Category: Commercial Interchangeability
DRA-4-RR:CR:DR
228313 CK
VERITRADE International
Attn: Anne-Marie Bush
25-102nd Avenue
Bellevue, VA 98004
RE: Ruling Request; Commercial Interchangeability; Fisher-Rosemount Systems, Inc.; 19 U.S.C. 1313(j)(2); spare parts for circuit card assemblies
Dear Ms. Bush:
This is in reply to your request for a ruling of commercial interchangeability on behalf of your client Fisher-Rosemount Systems, Inc. (FRSI) dated January 20, 1999. We have considered the arguments raised, and the facts presented, and our decision follows.
FACTS:
Originally a non-binding determination of commercial interchangeability was requested by FRSI to the San Francisco Drawback Office on two drawback entries. This was done, according to FRSI, when it was determined during a review of the first claim that some of the exported articles claimed had been repaired by FRSI prior to exportation. According to FRSI, the San Francisco Drawback Office held the opinion that the imported articles designated on the above drawback claims were not commercially interchangeable with the exported, repaired articles. However, FRSI argues that repair is specifically mentioned and allowed as an incidental operation under section 1313(j)(2).
FRSI manufactures process control systems, and they export both those completed systems and spare parts associated with the equipment. The claimed spare parts are the subject of this ruling request. FRSI is both the importer and exporter of record.
FRSI uses as an example one of the two drawback claims, drawback claim number 607-7, the repaired articles in that claim are part numbers:
01984-1011-0003- circuit card assembly
01984-1460-0003- circuit card assembly
01984-2518-0002- circuit card assembly
01984-2546-0002- circuit card assembly
FRSI states that under this drawback claim, the imported, new articles are being substituted for the exported, repaired articles. FRSI states that the articles repaired by it are repaired to the extent that they are equivalent to the designated imported merchandise and are therefore commercially interchangeable. FRSI states that no preference for either new or repaired articles was given when the faulty articles were returned to it. FRSI states that, generally, the repaired articles are sent back to the original customers, not because of customer preference, but because lead time to repair an item is typically less than the lead time to obtain the new item so it costs FRSI less to process a repaired article than to order a new one. However, FRSI, stated that if the article is beyond repair, FRSI may send a new one as a replacement.
Attached is the CF 7551 for drawback claim 607-7, for unused substitution drawback under section 1313(j)(2). Attached is the list of the designated duty paid imported merchandise.
CF 7501 #
Import Date
Part Number
Quantity
Unite Value
Duty Rate
896-2
05/20/94
01984-1011-0003
10
3xx.xx
3.9%
967-1
02/08/94
01984-1460-0003
92
8x.xx
3.9%
181-5
03/22/94
01984-2518-0002
38
2xx.xx
3.9%
215-5
05/06/94
01984-2546-0002
3
3xx.xx
3.9%
Also attached is an exporters summary report for drawback claim 607-7. The following pertinent information for the four parts is highlighted, additionally, FRSI is the exporter for each part.
Date of Export
Part Number
Quantity
06/22/95
01984-1011-0003
1
06/22/95
01984-1460-0003
1
06/22/95
01984-2518-0002
1
06/22/95
01984-2546-0002
1
Attached is an air waybill from MSAS Cargo International dated June 22, 1995. The shipper is Fisher-Rosemount Systems, Inc. of Minnesota, and the consignee is Fisher-Rosemount Pty Ltd. of Tullamarine, Victoria, Australia. It states that the commercial inventory is attached and to notify Fisher-Rosemount Pty Ltd. of Bayswater, Victoria, Australia. Under nature and quantity of goods it states, electronic apparatus.
An attached invoice, number 185075c, for Fisher-Rosemount Pty Ltd. of Tullamarine, Victoria, Australia is dated June 21, 1995. None of the part numbers used as an example are listed on the invoice, but handwritten under the merchandise description is the tariff number 8543.90.5500, HTSUS.
Also attached is invoice number 185073c for Fisher-Rosemount Pty Ltd. of Tullamarine, Victoria, Australia, dated June 21, 1995. There are five lines of merchandise, four of which are highlighted. The four highlighted lines state the following pertinent information.
019841460
0003
Ref S/N 8648-0248M
Non-warranty repair
New value for Customs: 1xx.xx USD
Unit Price:
$5x.xx
019842518
0002
Ref S/N 9004-0608M
Non-warranty repair
New value for Customs: 7xx.xx USD
Unit Price:
$1xx.xx
019841011
0003
Ref S/N 9113.0069
Unit Price:
$2xx.xx
019842546
0002
Ref S/N 9127-0515M
Non-warranty repair
New value for Customs: 6xx.xx USD
Unit Price:
$2xx.xx
The Liquidation Branch at San Francisco also faxed this office a copy of invoice number 190352c for Fisher-Rosemount Pty Ltd. of Tullamarine, Victoria, Australia, dated August 9, 1995. There are four lines of merchandise three of which that branch uses in its relative value analysis.
019841693
0001
Ref S/N 9037-0177M
Non-warranty repair
New value for Customs: 7xx.xx USD
Unit Price:
$3xx.xx
019841693
0001
Ref S/N 9031-1019M
Non-warranty repair
New value for Customs: 7xx.xx USD
Unit Price:
$3xx.xx
019841694
0001
Ref S/N 9022-0046M
Non-warranty repair
New value for Customs: 3xx.xx USD
Unit Price:
$1xx.xx
Attached is the entry summary, CF 7501 for entry number 967-1, entered February 10, 1994. FRSI is the importer of record and there are 13 lines of merchandise listed. Some of the subheadings and duty rates listed are: 8543.80.9580/3.9%, 8543.90.7580/3.9%, 8544.20.0000/5.3%, 8471.92.2000/Free, HTSUS. Also attached is the CF 3461, entry and immediate delivery form, dated February 11, 1994, with FRSI listed as the ultimate consignee, and the four tariff subheadings listed above repeated.
Also attached is a FRSI of England invoice dated December 14, 1993. Invoice is number 42793247, customer order number is ES1645, and Fisher order number is 313B/001645. On the last page one of the part numbers discussed above is listed twice and those lines are highlighted, and contain the following pertinent information.
Description
Part Number
Quantity
Price Each
Prod. Typ. Manf
CKT CD ASSY
01984_1460_0003
45
8x.xx
Prod. Typ. Manf
CKT CD ASSY
01984_1460_0003
45
8x.xx
Next is a copy of the CF 7501 for entry 181-5 entered March 28, 1994. FRSI is the importer of record and ten lines of merchandise are listed. Some of the subheadings and duty rates listed are: 8543.80.9580/3.9%, 8471.92.2000/Free, 8471.99.1500/Free, HTSUS. Also attached is the CF 3461, entry and immediate delivery form, dated March 28, 1994, with FRSI listed as the ultimate consignee, and the three tariff subheadings listed above repeated.
Also attached is a FRSI of England invoice dated January 10, 1994. Invoice is number 42794155, customer order number is ES1758, and Fisher order number is 313B/001758. None of the part numbers listed above are found on this invoice.
Also attached is the CF 7501 for entry 215-5, entered May 9, 1994. FRSI is the importer of record and there are 4 lines of merchandise listed. Some of the subheadings and duty rates listed are: 8543.80.9580/3.9%, and 8471.92.2000/Free, HTSUS. The value for the merchandise for subheading 8471.92.2000, HTSUS is crossed out and a higher value has been written in. Also for one of the lines of merchandise classified under subheading 8543.80.9580, HTSUS the value is crossed out and a higher value has been written in. Also attached is the CF 3461, entry and immediate delivery form, dated May 9, 1994, with FRSI listed as the ultimate consignee, and the two tariff subheadings listed above repeated.
Also attached is a FRSI of England invoice dated March 22, 1994. Invoice is number 42795129, customer order number is ES1850, and Fisher order number is 313B/001845. The following part number and pertinent information is found in the invoice.
Description
Part Number
Quantity
Price Each
Prod. Typ. Manf
CKT CD ASSY
01984_2546_0002
10
3xx.xx
Attached is the CF 7501 for entry 896-2, entered June 2, 1994. FRSI is the importer of record and there are 12 lines of merchandise listed. Some of the subheadings and duty rates were listed as: 8543.80.9580/3.9%, 8471.92.2000/Free, and 8471.92.2000/Free, HTSUS. However, for all lines of merchandise the classifications were crossed out and handwritten in are two new classifications, namely subheadings 8538.90.2000/5.3% and 8538.90.8080/5.3%, HTSUS. Attached is refund check from the Department of the Treasury to FRSI. Also attached is a reliquidation worksheet for entry 896-2, which states parts for the RS3 system are correctly classified in subheading 8543.80.9580, HTSUS, with a duty rate of 3.9%.
Also attached is a FRSI of England invoice dated February 18, 1994. Invoice is number 42795391, customer order number is ES1800, and Fisher order number is 313B/001800. None of the part numbers listed above are found on this invoice.
Also attached is a FRSI of England invoice dated March 22, 1994. Invoice is number 42795392, customer order number is ES1850, and Fisher order number is 313B/001845. None of the part numbers listed above are found on this invoice.
Also attached is a FRSI of England invoice dated March 22, 1994. Invoice is number 42795393, customer order number is ES1850, and Fisher order number is 313B/001845. None of the part numbers listed above are found on this invoice.
Also attached is a FRSI of England invoice dated April 8, 1994. Invoice is number 42795394, customer order number is ES1876, and Fisher order number is 313B/001876. The following part number and pertinent information is found in the invoice.
Description
Part Number
Quantity
Price Each
Prod. Typ. Manf
CKT CD ASSY
01984_1011_0003
13
3xx.xx
Finally, attached is a memorandum from the Liquidation Branch at US Customs in San Francisco. In reply to an inquiry from this office on the issue of commercial interchangeability, the Liquidation Branch replied on May 24, 1999. The content of those comments will be discussed in the LAW AND ANALYSIS portion of this ruling.
ISSUE:
Are the new imported parts commercially interchangeable with the repaired exported parts pursuant to 19 U.S.C. 1313(j)(2)?
LAW AND ANALYSIS:
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. The other merchandise must be exported or destroyed within three years from the date of importation of the imported merchandise. 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. The party claiming drawback must either be 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 statute did not define commercially interchangeable.
The drawback statute was substantively amended by section 632, title VI - Customs Modernization, Pub. L. No. 103-182, the North American Free Trade Agreement Implementation ("NAFTA") Act (107 Stat. 2057), enacted December 8, 1993. The foregoing summary of section 1313(j)(2) is based on the law as amended by Public Law 103-182. Title VI of Public Law 103-182 took effect on the date of enactment of the Act (section 692 of the Act). The 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. Report 103-361, 103d Cong., 1st Sess., 132 (1993); see also provisions in the predecessors to title VI of the Act; H.R. 700, 103d Cong., 1st Sess., section 202(b); S. 106, 103d Cong., 1st Sess., section 202(b); and H.R. 5100, 102d Cong., 2d Sess., section 232(b)).
Before its amendment by Public Law 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, prior to their amendment in 1998 (19 C.F.R. §191.2(l)). 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 amended Customs Regulations, 19 C.F.R. §191.32(c), provide that in determining commercial interchangeability:
...Customs shall evaluate the critical properties of the substituted merchandise and in that evaluation factors to be considered include, but are not limited to, Governmental and recognized industrial standards, part numbers, tariff classification and value.
In order to determine commercial interchangeability, Customs adheres to the Customs regulations, which implement the operational language of the legislative history. The best evidence whether those criteria are used in a particular transaction are the claimant’s transaction documents. Underlying purchase and sales contracts, purchase invoices, purchase orders, and inventory records show whether a claimant has followed a particular recognized industry standard, or a governmental standard, or any combination of the two, and whether a claimant uses 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. Also, if another criterion is used by the claimant to sort the merchandise, the claimant’s records would show that fact which will enable Customs to follow the Congressional directions.
Prior to determining commercial interchangeability the issue of whether a repaired item may be interchangeable with a new article needs to be addressed. Section 1313(j)(3) sets out what operations may be performed on merchandise without that operation being considered a “use.” Included in that section as allowable operations are refurbishing, repairing, reworking, and replacing components. These operations may be performed on both the imported merchandise and the commercially interchangeable merchandise. Therefore, repair, refurbishing, reworking, or replacing components are allowed as long as that operation does not amount to the manufacture of an article.
In this case FRSI states that it is repairing the imported articles, so that repaired article may function as if new. Therefore, for purposes of sections 1313(j)(2) and (3), these repairs would be incidental operations, and would not be considered a prohibited “use.” Additionally, there has been no allegations or evidence submitted that the repaired articles or new articles are used before they are exported.
Second, our review of the aforementioned commercial documentation with respect to the above-referenced criteria for commercial interchangeability yields the following analysis.
Governmental and Recognized Industry Standards
In its letter, FRSI states “Neither Government nor Industry Standards have been set for these products. These four articles are made under proprietary specifications for FRSI to include into their own systems.” Based on FRSI’s representation, the agreement of the Liquidation Branch at San Francisco, and in the absence of evidence to the contrary, the first criteria is inapplicable to this case.
Part Numbers
In regard to this criterion, FRSI states that the part numbers are the same for both the sample import entries and exports. FRSI states that any article with this part number would be interchangeable regardless of the serial number. FRSI states that on the export documentation for the repaired articles, the part number has been printed without dashes or a description due to its computer system requirements. FRSI states that its computer must distinguish between an item returned for repair and a new item so that it does not generate an unnecessary demand for that part number when the returned item is entered into the system. FRSI states that it is only for purposes of its computer system identification that the dashes must be present in the part number, enabling the system to recognize it as a valid item and generate demand. However, FRSI states that for purposes of product identification outside of the computer system, the dashes are irrelevant.
The Liquidation Branch at San Francisco states in regard to this criterion that FRSI uses the same part numbers. However, FRSI internal record keeping distinguishes a repaired from a new article without a dash or description to the identified export part number.
FRSI uses the same part numbers for both its new imported parts and for its parts that have been repaired. The use of dashes, or lack thereof, is used to keep its automated order system from generating a demand for a new part when the repaired part is entered into the system. We note that FRSI has not submitted any evidence of this computer system, showing how the dashes automatically generate a supply order. However, we also note that on the Export Summary Report dated June 15, 1998, which was attached to its drawback claim, that all part numbers listed are listed with dashes, and there seems to be no distinction between new parts being exported and repaired parts being exported. Since, FRSI uses the same part numbers, and uses the parts within that number, whether new or repaired, interchangeably, FRSI meets the requirements of this criterion.
3. Tariff Classification
With respect to tariff classification, FRSI asserts that the new imported circuit card parts and the exported repaired circuit card parts have the same tariff classification. FRSI states that the export shipment containing the four exported articles discussed in this ruling did not require a Shipper’s Export Declaration to be filed. We note that there are no copies of any such export declaration attached in the file. Additionally, FRSI states that other exports of these articles show tariff number 8543.90. FRSI has not included a copy of any documents showing these articles with the tariff number 8543.90.
FRSI states for the tariff classification for the imported articles appears as 8543.80. FRSI states that this discrepancy was due to application of a binding ruling for classification and a local import specialist’s subsequent instructions to FRSI to use 8543.90 instead of 8543.80.
The Liquidation Branch at San Francisco states in regards to this criterion that FRSI identifies the same tariff classification for the part numbers.
We note, that FRSI has not submitted a copy of the binding ruling it received instructing it to classify the parts in subheading 8543.90, HTSUS, nor has it submitted a copy of the local import specialist’s instructions. However as the Liquidation Branch at San Francisco has not challenged FRSI’s statement, and we have no evidence to the contrary, this criterion has been met.
4. Relative Values
In regard to this criterion, FRSI states that on the export invoice provided, two different values are shown. One is the “unit price” which is the value of the repair, including labor, parts, overhead, and profit. The other is the “new value for Customs” which represents FRSI’s usual price to that customer for that item when new. FRSI states that the “new value for Customs” on the export invoice is higher than the import unit values because the import unit values represent FRSI’s purchase cost at the time of importation. FRSI states the difference between import and export values can represent profit, duty, freight, packaging, general administration, and inventory carrying costs. FRSI states that the difference in relative value is not due to a difference in quality or preference for either the imported or repaired article.
FRSI gives the following examples and values:
Part Numbers
Import Value
Export- “new value for Customs”
01984-1011-0003
$3xx.xx
$7xx.xx
01984-1460-0003
$8x.xx
$1xx.xx
01984-2518-0002
$2xx.xx
$7xx.xx
01984-2546-0002
$3xx.xx
$6xx.xx
The Liquidation Branch at San Francisco, however, believes that FRSI fails the relative value test. The Liquidation Branch believes that the disparity in the relative values of the exported and substituted merchandise along with the substantial price differential within each designated part number fail to support eligibility for commercial interchangeability. The Liquidation Branch finds the following to be the relative value breakdown:
Part Numbers
Import Value
Export
01984-1693-0001
$2xx.xx to $3xx.xx
$2xx.xx
01984-1460-0003
$8x.xx
$5x.xx
01984-2518-0002
$2xx.xx
$1xx.xx
01984-2546-0002
$3xx.xx to $4xx.xx
$2xx.xx
01984-1694-0001
$2xx.xx to $1,xxx.xx
$1xx.xx
In comparing the values for this criterion the comparison should be made between the import price and the “new value for Customs” price, not the unit price. As explained earlier, the “new value for Customs” is the price a customer would pay for a new piece.
Additionally, it is the price that a new piece is valued at for the country to which it is being imported. The difference in value may be expressed for each part in percentages. In this case, the percentage would represent how much greater the export value is in comparison to the import value.
Part No.
Import Value
Export Value
Formula
Percentage
01984-1011-0003
3xx.xx
7xx.xx
3xx.xx/7xx.xx
49.3
01984-1460-0003
8x.xx
1xx.xx
6x.xx/1xx.xx
43.8
01984-2518-0002
2xx.xx
7xx.xx
5xx.xx/7xx.xx
71.2
01984-2546-0002
3xx.xx
6xx.xx
3xx.xx/6xx.xx
54.6
01984-1694-0001
2xx.xx
3xx.xx
7x.xx/3xx.xx
20.5
01984-1693-0001
2xx.xx
7xx.xx
5xx.xx/7xx.xx
69.8
In this case, while we note that the export values are much greater than the import values, FRSI has given an explanation regarding that difference. The difference between the import and export values, explained FRSI, can represent profit, duty, freight, packaging, general administration, and inventory carrying costs. We find that the difference in the relative values of the imported and exported merchandise is supported by FRSI’s explanation of the costs incurred while it is in the U.S. Customs territory. The differences in values do not support a finding of commercial interchangeability, however, the value difference does not preclude a finding of commercial interchangeability. Instead, we find this criterion to be inconclusive, and therefore of little weight.
Upon thorough review of the evidence submitted, we find there is lack of applicable government and recognized industry standards, and the relative values criterion does not support nor does it preclude a finding of commercial interchangeability. Both of those criteria should be given little weight in the analysis. However, both the part numbers and tariff classification criteria do support a finding of commercial interchangeability. We therefore conclude, that the repaired, and new spare parts are commercially interchangeable for purposes of 19 U.S.C. 1313(j)(2).
HOLDING:
The new and repaired imported and exported circuit card parts are commercially interchangeable for purposes of 19 U.S.C. 1313(j)(2).
Sincerely,
John Durant, Director
Commercial Rulings Division