DRA-4 RR:CR:DR 230001 LLB
Category: Drawback
KMZ Rosenman
Attn: Michael E. Roll, Esquire
2029 Century Park East, Suite 2600
Los Angeles, CA 90067-3012
Re: Commercial interchangeability; 19 U.S.C. § 1313(j)(2); 19 U.S.C. 1313(w)(1); agricultural product; anhydrous milk fat (AMF); 0405.90.2020, HTSUS
Dear Mr. Roll:
This is in response to your ruling request on behalf of your client, NZMP (USA) Inc., regarding the commercial interchangeability under 19 U.S.C. § 1313(j)(2) of anhydrous milk fat. Our decision follows.
Facts
NZMP (USA) Inc. (NZMP) imports anhydrous milk fat (AMF). NZMP intends to export domestically produced AMF as a substitute for the imported AMF and wishes to claim duty drawback under the unused merchandise drawback provisions of 19 U.S.C.§ 1313(j)(2), based on the imported AMF. The only evidence presented was a copy of the Codex Standard for Milkfat products. (Codex Almentarius).
Issues
1. Whether the AMF that NZMP imports and the domestic AMF it exports meet the requisite criteria for commercially interchangeable merchandise for purposes of the unused merchandise drawback provisions set forth in 19 U.S.C. § 1313(j)(2)
2. If so, whether the commercially interchangeable AMF is eligible for drawback
Law and Analysis
Issue 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.
In order to determine commercial interchangeability, the Bureau of Customs and Border Protection (CBP) uses the criteria in 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, a copy of the document must be submitted with the request.”).
1. Governmental and Recognized Industry Standards
NZMP asserts that the imported and domestic AMF will conform to Codex Alimentarius Commission’s standard for AMF, Codex Stan A-2-1973, Rev. 1-1999.
An assertion by counsel is not evidence. Bar Bea Truck Leasing v. United States, 5 CIT 124 (1983). Consequently, there is no evidence that the imported milkfat would be bought pursuant to the Codex Standard or that the exported milkfat would be sold pursuant to that standard. See HQ 228741 (May 16, 2001)(copy attached).
2. Part Numbers
NZMP asserts that part numbers are used to determine whether the item is AMF and the type and size of the packaging. Where product codes are meaningless other than for identification purposes, part numbers are not a relevant criteria in the analysis of commercial interchangeability. See HQ 225882(July 19, 1996) and HQ 227106 (September 3, 1997). No evidence has been presented with respect to the assertion that the imported and exported milkfat would be identified by the same part number.
3. Tariff Classification
By its subsequent submission dated August 1, 2003, NZMP asserts that the imported and exported AMF will be classified in subheading 0405.90.2020, and is described as:
Butter and other fats and oils derived from milk: dairy spreads
Other:
Other 2/
Anhydrous milkfat
In HQ 228741, CBP found that the milkfat in that case would be classified in subheading 0405.90.2020, HTSUS. Consequently, the evidence in HQ 228741 appears to corroborate the assertion of classification here.
4. Value
NZMP asserts that both the imported and domestic AMF sell for the same U.S. market price per pound; however, NZMP provided no evidence in support of that assertion.
Issue 2
Drawback for certain agricultural products is prohibited pursuant to 19 U.S.C. § 1313(w)(1) which provides:
No drawback shall be available with respect to an agricultural product subject to the over-quota rate of duty established under a tariff-rate quota, except pursuant to subsection (j)(1) of this section.
Any AMF entered during calendar year 2003, under subheading 0405.90.2020, HTSUS, is subject to an in-quota imposition of cumulative “safeguard” rate of duty pursuant to subheading 9904.05.42, HTSUS. Subheading 9904.05.42 indicates “Butter substitutes containing over 45 percent by weight of butterfat, provided for in subheadings . . . 0405.90.20 . . .” that are entered during the effective period of safeguards that are “[v]alued $1.40/kg or more . . .”, are subject to an additional duty of 14.9 cents per kilogram. Therefore, because the AMF is subject to an over-quota rate of duty pursuant to 9904.05.42, HTSUS, drawback under 1313(j)(2) is prohibited by § 1313(w)(1) during the period of time the quota is in effect.
NZMP argues, however, that AMF is not an “agricultural product” and therefore, not subject to the drawback prohibition in 19 U.S.C. § 1313(w)(1). We have held that AMF which is subject to the over-quota rate of duty is subject to the prohibition in 19 U.S.C. § 1313(w)(1). HQ 228741 (May 16, 2001). However, since we did not address whether AMF is an “agricultural product” within the meaning of the statute, we will address NZMP’s arguments.
The statute does not define “agricultural product”. NZMP argues that AMF does not fall within the plain meaning of agricultural product. “It is well settled that ‘in all statutory construction cases, we begin with the language of the statute.” Nippon Steel Corp. v. United States, No. 02-153, slip op. at 17 (Ct. Int’l Trade, Dec. 24, 2002)(citing Barnhart, Comm’r of Soc. Sec. V. Signmon Coal Co., Inc., 534 U.S. 438, 450 (2002). “We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then this first canon is also the last: ‘judicial inquiry is complete.’’ 534 U.S. at 461-62 (internal citation omitted). Thus, the court must determine ‘whether the language at issue has a plain and unambiguous meaning with regard to the particular dispute in the case.’ Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997).
NZMP argues that pursuant to, Websters II New Riverside University Dictionary “agriculture” is defined as “[t]he science, art, and business of cultivating the soil, producing crops, and raising livestock”. NZMP argues that AMF does not fit the foregoing definition because it is a derivative of a product obtained through raising of livestock and that “Customs has considered processed agricultural goods not be agricultural.”
First, we note that the definition of agriculture as it relates to “raising livestock” is ambiguous because it does not address the purpose of raising livestock and could be construed either as raising livestock for slaughter or for milk and its by-products. Second, in support of its assertion that “Customs has considered processed agricultural goods not be agricultural,” NZMP cites several Headquarters’ classification decisions in which a certain type of equipment did not qualify for duty-free entry because it was not agricultural.
In 089242, an evaporator and separator were held to be classifiable under HTSUS heading 8419 (machinery for the treatment of materials by a process involving a change in temperature) and HTSUS heading 8421 (filtering or purifying machinery for liquids). CBP held that the evaporator and separator were not classifiable in subheading 9817.0050, HTSUS, because that subheading was an actual use provision and the process of changing an agricultural product, maple sap, into maple syrup was not a agricultural or horticultural activity for the purpose of tariff classification under an actual use provision.
In 556908, the reasoning in 089242 was followed and held that under the General Rules of Interpretation, the machinery in issue was classified within heading 8419. In 952995, it was observed that the collection of maple sap was an agricultural pursuit. That ruling also followed the decision in 089242 in that the classification determination was based on the application of the General Rules of Interpretation.
The issue in each of the foregoing rulings was whether the machinery was to be used for agricultural purposes. The rulings held that the use of the machinery in a purification process of an agricultural product was not a use in an agricultural pursuit. The rulings did not address the issue of whether the resulting maple syrup was an agricultural product. On the contrary, the rulings observed that the maple sap was an agricultural product and that collection of maple sap was an agricultural pursuit. Consequently, since the issue here is whether milkfat is an agricultural product and subject to a tariff rate quota, rulings regarding the classification of machines used to process an agricultural product, rather than the classification of the product itself, are of little value.
Last, the phrase “agricultural product” should not be read in isolation. A plain reading of the statute shows that the phrase “agricultural product” is followed by the qualifying clauses “subject to the over-quota rate of duty established under a tariff-rate quota.” As discussed above, AMF is subject to an over-quota rate of duty established under a tariff-rate quota; however, since the statute does not define “agricultural product” and the plain meaning of agriculture is vague, we look to the legislative history of the statute to determine the meaning of “agricultural product” as it relates to drawback under § 1313(w)(1).
Although the legislative history does not define “agricultural product”, it is implicit in the legislative history which merchandise are considered agricultural products. In 1994, Congress enacted the Uruguay Round Agreements Act (URAA), which amended 19 U.S.C. § 1313 by adding subsection (w)(1) supra. Pub. Law No. 103-465, § 404(e)(5)(A)(1994). The URAA also gave the President the authority to establish tariff-rate quotas “to ensure that imports of agricultural products do not disrupt the orderly marketing of commodities in the United States.” Pub. Law. No. 103-465, § 404(a)(1994) codified at 19 U.S.C. § 3601(a). As such, the President, by proclamation, imposed tariff-rate quotas on certain agricultural products including AMF. See Proclamation No. 6763, Annex Section D, 60 Fed. Reg.1007, 1423 (Jan. 4, 1995)(imposing a tariff-rate quota on items classified in 0405.00.90, HTSUS which is the predecessor provision to 0405.90.20, HTSUS).
Based on the foregoing legislative history, it is clear that the President’s actions are determinative of which “imports of agricultural products” will be subject to tariff-rate quotas. The proclamation does not define agricultural products, but does identify which products are subject to the administration of tariff-rate quotas. Merchandise classified in 0405.90.20, HTSUS are specifically listed therein and therefore, it is an agricultural product subject to a tariff-rate quota.
In conclusion, it is clear from the legislative history that the agricultural products which are subject to a tariff-rate quota are determined by the President or his delegate. Insofar as Presidential Proclamation No. 6763 specifically identifies merchandise classified in 0405.90.20 as being subject to the administration of a tariff-rate quota; therefore, AMF is an agricultural product for that purpose. Since AMF is an agricultural product subject to the administration of a tariff-rate quota, it cannot be the basis of a drawback claim under 19 U.S.C. § 1313(j)(2).
HOLDING
1. Because of the absence of evidence, commercial interchangeability of the imported and exported anhydrous milkfat has not been shown. If appropriate evidence is submitted, the principles and holding in HQ 228741 would apply.
2. The Anhydrous Milkfat classified under 0405.90.2020, HTSUS, cannot be designated as the basis for a claim under 19 U.S.C. § 1313(j)(2) because AMF is an agricultural product subject to an over-quota rate of duty established under a tariff rate quota and is therefore, subject to the prohibition in 19 U.S.C. § 1313(w)(1).
Sincerely,
Myles Harmon, Director
Commercial Rulings Division