Customs Ruling HQ 229826 - Protest AFR No. 5301-01-100181; commercial interchangeability; importer of record; possession; scope of protest decision; exportation; MTBE; 19 U.S.C. 1313(j)(2)

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HQ 229826
Jul 21, 2003

Type : Drawback • HTSUS :
Related: 228504; 226074; 229838; 225166; 224103; 224541

DRA-4-RR:CR:DR 229826 IOR

Port Director
Customs and Border Protection
2350 N. Sam Houston Parkway East
Suite 1000
Houston, TX 77032-3126
Attn: Vivian Yuan, Drawback Specialist

RE: Protest AFR No. 5301-01-100181; commercial interchangeability; importer of record; possession; scope of protest decision; exportation; MTBE; 19 U.S.C. 1313(j)(2)

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We note that there is a surety protest no. 5301-01-100286 pertaining to the same merchandise and issues, pending a decision in the referenced AFR. This protest was in suspended status at the Port pending Headquarters decision on an internal advice in HQ 228504. HQ 228504 was issued on August 1, 2002, however additional issues have arisen in this protest which the Port found were not addressed in HQ 228504. We have considered the points raised by the protestant and your office. Our decision follows.

FACTS:

The drawback claimant, American Agip Co., Inc. (Agip), protests the denial of drawback claims AA6-xxxx473-3, AA6-xxxx886-6, AA6-xxxx888-2, and AA6-xxxx503-4. The drawback claims were all liquidated on April 6, 2001. In the facts, representative claim AA6-xxxx888-2 will be described. To the extent there are substantial differences between the representative claim and the other claims, such differences will be described. The subject merchandise consists of methyl tertiary-butyl ether (MTBE).

Drawback claim AA6-xxxx888-2 is based on one import entry of MTBE, and one exportation of MTBE. On August 29, 1996, the protestant entered, as importer of record, 13,741,060 kg of MTBE, under subheading 2909.19.1010, Harmonized Tariff Schedule of the United States (HTSUS). The MTBE was purchased by Agip from an Italian supplier. The purchase agreement dated June 21, 1996 provides that the purchased imported MTBE is to be in accordance with the following specifications:

Purity 95.0% W Min. Methanol 0.5% W max. Water 1,000 PPM Max. Sulfur 10 PPM Max. RVP 9.0 Max.

A certificate of quality dated August 12, 1996, representing a vessel composite shows that the imported MTBE has a purity of 98.55%, a water content of 247 ppm, methanol weight of .41, and meets the remaining two specifications. The entered value of the MTBE can be determined from the entry documents.

Agip’s confirmation of sale, dated January 22, 1999, is for the sale of MTBE to a Venezuelan entity, “D.E.S. O.S.B. (One Safe Berth) [named port], Venezuela”. The confirmation references the terms and conditions in a 1998 term contract between the Venezuelan entity and the protestant’s Italian supplier. See infra. The confirmation is signed only by Agip. The exported MTBE is to be in accordance with the following specifications:

MTBE Content 95.0% Wt Min. Methanol 0.5% Wt. max. Water 1,500 PPM Max.

There is a certified copy of a bill of lading for the exported MTBE, dated January 30, 1999, showing Agip as the exporter of 209,924 barrels, or 24,800.295 MT (equal to 24,800,295 kg) of MTBE, to be delivered to the Venezuelan port stated in the sale confirmation. The consignee is “To order of American Agip”. The merchandise is stated to be “clean on board” on January 30, 1999.

The exported MTBE was acquired by Agip from two different U.S. sellers, pursuant to two different purchase confirmations, each dated January 19, 1999. The terms of both sales according to the purchase confirmations were “F.O.B. O.S.B. (One Safe Berth) [named terminal] Houston, Texas”. The domestic purchase price is equal to the export sale price. One agreement is for the purchase of 50,000 barrels of MTBE, and the second is for the purchase of 150,000 barrels of MTBE, each allowing =/- 5% at Agip’s option. The January 19, 1999 confirmations between Agip and the domestic suppliers specify that the water content of the MTBE is to be a maximum of 1500 ppm, however the documents appointing a surveyor for the test of the MTBE to be purchased by Agip from the domestic suppliers specify that the water content of the MTBE must be a maximum of 1000 ppm. The two documents appointing a surveyor for each of the domestic sales, each specify a different “load port” for the inspection.

At the time of the representative export sale, there existed an MTBE supply agreement dated March 11, 1998, between the Venezuelan purchaser and the protestant’s Italian supplier. Part II of the agreement includes a succession clause, pursuant to which neither the seller nor buyer may assign the agreement or interest therein without the prior written consent of the other, except to a corporation which is under common control of the transferor. In a similar 1999 MTBE supply agreement between the same parties, Agip is referred to as the sister company of the Italian supplier. Both the 1998 and the 1999 supply agreements provide that the sale terms are “D.E.S. O.S.B. (One Safe Berth) [named port], Venezuela.” Both of these agreements are signed by representatives of both the Venezuelan purchaser and the Italian supplier. Both of these documents contain the same specifications for the MTBE as the the sales confirmation with the exception of the water specification, which requires a maximum of 1000 ppm. For drawback entry AA6-xxxx473-3, the file contains letters notifying the Venezualan purchaser of an assignment pursuant to the supply agreement. There is no such letter of assignment for the representative drawback entry, but as discussed above, there was a separate confirmation of sale from Agip to the Venezuelan purchaser.

A certificate of analysis dated January 31, 1999, based on a sample taken January 29, 1999, for exported merchandise, shows that the MTBE has a purity of 96.71%, water content of 406, and methanol weight of .28, thereby meeting the specifications set forth in the sale confirmation, as well as the specifications set forth for the imported MTBE. However, the certificate identifies the “terminal/port” as the one identified in the document appointing the surveyor for the purchase of 50,000 barrels of MTBE. Therefore, it appears that the certificate of analysis only applies to one quarter of the exported MTBE.

The Shipper’s Export Declaration (“SED”), is dated January 30, 1999, and shows Agip as the exporter of 24,800,295 kg of MTBE. The SED identifies the ultimate consignee as “to order of American Agip”. The Schedule B number for the MTBE on the SED is 2909.19.1400. According to the Exporters Chronological Summary, the HTSUS classification of the exported merchandise is subheading “2909.19.14 (2909.19.10)”. As of May 31, 1997, subheading 2909.19.1010 HTSUS became 2909.19.1400. Both subheadings cover MTBE. The value of the exported MTBE can be determined from the SED. The price of the imported MTBE is 65% greater than the price of the export.

The representative drawback entry was filed on March 19, 1999. The drawback was claimed on 7,920,901 kg of imported MTBE, on the basis of 7,920,901 kg of exported MTBE. An undated letter sent to the protestant’s broker, stated that the drawback entry would be liquidated with no drawback based on the lab decision which concluded that the imported and exported MTBE are not commercially interchangeable. A Houston Customs laboratory report dated December 2, 1999 concluded that under HQ 226074, because the imported MTBE had a purity greater than 98% and the exported MTBE had a purity less than 98%, the imported and exported MTBE are not commercially interchangeable. The drawback entry was liquidated on April 6, 2001 with no drawback.

The subject protest against the denial of drawback was filed on June 28, 2001. Subsequently, upon the filing of this protest, the drawback office raised additional issues pertaining to the drawback claim. The additional issues raised were 1) whether Agip can be the importer of record of the MTBE although it does not have its own storage tanks and upon importation the MTBE may be immediately delivered to different petroleum companies; 2) whether Agip had possession of the exported merchandise; and 3) whether the protest of a denial of a drawback claim may be denied on grounds other than or in addition to those for which the claim was initially denied? In addition, the drawback office questions whether the confirmation of the sale from Agip to the foreign purchaser is sufficient to establish the terms of the sale because it is signed by only one party to the sale, and given the difference in the specifications of the confirmation and the MTBE supply agreement, which document should be used to determine the commercial interchangeability of the merchandise.

ISSUES: Can Customs raise additional issues for denial of a drawback claim more than 90 days after the drawback entry was liquidated when a protest under 19 U.S.C. §1514 has been timely filed?

Whether the protestant was legally the importer of record of the imported merchandise.

Whether the imported and substituted MTBE is commercially interchangeable for purposes of 19 U.S.C. §1313(j)(2).

Whether the drawback claimant has satisfied the possession requirement of 19 U.S.C. §1313(j)(2).

LAW AND ANALYSIS:

We note initially that the refusal to pay a claim for drawback is a protestable issue pursuant to 19 U.S.C. §1514(a)(6). Drawback for the subject entries was denied on April 6, 2001, when the entries were liquidated with no drawback. This protest was timely filed on June 28, 2001, which is within the 90-day filing deadline set forth in 19 U.S.C. §1514(c). This protest involves the denial of drawback under 19 U.S.C. §1313(j)(2).

Under 19 U.S.C. § 1514(a)(6) “decisions of the Customs Service, including the legality of all orders and findings entering into the same, as to . . . the refusal to pay a claim for drawback . . . “are final unless a protest of that decision is filed within 90 days of the decision (19 U.S.C. §1514(c)(3)(B)).

The criteria required for granting a Request for Further Review are set forth in 19 C.F.R. 174.24, which states:

Further review of a protest which would otherwise be denied by the port director shall be accorded a party filing an application for further review which meets the requirements of §174.25 when the decision against which the protest was filed: (a) Is alleged to be inconsistent with a ruling of the Commissioner of Customs or his designee, or with a decision made at any port with respect to the same or substantially similar merchandise; . . .

The protestant contends and it is the opinion of your office that this protest warrants further review because it meets the criteria of 19 CFR 174.25 and “is alleged to be inconsistent with a ruling of the Commissioner of Customs or his designee, or with a decision made at any port with respect to the same or substantially similar merchandise” per 19 C.F.R. 174.24(a). This office agrees that this protest is entitled to further review.

PROTEST SCOPE ISSUE

1. Can Customs raise additional issues for rejection of a drawback entry more than 90 days after the drawback entry was liquidated?

In a subsequent submission dated March 10, 2003, the protestant states that, “Customs is legally barred from raising additional issues supporting denial of the drawback claim once the drawback claim has been liquidated and 90 days have passed.” Further, Agip argues that “[f]or Customs, [§1501] provides Customs’ actions are final once 90 days from liquidation has passed.” The protestant also states that 19 U.S.C. § 1501 “govern[s] liquidation.” The protestant also contends that its position - that section 1501 renders Customs’ actions final 90 days after liquidation - “is fully supported by the courts.” None of the protestant’s contentions with regard to the application of 19 U.S.C. § 1501 are supported by the statutory language or judicial interpretation. Customs may raise additional issues for rejection of a drawback claim more than 90 days after the claim was liquidated if a protest was filed within those ninety days.

The protestant’s statements “that 19 U.S.C. § 1501 “govern[s] liquidation” and “[f]or Customs, [§1501] provides Customs’ actions are final once 90 days from liquidation has passed” are incorrect legally. Neither of these conclusions are supported by the text of the statute. First, entries of merchandise liquidate per 19 U.S.C. § 1500, not 1501. Section 1501, provides in part:

A liquidation made in accordance with section 500 [19 USCS § 1500] or any reliquidation thereof made in accordance with this section may be reliquidated in any respect by the Customs Service, notwithstanding the filing of a protest, within ninety days from the date on which notice of the original liquidation is given or transmitted to the importer, his consignee or agent.

Hence, section 1501, “voluntary reliquidations by the Customs Service”, gives Customs the authority to reliquidate i.e., liquidate again, an entry that has already been liquidated in accordance with 19 U.S.C. § 1500 (or already reliquidated per § 1501).

Section 1500 provides, in pertinent part:

The Customs Service shall, under rules and regulations prescribed by the Secretary-- (a) fix the final appraisement of merchandise . . . ; (b) fix the final classification and rate of duty applicable to such merchandise; (c) fix the final amount of duty to be paid on such merchandise . . . ; (d) liquidate the entry and reconciliation, if any, of such merchandise; and (e) give or transmit, pursuant to an electronic data interchange system, notice of such liquidation to the importer, his consignee, or agent in such form and manner as the Secretary shall by regulation prescribe.

(Emphasis added.) As is made clear from the italicized text above, section 1500 applies to entries of merchandise. Since section 1501 applies only to liquidations per section 1500, section 1501 applies only to entries of merchandise and, consequently, authorizes reliquidation of an entry of merchandise, whether or not a protest has been filed, within 90 days of the original liquidation. Since Agip protests the “refusal to pay a claim for drawback” there is no entry of merchandise at issue in the instant protest, and thus, no reason to conclude that section 1501 applies. In addition, drawback claims, such as the one at issue here, liquidate per 19 CFR 191.81, as authorized by 19 U.S.C. § 1313(l). Drawback claims do not liquidate under 19 U.S.C. § 1500 since they are not entries of merchandise. Moreover, an importer, consignee or an agent of either is not involved. Therefore section 1501 cannot apply to drawback claims.

The protestant’s statement that “[section1501] provides Customs’ actions are final once 90 days from liquidation has passed” is also incorrect legally. Section

1514(a) provides in part:

(a) Finality of decisions; return of papers. Except as provided in subsection (b) of this section, section 501 [19 USCS § 1501] (relating to voluntary reliquidations), section 516 [19 USCS § 1516] (relating to petitions by domestic interested parties[.]), and section 520 [19 USCS § 1520] (relating to refunds and errors) of this Act, decisions of the Customs Service, including the legality of all orders and findings entering into the same, as to-- (6) the refusal to pay a claim for drawback; . . .

shall be final and conclusive upon all persons (including the United States and any officer thereof) unless a protest is filed in accordance with this section, . . . .

Consequently, section 1514(a) provides that a Customs decision relating to the refusal to pay a drawback claim becomes final by action under 19 U.S.C. § 1514(a)(6) unless a protest is filed within ninety days after notice of liquidation (see also 19 C.F.R. 174.12(e)). Section 1514(c)(3) provides,

A protest of a decision, order, or finding described in subsection (a) shall be filed with the Customs Service within ninety days after but not before-- (A) notice of liquidation or reliquidation, . . . .

Therefore, the refusal to pay the drawback claim at issue here would have been final and conclusive on all parties, Customs and Agip, 90 days after the notice of liquidation if a protest had not been filed. Since Agip filed the instant protest on June 28, 2001, the refusal to pay the instant drawback claim is not final.

Agip cites the Federal Circuit Court of Appeals’ decision in United States v. Utex International, 857 F.2d 1408 (U.S. App. 1988) and Computime, Inc. v. United States, 772 F.2d 874 (U.S. App. 1985) for support of its position - that section 1501 renders Customs’ actions final 90 days after liquidation - “is fully supported by the courts.” There is no such support in the cases cited. The facts of these cited cases are different from those at issue in critical aspects, and both of these cases turn on the application of 19 U.S.C. § 1514 – not 1501. Further, both cases involved entries of merchandise, frozen shrimp in Utex International and watches in Computime, not drawback claims. Thus, neither of these cases supports any contention by the protestant with regard to section 1501 or liquidation or claims for drawback.

Specifically, the protestant states that the following language from Utex International supports its position:

But absent timely reliquidation or protest [the liquidation] was final as to all aspects of the entry. The importer, the surety, and the government are bound by and have the right to rely on the finality of liquidation

857 F.2d 1408, 1412 (emphasis added). However, we draw the protestant’s attention to the italicized text. In Utex International, Customs liquidated the entry on February 29, 1980. The liquidation subsumed the issue of admissibility of the imported goods. Customs demanded exportation of the goods on March 12, 1980 without reliquidation, a position inconsistent with the liquidation approving admissibility on February 29, 1980. No protest was filed. The court held that the unprotested liquidation of February 29, 1980, became final and bound all parties, including the U.S., to the position taken as to admissibility.

Because no protest was filed in Utex International, per section 1514 the liquidation was final after 90 days. In Agip’s case, unlike the case in Utex International, there was a protest filed; therefore, the liquidation did not become final per section 1514 after 90 days. Additionally, Utex International involved an entry of merchandise – frozen shrimp – not a drawback claim as in Agip’s protest.

The protestant also cites this statement in Computime, Inc. as support for its contention that, after denying its claim for drawback, additional reasons for denial cannot be raised: In short, the court emphasized that a protest following reliquidation can contest only those points raised by the Customs Service's decision on the initial protest.

772 F.2d 874, 878. In Computime, there was a timely protest to the classification of watch modules. Customs granted the protest and reliquidated and classified the watch modules and watch cases in the entry even though only the classification of the watch modules was protested. Computime protested the classification of watchbands following the first protest reliquidation.

Hence, the issue before the Computime court was whether the classification claim as to the modules included the claim that the watch modules, cases and bands were a unit. This issue dealt with the effect of a reliquidation following a protest. In the instant protest by Agip, there was no reliquidation. There was only one liquidation and that liquidation has not become final under the express words of 19 U.S.C. § 1514 on finality, as a result of the protestant’s action in filing the protest. Section 1514 does not state that the liquidation binds one party only.

In the language cited by Agip, the CAFC in Computime was referring to the court in F.W. Woolworth Co. v. United States, 26 C.C.P.A. 157 (1938), in which decision this court considered the effect of section 1514 on a section 1501 reliquidation following a granted protest. The F.W. Woolworth Co. court held that “a protest following reliquidation can contest only those points raised by the Customs Service's decision on the initial protest.” Id.; see also 19 C.F.R. 174.16. Again, the facts in Computime are not similar to those in the instant protest. In Computime there was an entry of merchandise not a drawback claim, a granted protest and a reliquidation – none of which apply to the facts of the instant protest. Further, this case considered the relationship between sections 1514 and 1501. Section 1501 is inapplicable in Agip’s case.

The protestant asserts that, based on the reasoning in Computime, 90 days after liquidation “the Protestant is barred from raising additional issues.” Agip concludes that “it would be an unjust anomaly if Customs could expand the reason for the drawback denial more than 90 days after liquidation and bar as untimely the protestant’s challenge to the new reasons for denial.” The reasoning in Computime does not apply to the instant protest because the facts are different in critical respects. Agip’s protest does not involve entries of goods whereas Computime involved entries of watches. Further, there was no protest following a reliquidation in the instant protest as in Computime.

Additionally, section 1514 provides that, unless a timely protest or court action is filed, within 90 days, the named decisions of Customs are final and binding on all parties to the transaction, including Customs. Thus, section 1514 preserves equality of treatment as between Customs and those engaged in Customs transactions. We also draw the protestant’s attention to 19 C.F.R. 174.28, “consideration of additional arguments” which provides:

In determining whether to allow or deny a protest filed within the time allowed, a reviewing officer may consider alternative claims and additional grounds or arguments submitted in writing by the protesting party with respect to any decision which is the subject of a valid protest at any time prior to disposition of the protest.

19 C.F.R. 174.28.

Therefore, the submission of additional arguments or grounds and alternative claims with regard to the decision which is being protested are allowed until the final disposition of the protest.

Finally, the protestant also states, “Customs considered the issue of the interaction between a protest and Customs ability to reliquidate an entry under 19 U.S.C. § 1501 in a series of memorandums . . . .” We do not here address these memorandums nor Agip’s analysis of them because since section 1501 does not apply to the instant protest there is no need to discuss this issue or the memoranda.

DRAWBACK ISSUES

Under 19 U.S.C. §1313(j)(2), as amended, drawback may be granted if there is, with respect to imported dutypaid 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 issues before us in this case are importer requirements, commercial interchangeability of the imported and substituted merchandise, and possession.

Before its amendment by Public Law 103182, the standard for substitution was fungibility. House Report 103361, 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. 103189, 103d Cong., 1st Sess., 8185 (1993)) contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability. The amended Customs Regulations, 19 CFR 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.

The statutory provision for substitution unused merchandise drawback, 19 U.S.C.

§1313(j)(2)(ii), is the following:

(2) If there is, with respect to imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation, any other merchandise (whether imported or domestic) that-- (A) is commercially interchangeable with such imported merchandise; … (C) before exportation or destruction— …. (ii) is in the possession of, including ownership while in bailment, in leased facilities, in transit to, or in any other manner under the operational control of, the party claiming drawback under this paragraph, if that party- (I) is the importer of the imported merchandise,...

Emphasis added.

Whether the protestant was legally the importer of record of the imported merchandise.

In the Port’s protest transmittal it is stated that “the requirements for possession of the imported MTBE appear to be met.” There is no possession requirement for the imported merchandise. In B.F. Goodrich v. United States, 794 F. Supp. 1148 (CIT 1992), the Court of International Trade held that a drawback claimant does not have to possess the duty-paid imported merchandise. The court stated that the possession requirement attaches only to the exported goods, and that the drawback claimant under section 1313(j)(2) was only required to have paid the duty, tax or fee for the privilege of importing the goods. Id., at 1150. The current version of 19 U.S.C. §1313(j)(2) requires with respect to the imported merchandise that the claimant be the importer or receive from the importer a certificate of delivery covering the imported merchandise or commercially interchangeable merchandise.

The Port’s transmittal also questions whether or not it is appropriate to question an import shipment to determine the owner of the merchandise when the importer of record claims such right of ownership. The statute, 19 U.S.C. §1484(a) requires that the “importer of record” make entry. Section 1484(a)(2)(B) limits an “importer of record” to be the owner or purchaser or consignee of the merchandise, or a validly licensed person appropriately designated by any of the foregoing. In this case, while we do not have payment records for the transaction, there is no evidence that Agip was not either the purchaser or owner of the imported merchandise. According to the documentation, the imported merchandise was imported pursuant to a purchase agreement, in which Agip was identified as the purchaser of the MTBE. Customs may question whether a party claiming the right to make entry is either the owner, purchaser or consignee of the imported merchandise. However, once Customs has accepted the payment of duty, the entry has liquidated, and that liquidation has become final, Customs cannot subsequently challenge by a reliquidation of the import entry whether the importer in fact had the right to make entry. Customs could challenge the right to make entry by means of a penalty.

Whether the imported and substituted MTBE is commercially interchangeable for purposes of 19 U.S.C. §1313(j)(2).

In order to determine whether the MTBE is commercially interchangeable, an analysis of the following factors is required:

Governmental and Recognized Industry Standards

The imported MTBE had a purity of 98.55% and a portion of the exported MTBE had a purity of 96.71%. The certificate of analysis appears to be only for the 50,000 barrels of MTBE purchased from one of the two domestic suppliers. The purchase and sales documents for both the import and export specified a purity of 95%, and a methanol content of O.5%. The water content for the import is specified to be 1000 ppm. There is a conflict among the export sales agreements and documents, as to whether the water specification is actually 1000 ppm max or 1500 ppm max. If the water content exceeded 1000 ppm in any instance, the specification for the import would not have been met. In this case, in all transactions (for which the certificates of analysis were provided) the water content was below 1000 ppm, and therefore within all of the specifications, and the confusion as to the correct export specification for water content does not change the outcome of this analysis.

As to the issue of whether the confirmation signed only by Agip is sufficient upon which to make a commercial interchangeability determination, in this case we find that because the confirmation references and incorporates an agreement signed by the foreign purchaser, the confirmation appears to be binding upon Agip, and the transaction appears to have been performed in accordance with the confirmation, the confirmation and the incorporated agreement is acceptable as evidence of the export transaction. The domestic supply agreement is not evidence of the export transaction; however, it is evidence of Agip’s rights with respect to the domestic MTBE.

The protestant takes the position that the published ASTM standard D5983-96 is applicable to the subject merchandise. The first ASTM standard for MTBE was approved on November 19, 1996 and published in January, 1997. Contrary to the protestant’s assertion, all but one of the entries were made prior to the approval of the standard and all of the entries were made prior to the publication of the standard. Therefore it is arguable that the standard does not apply to the imported merchandise and cannot be the basis of a commercial interchangeability decision. However, in this case, the specifications in the import and export sales documents parallel the subsequently published ASTM standard, with the exception of the water content, for which the ASTM standard is the stricter one (1000 ppm vice 1500 ppm). The specifications for MTBE under ASTM D 5983-96, are as follows:

Appearance Clear and bright Color, Saybolt, min +5 Sulfur, mg/kg, max 300 Solvent-washed gum content, mg/100 ml, max 5.0 Copper strip corrosion, max 1 MTBE, mass % min 95.0 Methanol, mass % min 0.5 Vapor pressure, KA (pi), max 62 (9.0) Water, mass %, max 0.10 API gravity at 15.8ºC (60ºF) Report

In this case, the Houston laboratory based its conclusion on Customs decision in HQ 226074, dated September 29, 1995. In HQ 226074, it was concluded, based on data, that although there were no government or industry standards for MTBE at that time, MTBE was marketed as having two different minimum purity values, 95% and 98%, and containing no more than 0.5 wt. % methanol and 1500 ppm water. In 226074, it was determined that the imported and substituted exported MTBE met the governmental and recognized industry standard criterion of commercial interchangeability, because it all had a minimum purity value greater than 98%, a methanol content below 0.5 wt.% and a water content below 1500 ppm, and therefore met the industry standard of MTBE with a minimum purity of 98%. It appears that in this case the Houston laboratory may have concluded that because some of the MTBE had a purity above 98% and some below 98%, that it did not meet this criterion. However, the Houston laboratory did not take into consideration the fact that the specifications in the transaction documents for both the imported and exported MTBE specified a minimum of 95% purity, in which case all of the MTBE met that specification, whether or not it had a purity above 98%.

The current ASTM standard sets forth a purity of 95%, and nine other parameters. According to an Office of Laboratories and Scientific Services report for HQ 229838 (also pertaining to the commercial interchangeability of MTBE), the three most important properties for MTBE are the purity, water content and methanol content. As the imported and a portion of the exported MTBE meets the ASTM standard for the three most important properties, as well as the import and export specifications, we conclude that the imported and 50,000 barrels of the exported MTBE meet the “government and recognized industry standards” criterion of commercial interchangeability. With respect to the remaining portion of the exported MTBE, we would require a certificate of analysis with respect to the remaining 150,000 barrels supplied, or documentation indicating that the submitted certificate of analysis is applicable to all 209,924 barrels of the exported MTBE. Drawback claim AA6-xxxx886-6 also claims drawback on the basis of the same export as the representative claim, therefore the drawback for that claim is also dependent upon receipt of the foregoing information.

Tariff Classification

According to the claimant’s entry and drawback documents, both the imported and substituted domestic MTBE are classified in former subheading 2909.19.1010, HTSUS, current subheading 2909.19.1400, HTSUS. As both the imported and domestic MTBE are classified under the same HTSUS subheading, a finding of commercial interchangeability is supported by this criterion.

Part Numbers

From the documents submitted it appears that MTBE is traded in bulk and thus does not have any part numbers, or similar identification assigned for either the imported or exported MTBE. We find this criterion to be inconclusive on the issue of commercial interchangeability.

Relative Values

The evidence submitted shows that the value of the imported MTBE is 65% greater than the value of the exported MTBE. The relative value is calculated by comparing the price per kilogram of the import to the price per kilogram of the export. The price per kilogram is calculated by dividing the total value stated on the CF 7501, by the quantity of MTBE shown on the CF 7501. Each line item is calculated separately. The relative value for the MTBE imported in 1996 is significantly higher than for that exported in 1999. There is no basis upon which to determine the cause of the difference. In general such an unsupported difference in value is unfavorable to a finding of commercial interchangeability, however the difference may not preclude a finding of commercial interchangeability, depending on the other criteria.

On the basis of the foregoing analysis, we find that under the criteria, the imported MTBE and 50,000 barrels of the exported MTBE (those for which a certificate of analysis was provided), are commercially interchangeable, largely on the basis of the merchandise meeting the subsequently adopted industry standard which parallels or is narrower than the specifications set forth in the transaction documents, and also meeting the transaction specifications.

Whether the drawback claimant has satisfied the possession requirement of 19 U.S.C. §1313(j)(2).

Under 19 USC 1313(v), multiple claims based on the same exported merchandise are prohibited. The definition of "exporter" in 19 CFR 191.2(m)(2) provides for only one exporter to exist with respect to drawback claims, in part, to prevent the same merchandise from being identified as the exported merchandise for multiple drawback claims. Unlike the identification or designation of an import entry, which has a unique number, there are multiple ways to identify goods covered by an export shipment. Generally, the bill of lading and the sales documents are used to show that particular merchandise left the US with the intention of being severed from the commerce of the US and being joined to the commerce of another country. However, since the provisions of 19 USC §1313 do not provide for an exclusive means to show exportation, other evidence can be used to satisfy that statutory requirement. See 19 CFR 191.2(m)(1) and subpart G, Part 191. Consequently, the verification of export evidence should focus on whether acceptance of that evidence is able to preclude the possibility of two or more persons being able to identify the same merchandise on two different claims.

We have held in the past that a situation where the possessor of the imported merchandise attempts to export the exported merchandise without actually taking possession constitutes "a sham" and does not satisfy the possession requirement. C.S.D. 87-18; C.S.D. 89-108. In these cases, the claimant never actually took legal possession of the exported merchandise despite an agreement to purchase such in the first case and an arrangement to export the merchandise directly to the foreign buyer from the seller's storage facility without first taking possession.

Customs has defined possession for purposes of drawback, in C.S.D. 85-52, which holds that ownership of a commodity is not necessarily possession of that commodity for purposes of drawback:

Possession... means complete control over the articles or merchandise on premises or locations where the possessor can put the articles or merchandise to any use chosen. It does not mean that by trading commercial paper, e.g., purchase orders or bills of lading, between brokers or others in a commodity while that commodity winds its way across America by train or truck, possession is somehow created. Transactions made in order to create a climate for drawback will not support drawback.

In HQ 225166, dated April 10, 1996 (also addressed in HQ 224103, dated October 19, 1992, and HQ 224541, dated October 14, 1993) (collectively referred to as “Astra decision”), the facts were similar. In that case title and risk of loss passed to both the claimant (Astra) and foreign purchaser as the merchandise passed the ship’s rail in the port of shipment, the bills of lading identified the claimant as the shipper and were given to the claimant upon issuance, and the exporting vessel upon which the merchandise was delivered directly by the seller of the merchandise to the claimant, was chartered by the foreign purchaser.

The documentation in the Astra decision showed that the shipment of the exported merchandise was for the account of the foreign purchaser. On this basis, in HQ 224541, Customs concluded that the claimant acted as an agent for the foreign purchaser, and there was no evidence that the claimant exercised any control over the merchandise apart from directions provided to it by the foreign purchaser. Therefore, Customs concluded that the claimant had not established that it had possession of the exported merchandise prior to its exportation.

In HQ 224103, Customs concluded that under the above facts, where the exporting vessel was chartered by the foreign purchaser, in the absence of documentary evidence such as a sub-charter agreement or a contract setting forth the responsibilities and rights of the claimant and the foreign purchaser between the time the merchandise is loaded on the exporting vessel and the time the vessel departs the U.S., the claimant had not possessed the exported merchandise within the meaning of 19 U.S.C. §1313(j)(2)(C)(ii). The documentation submitted by the claimant showed that the claimant acted as the foreign purchaser’s agent.

The statutory language applied in HQ 225166, was the same as in the instant case. In HQ 225166, Customs concluded that the claimant did not receive any meaningful title or risk of loss of the merchandise, therefore the claimant did not even have ownership of the merchandise while in bailment to the vessel charterer. Based on the evidence and finding that the claimant was acting as an agent of the foreign purchaser, it was clear that the claimant did not have operational control over the merchandise.

In this case, the exported MTBE was purchased by Agip from a domestic supplier and then sold to the Venezuelan purchaser. According to the documentation the terms of the domestic sale were were “F.O.B. O.S.B. (One Safe Berth [named terminal] Houston, Texas.” According to “Incoterms” 2000 published by the International Chamber of Commerce, “F.O.B.” means “Free on Board”, which means that the seller delivers when the goods pass the ship’s rail at the named port of shipment, that the buyer has to bear all costs and risks of loss of the goods from that point. Further, the buyer must arrange and pay for the carriage of the goods from the named port of shipment. Therefore, the domestic supplier delivered when the MTBE passed the ship’s rail at Houston, and Agip had to arrange and pay for carriage from Houston and bear all costs and risks of loss of the MTBE from that point until the title and risk of loss passed to the Venezuelan purchaser as described below.

The exported MTBE was purchased from Agip by the Venezuelan purchaser. The delivery terms of that sale were “D.E.S. O.S.B. (One Safe Berth) [named port], Venezuela”. According to Incoterms 2000, “D.E.S.” means “Delivered Ex Ship”, which means that the seller delivers when the goods are placed at the disposal of the buyer on board the ship but not cleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging. Based on the terms of sale alone, we can conclude that from the time the MTBE was laden on the vessel in Houston, until it was unladen at the named port in Venezuela, Agip had operational control and meaningful title and risk of loss over the MTBE being shipped to Venezuela. This is further supported by the fact that Agip is the named consignee on the export bill of lading. Therefore Agip had ownership and possession within the meaning of section 1313(j)(2) of the MTBE prior to exportation as well as while it was in bailment to the vessel charterer. The statute requires that the exporter have possession of the merchandise prior to its exportation, and acquiring possession after the exportation is not sufficient to meet the statutory requirement.

Any assignment of the MTBE supply agreement to Agip, does not preclude possession under these facts. The terms of the assigned supply agreements were also “D.E.S.” Venezuela, and the related domestic supply agreements were “F.O.B. Houston”, between the domestic supplier and Agip. Therefore Agip had possession of the MTBE until it was delivered to the named port in Venezuela. The facts here are distinct from those in C.S.D. 87-18 in which an illustration of a sham transaction in which there is no bona fide possession, is described as follows:

Corporation B possesses duty-paid designated merchandise.

Corporation C possesses domestic merchandise that is fungible with corporation B’s designated merchandise.

Corporation C has a contract for sale to a foreign buyer.

Corporation B agrees to purchase C’s merchandise, (the domestic substituted merchandise) and exports the substituted merchandise to fulfill C’s obligation to its foreign customer.

In such an illustrated case, Corporation B, as a single entity was not a bona fide possessor of both designated and substituted merchandise and the paper transactions would be considered a sham to create a climate for drawback where none exists.

In the instant case, rather than simply purchasing the assignor’s merchandise to fulfill an obligation of the assignor, Agip was assigned the obligation to deliver and sell the MTBE, and completed that obligation by acquiring its own MTBE to supply. If Agip had purchased the MTBE from the assignor as well, without additional evidence of Agip’s independent control over the sale of the MTBE, we would be unable to determine that Agip had established possession over the exported merchandise.

We conclude that Agip has established that it had possession for purposes of 19 U.S.C. §1313(j)(2) of the exported merchandise.

Regarding evidence of exportation, only drawback claims AA6-xxxx888-2 and AA6-xxxx886-6 are supported by a certified copy of a bill of lading. Before allowing any drawback, certified copies of the bills of ladings should be supplied for the remaining two drawback claims.

HOLDING:

Customs may raise additional issues for rejection of a drawback claim more than 90 days after the claim was liquidated when a protest under § 1514 has been timely filed.

There is no evidence that the protestant was not legally the importer of record of the imported merchandise.

The imported and substituted MTBE is commercially interchangeable for purposes of 19 U.S.C. §1313(j)(2), to the extent of the exported MTBE for which certificates of analysis were provided.

The drawback claimant has satisfied the possession requirement of 19 U.S.C. §1313(j)(2).

The protest may be granted in part with respect to drawback claims AA6-xxxx888-2 and AA6-xxxx886-6, for the portion of the MTBE for which there is a certificate of analysis. The protest is denied with respect to drawback claims AA6-xxxx473-3 and AA6-xxxx503-4 unless the additional documentation described above is provided, establishing exportation for the claims. 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,

Myles Harmon, Director
Commercial Rulings Division