DRA-4 OT:RR:CTF: ER
H053675 PTM
Mr. James W. Brown
Danzas AEI Drawback Services
22210 Highland Knolls Drive
Katy, Texas 77450
RE: Commercial Interchangeability; 19 U.S.C. § 1313(j)(2); 19 C.F.R § 191.32(c)
Dear Mr. Brown:
This is in response to your letter, dated February 25, 2009, on behalf of Tricon Energy, Inc. (hereinafter “Tricon”) regarding the commercial interchangeability of imported and domestically purchased methanol.
FACTS:
Tricon buys and sells petrochemicals, including methanol. Tricon imports methanol for sale and deliver in the United States and purchases domestically made methanol for foreign sale.
Methanol is a hydrocarbon, derived from natural gas, composed of carbon, hydrogen and oxygen. Its chemical formula is CH3OH. Methanol is an alcohol and is a colorless, neutral, polar and flammable liquid. Methanol is typically produced using a catalytic process with natural gas and steam as the feedstocks. The natural gas is catalytically reformed to carbon oxides and hydrogen. The resulting synthesis gas mixture is circulated under pressure and moderate temperature in the presence of a metallic catalyst and converted to crude methanol. Crude methanol is distilled to yield commercial chemical grade methanol. Methanol is used as a building block for several chemicals and products. It is also use to make windshield washer antifreeze, fuels, waste water treatment and in biodiesel production.
In support of your claim for interchangeability you provided specifications for both the imported and exported methanol. You have also provided CBP forms and shipping documents related to the respective import and export transactions involving Tricon’s methanol products.
For the import transaction, you submitted a copy of the Entry Summary (CBP Form 7501) for entry number xxxxx32346-0, dated January 23, 2008, which describes the imported merchandise as “METHANOL IMPRTD OFUISNG OF” classified under subheading 2905.11.1000. This abbreviation refers to language in the HTSUS classification code number 2905.11.10 which says “imported only for use in producing synthetic natural gas.” This classification heading was amended using a Post Summary Adjustment to change the HTS number to 2905.11.2000, which is described as “Methanol (Methyl alcohol), other than imported only for use in producing synthetic natural gas (SNG) or for direct use as fuel.”
You also enclosed a commercial invoice issued by M-Chemicals, Inc. (Invoice No. MCE 12-101) dated December 9, 2007 which indicates the sale of methanol from M-Chemicals Inc. to Tricon. The invoice describes the merchandise as 4,199,199 metric tons of methanol with a price of $680 U.S. Dollars per metric ton.
The last document you provide for the import transaction is a Certificate of Analysis issued by an independent surveyor on Dec. 9, 2007. It has the following specifications:
Items
Specification
Test Result 1
Test Result 2
Method
Appearance
Clear and free of suspended matter
Clear and free of suspended matter
Clear and free of suspended matter
IMPCA 003-98
Purity % wt on dry basis
Min 99.85
99.99
99.99
IMPCA 001-02
Acetone mg/kg
Max 30
LT 5
LT 5
IMPCA 001-02
Color PT/CO
Max 5
3
3
ASTM D1209-05
Water % W/W
Max 1.0
0.0010
0.008
ASTM D1078-05
Distillation Range at 760 Hg
IBP
DP
Max 1.0 deg. C. to including 64.6±0.1 deg.
0.1
0.3
ASTM D1078-05
Specific Gravity 20/20
0.791-0.793
0.7929
0.7929
ASTM D4052-02
Permanganate Time
Minimum 60
80
70
ASTM D1363-06
Sulfuric Acid Wash Test
Max 30
5
5
ASTM E346-03
Ethanol mg/kg
Max 50
24
27
IMPCA 001-02
Chloride as CL – mg/kg
Max 0.5
LT 0.5
LT 0.5
IMPCA 002-98
Sulphur mg/kg
Max 0.5
LT 0.5
LT 0.4
ASTM D3961-98
Hydrocarbons
Pass test
Pass test
Pass test
ASTM D1722-04
Acidity as Acetic Acid mg/kg
Max 30
14
13
ASTM D1613-06
Total Iron mg/kg
Max 0.1
0.01
0.02
ASTM E394-04
Non Volatile Matter mg/1000ml
Max 8
LT 8
LT 8
ASTM D1353-03
For the export transaction, you provide a tanker bill of lading indicating the shipment of “493.703 METRIC TONS” from Tricon Shipping Inc., Houston TX to MULTIPUIMICA DOMINICANA S.A., San Cristobal, Dominican Republic. You also provide a commercial invoice (Invoice No. H-042600/00-8) dated July 5, 2008, which indicates the sale of 493,703 metric tons of methanol at the price of $620 U.S. Dollars per metric ton.
According to a certificate of analysis for the export transaction, the shipment conforms to the following specifications:
Items
Specification
Test Result 1
Method
Result
Appearance
Bright clear, free of suspended matter
Clear and free
visual
Pass
Purity % wt on dry basis
Min 99.85
99.99
G.C.
Pass
Acetone weight %
0.003 Wt. % Maximum
<0.001
ASTM D-1612
Pass
Color PT/CO
(platinum and cobalt scale)
Max 5
<5
ASTM D1209-05
Pass
Water
0.10 Wt. % Maximum
0.0016
ASTM E-203
Pass
Distillation Range at 720Hg
IBP
DP
Max 1.0° C. to including 64.6±0.1°
Initial boiling pt.
Dry Point °C
Delta T
0.1
ASTM D1078-05
64.4
64.8
0.4
Pass
Specific Gravity 20/20
0.791-0.793
0.7925
ASTM D4052-02
Pass
Permanganate Time
Minimum 60
60+
ASTM D1363-06
Pass
Sulfuric Acid Wash Test
Max 30 APHA
<10
ASTM E346-03
Pass
Ethanol ppm
Max 50
4
GC Capillary
Pass
Chloride as CL – mg/kg
Max 1.0
<0.5
Turbidimetric
Pass
Acidity as Acetic Acid mg/kg
0.003 Wt. % Maximum
0.0015
ASTM D1613-06
Pass
Non Volatile Matter mg/1000ml
Max 5
1
ASTM D1353-03
Pass
ISSUE:
Whether the imported methanol is commercially interchangeable with the substituted methanol, for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
LAW AND ANALYSIS:
The statute that provides for substitution, unused merchandise drawback, 19 U.S.C § 1313(j)(2) does not specifically define what constitutes “commercially interchangeable” products. The CBP Regulations concerning substitution drawback, 19 C.F.R. 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.
Case law offers additional insight into the meaning of commercial interchangeability. In Texport Oil Co. v. United States, 185 F.3d 1291 (Fed. Cir. 1999), the Federal Circuit Court of Appeals (the “CAFC”) held that commercial interchangeability is “an objective, market-based consideration of the primary purpose of the goods in question” and 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” according to 19 U.S.C § 1313(j)(2). Texport Oil Co. v. U.S. at 1295.
Thus, commercial interchangeability is determined using an objective standard. If a hypothetical like-minded buyer would accept either good at the specified price for the purpose intended in an arms length transaction, the goods will be considered commercially interchangeable. In order to determine if either good at the specified price would be acceptable for the purpose intended, the relevant characteristics of the imported goods are compared with those characteristics of the substituted goods. Per the CBP Regulations, the pertinent characteristics include any governmental or industry standards applicable to the good, the tariff classification, part numbers if any, value, an any other characteristics relevant to the good.
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.
Here, there are a number of standards contained in the certificate of analysis for the import transaction and the report of analysis for the export transaction. Both analyses contain reference to specifications under standards published by the American Society for Testing and Material (ASTM). Since the ASTM standard for methanol represents normal industry practices and is highly specific, it is our opinion that CBP can use it as a guide in establishing commercial interchangeability for methanol. Although the specifications listed on the certificate of analysis and report of analysis are not identical, several specifications appear in both of the respective reports.
For example, the “Color” specification is measured using ASTM method D1209-05. The Specification is “Max 5.” Both tests on the certificate of analysis for the imported methanol result in a score of 3. For the export transaction, the test result is listed as “<5” (less than 5). Although not as specific as the test result for the import certificate of analysis, both the imported and exported methanol are within the acceptable color range according to the ASTM standard.
For the “specific gravity” specification, ASTM Method D4052 requires that the methanol must be between 0.791 and 0.793 at 20/20° C. The imported methanol test reveals a specific gravity of 0.7929. The exported methanol tested at 0.7925. Both the imports and the exports, then, are within the acceptable range for specific gravity as defined by the ASTM.
For the “purity” specification, ASTM E346 demands that the methanol must have a 99.85% minimum purity. For the import transaction, both tests revealed 99.99% purity. For the export transaction, the test revealed 99.99% purity. Thus, the imported and exported methanol both have identical passing scores.
Although not identical, the tests used on both the imported and exported methanol are substantially similar. Both the imported and exported methanol meet or exceed the accepted criteria of the various characteristics. Consequently, the Government and Recognized Industry Standards criterion has been met.
Part Numbers
Methanol is a bulk commodity and Tricon maintains no part number or product code numbers. It uses only the nomenclature “methanol” for identification. Since part numbers are inapplicable to the subject merchandise, it is not useful in the analysis of commercial interchangeability.
Tariff Classification
You state that the HTSUS number for imported and substituted methanol is 2905.11.20. Because the imported and exported merchandise is classified under the same subheading, we find that the tariff classification criterion is established.
Relative Values
Goods that are commercially interchangeable generally have similar values when sold at the same place, at the same time, to like buyers from like sellers. Examples of the value of the imported and substituted methanol are: $680.00/MT on the import and $620/MT on the export. This translates to an 8.8% difference in value.
CBP has ruled that a variance in price does not preclude a finding of commercial interchangeability when other criteria have been met or when there is sufficient evidence provided to support the material difference in value. See HQ 22865 (holding that although the difference of the imported and exported merchandise was in excess of 32%, the merchandise qualified under the critical properties criterion had been met as well). See, also HQ 228580 (holding that a value difference of 27% did not preclude a finding of commercial interchangeability when the difference in value is attributable to processing costs and manufacturing costs when the critical properties criterion had been met).
There is additional CBP precedent that demonstrates that a difference in value may not disqualify a product for substitution, unused merchandise drawback even in the absence of a change in market conditions, provided the difference is within an acceptable range. In HQ 230898, this office held that a 16% difference between import and export price still supported commercial interchangeability. In HQ 227473 this office held that a 14 percent difference in import and export price was not significant enough to affect commercial interchangeability.
In the instant case, the critical properties criterion has been met and the difference in value (8.8%) is considerably less than the difference in value of merchandise in previous rulings where the product is found to be commercially interchangeable. Additionally, you indicated that the 8.8% difference is attributable to the current economic slowdown that began in 2008. Since the Government and Recognized Industry Standards and Tariff Classification criteria have been met, and since the 8.8% difference is within an acceptable range pursuant to CBP precedent when market factors account for the difference, we hold that the Value criterion is met for the purposes of 19 U.S.C. §1313(j)(2).
HOLDING:
Based on the above findings, we determine that the imported methanol and the substituted methanol are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. § 1313(j)(2)
This decision is limited to the specific facts set forth herein. If the terms of the import or export contracts vary from the facts stipulated to herein, this decision shall not be binding on CBP as provided for in 19 C.F.R. § 177(b)(1), (2) and (4), and §177.9(b)(1) and (2).
Sincerely
William G. Rosoff, Chief
Entry Process & Duty Refunds Branch