DRA-4 OT:RR:CTF:ER
H181475 ASL
Ms. Judy Bodenhamer
JLW Associates
5805 N. Cedar Ridge Lane
Kingman, AZ 86409-9345
RE: Commercial Interchangeability; 19 U.S.C. §1313(j)(2); 19 CFR §191.32(c)
Dear Ms. Bodenhamer,
This is in response to your letter, dated August 11, 2011, on behalf of Citrus World, Inc., dba Florida’s Natural Growers (herein “Citrus World”) requesting a prospective ruling for substitution unused drawback for Concentrated Orange Juice for Manufacture (“COJM”), also known as Frozen Concentrated Orange Juice (“FCOJ”), and a waiver of prior notice. In our letter dated August 22, 2011, we notified you that a waiver of prior notice is to be filed with one of the four drawback centers, not headquarters, in accordance with 19 C.F.R. § 191.91(b)(2). Therefore, this letter addresses only your request concerning substitution unused drawback for COJM.
FACTS:
In your application, you suggested that the industry standard for commercial interchangeability for COJM, found in HQ 226100, is now outdated. You have proposed that U.S. Customs and Border Protection (“CBP”) adopt a new industry standard for future determinations of commercial interchangeability for COJM. In ruling HQ 226100, CBP determined that the amended by-laws of the Citrus Associates of the New York Cotton Exchange, Inc. (“Exchange”), which governs contracts for futures deliveries of COJM, represented the industry standards for COJM for purposes of commercial interchangeability under 19 U.S.C. § 1313(j)(2). HQ 226100 (Dec. 5, 1995). In 1998 the Exchange became the New York Board of Trade (“NYBOT”) and in 2007 the NYBOT became the Intercontinental Exchange (“IE”). IE amended its rules and deleted the “A and B” contracts that had previously regulated futures trading of FCOJ. In its place a new futures contract was introduced in Rule 13.02. The new futures contract has the same criteria found in the amended by-laws of the Exchange and an additional country of origin criterion. The new futures contract has the following standards:
FCOJ-A “U.S. Grade A”
Brix Value Not Less Than
62.5 degrees
Brix Value to Acid Ratio
Not less than 14.0 to 1 nor more than 19.0 to 1
Minimum Score:
94
Minimum for Color
37
Minimum for Flavor
37
Minimum for Defects
19
Country of Origin: any one of or a blend of the following
United States, Brazil, Costa Rica, Mexico
Citrus World imports, buys and sells COJM domestically. As your request is prospective, you did not provide the typical sales documents in support of Citrus World’s claim for interchangeability. However, you did provide in Attachment B, page 17, an invoice for 2008 that showed what you paid per pound of solid for the year 2008. You stated that the imported COJM and substituted exported COJM would meet the updated industry standard, as noted above. Additionally, you stated that some exports would be made to Canada. Finally, you claim that the imported COJM and substituted exported COJM would be classified as 2009.11.0060 in the Harmonized Tariff Schedule of the United States (“HTSUS”), which is “Orange Juice: Frozen in containers of more than 3.785 liters.”
ISSUE:
Whether the proposed imported COJM is commercially interchangeable with the proposed substituted merchandise, for purposes of substitution unused merchandise drawback, 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 substituted or unused merchandise must be exported or destroyed within three years from the date of importation of the imported merchandise. Prior to the exportation or destruction, the substituted or unused merchandise must 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 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 Texport, 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.
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. As previously discussed, the pertinent characteristics CBP uses to determine commercial interchangeability include any governmental or industry standards relevant to the product at issue, the tariff classification, value, part numbers, if any, and any other characteristics relevant to the product. See 19 C.F.R. § 191.32(c).
Government and Recognized Industry Standards
One of the factors CBP considers is whether the imported and exported merchandise adhere to government and recognized industry standards. Government and recognized industry standards assist in the determination of commercial interchangeability because such standards “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. HQ H090065 (Mar. 23, 2010).
Since the Citrus Associates of the New York Cotton Exchange Inc. no longer exists, CBP will consider the criteria and score ranges for FCOJ-A futures contracts, as defined by IE Rule 13.02, to be the industry standards for COJM for purposes of commercial interchangeability under 19 U.S.C. § 1313(j)(2). As this is a request for a prospective ruling, you stated that you would follow the updated industry standard and import and substitute merchandise meeting the following criteria:
Imported Merchandise
Substituted Merchandise
Brix Value Not Less Than
62.5 degrees
62.5 degrees
Brix Value to Acid Ratio
Not less than 14.0 to 1 nor more than 19.0 to 1
Not less than 14.0 to 1 nor more than 19.0 to 1
Minimum Score:
94
94
Minimum for Color
37
37
Minimum for Flavor
37
37
Minimum for Defects
19
19
While you stated you would follow the industry standard, you did not include the country of origin for the oranges in your chart, which is required in order to meet the industry standard. CBP discussed this concern with Citrus World and its representative on October 6, 2011, and it was Citrus World’s intention that its imports and exports would come from any one of or be a blend of the product of the requisite countries as listed in the criteria of FCOJ-A futures contracts. Thus, CBP will include the following requirement for substitution:
Country of Origin: any one of or a blend of the following
United States, Brazil, Costa Rica, Mexico
United States, Brazil, Costa Rica, Mexico
Because, both the imported merchandise and substituted exported merchandise would meet the same industry standard, we find that this criterion supports a finding of commercial interchangeability.
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 (Dec. 2, 2009). Based on the particular merchandise, part numbers are not relevant criteria in this case. See, HQ 226100 (Dec. 5, 1995) and HQ 226444 (Feb. 13, 1996) (determining that part numbers are not relevant criteria for COJM).
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 Harmonized Tariff Schedule of the United States (“HTSUS”). See, e.g., HQ H074002, (Dec. 2, 2009). While you did not provide relevant import or export sale documents, you state that the HTSUS number for imported and substituted exported COJM will be 2009.11.0060. Therefore, since the imported and substituted merchandise would be classified under the same HTSUS, the tariff classification criterion is satisfied.
Value
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.”). Based on information provided to CBP, you stated that it would be difficult to provide values of the imported and exported COJM because it is sold on futures contracts that are subject to market conditions. Nevertheless, in Attachment B, page 17, you included an invoice for 2008 that showed what you paid per pound of solid for the year 2008. As of October 5, 2011, closing prices for FCOJ-A future contracts was between $1.49 and $1.53 per pound of solid for November 2011 to May 2012. Because the market is fluid and subject to swings brought on by hurricanes, frosts, and other natural disasters, the market can fluctuate greatly from day-to-day and year-to-year.
In HQ 226100, we stated that “[i]n a case such as this, in which there are accepted industry standards (which were accepted for purposes of fungibility, a more restrictive standard than commercial interchangeability […]) and those standards are demonstrated to be used in trading of the commodity covered by the standards, there is such a range in value of the merchandise, the standards are entitled to great weight as a criteria for determining commercial interchangeability.” Although we do not have actual export sales documents for price comparisons, we conclude that the variation in prices would likely be the result of market fluctuations and not the product itself, and we will give greater weight to the industry standards. Therefore, we conclude that the value criterion is not determinative of commercial interchangeability in this case.
Finally, we note that although some of the exported merchandise will be shipped to Canada, the restriction on drawback under 19 U.S.C. § 1313(j)(2) for shipments to Canada (see section 203(c),of the North America Free Trade Agreement (“NAFTA”) Implementation Act (107 Stat. 2057, 2092); 19 U.S.C. § 1313(j)(4)) is inapplicable in this case because the merchandise shipped to Canada is a citrus product (see section 203(a)(7), NAFTA Implementation Act (107 Stat. 2057, 2086-2087; 19 U.S.C. § 3333(a)(7)). Therefore, a citrus product exported to Canada is not a “good subject to NAFTA drawback,” and claims under 19 U.S.C. § 1313(j)(2) are permitted. See, e.g., HQ 226225 (April 15, 1996) (explaining unused substitution drawback is permitted for citrus products exported to NAFTA countries).
Based on the information Citrus World provided, we find the COJM commercially interchangeable. In this case, both the prospective imports of COJM and prospective substituted COJM meet the same industry standard; have the same HTSUS numbers; do not rely on part numbers; and the disparity in price is not significant enough to under mind the greater weight given to the industry standard.
HOLDING:
Based on the above findings, we determine that imported COJM to be commercially interchangeable with the substituted COJM for the purposes of substitution drawback pursuant to 19 U.S.C. §1313(j)(2). Furthermore, this ruling does not consider whether a manufacture has occurred for purposes of 19 U.S.C. 1313. If the terms of the import or export contracts vary from the facts stipulated to herein, this decision shall not be binding on U.S. Customs and Border Protection as provided in 19 C.F.R. § 177.2(b)(1), (2) and (4), and § 177.9(b)(1).
Sincerely,
Carrie L. Owens, Chief Entry Process & Duty Refunds Branch