DRA-4
OT:RR:CTF:ER H026006 DCC
Mr. Matthew D. Anderson
Charter Brokerage LLC
16420 Park Ten Place, Suite 410
Houston, Texas 77084
RE: Unused merchandise drawback; Commercial interchangeability; 19 U.S.C. § 1313(j)(2); 19 C.F.R. § 191.32(c); Linear low density polyethylene
Dear Mr. Anderson:
This is in response to your letter, dated April 9, 2008, on behalf of Sempra Plastics, LLC (“Sempra”) regarding the commercial interchangeability of imported and domestically produced linear low density polyethylene (“LLDPE”). Previously, Sempra requested a ruling letter regarding the commercial interchangeability of two shipments of LLDPE hexene. In response to that request, this office issued Headquarter Ruling Letter (“HRL”) H017767, on January 3, 2008. You now seek clarification of that ruling and ask whether hexene- and butene-based LLDPE may be considered commercially interchangeable for purposes of substitution unused merchandise drawback under 19 U.S.C. § 1313(j)(2).
FACTS:
Sempra trades petroleum and related products and is engaged in all aspects of the purchase, sale, exchange, import, export, marketing, and distribution of petrochemicals, plastic resin and related products, including LLDPE products. LLDPE may be produced from either hexene or butene.
Sempra intends to import duty-paid LLDPE derived from hexene or butene from the United Kingdom and other source countries, and export domestic substituted LLDPE derived from hexene or butene to customs abroad or to affiliates for distribution in foreign markets.
In support of your claim of commercial interchangeability you provided several documents related to the importation of hexene-derived LLDPE and exported butene-derived LLDPE.
For the imported hexene-derived LLDPE you submitted a copy of the Entry Summary (CBP Form 7501) for Entry No. xxxxxxx870-9, dated January 23, 2006, which describes the importation of LLDPE classified under subheading 3901.10.5010, Harmonized Tariff Schedule of the United States (“HTSUS”). This subheading provides for: “Polymers of ethylene, in primary forms: Polyethylene having a specific gravity of less than 0.94: Other: Linear low density polyethylene.”
You also provided a Bill of Lading (B/N No. 10004037/00), dated December 17, 2005, which details the shipment of 495,000 kilograms of merchandise described as “SLAC LL62-08-AF Polyethylene Pellets N/H.” In addition, you submitted a Certificate of Analysis for the imported hexene-derived LLDPE, described as LL6208AF, which indicates that the imported LLDPE has a density of 921 kg/cubic meter; and a Melt Flow Rate of 0.92 g/10 minutes. The final import document is a commercial invoice, dated January 3, 2006, issued by the foreign seller for merchandise described as “prime virgin LLDPE Hexene” and “Grade: LL6208AF.” According to this invoice, the ex-works sales price for the hexene LLDPE is $1,030 per metric ton.
For the exportation, you submitted a Bill of Lading (B/L No. KNTO XUS070034601), dated December 17, 2007, which describes the exported merchandise as “LLDPE Certene LLBF 118A.” You also submitted a Certificate of Analysis, which describes the merchandise as “Linear Low Density Polyethylene Butene Copolymer for film extrusion, Certene Grade” with a Melt Index of 0.96 g/10 minutes, and density of 920 kg/cubic meter. Finally, you provided a copy of the invoice to Sempra’s foreign customer, dated December 17, 2007, which describes the exported merchandise as “Certene LLBF 118A.” According to this invoice the Antwerp delivered price of the butene LLDPE is $1,440 per metric ton.
According to the Kirk-Othmer Encyclopedia of Chemical Technology, vol. 17 (Mary Howe-Grant ed., 4th ed. 1997) (“Kirk-Othmer”):
Four olefins are used in industry to manufacture ethylene copolymers: 1-butene, 1-hexene, 4-methyl-1-pentene, and 1-octene. . . . The type of [alpha]-olefin exerts a significant influence on the copolymer properties. Ethylene-1-butene copolymers, for
instance, exhibit inferior mechanical properties compared to ethylene copolymers with other [alpha]-olefins; consequently, the share of 1-butene-based resins is predicted to decrease to around 30% in 1997, whereas the shares of ethylene copolymers with higher [alpha]-olefins will increase.
Kirk-Othmer at 757.
The type of olefin has a significant impact on the mechanical properties of LLDPE. According to Kirk-Othmer:
Type of [alpha]-Olefin. When resins of the same density and crystallinity are compared, ethylene-1-butene copolymers show noticeably inferior mechanical properties compared to ethylene copolymers to ethylene copolymers with higher [alpha]-olefins. These differences are clearly manifested when comparing properties of thin film. . . . One commonly used measure of film strength is the dart impact strength. An average dart impact strength of 37 µ-m film made from ethylene-1-butene copolymer is about 100-150 g, whereas the same parameter for ethylene-1-hexene and ethylene-1-octene copolymers of the same density is about 300-350 g.
Kirk-Othmer at 761-62. And:
Ethylene-1-butene copolymers . . . exhibit film properties that are inferior compared to those of the high strength ethylene-1-hexene and ethylene-1-octene copolymers.
Kirk-Othmer at 779.
Finally, we reviewed technical data sheets for the imported and exported merchandise, which we obtained from the websites of LLDPE commercial suppliers. The product description section of the data sheet for the butene LLDPE states:
LLBF-118A is a certified prime resin containing Butene-comonomer, specially designed for production of blown films for general purpose packaging. LLBF-118A features easy processability with very good film strength as well as wide heat sealing temperature range. LLBF-118A major applications include garment bags, produce bags and liners. Maximum recommended film draw-down is 0.5 mil. LLBF-118A contains no slip and no antiblock.
The product description section of the data sheet for the hexene LLDPE states:
LL6208AF has been developed for use in rich blends in heavy duty sacks, liners and other thin film applications requiring excellent mechanical performance. LL6208AF is a linear low density polyethylene copolymer containing hexene-1 as the comonomer.
The properties according to the two technical data sheets are as follows:
Hexene LLDPE
LL6208AF
Butene LLDPE
LLBF-118A
Nominal Value Unit
Test Method
Nominal Value Unit
Test Method
Physical Properties
Density
0.920 g/cm3
ISO 1183
0.918 g/cm3
ASTM D 1505
Melt Mass-Flow Rate (190° C/2.16 kg)
0.90 g/10 min
ISO 1133
1.0 g/10 min
ASTM D1238
Films
Film Thickness – Tested
1.50 mil
1.00 mil
Tensile Modulus
MD: (1% Secant)
26100 psi
ISO 527-1, -3
31200 psi
ASTM D882
TD: (1% Secant)
34800 psi
ISO 527-1, -3
36300 psi
ASTM D882
Tensile Strength at Yield
MD:
1740 psi
ISO 527-1, -3
1740 psi
ASTM D882
TD:
1740 psi
ISO 527-1, -3
1600 psi
ASTM D882
Tensile Strength at Break
MD:
750%
ISO 527-1, -3
650%
ASTM D882
TD:
900%
ISO 527-1, -3
990%
ASTM D882
Dart Drop Impact
250 g
ASTM D1709A
85 g
ASTM D1709A
Elmendorf Tear Strength
MD:
370 g
ASTM 1922
80 g
ASTM 1922
TD:
800 g
ASTM 1922
550 g
ASTM 1922
Optical Properties
Gloss
61
ASTM D2457
65
ASTM D2457
Haze
10 %
ASTM D1003
7.0 %
ASTM D1003
Extrusion
Melt Temperature
374 – 446°F
392 - 428°F
You claim that commercial interchangeability for LLDPE products should be determined on the basis of the melt flow rate and density without regard to the comonomer (i.e., butene, hexene, or octane). Because you only submitted information and arguments regarding butene-LLDPE and hexene-LLDPE we limit this commercial interchangeability determination to the butene-LLDPE and hexene-LLDPE described in this ruling.
ISSUE:
Whether imported LLDPE hexene is commercially interchangeable with LLDPE butene, for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
LAW AND ANALYSIS:
Substitution, unused merchandise drawback is provided by 19 U.S.C. § 1313(j)(2), but the statute does not define “commercially interchangeable.” The CBP Regulations reflect the legislative history that explained the change from fungibility to commercial interchangeability as the standard for substitution unused merchandise drawback. Section 191.32 provides:
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.
19 C.F.R. § 191.32(c).
In Texport Oil Co. v. United States, 185 F.3d 1291 (Fed. Cir. 1999), the Federal Circuit Court of Appeals (“CAFC”) discussed the meaning of “commercially interchangeable.” The CAFC concluded that commercially interchangeable is “an objective, market-based consideration of the primary purpose of the goods in question.” The Texport court explained:
“[C]ommercially 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. § 1313(j)(2).
185 F.3d at 1295.
Thus, in accordance with Texport, commercial interchangeability is determined using an “objective standard.” An exported good will be considered commercially interchangeable with an imported good if a buyer, in an arms’-length transaction, would accept either good at the specified price for the purpose intended. In order to determine if either good at the specified price would be acceptable for the purpose intended, the relevant characteristics of the imported good are compared with those characteristics of the substituted good. Those pertinent characteristics include any governmental or industry standards applicable to the good, the tariff classification, part numbers if any, value, and any other characteristics relevant to the good.
With regard to the LLDPE at issue, if a buyer in an arms’-length transaction, would accept either the LLDPE derived from hexene or the substituted LLDPE derived from butene at the specified price for the purpose intended, then the imported and the substituted LLDPE would be commercially interchangeable.
Government and Recognized Industry Standards
Standards or grades established by the government or industry consensus aid in the determination of commercial interchangeability in that they establish markers by which the product is commoditized and measured against like products for use in the same manner, regardless of manufacturer. Generally, products that meet the same industry accepted standard may be used to produce the same products or utilized for the same purposes. These uses are typically indicated in the standard.
In this case, there are no government standards regulating the content of LLDPE derived from hexene or butene. You provided information regarding industrial standards that are utilized in the trading of LLDPE that appear to serve as the contract standard for some forms of LLDPE.
According to your submission, “under various commercially acceptable density tests, the density range for LLDPE is a minimum of 0.9160 [g/cm3] and a maximum 0.9220 [g/cm3].” You claim that this density range applies to LLDPE regardless of whether it is derived from hexene or butene. However, you do not identify the various tests from which this specific range was determined. According to the Encyclopedia of Chemical Technology, the standard density range for LLDPE, as determined by ASTM Test D1248-48, is 0.915 g/cm3 – 0.925 g/cm3. See Kirk-Othmer, at 757.
You also state that based on a leading commodity exchange, there is an industry standard regarding the melt flow rate (“MFR”). You state that the contract specification for LLDPE on that exchange is a melt flow rate of 0.8 (-0.1 /
+ 0.4) grams per 10 minutes, described as 0.7 - 1.2, for sales to buyers in Asia, Europe, and North America. However, you do not identify the commodity exchange that is the source of the contract specifications.
Although not specified in your submission, we note that the London Metal Exchange (“LME”) was the identified source of contract specifications for LLDPE in your previous ruling request that was the subject of Headquarters Ruling Letter (“HRL”) H017767. Although your current request and the LME utilize the same MFR for LLDPE—i.e., a Melt Flow Rate for LLDPE of 0.7 to 1.2 grams per 10 minutes—we note that the LME does not provide contract specifications for LLDPE derived from hexene. Because the contract specifications only apply to LLDPE derived from butene, the LME specifications do not support your claim that LLDPE derived from butene and hexene are commercially interchangeable.
As further support for your claim that the two products are comparable, you state that:
LLDPE, regardless of whether it is hexene or butene based LLDPE, is a substantially linear polymer, with significant numbers of short branches, commonly made by copolymerization of ethylene with longer-chain olefins. LLDPE has higher tensile strength, higher impact and puncture resistance, and can be used to make thinner films with better environmental stress cracking resistance than low density polyethylene. LLDPE has good resistance to chemicals, resistance to ultraviolet radiation and has good electrical properties. All significant application of LLDPE for use in a plastic sheeting (plastic bags, plastic wraps, cable wrapping, etc.) does not change based on whether the LLDPE is derived from hexene or butene. Stated another way, whichever higher alpha olefin (hexene or butene) is used in the production of the LLDPE, does not impact the majority of commercial uses of the LLDPE.
Part Numbers
The commercial invoice for the imported material describes the hexene-LLDPE as “Grade: LL6208AF.” The export sales invoice refers to the exported butene-LLDPE as “Certene LLBF 118A.”
You state that LLDPE, like other petrochemical products, is not identified commercially or scientifically by part numbers. You further assert that Sempra uses product nomenclatures, rather than part numbers to reference the same merchandise with the same specifications, regardless of the country of origin.
The evidence does not support your claim that LLDPE does not have part numbers. As we previously noted in HRL H017767:
There is a difference in the product nomenclature and that difference in nomenclature signifies a difference in the chemical structure of the LLDPE. For example, the compound LLDPE hexene would be comprised of carbon chains that would have six carbon atoms in the chain as indicated by the term
Furthermore, your submission was reviewed by CBP’s Office of Laboratories & Scientific Services (“OLSS”). With regard to part numbers, OLSS states, “LLDPE is identified by part numbers which in turn are used by industry to identify certain grades, properties, and specifications that are associated with those specific part numbers (i.e., LL6208AF and LLBF-118A). In comparison, similar identification methods are used as such in the metal alloy industry.”
Finally, we disagree with your claim that although LLDPE may be identified by several different commercial and brand names, including but not limited to linear low density polyethylene, thermoplastics, LLDPE hexene, LLDPE butene, or acrylic polymers, these terms are commercially synonymous such nominal distinctions should not bear on the determination of commercial interchangeability. As noted in HRL H017767, although the term “acrylic polymers” may include LLDPE, there are other compounds that may also be called acrylic polymers. Furthermore, we note that the exported butene-LLDPE is sold under the brand name “Certene.” Manufacturers use brand names to create brand recognition that allows the manufacturer to sell the branded product at a premium price. In this case, because the butene-LLDPE is sold under the brand name Certene, we find it less likely the product will be commercially interchangeable with commodity LLDPE products, such as those sold on the LME, under no brand name.
Tariff Classification
You state that the tariff classification of both the imported hexene-LLDPE and the exported butene-LLDPE may be classified, depending on the viscosity, under either subheading 3901.10.10, HTSUS (1.44 or greater), or subheading 3901.10.50, HTSUS (less than 1.44).
In O.A. Both Corp. v. United States, 63 Cuts. Ct. 443 (1969), the court stated that two tariff classifications indicate two different articles of commerce. Subheading 3910.10.10, HTSUS, covers polyethylene in its primary form with a specific gravity of less than 0.04 and with a relative viscosity of 1.44 or more. Subheading 3910.10.50, HTSUS, covers polyethylene in its primary form with a specific gravity of 0.94 and a relative viscosity of less than 1.44. Given that the flow rate is a critical specification in the certificates of analysis for the representative transactions you describe, a difference in viscosity between an imported and exported LLDPE product that would result in a different tariff classification would be inconsistent with the holding in Texport, that held in order to be commercially interchangeable, a reasonable competitor would have to accept either the imported or exported good.
Although the entry summary provided importation indicates that the imported hexene-LLDPE is classified under subheading 3901.10.50, HTSUS, you provided no specific tariff classification information for exported butene-LLDPE. Consequently, we are unable to clearly determine whether the tariff classification of the representative transaction would support your claim of commercial interchangeability.
Relative Values
The imported hexene-LLDPE has an ex-works sales price of $1,030 per metric ton. According to invoice for the export transaction, which occurred more than 11 months after the import transaction, the Antwerp delivered price of the butene-LLDPE is $1,440 per metric ton.
CBP has held that merchandise may be commercially interchangeable despite fluctuations in value. In HRL 230898, dated June 24, 2005, we held that a 16 % difference between the imported and exported merchandise was not high enough to prevent a determination that the goods were commercially interchangeable. Furthermore, because of the significant time between the importation and exportation, as well as the different the terms of sale, the difference in price does not affect our analysis of commercial interchangeability.
HOLDING:
Based on the above findings, we determine that the imported hexene-LLDPE and the substitute butene-LLDPE described above are not commercially interchangeable.
Sincerely,
William G. Rosoff, Chief
Entry Process & Duty Refund Branch