DRA-4-RR:CR:DR 228655 LLB
Lawrence Ryan, Chief
Residual Liquidation & Protest Branch
Hemisphere Center
Routes 1 & 9 South, Room 200
Newark, NJ 07114
RE: Protest No. 1001-99-103484; Unused merchandise drawback; Commercial interchangeability; Polyester staple fiber; 19 U.S.C. § 1313(j)(2); Texport Oil Co. v. United States, 185 F.3d 1291(Fed. Cir. 1999); HQ 227470 (February 9, 1998); 227473 (March 3, 1998); 227220 (February 10, 1997); 226995(June 4, 1997)
Dear Mr. Ryan:
The above-referenced protest has been forwarded to this office for further review. We have considered the points raised by the protestant and your office. Our decision follows.
FACTS:
This protest concerns claims for unused merchandise drawback under 19 U.S.C. § 1313(j)(2) for exported polyester staple fiber. The record indicates that drawback was denied for drawback entries 140-xxxx5752, 5753, 5754, and 5762, because the imported and exported merchandise did not have the same descriptions and the specifications did not fall within identical ranges. The protestant provided the following pertinent documentation:
Import Documents
All entries
CF 7501 indicating the import date as May 23, 1995 and the tariff classification as 5503.20.0000, HTSUS
Commercial invoice from foreign company to protestant which indicates price payable and specifications for given quantity of polyester staple fiber
Export Documents
Entry 5752
Commercial invoice from protestant to foreign purchaser which indicates price payable per kilogram, CIF—the only specifications provided are for denier and luster
Sales contract between protestant and foreign purchaser which indicates price payable per kilogram, CIF
Shipper’s Export Declaration dated March 6, 1996 indicating export classification as 5503.20.00, Schedule B
Bill of Lading which is silent as to shipping cost
Entry 5753
Commercial invoice from protestant to foreign purchaser which indicates price payable
Sales contract between protestant and foreign purchaser which indicates price payable and specifications
Shipper’s Export Declaration dated May 23, 1996 indicating export classification as 5503.20.00, Schedule B
Bill of lading indicating the shipping cost as $2,300
Entry 5754
Commercial invoice from protestant to foreign purchaser which indicates price payable per kilogram, CIF
Sales contract between protestant and foreign purchaser which indicates price payable and specifications
Shipper’s Export Declaration dated August 9, 1996 indicating export classification as 5503.20.00, Schedule B
Bill of lading indicating the shipping cost as $2,300
Entry 5762
Commercial invoice from protestant to foreign purchaser which indicates price payable per kilogram, CIF
Sales contract between protestant and foreign purchaser which indicates price payable and specifications
Shipper’s Export Declaration dated August 5, 1996 indicating export classification as 5503.20.00, Schedule B
Bill of lading indicating the shipping cost as $2,300
ISSUE:
Whether the polyester staple fiber is commercially interchangeable merchandise for purposes of the unused merchandise drawback provisions set forth in 19 U.S.C. § 1313(j)(2)
LAW AND ANALYSIS:
Initially, we note that the matter under protest, denial of drawback, is protestable under 19 U.S.C. § 1514(a)(6) and the protest was timely filed inasmuch as it was filed within 90 days from the April 16, 1999, denial of drawback. See 19 U.S.C. § 1514(a); 19 C.F.R. § 174.12(e)(1).
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 provided certain requirements are met. The other merchandise must be exported or destroyed within 3 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 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 statute did not define commercially interchangeable.
The port asserts in its denial of the protest and its January 5, 1999, letter to the protestant, that the imported and exported merchandise must have the same descriptions and the specifications must fall within the same or identical ranges in order to be commercially interchangeable. The protestant asserts, pursuant to the November 1, 1998, meeting with the port, that the port’s decision was made pursuant to Texport Oil Co. v. United States, 1 F.Supp. 2d 1393 (Ct. Int’l Trade 1998)(hereinafter Texport I). The protestant argues that the port has misread Texport I and that Texport I only requires that the specifications fall within “appropriate limits” in order to establish commercial interchangeability. Texport was reversed by Court of Appeals for the Federal Circuit (CAFC) on the issue of commercial interchangeability, two weeks after the protest was filed. See Texport Oil Co. v. United States, 185 F.3d 1291 (Fed. Cir. 1999)(hereinafter Texport II)(rejecting the Court of International Trade’s interpretation of 19 U.S.C. § 1313(j)(2)). Hence, since Texport I was overruled, neither the port’s argument that the import and export specifications be identical and the protestant’s argument thereto is that the specifications should be within “appropriate limits,” is correct. The following discussion provides the appropriate standards to apply when determining commercial interchangeability.
The drawback law was substantively amended by § 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 § 1313(j)(2) was "fungibility". House Report No. 103-361, 103d Cong., 1st Sess. (1993) contains language explaining the change from fungibility to commercial interchangeability. According to the Report (at p. 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(l)), prior to their amendment on March 5, 1998. See Texport II, 185 F.3d at 1295 (rejecting the argument that substituted merchandise must be identical). The Report, at p. 131, also states:
The Committee further intends that in determining whether the 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 contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability. See S. Rep. No. 103-189, 103d Cong., 1st Sess., 81-85 (1993); see also Texport II, 185 F.3d at 1295. In addition, the Senate Report states that Customs “should evaluate the critical properties of the substituted merchandise, rather than basing its determination on subjective standards.” Senate Report, at page 83.
In order to determine commercial interchangeability, Customs adheres to the Customs regulations, which implement the operational language of the legislative history. See 19 C.F.R. § 191.32. Underlying purchase and sales contracts, purchase invoices, purchase orders, and inventory records show whether a claimant has followed a particular recognized industry standard or governmental standard, or any combination of the two, relative values of the imported and exported merchandise, and whether a claimant uses part numbers to buy, sell, and inventory the merchandise in issue. See HQ 227473(March 3, 1998)(determining whether imported and exported merchandise met government and industry standards and relative values using contracts and purchase orders); HQ 227106 (September 3, 1997)(determining use of part numbers, using purchase orders, sales documents and invoices, and warehouse receipts). See also, 19 C.F.R. § 177.2(b)(4)(“If the question or questions presented in the ruling request directly relate to matters set forth in any invoice, contract, agreement, or other document must be submitted with the request.”)
Our review of the commercial documentation you submitted yields the following analysis.
1. Governmental and Recognized Industry Standards
According to the Office of Laboratories and Scientific Services (OLSS), there are no government or recognized industry standards in the purchase and sale of polyester staple fiber.
2. Part Numbers
Based on our review of the evidence provided for each entry, it appears that part numbers are not used in the purchase and sale of the merchandise; hence, the part numbers criterion is not applicable.
3. Tariff Classification
The CF 7501 for each of the entries indicate the import classification for the polyester staple fiber as 5503.20.0000, HTSUS, and the Shipper’s Export Declaration for each of the entries indicate the export classification as 5503.20.0000, Schedule B. Both subheading 5503.20.0000, HTSUS (1995), and 5503.20.0000, Schedule B (1996), cover “[s]ynthetic staple fibers, not carded, combed or otherwise processed for spinning: of polyesters . . . .” Based on the identical classifications of both the import and export merchandise, it appears that the tariff classification criterion, with regard to each entry has been met. See Cust. B. Vol. 32, No. 10 (March 11, 1998)(explaining that full tariff classification, whether from either the HTSUS or Schedule B, is required to establish commercial interchangeability).
4. Other Critical Properties
The protestant asserts in its protest that the polyester staple fiber are bought and sold on the basis of four commercial criteria: denier, cut-length, luster, and optical brightness. However, our review of the purchase orders and commercial invoices for all the entries, with the exception of 5752, show that the protestant purchases and sells the fiber based on the four criteria it asserts as well as tenacity, elongation, oil content, moisture regain, shrinkage and crimps. See Premier Graining Company, Inc., et al. v. United States, 57 Cust. Ct. 32 (1966)(holding that commercial paper, such as billings, price lists, purchase orders, invoices, bills of lading, etc., like the people who use them, speak the “language of commerce.”). With regard to entry number 5752, the import purchase order indicates all nine of the criteria; however, the export invoice only indicates that the fiber was sold based on two of the four criteria asserted by the protestant. Therefore, contrary to protestant’s assertion, the subject fiber was not bought and sold based only on denier, cut-length, luster, and optical brightness.
Nevertheless, Customs has held that when determining commercial interchangeability of sewing thread, particularly polyester staple fiber, tenacity is the most critical specification. HQ 226995 (June 4, 1997). All the entries have identical import specifications, and with the exception of entry number 5752, all the entries have identical export specifications. The only export specifications provided for entry number 5752 were for denier and luster.
Import
Export
Denier
1.2 + / -0.05
1.2
Length (MM)
38.0 +/ -0.5
38.0 +/ -0.5
Tenacity
6.3 +/-0.5
6.5 +/-0.5
Elongation
30 +/-5.0
25+/-5.0
Oil Content
0.15 +/0.05
0.15 +/0.05
Moisture Regain
4.0
4.0+/-0.05
Shrinkage
3.0 +/-0.5
3.0+/0.05
Number of Crimps
13.0 +/-2.0
10.5 +/-2.0
Luster
Semi dull, optically bright white
Semi dull, optically bright white
With regard to entry 5752, there are no export specifications provided for tenacity; therefore, we cannot determine that the critical properties’ criterion has been met. With regard to the remaining entries, although there is a slight variance in tenacity between the import and export specifications, the OLSS concluded that the slight variances in the foregoing specifications, does not rule out the interchangeability of the polyester fiber. Therefore, we conclude that the critical properties’ criterion has been met with regard to the remaining entries
5. Relative Values
a. 5753 and 5754
With respect to the relative values for entries 5753 and 5754, the record indicates that the export price is only 11% greater in value than the import price. Inasmuch as there is only a slight difference between the import and export price of the merchandise, the value criterion has been met. See HQ 227470(February 9, 1998)(holding that 6.7% difference in import and export price was not significant enough to effect commercial interchangeability);HQ 227473(March 3, 1998)(holding that a 14% difference in import and export price was not significant enough to effect commercial interchangeability).
b. 5752 and 5762
However, with regard to entry 5762, there is a substantial difference in the import and export price, inasmuch as the export price exceeds the import price by 32%. We have held that such a variance in price does not preclude a finding of commercial interchangeability, when other critical properties have been met or when sufficient evidence is provided to support the material difference in value. See HQ 227220 (February 10, 1997)(holding that although the price difference of the imported and exported merchandise was in excess of 24%, the imported and exported merchandise qualified under the applicable industry standards and thus, relative value did not have as much weight when determining commercial interchangeability); HQ 226995 (June 4, 1997)(holding that the 35% difference in value was supported by the explanation and evidence in support thereto that the difference was a result of market conditions at the time of import and export).
Regarding entry 5752, since there is no explanation evident in the documents provided which support the variance in price between the import and export fiber, and because of lack of evidence, we cannot determine that the critical properties’ criterion has been met, we cannot determine that the value criterion has been met with regard to this entry. See HQ 227220 and 226995, infra. Since the critical properties’ criterion has been met with regard to entry 5762, we conclude that the value criterion has been met as well. See HQ 227220.
In conclusion, entries 5753, 5754, and 5762, notwithstanding that governmental or industry standards and part numbers are not applicable in this case, have met the remaining three criteria and are therefore commercially interchangeable for purposes of 19 U.S.C. § 1313(j)(2). Hence, the protest should be granted as to the foregoing entries.
Insofar as entry 5752 has only met one of the remaining three criteria, tariff classification, and there is insufficient evidence to support the critical properties and value criteria, we conclude that there is no basis for a determination of commercial interchangeability as to this entry. Hence, the protest should be denied as to the foregoing entry.
HOLDING
The polyester staple fiber in drawback entries 5753, 5754, and 5762, are commercially interchangeable for purposes of unused substitution merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2); therefore, the protest is GRANTED as to these entries.
There is no evidence in the record to support that the polyester staple fiber in drawback entry 5752 is commercially interchangeable; therefore, the protest is DENIED as to this entry.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.
Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
John Durant, Director
Commercial Rulings Division