DRA-4-RR:IT:EC 227553 LTO
Ms. Brenda L. Sweetman
Comstock & Theakston, Inc.
466 Kinderkamack Road
Oradell, New Jersey 07649
RE: Substitution unused merchandise drawback; 19 U.S.C.
1313(j)(2); commercial interchangeability; part numbers;
catalog numbers; chemicals; chemical grades
Dear Ms. Sweetman:
This is in reference to your letter dated May 15, 1997, on
behalf of Aldrich Chemical Company, Inc., regarding the
commercial interchangeability of certain imported and substituted
chemicals under 19 U.S.C. 1313(j)(2).
FACTS:
Aldrich imports a vast number of laboratory chemicals
manufactured by and purchased from companies around the world.
Everything purchased by Aldrich, whether imported or sourced
domestically, is identified by catalog number, as found in the
Aldrich Catalog Handbook of Fine Chemicals 1996-1997 (United
States), which you submitted with your request. Each catalog
number is unique to a certain chemical, regardless of its origin.
Thus, you propose to substitute, for drawback purposes, catalog
number for catalog number (i.e., D10,220-2 for D10,220-2;
"D10,200-2" refers to "l,4-Difluorobenzene").
Each catalog reference includes the name of the chemical and
a detailed description. The description for D10,200-2 includes
the chemical purity (99+%); Chemical Abstracts Service Registry
Number (CAS number), which is described in detail below (540-36-3); molecular weight based on the combined weights of the atoms
within the molecules (114.09); melting point (-13 degrees C; C
refers to crystalline/liquid phase line of the product); boiling
point (88-89 degrees, in degrees C at 760mm pressure); index of
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refraction (1.4410 for the sodium D line at 20 degrees C);
density of liquid (1.110); flash point (36 degrees Fahrenheit/2
degrees C); reference to Beilsteins Handbuch der Organischen
Chemie (5,199); reference to the Merck Index (11,3132);
references to various Aldrich Library publications (i.e., "FT-IR
l(1),988A" refers to the page location of the spectrum in The
Aldrich Library of FT-IR Spectra, while "SI 180,B,7" refers to
the location of the product's structure in the Aldrich Structure
Index); reference to the Registry of Toxic Effects of Chemical
Substances (RTECS# CZ5658000); and the chemical's hazardous
properties (FLAMMABLE LIQUID). Each catalog reference also
includes a unit price (25 grams at $49.15, 100 grams at $135.55--these prices reflect the cost of 25 and 100 grams of D10,220-2
when sold domestically; Aldrich has approximately 15 catalogs
which list different prices, which reflect factors such as the
cost of export, depending on where the chemicals are sold). You
state that because Aldrich prices by catalog number, "the
imported and domestic merchandise sell for the same price."
Regarding the CAS numbers, you state that they provide a
"precise means of substance identification used worldwide." They
are described in the catalog as follows:
[CAS numbers] are unique numerical code numbers
assigned to chemical substances indexed by [the]
Chemical Abstracts [Service]. These numbers are a
precise means of substance identification used
worldwide.
Based on atoms [contained in the compound], valence
bonds, and stereochemistry each number [generally] designates only one substance (calculated from its description in the original literature) and is an
efficient means of structure identification which is independent of nomenclature.
All the chemical substances which have been reported in
the chemical literature, and which have been indexed in Chemical Abstracts since January 1965, have been
assigned a Registry Number. The Registry Number
appears in CA volume indexes, regular issues, and in
CAS computer-readable files. They may also be found in various chemical journals, handbooks, and catalogs, in
the CAS on-line chemical structure display system, and
in a large number of non-CAS commercial databases and handbooks. Substances new to the system are now being registered at the rate of about 700,000 per year.
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While there may be variances in purity within a given CAS
number, you state that there are several examples in the catalog
where a chemical with the same name and CAS number has more than
one catalog number, denoting a difference in purity. For
example, "Acetic acid, sodium salt trihydrate" has two catalog
references (43,143-5 and 23,650-0) indicating a difference in
purity (99.99+% and 99+%, respectively), but only one CAS number
(6131-90-4).
You have provided sample import invoices, export invoices,
and purchase and/or sales orders, for five chemicals. You claim
that these five examples are representative of commercial
transactions involving the Aldrich catalog, which lists
approximately 37,000 products. As the representative
documentation only relates to transactions involving chemicals,
this ruling will not discuss the commercial interchangeability of
any other products listed in the catalog (i.e., balances, books,
batteries).
ISSUE:
Whether the substituted chemicals are commercially
interchangeable with the imported chemicals, where each has the
same catalog number.
LAW AND ANALYSIS:
Under 19 U.S.C. 1313(j)(2), as amended, 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. Also, before the exportation or
destruction the other merchandise may not have been used in the
United States and must have been in the possession of the
drawback claimant. Further, the party claiming drawback must be
either the importer of the imported merchandise or have 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.
The drawback law was substantively amended by section 632,
title VI - Customs Modernization, Public Law 103-182, the North
American Free Trade Agreement Implementation Act (107 Stat.
2057), enacted December 8, 1993. Before its enactment by Public
Law 103-182, the standard for substitution was "fungibility."
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House Report 103-361, 103d Cong., 1st Sess., 131 (1993), contains
language explaining the change from fungibility to commercial
interchangeability as the standard for substitution for drawback
under 19 U.S.C. 1313(j)(2). According to the House Ways and
Means Committee Report (at page 131), the standard was intended
to be made less restrictive (i.e., "the Committee intends to
permit the 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 industrial 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.
You propose to substitute "catalog number for catalog
number." To do so, you must satisfy the above-listed criteria.
The catalog numbers, which provide a detailed description of the
referenced chemical (as listed in the FACTS section of this
ruling regarding "l,4-Difluorobenzene"), may be used to satisfy
the part numbers criterion if use of these numbers is reflected
in a commercial transaction involving the import and export of
the chemical in question. We note, however, that the use of the
same part numbers for the imported and substituted product does
not necessarily lead to a finding that the products are
commercially interchangeable--part numbers are only a factor in
that determination.
You have provided sample documentation reflecting commercial
transactions involving the following chemicals (catalog number in
parentheses): 1,4-Difluorobenzene (D10,220-2); (S)-(+)-à-Methoxyphenylacetic acid (24,898-3); 1-Isoquinolinecarboxylic
acid (15013-4); 2,5-Dimethoxytetrahydrofuran (D13,710-3); and m-Terphenyl (T300-9). We will describe the documentation provided
for the 1,4-Difluorobenzene, which is similar to that provided
for the other chemicals.
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The import documents include a purchase order (879932),
dated January 9, 1997, an invoice (650875), dated February 5,
1997, CF 7501 (entry summary), CF 3461 (entry/immediate delivery)
and ABI entry screen. The purchase order indicates that ten
kilograms of "l,4-Difluorobenzene, 99+%" were ordered by Aldrich
from Sigma-Aldrich Company Ltd. (England). The purchase order
references the catalog number (D10,220-2) and unit price. The
invoice from Sigma-Aldrich lists the sale of 9,970 grams [9.970
kilograms] of 1,4-Difluorobenzene, 99+% (D10,220-2) to Aldrich.
The invoice references the January 9 purchase order (879932) and
lists the total price of the transaction. A Customs entry status
report, which also references the purchase order indicates that
9.970 kilograms of 1,4-Difluorobenzene, 99+% (D10,220-2), was
entered on February 19, 1997. The classification of this
chemical is listed on the CF 7501, CF 3461 and ABI entry screen
as subheading 2903.69.70, Harmonized Tariff Schedule of the
United States (HTSUS), which provides for other halogenated
derivatives of aromatic hydro-carbons.
We note that the CF 7501 lists the net weight of the
merchandise classified under this subheading as 13 kilograms.
This differs from the above-listed weight of the 1,4-Difluorobenzene, 99+% (D10,220-2), because two other chemicals
were imported at the same time and were classified upon entry
under the same subheading.
Aldrich also keeps internal records that track purchases by
vendor, lot and purchase order. Each report lists the chemical
by catalog number. An "accounts payable" record, which lists the
transaction by invoice and purchase order, does not mention the
chemical by name or catalog number.
The export documents include a purchase order (43630), dated
May 19, 1997, a shipping order (122007), dated May 20, 1997, an
invoice (122007), dated May 22, 1997, an air waybill (10327569)
and a product sales history. The purchase order indicates that
25 grams of catalog number D10,220-2, along with many other
chemicals listed by catalog number, were ordered by Kokusai
Kinzoku Yakuhin Co. (Japan) from Aldrich. The shipping order and
invoice list the sale of 25 grams of D10,220-2 to Kokusai. The
shipping order, invoice and air waybill list Kokusai's account
number. The product sales history references the sale by account
number, invoice number, date, quantity, unit size, unit price and
sales price.
As the catalog numbers are, in fact, used in commercial
transactions involving the purchase and sale of the chemicals in
question, we find that the catalog can be used to satisfy the
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part numbers criterion for the five chemicals in question.
With regard to the Governmental and recognized industrial
standards criterion, you state that "[a]ny such standards
necessarily would be determined on the basis of the chemical's
purity, but the chemical industry has not promulgated recognized
standards for chemicals, as the degree of the chemical's purity
will depend upon the purchaser's particular requirements." You
further state that you "are not aware of any additional
Governmental standards."
However, chemicals generally must be of the same commercial
or industrial chemical grade (i.e., technical grade, high purity
grade, research grade) to be considered commercially
interchangeable. While the five chemicals under consideration
are not associated with chemical grades, several catalog numbers
list chemicals that encompass more than one chemical grade. For
instance, the catalog lists four separate grades of benzyl
alcohol (see 27,801-7, 36,299-9, 38,647-2, 30,519-7, 40,283-4,
B1,620-8 and 10,800-6), while industry recognizes seven different
grades, including a chlorine free grade. The catalog listing of
99+% benzyl alcohol (B1,620-8), for instance, crosses three
different chemical grades. Thus, a catalog number for catalog
number substitution of B1,620-8 would be outside the criterion of
Published industrial standards, which Customs is required to
consider.
Where chemicals are not associated with chemical grades
(like the five under consideration), it is necessary to determine
whether the Provided specifications are sufficient to establish
commercial interchangeability. Regarding the specifications for
the imported and substituted D10,220-2, the only possible
(significant) differences between the two is in purity--one could
be 99 percent pure, while the other could be greater than 99
percent pure (one may also have a boiling point of 88 degrees,
while the other may have a boiling point of 89 degrees). Because
of minimum purity tolerances and melting and/or boiling points,
similar differences can be found in the specifications listed in
the catalog for the (S)-(+)-à-Methoxyphenylacetic acid, 1-
Isoquinolinecarboxylic acid 2,5-Dimethoxytetrahydrofuran and m-
Terphenyl.
As indicated by the submitted commercial documentation, the
chemicals listed in the catalog are bought and sold on the basis
of the given purity tolerances. Where industry does
differentiate within a particular chemical class regarding
purity, Aldrich contends that it has separated the chemical name
into two or more catalog numbers (i.e., as stated above, "Acetic
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acid, sodium salt trihydrate" has two catalog references
(43,143-5 and 23,650-0) indicating a difference in purity
(99.99+% and 99+%, respectively)). After reviewing the
specifications for the five chemicals under consideration, the
Office of Laboratories & Scientific Services, U.S. Customs
Service, determined that the differences in purity, melting
and/or boiling point for these chemicals were not significant.
With regard to the tariff classification criterion, the
classifications of the imported and substituted 1,4-Difluorobenzene, (S)-(+)-à-Methoxyphenylacetic acid, 1-Isoquinolinecarboxylic acid, 2,5-Dimethoxytetrahydrofuran and m-Terphenyl, are the same: as stated above, 1,4-Difluorobenzene is
classifiable under subheading 2903.69.70, HTSUS; (S)-(+)-o-Methoxyphenylacetic acid is classifiable under subheading
2918.90.43, HTSUS (other aromatic carboxylic acids); 1-Isoquinolinecarboxylic acid is classifiable under subheading
2933.40.60, HTSUS (heterocyclic compounds with nitrogen hetero-atom(s) only, containing a quinoline or isoquinoline ring-system,
not further fused); 2,5-Dimethoxytetrahydrofuran is classifiable
under subheading 2932.19.50, HTSUS (other heterocyclic compounds
with oxygen hetero-atom(s) only, containing an unfused furan ring
in the structure); and m-Terphenyl is classifiable under
subheading 2902.90.90, HTSUS (other cyclic hydrocarbons). The
differences in purity will not affect the classification of the
five imported or substituted chemicals.
However, in certain instances, differences in a chemical's
purity may result in a different classification in the tariff
schedule. For example, luminescent zinc sulfide must have a
purity of 99.99 percent to be classified under subheading
2830.20.10, HTSUS, unsaturated isoprene must have a minimum
purity of 95 percent to be classified under subheading
2901.24.20, HTSUS, tert-Butyl alcohol must have a minimum purity
of 99 percent to be classified under subheading 2905.14.10,
HTSUS, and Di-pentaerythritol must have a minimum purity of 94
percent to be classified under subheading 2909.49.30, HTSUS.
Thus, where differences in purity affect the classification of
the imported and domestic chemicals, the chemicals will not be
considered "commercially interchangeable" unless the
classification differences can be overcome by the presence of
other factors (i.e., Governmental and recognized industrial
standards).
Finally, with regard to the relative values criterion,
Aldrich purchases imported and domestic chemicals and then sells
them using the catalog. The price for each chemical purchased
from the catalog remains the same regardless of its source. In
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other words, the imported and substituted chemicals are sold at the
same, catalog, price.
The catalog price (domestic sales) for 25 grams of D10,220-2
is $49.15 ($1.97/GM), while the price for 100 grams is $135.55
($1.36/GM). Commercial documentation indicates that the relative
value for the imported D10,220-2 is substantially less than that
of the exported chemical. A purchase order (879932) for the
imported D10,220-2 lists a unit price of 120.00œ (pounds) per
kilogram. According to Aldrich, the exchange rate at this time
was $1.687 per pound. Thus, 120.00 pounds per kilogram
translates to $202.44 per kilogram, which translates to
$0.20244/GM. The Sigma-Aldrich invoice lists the total price for
9,970 grams of imported D10,220-2 as 1196.40 pounds (this, plus a
10% buying commission, equals the total listed on the invoice,
1316.00 pounds). This translates to $2,018.33 for the 9,970
grams, or $0.20244/GM, of D10,220-2 (the same figure per gram as
found on the purchase order).
Internal records relating to the purchase of D10,220-2 from
Sigma-Aldrich references purchase order 879932 and lists the
gross amount paid on the sale of the chemical to Sigma-Aldrich as
$211.61 (because the purchase order is simply a guide,
particularly when the sale is from an Aldrich affiliate like
Sigma-Aldrich, there will be a difference between the price on
the purchase order and internal records; when Sigma-Aldrich
receives this order, it will send the chemical, if in stock, or
will purchase the chemical from a vendor, which may result in a
price difference, such as the one indicated above).
The purchase order (43630) for the exported D10,220-2
lists a unit price of $54.10 per 25 grams (this figure differs
from that listed in the catalog provided to this office which
lists the price for domestic sales). The shipping order for the
sale of the chemical to Kokusai lists the unit price as $54.10,
while both the shipping order and invoice for the transaction
list a net amount of $43.28 (a discount price for this particular
buyer). The latter figure translates to $1.7312 per gram, or
approximately $1.53 more per gram than the imported chemical.
In your September 3, 1997 letter, you explain that you "have
different pricing for Foreign and Domestic customers, as well as,
special pricing for specific customers or Affiliates." You
further state that the difference in value between the import and
export represents profit, duty, buying cormmission and additional
costs, such as, packaging, general administration and inventory
carrying costs.
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As stated above, the source of the chemical does not
influence its market value. Both imported and domestic chemicals
are grouped under the same catalog number and carry the same
catalog price (although different catalogs may list a different
price, each catalog will have only one price for each chemical).
You state that "[i]f there were a preference in the market for a
domestic or foreign sourced material it would be handled by
either constraining the possible vendors for a product or
creating a new catalog number." However, you state that you are
"not aware of any situation like this in our product line
. . . . "Based on these statements, we find that the differences
in relative value are not due to a difference in quality,
preference, etc., for either the imported or domestic chemical.
Accordingly, the differences in relative value do not prevent a
finding of "commercial interchangeability."
In conclusion, we accept the catalog numbers to establish
compliance with the part numbers criterion. Thus, imported and
substituted chemicals are "commercial interchangeable" when they
have the same tariff classification, satisfy the relative values
criterion and fall under the same catalog number, but only if the
catalog number encompasses only one commercial or industrial
chemical grade of that particular chemical. When a chemical is
not associated with a chemical grade, it is necessary for Customs
to review the chemical's specifications to determine whether they
are sufficient to establish commercial interchangeability.
Regarding the five chemicals for which we have tariff
classification and relative value information, and which are not
associated with chemical grades, we find that the specifications
for the imported and substituted 1,4-Difluorobenzene, (S)-(+)-à-Methoxyphenylacetic acid, 1-Isoquinolinecarboxylic acid, 2,5-Dimethoxytetrahydrofuran and m-Terphenyl, are sufficient to
establish "commercial interchangeability."
Finally, you have not provided any information regarding the
method you will use to designate entries of the imported
chemicals, which are apparently commingled in inventory with
fungible, domestic chemicals. 19 CFR 191.22(c) provides that
"[m]anufacturers, producers, or claimants may identify for
drawback purposes commingled lots of fungible merchandise and
commingled lots of fungible products by applying first-in-first-out (FIFO) accounting principles or any other accounting
procedures approved by Customs." Enclosed for your information
are copies of C.S.D. 88-1, dated June 29, 1987, and Schedule X to
the Appendix for 19 CFR Part 181, Customs Regulations, which
provide examples of the application of the FIFO method.
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HOLDING:
The imported and substituted 1,4-Difluorobenzene, (S)-(+)-à-Methoxyphenylacetic acid, 1-Isoquinolinecarboxylic acid, 2,5-Dimethoxytetrahydrofuran and m-Terphenyl, are "commercially
interchangeable," and are therefore, eligible for drawback under
19 U.S.C. 1313(j)(2).
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosures