DRA-4; RR:CR:DR 230172 MK
Clarence W. Bull
M.G. Maher & Company, Inc.
801 Travis Street, Suite 1450
Houston, TX 77002
Re: Ruling request; commercial interchangeability; Repsol Quimica S.A.; polyol;
polyurethane foam; 19 U.S.C. §1313(j)(2).
Dear Mr. Bull:
This is in response to your October 27, 2003 ruling request, on behalf of your client, Repsol Quimica S.A. (“Repsol”), regarding the commercial interchangeability of imported and domestic polyol for purposes of substitution, unused merchandise drawback under 19 U.S.C. 1313(j)(2).
FACTS:
Repsol buys and sells various polyols. The company imports the polyols in bulk form and stores the polyols in tank farms outside Houston, Texas and Savannah, Georgia. Polyol is used exclusively in the manufacture of polyurethane foam and has no other commercial application. Polyol is the base factor in the manufacturing process and when combined with other elements in different percentages creates foam of different densities. Repsol imports the polyol under its specific grade, in this instance, F-5511 and F-2941. Each polyol has different physical and chemical properties and is used to create a specific type of foam. The polyol grade numbers are used to identify the polyols in the importation, exportation, laboratory analysis, and inventory documents.
Repsol conducts business transactions based on the specifications provided on the Technical Data Sheet which states that “Alcupol F-5511,” the copywrited brand name for this specific polyol, has the following physical and chemical properties:
Appearance: Clear liquid, nearly uncoloured
Specific gravity (25(C,g/cm3): 1.019
Flash Point ((C): 246(*)
Fire Point ((C): 268(*)
Viscosity
at 5(C (cp): 1900
at 15(C (cp): 860
at 25(C (cp): 490
at 40(C (cp): 210
Average molecular weight: 3000
Colour (Hazen units): 50 max.
Hydroxyl number (mg KOH/g): 55
Acid number (mg KOH/g): 0.1max.
Water content (%): 0.1 max.
Na + K content (ppm): 5 max.
(*) Measured in Cleveland cup (ASTM D92-56)
The import records for Alcupol F-5511 consist of entry 101-xxxx638-2 (“638-2”), dated February 1, 2003. The Customs Form (“CF”) 7501 describes the merchandise as a polyester classifiable in subheading 3907.20.00, Harmonized Tariff Schedule United States (“HTSUS”). The import invoice and import bill of lading describe the merchandise as polyol F-5511. The entry contains a quality certificate prepared by SGS Deer Park, Texas, which provides the following pertinent data on two shore tanks:
Tank 765
ANALYSIS TEST
VALUE
SPECIFICATION
UNIT
METHOD
Acidity
0.08
0.1 mg KOH/g
Mf/KOH/g
D 4662
Visual
C&F
Liquid Clear without impurities
Appearance
Visual
Color
20
50 U. Hazen Max.
Pt-Co
D 1209
Ashes
0.0035
0.01 % wt. Max.
Wt. %
D 482
Hydroxyl #
55.0
55.0 +/- 2.0 mg KOH/g
Mg KOH/g
D 4274
Viscosity
486
490 +/- 30 cp
@ 25 Deg. C.Cp
D 445
Total Unsaturation
0.0310
0.045 meq/g Max.
Meq/g
D 4671
Sodium & Potassium
0.2
5 ppm Wt. Max.
PPM
AAS
Cloud point
36.0
36.0 +/- 1.5 Deg C.
Deg C.
MA-15-3015
Water
0.043
0.1% Wt. Max.
Wt.%
D 4672
Tank 759
ANALYSIS TEST
VALUE
SPECIFICATION
UNIT
METHOD
Acidity
0.08
0.1 mg KOH/g
Mf/KOH/g
D 4662
Visual
C&F
Liquid Clear without impurities
Appearance
Visual
Color
20
50 U. Hazen Max.
Pt-Co
D 1209
Ashes
0.0042
0.01 % wt. Max.
Wt. %
D 482
Hydroxyl #
56.0
55.0 +/- 2.0 mg KOH/g
Mg KOH/g
D 4274
Viscosity
488
490 +/- 30 cp
@ 25 Deg. C.Cp
D 445
Total Unsaturation
0.0320
0.045 meq/g Max.
Meq/g
D 4671
Sodium & Potassium
0.1
5 ppm Wt. Max.
PPM
AAS
Cloud point
36.0
36.0 +/- Deg C.
Deg C.
MA-15-3015
Water
0.048
0.1% Wt. Max.
Wt.%
D 4672
Documents that appear to be the record of receipts and removals from tanks 759 and 765 at Deer Park, Texas and Tanks 18 and 47 at Savannah were provided. The record for the Deer Park tanks covers the period from September 11, 2000, to May 30, 2003. The Savannah tanks records for tank 18 covers the period from January 2, 2002, to December 19, 2002, and tank 47’s records cover from Feb 25, 2003, to May 30, 2003. The merchandise put into tank 765 is listed as Alcupol F-5511, and the merchandise put into tank 759 is listed as Polyol F-5511.
The bill of lading for entry 638-2 shows 1,949,780 kg (4,289,516 lbs) of the polyester was imported on the vessel “Monteallegro” on January 27, 2003, at Houston, Texas. The Deer Park tank records for February 8, 2003, show that 3,874,938.81 pounds of Alcupol F-5511 was put into tank 759 from the vessel Montallegro and 413,318.95 pounds of polyol F-5511 was put into tank 765. This total is 4,288,257.7, approximately the amount imported on the vessel “Montallegro” covered by entry 638-2.
The export documents of a vessel shipment from Houston, Texas to Brazil and three rail shipments to Canada consist of an invoice dated January 23, 2003, for 734.473 metric tons of goods described as Alcupol F-5511, a bill of lading for the vessel “Bow Cardinal” dated February 2, 2003, describing the merchandise as 734.473 metric tons of polyol F-5511, an SGS Control Services report dated February 7, 2003, describing the loading of merchandise described as 734.473 metric tons (734.472.051 kg) of polyol F- 5511. There are three invoices for the rail shipments: two dated February 22, 2003, and one dated April 22, 2003, covering 186,300 lbs, 182,800 lbs, and 180,250 lbs, respectively of merchandise described as Alcupol F-5511. The record receipts of the Deer Park facility show that two of these exports came from tank 759 and one came from tank 765.
ISSUE:
Whether the imported and domestic polyol F-5511 are commercially interchangeable for purposes of 19 U.S.C. § 1313(j)(2)?
LAW & 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 only issue raised here is one of commercial interchangeability. 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).
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 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. Our analysis of the four factors and critical properties follows.
Government and Recognized Industry Standards
Industry consensus standards ensure that all products meeting a standard are used in the same manner, regardless of manufacture. Under normal circumstances, materials that meet the same industry accepted standard can be used to produce the same products or utilized for the same purposes. These uses are normally stated in the standard. However, there is no evidence of government of industry standards for F-5511 included in the submission. Nor could the CBP Office of Laboratory Services confirm any such standards. From this we conclude that there are no applicable governmental or industry standards for F-5511, and therefore, the Government and Recognized Industry Standards criterion is irrelevant to the instant analysis.
Tariff Classification
With respect to tariff classification, according to the CF 7501 the polyethers that are entered are done so under subheading 3907.20.0000, HTSUS. There is no indication of a tariff classification on any of the exported documents. However, since the provided tank inventory records show that the imported and exported polyols were stored in the same tanks, it is assumed that the exported polyols would be classifiable under the same tariff subheading as the designated polyol.
Part Numbers
Based on the evidence presented in the submission, F-5511 is a bulk commodity and is not assigned a part number. Repsol does however use grade names and numbers to identify the merchandise. In this case, there are two descriptions of the goods that are claimed to be commercially interchangeable: Polyol F-5511 and the brand name Alcupol F-5511.
It appears that Repsol uses both names interchangeably. The entry documents and certificates of analysis for both tank numbers 759 and 765 of the Monteallegro refer only to Polyol F-5511. The inventory records at Deep Park refer to tank number 759 as containing Alcupol F-5511. According to our Laboratory Services, the certificates of analysis, albeit slightly different, show the contents of both tanks qualifying under the company’s description and specifications for Alcupol F-5511 submitted on the company’s technical data sheet.
Also, all four of the export invoices, one by vessel to Brazil and three by railcar to Canada, refer tot he merchandise as Alcupol F-5511, even though the Brazilian exportation and Canadian exportation described in the invoice dated March 22, 2003, came from tank number 765 of the Deer Park facility which according to the inventory logs contains Polyol F-5511.
Therefore, although there are not specific part numbers, the use of what Repsol calls grade names, in this case either Polyol F-5511, or Repsol’s copywrited brandname Aculpol F-5511, designate this specific polyol, with the specifications shown on the Repsol Technical Data Sheet. Therefore the company’s use of a grade name designating a particular good within the specifications provided can be said to have met one criterion for commercial interchangeability.
Relative Values
Based on the invoices included for the imported and exported transactions, there is a ten percent increase in price per ton for the exported products at the stated quantities during the exact time period of these transactions. The price increase applies to both exports: Brazil by vessel and Canada by railcar and for what Repsol calls Polyol F-5511 and Alcupol F-5511.
We have previously held that large disparities in the relative values of the export and import are not determinative, as a criterion, when the differences appear to be due solely to the market forces of supply and demand at the time of purchase rather than attributable solely to any difference in the quality of the imported or exported merchandise. However, in the instant case, we conclude that a definitive assessment of the relative values of the polyols cannot be made due to a lack of documentary evidence. We have not been provided with any explanation as to why imports and exports within the same month and both by vessel to relative distances would have such a price difference. Therefore, the relative value criterion is also inconclusive on the issue of commercial interchangeability.
Critical Properties
A prevalent customer preference of one form of product over another may be evidence that merchandise is not commercially interchangeable. In this case, based on the inventory records and Repsol’s Technical Data Sheet, we conclude that there are no significant factors that would dictate which polyol F-5511 is purchased. The sales invoices of the polyol at issue state that Alcupol F-5511 was sold. This brand name designates the same merchandise as polyol F-5511. The importer states that all purchases and sales of this product are based on the specifications of the Technical Data Sheet provided by Repsol for Alcupol F-5511, and the inventory record shows that exports designating “Alcupol F-5511” were withdrawn from both storage tanks: one labeled “Alcupol” and one labeled “Polyol.”
In Texport Oil Company v. United States, 185 F3d 1291 (Fed. Cir. 1999) (vacating the CIT decision in Texport Oil Company v. United States, 1 F. Supp. 2d 1393 (1998)), the CAFC stated that “a firmly objective standard—analyzed from the perspective of a hypothetical reasonable competitor” avoids the concerns of overbroad descriptions of merchandise on transaction documents, prone to manipulation, and the “analysis might also include evidence of arms-length negotiations between commercial actors, the description of the goods on bills of sale or invoices….” 185 F3d at 1295. The court stated that “’commercially interchangeable’ must be determined objectively from the perspective of a hypothetical reasonable competitor; if a reasonable competitor would accept either the imported or the exported good for its primary commercial purpose, then the goods are ‘commercially interchangeable’”. Id.
In Texport, the CAFC cautioned against reliance on overly broad or vague descriptions in commercial documents. Further, the decision in Texport, supports a decision to rely on the descriptions of the actual merchandise at issue. In this case, the commercial documents are specific in their purchasing of Alcupol F-5511 and the company has a specific Technical Data Sheet which establishes what constitutes this product.
After evaluating all the relevant criteria suggested by the legislative history and the additional relevant factors, we find that commercial interchangeability of Polyol F-5511 has been established.
We would like to note however, that substitution of unused commercially interchangeable merchandise, subject to certain conditions, is authorized under 19 U.S.C. §1313(j)(2), but 19 U.S.C. §1313(j)(4) limits that authorization. Under 19 U.S.C. §1313(j)(4): Effective upon the entry into force of the [NAFTA], the exportation to a NAFTA country ... of merchandise that is fungible with and substituted for imported merchandise, other than merchandise described in paragraphs (1) through (8) of [19 U.S.C. §3333(a)], shall not constitute an exportation for purposes of [section 1313(j)(2)].
In pertinent part, 19 U.S.C. §3333(a) provides: For purposes of this Act…, the term “good subject to NAFTA drawback” means any imported good other than the following: (2) A good exported to a NAFTA country in the same condition as when imported into the United States. Under 19 U.S.C. §3333(a), an imported good subsequently exported to a NAFTA country in the same condition as when imported, is not a “good subject to NAFTA drawback”.
In this case, the polyol exported to Canada, by the three rail shipments has not been shown to be the polyol imported in entry 638-2 and would not be eligible for drawback by virtue of 19 USC § 1313(j)(4).
HOLDING:
Based on the above determinations, we conclude that the imported and domestic polyol F-5511 meeting the specifications and stored in the same tanks are commercially interchangeable for the purposes of the substitution, unused merchandise drawback law of 19 U.S.C. §1313(j)(2).
Sincerely,
Myles Harmon, Director
Commercial Rulings Division