DRA-4-RR:CR:DR
228219 RDJ
Mr. John H. Alpine
Eveready Battery Co.
25225 Detroit Rd.
P.O. Box 450777
Westlake, OH 44145
RE : Commercial Interchangeability; 19 U.S.C. 1313(j)(2): batteries, flashlights and lanterns
Dear Mr. Alpine:
The following is in response to your request for a ruling on the commercial interchangeability under 19 U.S.C. 1313(j)(2). We apologize for the lateness of our response. Our decision follows.
FACTS:
On September 16, 1998, Eveready Battery Co. Inc. requested a ruling for commercial interchangeability under 19 U.S.C. 1313(j)(2) which provides for substitution drawback on unused merchandise which is commercially interchangeable with imported merchandise. The items involved in this ruling are dry cell batteries and portable lighting devices, specifically, flashlights and lanterns.
In its request for a ruling under 1313(j)(2), Eveready Battery Co. Inc. stated that it manufactures and imports dry cell batteries and portable lighting devices. Each article is said to be identified by a unique model or style number. The inventory for dry cell batteries, flashlights and lanterns is said to be identical on a style for style basis. As such, Eveready informed Customs that the inventory is commingled in such manner that the identification between different lots (domestic or otherwise) is not possible. With respect to the items at issue, Eveready intends to substitute on a style number for style number basis, since all of the merchandise for a particular style is interchangeable regardless of its origin. As new designs are created, Eveready intends to assign unique style numbers and substitute on a style-for-style basis.
Eveready submitted an import invoice for entry XXX-XXXX939-4 which describes the batteries as alkaline cells “NT 191-A”. The import packing list for that entry describes the battery as
as “NT 191-A”. A copy of requester’s Bennington, Vermont plant inventory record covering the period was provided. That record covers item 191 batteries and the purchase and receipt into inventory of the batteries entered under entry 939-4 are listed. The inventory records for the export merchandise describe the battery as U191BP-2. The export invoice describes the battery as U191BP-2. The import entry (CF7501)lists the declared value of the batteries as having a unit price of about four cents and classifiable in subheading 8506.60.00, HTSUS. Eveready provided a battery cross-reference guide which states the Eveready battery as ANSI/NEDA (American National Standard Institute/ National Electronics Distributors Association) number 1169A and can be substituted by listed battery numbers made by other manufacturers. The export invoice lists a unit price for the blister pack of two batteries of about $.21 cents. The export documents contain a Shipper’s Export Declaration which states that the Schedule B classification for the batteries is covered by HTSUS subheading 8506.50.00. The export invoice declares the batteries to be covered by HTSUS subheading 8506.50.10.
Eveready provided a catalog which listed various flashlights and lanterns by part number and the part number characterized specifications unique to the listed flashlights and lanterns.
ISSUE: Based on the documents and catalogs provided, does the subject merchandise, fulfill the criteria required under 19 U.S.C. 192.32(c) for commercial interchangeability under 1313(j)(2)?
LAW AND ANALYSIS:
Under 19 U.S.C. 1313(j)(2), as amended, substitution unused merchandise 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 that is exported instead of the imported merchandise.
The drawback law was substantively amended by section 632, title VI- Customs Modernization Act, Public Law 103-182, The North American Free Trade Agreement ( “NAFTA”) Implementation Act (107 Stat.2057), enacted December 8, 1993. Before its amendment by Public law 103-182, the standard for substitution under section 1313(j) was “fungility”. The standard was intended to be made less restrictive permitting the substitution of merchandise when it is “commercially interchangeable” rather than when it is commercially identical. The criteria to be considered in determining whether two articles were commercially interchangeable would include but not limited to: governmental and recognized industry standards, part numbers, tariff classification and relative values (19 C.F.R. 192.32 (c). These are the critical properties which Customs will evaluate in order to determine commercial interchangeability. In order to determine commercial interchangeability, Customs adheres to the Customs regulations rather than to subjective standards. The best evidence whether those criteria are used in a particular transaction is the claimant’s transaction documents such as purchase and sales contracts, invoices, purchase orders and inventory records. These documents enable Customs to determine whether or not a claimant follows a particularly recognized industry standard or governmental standard or a combination of the two and whether a claimant used part numbers to buy, sell and inventory the merchandise in issue. The purchase and sale documents also provide the best evidence with which to compare relative values and part numbers.
Government or Industry Standards:
Eveready provided the ANSI/ NEDA guidelines For Portable Primary Cells and Batteries with Aqueous Electrolyte—General Specifications. The ANSI/NEDA guide describes most common types of primary cells and batteries submitted by Eveready and the specifications are generally sufficient for drawback purposes. The battery 191 is covered by ANSI/NEDA standard 1169A for watch batteries in which the chemical system is magnesium dioxide and has the same dimensions. The cross-reference to other manufacturers’ batteries indicates interchangeability. This criterion appears to be met because ANSI/NEDA is a recognized industry classification system.
Part Numbers:
The battery is clearly identified by its style number, 191 in the commercial invoices covering the entry and export. Eveready’s inventory records show that the battery is identified by its style number. Eveready has explained that all of the merchandise is identical on a style for style basis and all the merchandise within a particular style number is completely interchangeable.
Tariff Classification:
There is a discrepancy in the import and export documents with respect to the tariff classification. The import classification covers magnesium dioxide alkaline batteries. Subheading 8506.50.10 does not exist in the HTSUS. Subheading 8506.50.00 covers lithium batteries. Magnesium dioxide and lithium batteries are not interchangeable due to the differences in chemistry systems. Other than characterize the export documents as being done erroneously, Mr. Givan of Eveready was unable to explain the discrepancy. This criterion has not been satisfied by the evidence.
Relative Values:
With respect to the relative values of the imported and exported merchandise, the batteries described have a slight difference in unit per value. The import price of .04 is about half of the export price of about .10 per battery. As explained by Eveready, the difference in price reflects differences in shipping, packaging and labor including the market value of the product being sold. The difference in value, particularly since a markup in price would be necessary to generate a profit for the distributor is not unexpected. The price difference is not so marked as to defeat a finding of interchangeability. In HQ 228794 (July 25, 2001) we found that batteries with an export value of 2% greater than the import value, was not considered significant enough to affect commercial interchangeability. Likewise, in HQ 227470 (February 9, 1998) (6.7% price difference) and HQ 227473 (March 3, 1998) it was noted that even a difference in price of 14% may not be significant enough to affect the commercial interchangeability. As in HQ227473, it does not appear to be a case where an inferior product is substituted for a higher quality product, rather it appears that the difference in price is more a result of market fluctuations. Therefore, we conclude that this criterion is met. Since the price difference may be considered reasonable, the items are commercially interchangeable under 19 U.S.C. 1313(j)(2).
As for the flashlights and lanterns, we have determined to consider the commercial interchangeability based upon your submission of the catalogs provided for our review. We accept the catalog description on the flashlights and lanterns as sufficient in order to establish the compliance with part numbers. The imported and substituted merchandise will be considered commercially interchangeable provided that Eveready properly identifies specific units based on the actual style consistent with the above discussion on watch battery style 191, for which complete documentation was provided.
Using an item found in the catalog as an example, for commercial interchangeability to be established for a lantern 6V catalog number “208 IND”, it must be described under the same specification upon exportation. Eveready must keep a record system such as inventory records, material requisitions, routing sheets, etc that will evidence that the imported and substituted merchandise are “commercially interchangeable”. The records must reflect the criteria considered under 19 C.F.R. 191.32(c), that is, the criteria discussed above on a style for style basis. Eveready stated that for future designs, it will create new identification numbers which will be assigned on a style for style basis. The records must prove that the merchandise imported was not used nor subject to any subsequent manufacture or production.. “Use” for purposes of this restriction includes employment of the merchandise or performance on the merchandise of any operation or combination of operations amounting to a manufacture or production for drawback purposes. Records of receipt into storage warehouse and withdrawals from that storage warehouse could provide evidence of non-use.
HOLDING:
Merchandise, as noted under Law and Analysis, which is bought, sold and inventoried by reference to its style number and that style number identifies the merchandise with respect to the same manufacturing specifications is commercially interchangeable.
Sincerely yours,
John Durant, Director
Commercial Rulings Division