DRA-4-OT: RR: CTF: ER HQ H135555 JLG
Mr. Brain E. London American Drawback Services 250 Moonachie Rd. 5th Floor Moonachie, NJ 07074
RE: Unused Merchandise Drawback; Ruling Request for Commercial Interchangeability of Liponate PC; Lipovol A; Lipovol ALM; Lipovol G; Lipovol P; Clear Jojoba Oil; Lipovol O; Lipolan; Lipolan Distilled; Lanolin Oil; Lipolan 31-20; Lipocol C; Lipocol S; Lipocol SC; Lipocol CS-604n; Stearic Acid
Dear Mr. London:
This is in response to your request, received in this office on December 1, 2010, on behalf of Lipo Chemicals, Inc. for a ruling on the commercial interchangeability of various imported and substituted articles. Supplemental information submitted to this office on May 26, 2011, March 5, 2012, May 22, 2012, and September 11, 2012, was also taken into consideration in reaching our decision.
FACTS:
According to your submission, Lipo Chemicals, Inc. (Lipo) is a global supplier of chemical ingredients for the personal care, food, industrial, and pharmaceutical industries. Lipo imports 16 articles in bulk, which it intends to repackage then sell and export to various global entities for use in cosmetics. Lipo maintains that the articles will be exported without any change in the manufacturing process or tariff code; however, the price of the exported articles will be higher than the imported product as it reflects the markup price.
There are sixteen articles under consideration. For each of the sixteen articles, Lipo provided specifications, an entry summary (CBP Form 7501), purchase order, import and export commercial invoices, and certificates of analysis related to representative import and export transactions involving the products at issue. The specifications for each article identifies, among other things, the product code, and INCI (International Nomenclature of Cosmetic Ingredients) name. An INCI name is an international designation for the declaration of the ingredients on the packaging of cosmetics, which is assigned by the American Cosmetic Association, Personal Care Products Council. INCI names are uniform scientific names that are mandated on the ingredient statement of every consumer personal care product. See Personal Care Products Council: International Buyer’s Guide, http://buyers.personalcarecouncil.org/jsp/BGSearchPage.jsp (last visited October 11, 2012).
The 16 articles under consideration are: Liponate PC, INCI name propylene glycol dicaprylate/dicaprate; Lipocol C, INCI name cetyl alcohol; Lipocol CS-604, INCI name cetearyl alcohol; Lipocol S, INCI name stearyl alcohol; Lipocol SC, INCI name cetearyl alcohol; Lipolan, INCI name hydrogenated lanolin; Lipolan Distilled, INCI name hydrogenated lanolin; Lipolan R, INCI name lanolin oil; Lipo Stearic Acid, INCI name stearic acid; Lipovol A, INCI name persea gratissima (avocado) oil; Lipovol ALM, INCI name dulcis (sweet almond) oil; Lipovol G, INCI name vitis vinifera (grape) seed oil; Lipovol J Clear, INCI name simmondsia Chinensis (jojoba); Lipovol O, INCI name olea europaea (olive) fruit oil; Lipovol P, INCI name apricot kernel (prunus Armeniaca oil); and Lipolan 31-20, INCI name PEG-20 hydrogenated lanolin. The following table describes the merchandise and the specifications for each product.
Product
Tariff Code
Specifications
Specification Values
1. Liponate PC
Product Code 07010
2915.90.1050
a. Appearance@25°C
b. Color, APHA
c. Acid Value
d. Iodine Value
e. Saponification Value
f. Refractive Index @ 20°C
g. Relative Density @ 20°C
a. Clear, free of foreign matter
b. 50 Maximum
c. 0.1 Maximum
d. 1 Maximum
e. 315-335
f. 1.440-1.442
g. 0.91-0.93
2. Lipocol C
Product Code 14000
2905.17.0000
a. Appearance@25°C
b. Acid Value
c. Hydroxyl Value
d. Iodine Value
e. GLC Determination %
a. White to off-white flakes
b. 2 Maximum
c. 5 Maximum
d. 5 Maximum
Values
C14 5 Maximum
C16 95 Minimum
C18 5 Maximum
3. Lipocol CS-604
Product Code 14022
3823.70.6000
a. Appearance @25°C
b. Acid Value
c. Saponification Value
d. Hydroxyl Value
e. Iodine Value
f. Melting Point, °C
g. GLC Determination %
a. White to off-white flakes
b. 1 Maximum
c. 1 Maximum
d. 210 to 223
e. 1.5 Maximum
f. 48-55°C
g. Values C12 & & 14 5 Maximum
C16 54 to 66 C18 29 to 39 C20 & C22 5 Maximum
4. Lipocol S
Product Code 14007
2905.17.0000
a. Appearance @25°C
b. Acid Value
c. Saponification Value
d. Iodine Value
e. Moisture %
f. Melting Point, °C
g. GLC Determination %
a. White flakes
b. 1 Maximum
c. 2.0 Maximum
d. 2.0 Maximum
e. 0.2 Maximum
f. 55° - 60°C
g. Values C18 95 Min
5. Lipocol SC
Product Code 14021
2905.17.0000
a. Appearance @25°C
b. Color, APHA
c. Acid Value
d. Saponification Value e. Hydroxyl Value
f. Iodine Value
g. Melting Point, °C
i. Carbon Chain Link Distribution %
a. White, to off-white flakes or pastille
b. 50 Maximum
c. 2 Maximum
d. 2 Maximum
e. 205-220
f. 4 Maximum
g. 48-55,°C i. Values C12 2 Maximum
C14 7 Maximum C16 25-35 C18 60-67 C20 2 Maximum
C22 1 Maximum
6. Lipolan
Product Code 11001
1505.00.9000
a. Appearance @25°C
b. Color, APHA (15% solution in CHCI3)
c. Melting Point, °C
d. Acid Value
e. Iodine Value
f. Saponification Value
g. Hydroxyl Value
a. White to off-white flakes
b. 50 Maximum
c. 44-53
d. 1 Maximum
e. 8-15
f. 5 Maximum
g. 140 - 180
7. Lipolan Distilled
Product Code
11003
1505.00.9000
a. Melting Point,°C
b. Acid Value
c. Iodine Value
d. Saponification Value
e. Hydroxyl Value
a. 38-43
b. 0.2 Maximum
c. 8-15
d. 2.5 Maximum
e. 145 -190
8. Lipolan R
Product Code 11010
1505.00.9000
a. Appearance @25°C
b. Color, Gardner
c. Cloud Point, °C
d. Acid Value
e. Iodine Value
f. Saponification Value
g. Ash, %
h. Moisture %
a. Yellow to amber liquid
b. 10 Maximum
c. 18 Maximum
d. 2 Maximum
e. 18-36
f. 85-110
g. 0.1 Maximum
h. 0.5 Maximum
9. Lipo Stearic Acid
Product Code 16005
2915.70.0120
a. Appearance @25°C
b. Acid Value
c. Saponification Value
d. Iodine Value
e. Color (Loviband 5 ¼’ cell)
f. Titer
g. Fatty Acid Distribution
(Typical Values)
C 12
C14
C16
C18
a. White waxy flake
b. 202-212
c. 203-213
d. 0.5 Maximum
e. 0.3R/3Y
f. 54 – 57 °C
g. Values
1 % Maximum
3% Maximum
45% Minimum
40% Minimum
10. Lipovol A
Product Code
08001
1515.90.8090
a. Acid Value
b. Iodine Value
c. Saponification Value
d. Specific Gravity @ 25°C
e. Refractive Index @ 25 °C
f. Moisture, %
g. Unsaponifiable Matter
h. Fatty Acid Distribution
C6
C8
C10
C12
i. Palmitic C16:0
ii. Palmitoleic C16:1
iii. Stearic C18:0
iv. Oleic C18:1
v. Linoleic C18:2
vi. Linolenic C18:3
a. 1 Maximum
b. 75-95
c. 185-198
d. 0.908 – 0.923
e. 1.460 – 1.470
f. 0.1% Maximum
g. 2% Maximum
h. F.A. Values
3.0 Maximum
65-85
20.0 – 33.0
3.0 Maximum
i. 5-25%
ii. 11% Maximum
iii. 3% Maximum
iv. 56 – 73%
v. 6 – 19 %
vi. 3 % Maximum
11. Lipovol ALM
Product Code
08003
1515.90.2100
a. Appearance @25°C
b. Acid Value (Free Fatty Acids)
c. Iodine Value
d. Saponification Value
e. Specific Gravity @ 25°C
f. Fatty Acid Distribution:
i. Palmitic and lower
ii. Palmitoleic
iii. Stearic
iv. Oleic
v. Linoleic
vi. Linolenic and higher
a. Clear, pale yellow oily liquid
b. 2 Maximum
c. 95-105
d. 190-200
e. 0.910 – 0.915
f. F.A. Values:
i. 3.0 – 9.0%
ii. Maximum 2%
iii. Maximum 3%
iv. 60.0 – 70.0%
v. 20.0 – 30.0%
vi. Maximum 2 %
12. Lipovol G
Product Code
08010
1515.90.8090
a. Appearance @25°C
b. Color (Gardner)
c. Acid Value
d. Iodine Value
e. Saponification Value
f. Refractive Index @ 25°C
g. Specific Gravity @ 20°C
h. Peroxide Value
i. Fatty Acid Distribution:
i. Myristic & lower C14:0
ii. Palmitic C16:0
iii. Palmitoleic C16:1
iv. Stearic C18:0
v. Oleic C18:1
vi. Linoleic C18:2
vii. Linolenic & higher C18:3
a. Yellow/greenish-amber liquid
b. 5 Maximum
c. 2 Maximum
d. 125 - 145
e. 183 - 195
f. 1.472 – 1.475
g. 0.920 – 0.926
h. 5 Maximum
i. F.A. Values:
i. Maximum 2%
ii. 3.0 -10%
iii. Maximum 1%
iv. Maximum 7.0%
v. 10 - 25%
vi. 62 - 76%
vii. Maximum 2.0%
13. Lipovol J Clear
Product Code
08022
1515.90.60000
a. Color Gardner
b. Acid Value
c. Iodine Value
d. Saponification Value
e. Fatty Acid Distribution
C18:1
C20:1
C22:1
a. 1 Maximum
b. 0.5 Maximum
c. 80 - 85
d. 90 -95
e. F.A. Values
5 - 15%
65 - 80%
10 - 20%
14. Lipovol O
Product Code
08045
1510.00.2000
a. Appearance @25°C
b. Acid Value
c. Iodine Value
d. Saponification Value
e. Fatty Acid Distribution:
i. Palmitic acid
ii. Palmitoleic
iii. Stearic
iv. Oleic acid
v. Linoleic acid
vi. Linolenic and higher
a. Clear, dark yellow w/greenish tint liquid
b. 3 Maximum
c. 75-90
d. 184-196
e. F.A. Values:
i. 10 -18%
ii. 0.5 – 2.0%
iii. 0.5 – 4.0%
iv. 60 – 80%
v. 5-15%
vi. 1.5 Maximum
15. Lipovol P
Product Code
08020
1515.90.8090
a. Appearance @25°C
b. Acid Value
c. Iodine Value
d. Saponification Value
e. Fatty Acid Distribution:
i. Palmitic acid and lower
ii. Palmitoleic acid
iii. Stearic acid
iv. Oleic acid
v. Linoleic acid
vi. Linonenic acid
a. Straw colored oily liquid
b. 1 Maximum
c. 90-115
d. 185-195
e. F.A. Values:
i. Maximum 10%
ii. Maximum 2%
iii. Maximum 3,0%
iv. 55.0 to 72.0%
v. 20.0 – 36%
vi. Maximum 1.0%
16. Lipolan 31-20
Product Code
11017
1505.00.9000
a. Appearance @25°C
b. Acid Value
c. Hydroxyl Value
d. Saponification Value
e. Moisture, %
a. Cream colored waxy flake
b. 2 Maximum
c. 35-55
d. 6 Maximum
e. 2 Maximum
The Office of Laboratories and Scientific Services of U.S. Customs and Border Protection (CBP) reviewed the specifications and the values for the sample import and substitute export products and determined that the specifications sufficiently described the products. The lab noted, however, that “cross substitutions should not be allowed (i.e. Lipovol A for Lipo Stearic Acid, etc.).”
ISSUE:
Whether the imported articles are commercially interchangeable with the substituted articles within the meaning of the substitution unused merchandise drawback statute pursuant to 19 U.S.C. § 1313(j)(2).
LAW AND ANALYSIS:
Section 1313(j)(2) of the Tariff Act of 1930, as amended (19 U.S.C. § 1313(j)(2)), provides that drawback may be claimed on imported duty-paid merchandise that is substituted for commercially interchangeable and unused imported merchandise if certain requirements are satisfied. Specifically, the merchandise must be unused and exported or destroyed within three years from the date of importation of the imported merchandise. Prior to the exportation or destruction, the merchandise must not have been used in the United States and must have been in the possession of the drawback claimant. Additionally, the party claiming drawback must be either, the importer of the imported merchandise or must have received from the party that imported and paid owed duties on the imported merchandise, a certificate of delivery transferring to that party, the imported merchandise, commercially interchangeable merchandise, or any combination thereof.
The U.S. Customs and Border Protection (CBP) regulation, 19 C.F.R. § 191.32(c), concerning substitution drawback, provides as follows:
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.
The best evidence of whether the above quoted criteria are used in a particular transaction is the claimant’s transaction documents. See, e.g., HQ H048135 (March 25, 2009). 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 at issue. Id. The purchase and sales documents also provide the best evidence with which to compare relative values. Id.
In Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999), the U.S. Court of Appeals for the Federal Circuit (“CAFC”) defined commercially interchangeable, stating the following:
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 purpose, then the goods are “commercially interchangeable” according to 19 U.S.C. § 1313(j)(2).
Thus, in accordance with the Texport decision, commercial interchangeability is determined using an “objective standard -- analyzed from the perspective of a hypothetical reasonable competitor.” Id. That is, if a reasonable hypothetical competitor or buyer would accept the imported and substituted merchandise at the specified price for the primary purpose intended, the goods will be considered commercially interchangeable.
Government and Recognized Industry Standards
Governmental and recognized industry standards assist 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 used for the same purposes. See HQ H090065 (March 23, 2010); and HQ H074002 (December 2, 2009). Where no government or recognized industry standards govern, however, CBP has relied on product specifications. See HQ H103577 (October 12, 2010) (noting that contractual standards and product specifications can be used as evidence of commercial interchangeability rather than governmental or recognized industry standards) (citing Pillsbury v. United States, 27 C.I.T. 1628, 1634-35 (Ct. Int’l Trade 2003); see also, HQ H064679 (December 18, 2009) (relying on specifications provided by the applicant, as well as certificates of analysis for representative samples of the imported and exported product since no government or industry standard criteria was available).
We are aware of no government or industry standards for the articles at issue; however, Lipo provided product specifications listing the physical properties of each article, as well as certificates of analysis of samples of the imported and substituted products. The individual specifications required for each article varied; however, the values shown on the certificates of analysis for the imported and substituted articles correspond to the product specifications provided for each article. Furthermore, CBP’s lab concluded that the specifications for the imported and substituted merchandise were sufficient to describe the merchandise but cautioned that “cross substitutions [should] not . . . be allowed (i.e. Lipovol A for Lipo Stearic Acid, etc.).” Therefore, we determine the government and industry standards criterion is satisfied.
Part Numbers
In evaluating the critical properties of the merchandise, CBP also considers whether the imported and substituted product share the same part numbers. If the same part numbers or product identifiers are used in catalogues, and in the import and export documents, it would support finding them to be commercially interchangeable. See, e.g., HQ H074002 (December 2, 2009). CBP has also determined, however, that the absence of part numbers on commercial import and export documentation does not preclude a finding of commercial interchangeability. See HQ 227106 (September 3, 1997). Each article is identified by a specific product code. The product code noted on the specifications for each article is also shown on the import and export commercial invoices submitted with each article. Because the imported and substituted products are identified by the same product number, the part number criterion for commercial interchangeability is satisfied.
Tariff Classification
Another factor CBP considers when determining commercial interchangeability is whether the imported and substituted goods are classified under the same subheading of the HTSUS. According to the entry documents and commercial import and export invoices provided, each imported article was classified under the same subheading as the exported article. Since the imported and substituted articles are classified similarly, the tariff classification criterion is satisfied.
Relative Values
CBP also considers the relative value of the imported merchandise to the substituted merchandise because goods that are commercially interchangeable generally have similar values. See HQ 228519 (June 5, 2002) (holding no commercial interchangeability when no explanation was provided to show why “[e]xport invoices indicate that similar tapes were all sold at costs proportionately higher than at the imported costs.”). However, if other critical properties have been met, or there is an explanation for the material difference in value, then a variance in price may not necessarily preclude a finding of commercial interchangeability. See, e.g., Pillsbury Co. v. United States, 293 F. Supp. 2d 1351, 1357-58 (Ct. Int’l Trade 2003) (concluding that the price difference between the import and export product would not detract from a commercial interchangeability finding since the difference was not based on the quality of the merchandise, but rather on the packing costs and supply of the product in the market); see also, HQ 228580 (August 20, 2002) (holding that a value difference of 27% attributed to processing and manufacturing costs did not preclude a finding of commercial interchangeability when the critical properties criterion had been met); and HQ H106515 (March 18, 2011) (determining that a 70% price difference between the imported and substituted products would not preclude a finding of commercial interchangeability since the difference was a result of the market forces rather than quality of the merchandise).
In this case, the commercial documentation for each article shows that the price of the substitute export articles ranges from 11.9% to 69% higher than the price for the imported articles. Lipo explains that the higher price for the exported articles is the markup pricing. Lipo imports each article in bulk at a wholesale price, repackages the articles, and sells and exports the articles at its full-cost price. Because the variance in price is not related to any differences in the quality of the merchandise, we determine that this fluctuation in price does not preclude a determination of commercial interchangeability. See also, HQ H065777 (September 18, 2009) (finding that the higher price for the export was explained by the additional costs incurred for purchasing the merchandise, which include repackaging it).
HOLDING:
Based on the above analysis, we conclude that the imported and substituted products described above are commercially interchangeable for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2), provided that cross substitutions are not allowed.
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,
Carrie L. Owens, Chief Entry Process & Duty Refunds Branch