed by canning or vacuum-packing jars. Protestant asserts
that, in its condition as exported, the asparagus would have been
suitable for use in fresh asparagus markets as well. Protestant
further asserts that part of each year's Washington State fresh
asparagus harvest is so used. Per protestant, the decision to
preserve the asparagus spears is a function of seasonal supply
and demand in the marketplace, and not the result of any
differences in quality between the designated and substituted
asparagus. According to protestant, asparagus grown in Mexico is
generally harvested earlier in the year (January or February) and
it is generally used for the fresh asparagus market because there
is generally a shortage of fresh merchandise in that market when
the Mexican harvest takes place. United States asparagus is
generally harvested later in the year. Protestant states that
because there is generally an abundance of fresh asparagus in the
marketplace at this time, a substantial percentage of the
domestic asparagus crop is generally canned, vacuum-packed in
jars, or otherwise processed into forms having a long shelf life.
Finally, protestant asserts that there is only one single type or
variety of asparagus. Both the imported and exported asparagus
are of the same genus, species and variety.
We note that none of protestant's assertions are
substantiated by documentary evidence. More specifically,
grading certificates were not provided for the imported asparagus
or the exported asparagus. The question of whether the imported
and substituted asparagus was fungible was the subject of an
internal advice (HQ 224068, dated July 31, 1992). It was
determined that the imported fresh asparagus and "field run"
asparagus was not fungible for substitution same condition
drawback purposes. This determination was based on the fact that
substitution had not been based on a grade for grade basis, and
that the imported and exported merchandise had to be subjected to
the same processing and packaging procedures. The drawback was
denied on the entries which are the subject of this protest for
failure to supply the information requested by Customs in order
to determine commercial interchangeability. Specifically, by way
of a letter dated February 22, 1996, protestant was requested to
provide copies of the following:
Import Shipments: Exports to Canada:
Import Entries and invoices Canada Entry Documents
Purchase contracts Grading Certificates
Grading certificates for imports Sales Documents to the
Canada Buyers
Furthermore, drawback was also denied because examination of the
exported merchandise was required. Protestant exported the
subject merchandise prior to its being examined by Customs.
ISSUE:
Is there authority to grant the protest of denial of
drawback in this case?
LAW AND ANALYSIS:
Initially, we note that the protest was timely filed under
the statutory and regulatory provisions for protests (see 19
U.S.C. 1514 and 19 CFR Part 174). The claims were liquidated on
December 20, 1996, without drawback and the subject protest was
filed on January 27, 1997.
We also note that the refusal to pay a claim for drawback is a
protestable issue (see 19 U.S.C. 1514(a)(6)).
The drawback law was substantively amended by section 632,
title VI- Customs Modernization, Pub. L. 103-182, the North
American Free Trade Agreement (NAFTA) Implementation Act (107
Stat. 2057), enacted December 8, 1993. Title VI of Public Law
103-182 took effect on the date of enactment of the Act (section
692 of the Act). Except for 19 U.S.C. 1313(p), according to the
applicable legislative history, these amendments to the drawback
law (19 U.S.C. 1313) are applicable to any drawback entry made
on or after the date of enactment as well as to any drawback
entry made before the date of enactment if the liquidation of the
entry is not final on the date of enactment (H. Rep. 103-361,
103d Cong., 1st Sess., part I, page 132 (1993)); S. Rept. 103-189, 103d Cong., 1st Sess., page 84-85 (1993)). The amendment to
the drawback law precluding the applicability of section
1313(j)(2) for the exportation to a NAFTA country (section
203(c)(2), title II, Pub. L. 103-182 (107 Stat. 2057, 2092))
is effective upon the entry into force of the NAFTA (January 1,
1994) (i.e., effective for exportations to a NAFTA country after
January 1, 1994). The exports covered by this protest were all
prior to January 1, 1994. Thus, the limitation on substitution
same condition drawback is not applicable to these claims.
Generally, under 19 U.S.C. 1313(j)(2), as amended, drawback
may be granted, if there is, with respect to imported duty-paid
merchandise, any other merchandise that is commercially
interchangeable with the imported merchandise and if the
following requirements are met: (1) the other merchandise must
be exported or destroyed within 3 years from the date of
importation; (2) the substituted merchandise may not have been
used in the United States; and (3) it must have been in the
possession of the drawback claimant. Before its amendment by
Pub. L. 103-182, the standard for substitution was fungibility.
House Report 103-361, 103d Cong., 1st Sess., 131 (1993) contains
language explaining the change from fungibility to commercial
interchangeability. According to the House Ways and Means
Committee Report, the standard was intended to be made less
restrictive, i.e., "the Committee intends to permit substitution
of merchandise when it is commercially interchangeable,' rather
than when it is commercially identical'" (the reference to
"commercially identical" derives from the definition of fungible
merchandise in the Customs Regulations (19 CFR 191.2(1)). The
Report, at page 131, also states:
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 industry standards, part
numbers, tariff classification, and relative values.
The Senate Report for the NAFTA Act (S. Rep. 103-189, 103d
Cong., 1st Sess., 81-85 (1993)) contains similar language and
states that the same criteria should be considered by Customs in
determining commercial interchangeability.
The decisive issue in this protest is whether the exported
merchandise was commercially interchangeable with the imported
merchandise. In order to determine whether the asparagus is
commercially interchangeable, an analysis of the following
factors must be done:
Part Numbers
Protestant asserts that "[i]n commercial practice, there are
no part numbers assigned to either the imported or exported
products. Accordingly, this commercial interchangeability'
factor does not, strictly speaking, apply." Memorandum at page
25. However, protestant goes on to note that the same product
code is assigned to both the domestic and Mexican asparagus. By
way of a letter dated August 25, 1997, we requested
representative samples of protestant's inventory records which
illustrate how and for what purpose the product code is used. In
its October submission, protestant replied that it does not
maintain inventory records. An explanation as to how the
product code is used was not provided.
Additionally, during the February conference, protestant's
counsel indicated that the asparagus is sorted according to
labels (i.e., blue label or red label). The label is used to
identify to whom the imported asparagus is sold. This sorting is
done after importation. We requested documentary evidence to
substantiate this assertion. In response, protestant's counsel
submitted a copy of an unsigned letter (dated July 16, 1992) from
counsel to protestant which contains legal conclusions that the
"red" and "blue" label asparagus are fungible. However, there is
no documentary evidence showing the use of the different labels.
The courts have held that counsel's bald assertions, without
supporting documentary evidence, is not sufficient to overturn a
Customs official's decision. See Bar Bea Truck Leasing Co. Inc.
v. United States, 5 CIT 124, 126 (1983).
Thus, in the absence of any documentary evidence, we are unable
to make a determination regarding this criterion.
Tariff Classification
Protestant asserts, in the memorandum of law attached to the
CF 19, that both the imported and exported asparagus are
classifiable under subheading 0709.20.90, of the Harmonized
Tariff Schedule of the United States (HTSUS). Further, that the
HTSUS does not differentiate fresh asparagus on the basis of
size, grade, or any other criterion. This assertion is
incorrect. There is a difference between asparagus which is not
reduced in size and entered between September 15 and November 15
(classifiable under subheading 0709.20.10, HTSUS), and other
asparagus (classifiable under subheading 0709.20.90, HTSUS).
During the conference held on February 27, 1998, protestant
asserted that it does not enter asparagus between September 15
and November 15. This assertion is correct only with respect to
the entries covered by this protest. We note that there is
evidence contained in the protest file with respect to entries
covered by other protests indicating that protestant did enter
asparagus between September 15 and November 15.
Thus, with respect to this protest, the tariff
classification does not appear to be a determinative criterion
because all of the merchandise has the same tariff
classification.
Relative Values
Customs application of this criterion has been to compare
the value or cost of the imported merchandise and that of the
substituted exported merchandise (as stated on import and export
documents, contracts, and related documents).
Protestant asserts that the price of asparagus is determined
by factors such as the size of the crop, the point in season when
the asparagus was harvested, and, the exchange rate between the
dollar and the foreign currency. Moreover, prices can vary on a
monthly, weekly, daily and even hourly basis. Protestant goes on
to assert that prices for asparagus are often based upon pricing
formulas. For example, some contracts call to purchase asparagus
on a "7 inch" or "5 inch" basis. However, according to
protestant, this does not mean that the asparagus will be cut to
length prior to delivery to the customer. This only means that
the price is based on a per-inch price for the first 5 or 7
inches of the spear. The seller may in fact deliver a longer
stalk to the buyer. The processing is subsequently performed by
the buyer.
At this office's request, protestant has submitted copies of
four representative contracts, both for imports and exports. The
first sample contract covering the imported asparagus is with
Empacadora GAB and covers the period June 1, 1988 through May 31,
1993. The imports covered by this protest fall within this time
frame. The contract includes a "base price per crate" for the
1988 growing season and provides for adjustments for subsequent
years. Additionally, the contract also includes a net profit
sharing agreement. There is no indication on the face of the
document that prices are tied to supply and demand. The second
contract, between protestant and Lee Brands, appears to cover
imported canned asparagus. Thus, it is not relevant to this
protest. One of the sample contracts covering the substitute
asparagus is entitled "1992 Fresh Asparagus Contract." While
this contract covers most of the exports subject to this protest,
twelve (12) of the claims are for exports in 1993. Thus, the
sample contract is not applicable to those 12 claims.
Nonetheless, this contract was provided as evidence of
protestant's price structure. Upon review of the document we
note the following: (1) the protestant's name does not appear
anywhere on the face of the contract and there is no explanation
as to whether the named company is related to protestant or as to
why this contract is relevant to this protest; (2) the document
is unsigned and undated; and (3) the contractor is not
identified. Therefore, this document has no evidentiary value.
Nonetheless, we note that compensation is on the basis of daily
fresh posted prices. The fourth contract (the "Mojonnier"
contract) also appears to pertain to the substitute asparagus.
This contract provides for the payment of a flat percentage of
the gross margins. Thus, this contract does not provide any
guidance on the issue of relative values.
Other documentary evidence submitted by protestant, attached
to the protest, includes one sample drawback entry. We note that
this drawback claim is not one of the claims covered by this
protest. Attached to that entry is a copy of invoice no. 2201A,
dated September 20, 1992. Said invoice includes a charge of
$7.50 per unit for 560 crates of green asparagus and $6.50 per
unit for 880 crates of asparagus. There is no reference in the
invoice to a "per-inch" price. Nor is there any explanation for
the difference in pricing. Additional documentation was included
in the May submission. However, the additional invoices are
deficient. In the transmittal letter counsel includes a
narrative explaining that the exports are priced per pound
whereas the imports are on a per kilo basis. We are unable to
confirm these assertions. The invoices (3) provided in the May
submission are partially covered. Thus, we are unable to
determine what is covered by these invoices. We also note that
the sample drawback claim submitted is not one of the claims
covered by this protest.
We have previously held that large disparities in the
relative values of the export and import are not determinative,
as a criterion, when the difference appears to be due solely to
the market forces of supply and demand at the time of purchase
rather than attributable solely to any difference in the quality
of the imported or exported merchandise. See HQ 226074, dated
September 29, 1995, and HQ 225493, dated July 19, 1995. However,
in the instant case, we conclude that a definitive assessment of
the relative values of the asparagus cannot be made due to a lack
documentary evidence. During the February 27, 1998, meeting,
this office requested that protestant provide copies of industry
newsletters or reports which supported protestant's assertion
that the difference in relative values were the result of supply
and demand. Protestant has failed to provide such evidence. We
also note that, in the May submission, counsel refers to
statistics prepared by the United States Department of
Agriculture, Natural Agricultural Statistical Service. However,
copies of these statistics were not provided. Counsel merely
summarizes the information.
Thus, in regard to this criterion, we do not have the
necessary evidence (e.g., entry and export documents, contracts,
and similar documents). The evidence necessary for a comparison
of relative values should be in your office. If you are
satisfied that the range in values of the imported and exported
merchandise results solely from market forces, the fact that
there is a wide range would not be fatal to commercial
interchangeability. If you have doubt as to this matter (i.e.,
if you believe the relative values differ so greatly as to
preclude commercial interchangeability), you may use random
sampling methods for verification of this issue.
Governmental and Recognized Industry Standards
The Customs Service has consistently applied the standards
of quality grades of the U.S.D.A. as guidelines when determining
fungibility of graded agricultural products. These standards are
considered as the applicable governmental standards to determine
commercial interchangeability of agricultural products when the
claimant's transaction evidence shows that those standards are,
in fact, used by the claimant.
Protestant asserts that its contract specifications for
both the imported and exported asparagus require that it be of
"USDA Grade 2 or better". However, the vast majority of its
imported and exported asparagus qualified as USDA Grade 1, while
the remainder (about 10% of total) qualified as USDA Grade 2. To
date, protestant has not provided copies of the grading
certificates which were requested by Customs in February, 1996.
Nonetheless, protestant continues to assert that its imports and
exports met the same USDA standards. Protestant contends that HQ
224068 should be disregarded because, among other reasons, it
concluded that there was no evidence to show that the designated
and substituted asparagus was fungible on a grade-for-grade
basis. Protestant asserts that the only reason there was no
evidence is that the investigating agent elected not to look for
any. See Protestant's Memorandum at page 36, dated January 15,
1997. However, as noted above, that evidence is still missing
even though protestant has been provided ample opportunity to
produce the certificates.
As stated above, Customs has consistently held that
substitution of agricultural products must be on a grade-for-grade basis for purposes of 19 U.S.C. 1313(j)(2). See HQ
224659, dated October 19, 1993; HQ 222812, dated May 10, 1991;
and HQ 224223, dated July 26, 1993. There is no documentary
evidence in this protest record, other than protestant's self
serving assertions, that the imported designated and substitute
exported asparagus were substituted on a grade-for-grade basis.
The record does not contain any evidence that protestant
purchased or sold fresh asparagus according to a USDA grade. In
its Memorandum of Law Protestant included, as one of its
exhibits, a copy of its contract specifications for fresh
asparagus. The specifications for its No. 1 Fresh Asparagus are
as follows:
Asparagus will consist of stalks which are fresh and free
from significant levels of decay, disease, etc.; stalks
shall be a minimum of 5«" long and not less than 3/16 inch
in diameter; at least 66% of the stalk shall be green; the
stalks should not be badly misshapen
and may have open heads if they are not too serious; and
branches should not be spread nor larger than « inch.
However, the sample contracts and invoices submitted by
protestant do not reflect the use of these specifications. More
specifically:
1. Empacadora GAB contract: provides that all fresh asparagus
sold to protestant shall be in accordance with the Quality
Assurance Agreement incorporated into the contract. It further
provides that protestant shall be supplied "fresh asparagus,
trimmed and processed, and fit for sale in wholesale and retail
markets." The agreement attached to the contract includes a
section titled "Specifications" and within this subsection the
specifications that are listed are: ingredient specification,
packaging material specifications, testing procedures, and
product specifications. The only information included under
"product specifications" is "Fresh Asparagus: bulk, banded
bunched."
2. Lee Brands contract: as stated above, this contract pertains
to canned asparagus. Nonetheless, we note that this contract
provides that all canned asparagus must meet the quality
specifications set forth in an attachment. However, protestant
may, at its option, accept asparagus not meeting such
specifications for sale under a different label. We also note
that the attached finished product specifications are incomplete.
The pages are labelled 2 of 3, and 3 of 3. Page 1 of 3 appears
to be missing.
3. 1992 Fresh Asparagus Contract: as stated above, protestant
has not provided any explanation as to the relevance of this
contract to the subject protest. We do note that this contract
has its own specifications attached to it which are different
than those provided by protestant. We also note that this
contract provides for the purchase of "culls and trim" if there
is a market available.
4. The Mojonnier contract: this contract does not set forth or
incorporate by reference any specifications.
Thus, there is no evidence in the record to show that protestant
followed either its own product specifications or the USDA
grading standards. In the absence of the grading certificates
referred to by protestant, we are unable to conclude that
substitution of the fresh asparagus was on a grade-for-grade
basis under the USDA grading standards.
To summarize, after evaluating all the relevant criteria
suggested by the legislative history, we find that commercial
interchangeability of the asparagus has not been established
because protestant has failed to provide the necessary
documentary evidence required to make a commercial
interchangeability determination.
Issue #2: Failure to Give Notice
Previously, protestant had been granted a waiver of prior
notice of intent to export. This privilege was revoked and later
reinstated for all products other than fresh asparagus. By way
of a court order, issued by the Court of International Trade,
dated May 4, 1993, protestant was required to make any export
shipment available for examination by Customs prior to
exportation.
After reviewing the documentary evidence in the file, we
note that the protest work sheets prepared by your office
indicate that ninety-nine (99) claims are covered by this
protest. Of those 99 claims, eighty-four (84) are based on
exportations which occurred prior to suspension (the notice is
dated November 3, 1992) of protestant's use of ESP and waiver of
prior notice of intent to export. The other (fifteen) 15 claims
were based on exportations subsequent to suspension of the waiver
of prior notice. Of those 15 claims, seven (7) were exported
subsequent to the CIT's order requiring that export shipments be
made available to Customs for examination. Thus, those 7 claims
were properly denied for failure to comply with the Court's
order.
HOLDING:
There is insufficient evidence to find that the imported
asparagus, and the substitute exported asparagus were
"commercially interchangeable". Accordingly, the subject protest
should be DENIED.
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, with
the Customs Form 19, to the protestant no later than 60 days from
the date of this letter. Any reliquidation of the entry in
accordance with the decision must be accomplished prior to
mailing of the decision. Sixty days from the date of the
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 the public via the Diskette
Subscription Service, Freedom of Information Act, and other
public access channels.
Sincerely,
Stuart P. Seidel
Assistant Commissioner
Office of Regulations & Rulings