OT:RR:CTF:ER
Mr. David N. Simcox
C.J. Holt & Co., Inc.
466 Kinderkamack Road
Oradell, NJ 07649-1529
RE: Commercial Interchangeability; 19 U.S.C. §1313(j)(2); 19 CFR §191.32(c)
Dear Mr. Simcox:
This is in response to your letter, dated August 20, 2009, on behalf of Air Products and Chemicals, Inc. (herein “APCI”) regarding the commercial interchangeability of imported and substituted Xenon.
FACTS:
APCI imports bulk quantities of Xenon, research grade and with a minimum of 99.999% minimum purity, and repackages the Xenon in smaller cylinders. The cylinders are equipped with various types of valves and connectors to make them compatible with the receiving customers’ equipment, facilities and requirements. The customer will specify the container size, fill weight, valves and connectors that will be suitable for their specific application and facilities. Consequently, there are many different configurations available and each configuration is given a specific part number to differentiate it from another configuration.
In support of your claim for interchangeability you provided specifications for the imported and substituted Xenon. You have also provided CBP forms and invoices related to the respective import and export transaction involving APCI’s products.
For the import transaction, you submitted a copy of the Entry Summary (CBP form 7501) for entry number 916-XXXXXXX-1 dated January 21, 2007. The form describes the imported merchandise as “OTHER RARE GASES” classified under subheading 2804.29.0050. You also enclosed a commercial invoice (number 23-02/06) for Xenon gas 99.99% pure. You have included a purchase order showing the merchandise ordered has part number 36048, Xenon Research Grade, Purity 99.999%. The import price of the product is $2.80 per liter which converts to $511.88 per kilogram.
For the export transaction you provide a commercial invoice (number 0040108979) for the purchase of Xenon Research Grade. You provided a bill of lading showing a shipment of Xenon on board the vessel NYK Constellation, freight prepaid, shipped on board date November 27, 2007. The substituted merchandise has a value of $685.98 per cylinder.
ISSUES:
Does repackaging the Xenon into different containers constitute a use?
Is the imported and substituted product eligible for drawback pursuant to 19 U.S.C. §1313(j)(2)?
LAW AND ANALYSIS
For a drawback claim for substituted unused merchandise, pursuant to section 1313(j)(2), the merchandise must be commercially interchangeable with the imported merchandise. See 19 U.S.C. § 1313(j)(2)(A). The merchandise that is commercially interchangeable with the imported merchandise must not be used within the United States before exportation or destruction. See 19 U.S.C. § 1313(j)(2)(C)(i).
The first question is whether the repackaging of Xenon in smaller containers with different types of valves and connectors constitutes a use, pursuant to 19 U.S.C. § 1313(j)(2)(C)(i), and thus prohibit a refund as drawback. The statute specifies that any operations not amounting to manufacture or production on the commercially interchangeable merchandise shall not be treated as a use for purposes of determining a drawback refund. See 19 U.S.C. § 1313(j)(3). The statute lists the operations as including “testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking.” Id. CBP Regulations define “manufacture or production” as a “process, including but not limited to, an assembly, by which merchandise is made into a new and different article having a distinctive ‘name, character or use.’” See 19 C.F.R. § 191.2(q)(1).
CBP has addressed similar facts in a ruling involving repackaging of tractor parts or “kitting.” See HQ 225874, dated March 22, 1996. In HQ 225874, John Deere imported a number of specific parts (i.e. parts "A", "B" and "C") for use on pieces of John Deere (Deere) equipment. Prior to use in the United States, Deere "repackaged" the parts (that is, for example, put parts A, B and C in one package and called it "D") before exporting those parts from the United States for use or sale abroad. Thus, Deere either used the exported parts (in the same condition as they were imported) on pieces of John Deere equipment or "repackaged" or "kitted" the parts together for exportation and either use or sale outside the United States prior to their being used in the United States.
In HQ 225874, we found that the repackaging described by Deere to be within the scope of 19 U.S.C. 1313(j)(3) such that such repackaging is not a use for the purposes of 19 U.S.C. 1313(j)(1) and (j)(2). We found that the repackaging described by Deere is essentially the same as, or is the same as, "repacking" within the meaning of 19 U.S.C.1313(j)(3). We reasoned that the parenthetical phrase of 19 U.S.C. 1313(j)(3), which describes operations which, if they do not amount to a manufacture or production for drawback purposes. shall not be treated as a use for purposes of 19 U.S.C. 1313, includes, but is not limited to, inter alia, "repacking" and "unpacking." 19 CFR 181.45(b)(1), which defines "same condition" for the purpose of the pertinent regulations is excerpted supra. 19 CFR 181.45(b)(1)(v) includes "packing, repacking, packaging, or repackaging." We found that the repackaging of parts by Deere is within the scope of 19 CFR 181.45(b)(1)(v) such that parts which are repackaged by Deere are in the same condition provided that the repackaging operation does not materially alter the characteristics of the parts. No evidence was submitted which would indicate that the characteristics of the parts were materially altered by the repackaging.
Consequently, we find that the repackaging of the Xenon into different containers does not constitute a use. The essential characteristics of the product, the Xenon itself, remains the same. We now turn to the analysis concerning the commercial interchangeability of the imported and substituted Xenon.
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.
The imported Xenon is required to meet 99.999% purity. The exported product must meet the same standard. As both the imported and exported Xenon meets the same standard, we deem this criterion to be met.
Part Numbers
The part number of the imported merchandise is P/N 36048. For the exported product, the part numbers differ depending on how the product is packaged. Consequently, a comparison of part numbers is not a useful tool to evaluate commercial interchangeability in the instant case.
Tariff Classification
Both the imported Xenon and substituted Xenon is classified under HTSUS 2804.29.00. Because the imported and substituted merchandise is classified under the same subheading, we find that the tariff classification criterion is established.
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.
You state that the value of the exported Xenon is different from the value of the imported Xenon due to fluctuations in the marketplace. There was a significant jump in the price of Xenon in 2007 and 2008. You have provided CBP with a list of APCI’s purchases of Xenon since 2006 which appears to substantiate your claim. As the difference in value in the export is explained by changes in the marketplace, a change that is verified by the purchase list, we deem the value criterion to have been met.
HOLDING:
We find that the repackaging of the Xenon does not constitute a use which would eliminate the eligibility for drawback pursuant to 19 U.S.C. §1313(j)(2). Based on the above findings, we determine that the imported and substituted Xenon are commercially interchangeable.
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