DRA-4 RR:CR:DR 230160 EAB
Ms. Frances Gutt
V. Alexander & Co. Inc.
P.O. Box 30250
Memphis, Tennessee 38130-0250
Re: Substitution unused manufacturing drawback; commercially interchangeable; 19 U.S.C. § 1313(j)(2); luxury nylon fashion bags
Dear Ms. Gutt:
This is in response to your letter dated October 20, 2003, in which you request on behalf of LeSportsac, Inc. ("LSS"), a ruling concerning a potential claim for drawback with respect to luxury nylon fashion bags.
No drawback claims have been filed with CBP in this matter; accordingly, this issue is properly before this Office as a prospective ruling request under 19 C.F.R. 177.1(d)(1). See 19 C.F.R. 177.1(a).
FACTS:
LSS manufactures nylon fashion bags, cosmetic bags, belt bags, garment bags and luggage, as well as other items not the object of this ruling. LSS also imports various fully manufactured nylon fashion, etc. bags.
Both domestic and foreign products are assigned LSS part numbers which are identical but for the designation of the country of origin of the item. Specifically, a "travel cosmetic" bag in a solid color introduced in the spring/summer 2002 product line would be partially identified by the first eight digits of a ten-digit part number, as follows: 7315.5202. Immediately to the right of the eighth digit is a field for quality control; if the finished bag is a "second", the letter "Z" is entered in the ninth field. The tenth and final field is to identify the country of origin of the finished bag. The country of origin of a finished LSS bag may be one of three, the USA or either of two foreign countries. A blank in the tenth field indicates that the bag was made in the USA, whereas an "A" would indicate one foreign source and a "B" would indicate the other foreign source. In accordance with the foregoing system, a travel cosmetic bag of the first quality and made in the USA in a solid color introduced in the spring/summer 2002 product line would be identified as "7315.5202 ". Such a bag manufactured elsewhere than in the USA would be identified as either "7315.5202 A" or "7315.5202 B". If a 7315.5202 travel cosmetic bag were not of the first quality, then it would be identified as "7315.5202Z " if made domestically, as "7315.5202ZA" if made by one of the two foreign suppliers and as "7315.5202ZB" if made by the other of the two foreign suppliers.
In support of the claim that the foreign and domestic bags are commercially interchangeable, you state (October 20, 2003, p. 2) that "The identical manufacturing, finishing and quality guidelines for each style are provided to all U.S. and foreign factories." You also state (p. 4) that "They are identical in every respect and are recognized in the industry as the identical bag with the same retail values."
Domestic and foreign finished bags are entered into inventory according to the above system and are stored in the LSS Distribution Center for eventual shipping to domestic and foreign customers of LSS, except that "seconds", bags identified with the letter "Z" in their part number, are not sold to foreign customers of LSS and are not, therefore, covered by this decision.
ISSUES:
Whether the foreign and domestic nylon fashion bags are "commercially interchangeable" as that phrase is used in 19 U.S.C. 1313(j)(2), thereby entitling LSS to claim the benefit of substitution unused merchandise drawback.
LAW AND ANALYSIS:
Inasmuch as drawback is a creature of statute, we begin with applicable provisions of the law concerning substituted unused merchandise eligible for drawback:
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;
(B) is, before the close of the 3-year period beginning on the date of importation of the imported merchandise, . . . exported . . . and
(C) before such exportation . . .
(i) is not used within the United States, and
(ii) is in the possession of . . . the party claiming drawback under this paragraph, if that party-
(I) is the importer of the imported merchandise, . . .
then upon the exportation . . . of such other merchandise the amount of each such duty, tax, and fee paid regarding the imported merchandise shall be refunded as drawback . . . .
19 U.S.C. 1313(j)(2). Furthermore,
Imported merchandise that has not been regularly entered or withdrawn for consumption shall not satisfy an requirement for [drawback allowance].
19 U.S.C. 1313(u).
We first note from the documents included with and made a part of this application that nylon fashion bags from country "A" and from country "B" have been regularly entered for consumption. See representative Customs Form 7501 pertaining to 300 travel cosmetic bags under entry no. PPPPNNN8594, entered April 3, 2003.
We further note that ten travel cosmetic bags were exported on May 22, 2003 (Air Waybill dated May 22, 2003, i.e., within three (3) years from the date of importation of the product from country "A".
We turn therefore, to the crux of the matter, whether the imported, the domestic and the exported fashion nylon bags are "commercially interchangeable".
We have stated consistently and often (see, e.g. HQ 228642 dated October 23, 2000; HQ 228575 dated October 3, 2000; HQ 225188 dated May 10, 2000), that the legislative history suggests specific criteria (government or recognized industry standards, part numbers, tariff classification and relative values) which have been set forth in the Customs Regulations at 19 C.F.R. 191.32(c). Furthermore, the
"best evidence whether those criteria are used in a particular transaction are [sic] 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 [sic] 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. . . .
HQ 228642, supra.
Government or industry standards
There are no government or industry standards, per se, for these nylon fashion bags. However, you have provided this Office, as a supplement to the ruling request, editions of the LSS Fall/Winter 2003 and Spring/Summer 2004 catalogues, together with suggested retail price lists. From these documents we find that there is no distinction in the marketing or pricing among the domestic, country "A" and country "B" bags. Indeed, there is no indication whatsoever, in the literature, of the country of origin of the product. We find that the retail sales literature supports the claim that "They are identical in every respect and are recognized in the industry as the identical bag with the same retail values." We find that this criterion for commercial interchangeability has been met.
Part numbers, invoices, other commercial documents
Review of the invoices submitted with entry documents, the inventory procedures used in the Distribution Center and the invoices and purchase orders accompanying the air waybill for exportation, demonstrates that all of the first quality finished bags, for each style, have the identical part numbers, regardless of country of origin of the finished bag. We find that this criterion for commercial interchangeability has been met.
Tariff classification
The entry documents, noted above, set forth subheadings 4202.22.xxxx and 4202.32.xxxx of the HTSUS, being respectively descriptive of handbags and articles normally carried in the pocket or in a handbag. No Shipper's Export Declaration pertaining to the outbound bags has been submitted with this request. Pursuant to Customs Regulations, ". . . the aircraft commander or agent shall file with the port director of the departure airport any Shipper's Export Declarations required by the Bureau of the Census (see 15 CFR part 30)" 19 CFR § 122.76(a)(1). The air waybill indicates "NO SED REQUIRED"; however, no basis is given for this statement. See 19 CFR § 4.63(b) (". . . If an export declaration is not required for a shipment, a notation shall be made on [Customs Form 1302-A] describing the basis for the exemption with a reference to the number of the section in the Census Regulations . . . where the particular exemption is provided. . . .") Consequently, while the evidence for this criterion has not been submitted, that failure alone does not preclude a finding of commercial interchangeability. We note that the commercial documents, such as purchase orders and invoices, pertaining to the exportation of the bags bear the same parts numbers that are found on corresponding commercial documents pertaining to the importation of the bags.
Relative values
We have no evidence before us of the cost of manufacturing an American bag for LSS, so we cannot compare that with the data submitted on the purchase orders underlying the importations and exportations of finished bags. However, we see that both domestic and foreign bags are used to fill purchase orders from overseas clients of LSS, without distinction regarding the country of origin of the bags. More specifically, when an order for finished bags is placed with LSS, nowhere is there to be found a delimiter such as "US bags only" or "No bags from country 'A'". Also, the suggested retail price lists included with the seasonal catalogues publish prices that vary, not with the country of origin of the bag, but with the style of the bag. All in all, we find that the relative values of the domestic and foreign made bags compare favorably, and that this criterion has been met.
HOLDING:
Imported and domestic fashion nylon bags having the same 10-digit part number and color made for or by LSS are commercially interchangeable.
Sincerely,
William G. Rosoff, for
Myles B. Harmon, Director
Commercial Rulings Division