• HQ 230889
• Jul 26, 2005

• Type : • HTSUS :
•  Related:   224349   

DRA-4 RR:CR:DR
230889 RLS

Peggy Chaplin, Esq.
Sandler, Travis & Rosenberg, P.A.
111 South Calvert Street
Baltimore, Maryland 21202-3200

Re: Commercial interchangeability ruling for Millennium Inorganic Chemicals Company (“Millennium”)

Dear Ms. Chaplin:

This ruling is written in response to your February 28, 2005 letter in which you asked “for a binding ruling on the commercial interchangeability for substitution unused merchandise drawback of two of [Millenium’s] products known as Tiona RCL-628 and Tiona RCL-6 under” 19 U.S.C. § 1313(j)(2). Your request was made pursuant to 19 C.F.R. § 191.32(c)(1), which allows one to request that this office determine whether two different goods are commercially interchangeable for the purposes of the substitution, unused merchandise drawback law. In your letter, you state that a drawback entry has been filed with the Port of New York but that the claim is being “held in abeyance pending this [office’s] determination of interchangeability.”

In this ruling, we will not address every element of section 1313(j)(2). Our only concern here is whether the two respective substances are commercially interchangeable with one another—as the phrase “commercially interchangeable” is used in the statute and the applicable regulations and as that phrase has been defined by the courts.

FACTS:

Millennium imports Tiona RCL-628 from the United Kingdom, where one of Millennium’s sister entities manufactures the substance. Millennium manufactures Tiona RCL-6 itself in the United States, and it also exports this product. Both products are made from titanium dioxide, which is a dry powdered chemical that can be used as a white pigment for industrial coatings or as a chemical intermediate. The powder is prepared by extracting the chemical from ore, using an acidic reaction, purifying the intermediate, and then forming the particulate material. The surface of the particulate material is then treated with small amounts of both inorganic and organic materials. The RCL-6 is treated with silica, and the RCL-628 is treated with zirconium oxide. Both products are sold for use in industrial coatings. The two products are manufactured through different processes. RCL-6 uses silica encapsulation of the particle to obtain durability, whereas RCL-628 uses reaction inhibition using zicronium oxide to obtain its durability

Both RCL-6 and RCL-628 are classified under subheading 3206.11.0000, Harmonized Tariff Schedule of the United States (“HTSUS”). They also share the same CAS Number—13463-67-7. Furthermore, they have been assigned the same ASTM number—D476-00 (2000). However, they qualify under different Types for this ASTM number.

You have submitted import documents, export documents, and documents prepared by and/or gathered by Millennium itself.

IMPORTS (RCL-628)

CF 7501s demonstrating importation of goods classifiable under subheading 3206.11.0000, HTSUS, and described as “PIGMNT/PREP W/W>80%TITNIM” Commercial inovices for importation of “Tiona RCL-628 titanium dioxide” Invoice for importation of titanium oxide

EXPORTS (RCL-6)

Bills of lading for “TITANIUM OXIDE, TIONA RCL6” Invoices showing intended exportation of “Tiona RCL-6 titanium dioxide”

You have also provided the following:

Product data sheet for Tiona RCL-6, which provides, inter alia, the following information:

Type: Rutile, Titanium Dioxide ASTM D467-84 (1989) Type III and Type IV Description: “Tiona RCL-6 is a rutile superdurable pigment with maximum resistance to chalking in a wide range of polymer systems in addition to high tinting strength, good gloss, and good colour retention.” Titanium oxide content (minimum): 88% Applications: “Tiona RCL-6 is recommended for evaluation in: exterior industrial coatings; heavy-duty maintenance coatings; marine paints; powder coatings; automotive topcoats; coil coatings; gelcoats; organosols; and pastisols”

Product data sheet for Tiona RCL-628, which provides, inter alia, the following information:

Type: Rutile, Titanium Dioxide ASTM D476-00 (2000) Type V Description: “Tiona RCL-628 is a high-performance zirconia-treated pigment, recommended for use in superdurable applications in requiring excellent haze-free gloss and outstanding gloss retention." Titanium oxide content (minimum): 93% Applications: “Tiona RCL-628 is recommended for use in: automotive OEM coatings; vehicle refinish; powder coatings; coil coatings; high-performance industrial systems; baking enamels; and gel coats.

The product data sheet “summary and comparison” asserts that the two products both share ASTM number D476-00 under the 2000 numbers—but that RCL-6 is Type IV and RCL-628 is Type V.

You have also included a copy of the actual ASTM Designation for D476-00 and its Table—“Classification of Dry, Pigmentary Titanium Dioxide Pigments”—which demonstrates the properties of the various Types of D476-00.

Relative value sheet

Affidavit from a high-level Millennium official, asserting “that at least one customer of [Millennium] used Tiona RCL-6 or Tiona RCL-628 for the same type of coating application during” some time in 2003 or 2004.

ISSUE:

Whether RCL-6 and RCL-628 are commercially interchangeable for the purposes of 19 U.S.C. § 1313(j)(2)?

LAW AND ANALYSIS:

Substitution, unused merchandise drawback is provided by 19 U.S.C. § 1313(j)(2), when imported, duty paid merchandise and substitute merchandise are commercially interchangeable, but the statute does not define the phrase "commercially interchangeable." In fact, as the U.S. Court of International Trade stated in Pillsbury Co. v. United States, 293 F.Supp. 2d 1351, 1355 (Ct. Int’l Trade 2003), section 1313(j)(2)

“was enacted as part of Section 632 of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182 (Dec. 8, 1993). The substitution unused merchandise drawback system set forth therein replaced the former system of ‘substitution same-condition drawback.’ The old system required that the imported and exported goods be ‘fungible,’ that is, ‘merchandise which for commercial purposes is identical and interchangeable in all situations.’ See, e.g., 19 U.S.C. § 1313(j) (1988), 19 C.F.R. § 191.2(b)(l) (1990). The new system is ‘less restrictive,’ only requiring that the imported and substitute goods be ‘commercially interchangeable.’ See H. Rep. No. 103-361, 103rd Cong., 1st Sess. 131 (1993).“The Court of Appeals for the Federal Circuit defined ‘commercially interchangeable’ in Texport Oil Co. v. United States, 185 F.3d 1291 (Fed. Cir. 1999). The Federal Circuit stated that: “’Indeed, we are convinced that Congress intended ‘commercially interchangeable’ to be an objective, market based consideration of the primary purpose of the goods in question. Therefore, ‘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’ according to 19 U.S.C. Section 1313(j)(2).” “Texport, 185 F.3d at 1295 (internal citations omitted).” The U.S. Customs and Border Protection regulations reflect the legislative history that explained the change from fungibility to commercial interchangeability as the standard for substitution. Section 191.32(c) provides, in pertinent part, the following: “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.” Thus, per the Court of Appeals for the Federal Circuit in Texport, commercial interchangeability is determined using an "objective standard." As such, an exported good is commercially interchangeable with an imported good if a buyer—in an arm’s-length transaction—would accept either good for the other. In making this determination, we compare and contrast the relevant characteristics of the imported good with those characteristics of the exported good. As the applicable regulations provide, those pertinent characteristics include, but are not limited to, any governmental or industry standards applicable to the goods, tariff classification, part numbers, if any, and value.Governmental and Recognized Industry Standards In your February 28, 2005, letter, you observe that no government standards apply to these products. In that letter, moreover, you state that both the RCL-6 and the RCL-628 are classified in ASTM number D476-00. ASTM is a standards development organization that serves as a forum for the development of international standards, and it is recognized by both the Government and industry as a valuable source of information. While the information submitted with the February 28, 2005, letter conflicts with itself to some degree—the product data sheets indicate that RCL-6 and RCL-628 possess different ASTM numbers, while your summary indicates that they share the same number—the two products do seem to share the same ASTM number. The 2000 ASTM Publications Index would seem to indicate that both products should in fact be classified under the same ASTM number—D476-00.

However, ASTM D476-00 is divided into a number of different Types, and RCL-6 and RCL-628 are classified as different Types. These types demonstrate a kind of sub-classification and various differentiations within the D476-00 classification are delineated, such as crystal type, level of chalking resistance, minimum percentage of titanium dioxide allowed, etc. In the product data sheets “summary and comparison”, RCL-6 is labeled as Type IV, and RCL-628 is labeled as Type V. In Millennium’s “Applications Guide”, RCL-6, it seems, can exist as both a Type III and a Type IV, whereas RCL-628 can be a Type II, III, and IV. Thus, RCL-628, we are told, can be a Type II and a Type V, and RCL-6 is never listed as either of these. Types II and V have much higher minimum concentration percentages demanded than Types III and IV; that is, Type II’s minimum concentration is 92%, and Type V’s minimum concentration is 90%, while the others have a considerably lower minimum. Type V is also a “high gloss” pigment, and RCL-628 is known for its outstanding gloss retention.

In the past, this office has held that Type differences within products that were classified at ASTM D-476-00 were great enough to deny the possibility of a (j)(2) claim. See HQ 224349 (February 18, 1994) (note that this case did, however, rely on the former standard of fungibility). Clearly, the variation that is possible within these Types does not lead one to the conclusion that these substances are commercially interchangeable.

Tariff Classification

As noted above, both RCL-6 and RCL-628 are classified under subheading 3206.11.0000, HTSUS. The CF 7501s indicate that the imported merchandise was classified as 3206.11.0000, HTSUS, and the commercial invoices indicate that the exported merchandise was classifiable under the same subheading. The fact that both products are classifiable in the same HTSUS subheading is, of course, a positive factor for a conclusion of commercial interchangeability.

Part Numbers

In your February 28, 2005 letter, you state the following:

“The number ‘6’ indicates that the product is recommended for use in highly durable applications. The product number ‘6’ is made in the United States and the product number ‘628’ is made in England. Thus, the names, or part numbers of the products, are similar and refer to products that are sold for use in similar applications.”

We are not sure we are able to see the causal relationship that you find here. We also note that we see no evidence from Millennium that adds weight to this assertion. We observe, for example, that in Millennium’s “Applications Guide” all of the RCL are listed in numerical order, starting with RCL-3 and ending with RCL-628 (i.e., RCL-6 and RCL-628 are not listed side-by-side). Viewed from this vantage point, the existence of the number 6 in the names of both products does not evince a necessary meaning.

Moreover, the invoices for both the imported material and the exported material show that the product numbers are used to specify the different materials.

Relative Values

Commercially interchangeable goods will generally have values that are quite similar to one another. In this case, the difference in value between the imported merchandise and the exported merchandise is not great. As shown in Exhibit “F”, the import entry is valued at $.686 per pound, and the exports are valued at between $.724 per pound to $.816 per pound. While not extraordinarily close, the values of the respective goods are close enough that, as a variable, they should be entered into the “pro” commercial interchangeability column.

Additional Relevant Factors

As stated above, RCL-6 and RCL-628 possess the same CAS number. While certainly not dispositive, this fact is some evidence of commercial interchangeability.

The descriptions of each respective product provided by the product data sheets highlight significantly different aspects of each product. RCL-6 possesses “maximum resistance to chalking” and has only “good gloss”. RCL-628 possesses “excellent haze-free gloss and outstanding gloss retention”, while not mentioning resistance to chalking at all. If one is, then, for example, primarily concerned with gloss, the two products would not seem to be commercially interchangeable.

The applications are also quite different. RCL-6 is recommended for industrial coatings and heavy-duty maintenance coatings, whereas RCL-628 is recommended for a vehicle refinish. Furthermore, the Applications Guide reveals that the two different products are judged differently for various commercial purposes. For example, RCL-628 is listed as “suitable” for general industrial applications, while RCL-6 is not. Also, for the polyester-gel application, RCL-628 is listed as “highly recommended”, while RCL-6 is described as only “recommended”. These labels suggest that the two products possess different commercial purposes.

As noted above, the difference between the minimum concentrations allowed for each respective product is not insignificant.

CONCLUSION:

In the analysis above, some factors weigh in favor of a determination for commercial interchangeability, and other factors weigh against such a finding; but the arguments against commercial interchangeability outweigh the arguments in favor of it. The ASTM Type differences are quite significant. Also, the descriptions of and applications for each product are sufficiently different to make a determination of commercial interchangeability impossible. Ultimately, while it seems that the two products could in some instances be used interchangeably, to conclude that the two goods are commercially interchangeable would be an uncomfortable stretch. If a reasonable competitor would accept either the imported or the exported good for its primary commercial purpose, then the goods are commercially interchangeable according to section 1313(j)(2). In the end, the two goods are not interchangeable for each one’s primary commercial purpose. Thus, a hypothetical reasonable competitor would not conclude that RCL-6 and RCL-628 are commercially interchangeable.

HOLDING:

The imported RCL-628 and the exported RCL-6 are not commercially interchangeable for purposes of substitution, unused merchandise drawback, as described in 19 U.S.C. § 1313(j)(2).

Sincerely,

William G. Rosoff
Chief, Duty and Refund Determination Branch
Office of Regulations and Rulings