OT:RR:CTF:ER H150696 PTM
James L. Sawyer, Esq.
Drinker, Biddle & Reath LLP
191 North Wacker Drive, Suite 3700
Chicago, IL 60606
Dear Mr. Sawyer,
We are writing in response to your letter, dated February 23, 2011, on behalf of Mitsui Foods, Inc. (“MFI”) regarding the commercial interchangeability of white grape juice concentrate (“WGJC”). We apologize for the delay in our response.
FACTS:
You state that MFI imports WGJC from various countries, and exports imported or domestically produced WGJC. In support for MFI’s claim for commercial interchangeability, you provided documents representing multiple import and export transactions, and customer specifications for WGJC. Per our request, you provided additional documentation showing grape varietal for imported and substituted WGJC.
For the first representative import transaction, you provided a purchase contract for WGJC from Argentina. The corresponding invoice shows the importation of a quantity of metric tons of WGJC. The associated packing list references the purchase contract and describes the merchandise as “white grape juice concentrate 68° Brix in Drums” and consigned to MFI. The bill of lading describes the merchandise as “white grape juice concentrate” and shows HTSUS number 2009.69.00.
For the second representative import transaction, you provided CBP forms 3461 and 7501 for entry WBA-XXXXX7-5 that lists the import of WGJC classified under subheading 2009.69.0060 HTSUS. The corresponding purchase contract shows the importation of WGJC “SO2<15PPM.”
For the first representative substituted merchandise transaction, you provided a sales contract showing the sale of “frozen grape concentrate (low acid white)” to be shipped from the United States. An invoice indicates the same information and references a bill of lading. The bill of lading lists the shipment of “low acid grape concentrate” and the shipper as MFI. A shipment record shows the export of WGJC with an HTS number 2009.69.0000. A specification sheet for the export calls for the following tolerances:
Brix: 68° minimum
Acid: 0.7-1.3 gm/100
SO2 ppm: <5 at 68 Brix
Color: 0.04-0.1
Transparency: 95% minimum at 14 brix at 600 nm
Total Plate Count: <100
Yeast/Mold: <100
E. Coli: Negative
The second representative substituted merchandise transaction is for an order “frozen grape juice concentrate, white, high acid.” There is a specification sheet listing required WGJC tolerances:
Brix: 68° minimum
Acid: 1.6-2.0 gm/100
SO2 ppm: <5 at 68° Brix
Color: 0.04-0.1
Transparency: 95% minimum at 14 brix at 600 nm
Total Plate Count: <100
Yeast/Mold: <100
E. Coli: Negative
A customer raw material specification sheet, which is not associated with the representative import or substituted merchandise transactions describes the product as “[a] concentrated blend of white grape juices prepared from fresh, unfermented, unsweetened, unacidified grapes consisting of mainly the Thompson Seedless variety.” The specification requires the following tolerances for WGJC:
Brix: 68°-69°
pH: 3.0-4.2
T.A (acidity): 0.8-1.8%
Color: 16° Brix Solution – 95% Transmittance minimum at 420 nm, 90% transmittance maximum at 420 nm.
Clarity: Clear, not cloudy, Transparent when diluted. 16° Brix -95% transmittance minimum at 625 nm
SO2: 15 ppm maximum
A second customer specification sheet requires the following ranges for WGJC:
Brix: 68° ± 1.0°
Acid: 1.0 – 1.8
Ratio: 37-85
SO2: < 50 ppm
Yeast / Mold: <1000 cfu/gm
Alcohol: <0.1%
Color: Minimum 38% trans at 430 nm at 16.0 Brix
Clarity: Minimum 95% trans at 620 nm at 16.0 Brix
CBP requested information regarding the varietal of grape. You provided a document showing that WGJC for export is composed of “Cereza 40%, Criolla 40%, Others 20%.” The document shows that imported WGJC is composed of “95% Thompson Seedless + other white grape varieties such as French Columbard.” You state that grape varietal is not a relevant factor for WGJC and that customers purchase WGJC based on technical specifications such as brix, acid values, color and transparency. Additionally, you state that sulfur dioxide (“SO2”) is a key characteristic. SO2 is a preservative included in WGJC that protects the juice from oxidation and spoilage. You explain that “virgin” WGJC contains very low levels of SO2, and while U.S. customers do not require the WGJC to be virgin quality, certain export customers do require virgin quality.
We referred the product specifications, customer specifications and commercial documents to the CBP Office of Laboratory and Scientific Services (LSS). In a memorandum dated July 14, 2011, LSS stated as follows:
There are several standards from the USDA and published in the Federal Register that refer to grape juice: United States Standards for Grades of Frozen Concentrated Sweetened Grape Juice (22 FR 60877) and United States Standards for Grades of Canned Grape Juice (16 FR 3209). While there is no specific standard for white grape juice, we have used the above standards as well as those for other juices as guidelines.
…
Generally, the species of fruit used (in this case, grapes), mixes of species, and the quality (grade) of grape used for making the juice would need to be defined and nearly technically identical. In this case, the species of grapes are different, the mixes are different, and the grades of grapes are unknown and it cannot be assumed that they are equivalent. On a technical basis, the imported and domestic white grape juice concentrate will therefore be different products.
At this office’s request, you provided additional sets of customer contracts between MFI and its clients for WGJC, which we forwarded to LSS for review. After analysis, LSS in a memorandum dated April 4, 2012, stated:
As previously stated, the varietal of grades [of grapes] are not equivalent, nor is there a specification for grade of grape…therefore, in our opinion, the imported and exported white grape juice concentrate are not technically equivalent based on dissimilarities with respect to species of grape used as well as the ambiguity of the grades of grapes used.
For the representative imported and substituted merchandise transactions shown above, the invoices and contracts show price differences ranging between 25% and 92%. The contracts are all dated within the same calendar year. You assert that price differences are due to forces of supply and demand, a particular season’s harvest in a given geographical locale, as well as general global trends in grape juice prices. However, you were unable to provide market data for WGJC for the period in question to support your assertion.
ISSUE:
Whether the imported WGJC is commercially interchangeable with the substituted merchandise, for purposes of substitution unused merchandise drawback, pursuant to 19 U.S.C. §1313(j)(2).
LAW AND ANALYSIS:
Under 19 U.S.C. § 1313(j)(2), as amended, drawback may be granted if there is, with respect to imported duty-paid merchandise, other merchandise that is commercially interchangeable with the imported merchandise and if the following requirements are met. The other merchandise must be exported or destroyed within three years from the date of importation of the imported merchandise. Before the exportation or destruction, the other merchandise may not have been used in the United States and must have been in the possession of the drawback claimant. 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 Customs and Border Protection (“CBP”) regulation, 19 C.F.R. § 191.32(c), further provides that 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 are the claimant’s transaction documents. See, e.g., HQ H048135 (Mar. 25, 2009); and HQ H122535 (Feb. 9, 2011). 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 in 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, the United States Court of Appeals for the Federal Circuit determined that: “[c]ommercial interchangeability 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 1291, 1295 (Fed. Cir. 1999). Thus, the Federal Circuit set forth an “objective standard—analyzed from the perspective of a hypothetical reasonable competitor.” Id. Therefore, we analyze commercial interchangeability pursuant to 19 C.F.R. § 191.32(c), for a hypothetical reasonable competitor.
Government and Recognized Industry Standards
One of the factors CBP considers is whether the imported and substituted merchandise adhere to 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…products that meet the same industry standard may be used to produce the same products” or used for the same purposes. See, e.g. 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 as an alternative to the government or industry standard criteria since no government or industry standard was available); and HQ H036777 (February 10, 2009) (explaining that because there were no government or industry standards, the product specifications published by the applicant could be used as evidence of commercial interchangeability).
There are no recognized industry standards or U.S. Department of Agriculture standards applicable WGJC. MFI states that it fills orders according to customer specifications. Therefore, we examine the product specifications provided by MFI. This office has previously held that “in order for juice concentrates to be considered ‘commercially interchangeable’ they must be of the same variety.” See HQ 225409 (August 29, 2005) (determining the commercial interchangeability of cranberry juice). According to the documents you provided, the imported WGJC is composed of “95% Thompson seedless + other white grape varieties such as French Columbard,” while the substituted WGJC is composed of “Cereza 40%, Criolla 40%, Others 20%.” Therefore, notwithstanding your assertion that grape varietal is not a characteristic that customers consider, we find that the species of grape is nevertheless a relevant characteristic in determining whether imported and substituted WGJC is commercially interchangeable because standards for juice generally require this, and the customer specifications call for particular varietals of grape. CBP’s LSS noted that “the imported and exported white grape juice concentrate are not technically equivalent based on dissimilarities with respect to species of grape used as well as the ambiguity of the grades of grapes used.” Additionally, we note that one of the customer specifications requires “[a] concentrated blend of white grape juices prepared from…unacidified grapes consisting mainly of the Thompson Seedless varietal.” This statement refutes MFI’s position that grape varietal is not a characteristic that customers consider. Further, LSS confirmed that exported WGJC concentrate would not meet this specification as it is of a different grape varietal.
Furthermore, we note that both of the imports are for “low acid” WGJC, while one of the exports is “high acid” WGJC. The required tolerances for acidity differ: the “low acid” specification calls for an acidity range of 0.7-1.3 gm/100, while the “high acid” specification calls for a range of 1.6-2.0 gm/100. The sales documents repeatedly reference acid content, which establishes acidity as a key criterion of sale. Thus, a customer requiring “low acid” WGJC would not accept “high acid” WGJC, and the two products would therefore not be interchangeable. Consequently, the differences in acid tolerance between the representative transactions and customer specifications do not support a finding of commercial interchangeability.
You also state that imported WGJC does not need to be “virgin” quality. That is, it need not have low SO2 readings. However, certain export customers require virgin quality. We note that the tolerances for SO2 between the import and export differ considerably. One of the representative import transactions require “SO2<15PPM” and the other “SO2<50PPM”. The export specifications both require “SO2 <5PPM.” A customer requiring virgin WGJC (i.e., SO2 <5PPM) would not accept product with a higher SO2 level. The differences in the SO2 specifications between the imported and substituted WGJC does not support a finding of commercial interchangeability.
As the representative imported and substituted WGJC are of grapes are of different varietals, different acidity levels and different SO2 levels, we find that these differences do not support a finding of commercial interchangeability. Consequently, this criterion has not been established.
Part Numbers:
In evaluating the critical properties of the merchandise, CBP also considers the part numbers of the merchandise. 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 (Dec. 2, 2009); and HQ H122535 (Feb. 9, 2011). MFI informs us that part numbers are not used in the purchase and sale of WGJC. A review of the purchase and sale contracts for WGJC shows that the product is ordered by its description and no part number is listed. Therefore, this criterion is not applicable and does not factor into the commercial interchangeability determination.
Tariff Classification
Another factor CBP considers when determining commercial interchangeability is whether the imported and exported goods are classified under the same subheading of the Harmonized Tariff Schedule of the United States (“HTSUS”). See, e.g., HQ H074002 (December 2, 2009). Both the imported and substituted merchandise is classified under 2009.69.00 HTSUS, as shown on the respective import and export documentation. Because the imported and substituted merchandise is classified under the same subheading, we find that the criterion is established.
Value
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. See, e.g., HQ H090065 (Mar. 23, 2010) (finding a price difference of 4.5 percent to be acceptable). A comparison of the invoices for the imported and substituted WGJC shows that the difference in value by metric ton varies between 25% and 92%, within a one year period.
CBP has held that a variance in price does not preclude a finding of commercial interchangeability when there is sufficient evidence to support the material difference in value. See, e.g., H174276 (July 3, 2012) (finding a difference of 34 percent was supported by evidence of external market factors). In the instant case, there are large differences in value over a short period of time. MFI states that the difference between representative import and export prices is primarily due to the forces of supply and demand, and a particular season’s harvest in a given geographic locality. However, the applicant was unable to provide any market or pricing data for WGJC during the relevant time-frame that would substantiate such extreme price fluctuations. Consequently, this criterion has not been established.
HOLDING:
Based on the above findings, we find that the imported and substituted WGJC are not commercially interchangeable for the purposes of 19 U.S.C. §1313(j)(2).
Please note that 19 C.F.R. § 177.9(b)(1) provides that "[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based."
Sincerely,
Carrie L. Owens, Chief
Entry Process and Duty Refunds Branch