OT:RR:CTF:ER
H223836 DCC
Port Director
U.S. Customs and Border Protection
555 Battery Street, Room 319 San Francisco, CA 94111
Attn: Karen Cheung, Chief, San Francisco Drawback Center
Re: Internal Advice: Protest 2809-10-100337
Dear Port Director:
This letter is in response to your request for internal advice pursuant to 19 C.F.R. § 177.11(a). Your request concerns the proper application of section 15421 of the Food, Conservation, and Energy Act of 2008 to Protest Number 2809-10-100337, filed on behalf of Foster’s Wine Estates Americas (“FWE”). Our decision follows.
FACTS:
FWE filed Drawback Claim No. XXX-XXXX402-7 (“Claim 402-7”) to claim a refund of duties, taxes and fees paid on imported red and white wines with an alcohol content of 14 percent or more by volume. The claim sought drawback under 19 U.S.C. § 1313(j)(2) on the basis that the exported wines are commercially interchangeable with imported wines upon which duties, taxes and fees were paid. Both the imported products and the exported products contained more than 14 percent alcohol by volume.
On January 2, 2010, the San Francisco Drawback Center liquidated FWE’s claim without drawback pursuant to Headquarters Ruling Letter (“HQ”) H036362, dated March 27, 2009. In HQ H036362, this office determined that the definition of commercial interchangeability, as authorized by section 15421 of the Food, Conservation, and Energy Act of 2008 (the “2008 Act”), Public Law No. 110-234, 122 Stat. 923 (2008), codified at 19 U.S.C. § 1313(j)(2) (2008), and enacted May 22, 2008, is limited to table wines that have an alcohol content of less than 14 percent or less by volume. The San Francisco drawback center determined that because the imported and exported wines that were the basis of FWE’s drawback claim exceeded the 14 percent standard, the imported and exported wines in FWE’s claim were not commercially interchangeable under the 2008 Act. Furthermore, because FWE failed to obtain a commercial interchangeability determination or submit the required documentation in accordance with the drawback regulations, i.e., 19 C.F.R. § 191.32(c), the San Francisco drawback center determined that the wines that contained more than 14 percent alcohol did not meet the generally applicable standard of commercial interchangeability under 19 U.S.C. § 1313(j)(2).
FWE filed Protest 2809-10-100337 on July 28, 2010, to challenge the liquidation without drawback of Claim 402-7. The port forwarded the protest to our office seeking internal advice in accordance with 19 C.F.R. § 177.11. The port asks whether duties and taxes paid on imported wine that contains more than 14 percent alcohol by volume are eligible for refund pursuant to section 15421 of the 2008 Act. FWE argues in its protest that HQ H036362 incorrectly limits the definition of commercial interchangeability under the 2008 Act to table wine with alcohol content of 14 percent or less by volume. FWE asserts that in enacting section 15421 of the 2008 Act, Congress not only defined the term “commercial interchangeability” for purposes of claiming drawback on wine under 19 U.S.C. § 1313(j)(2), but also expanded the scope of what constitutes “wine” for purposes of that statute to include all wine regardless of its alcoholic content. FWE’s drawback claim does not present, and we do not consider in this decision, the additional criteria addressed in HQ H036362. Consequently, this ruling is limited to the question of whether the wine in the protest which contains more than 14 percent alcohol by volume is commercially interchangeable, either under section 15421 of the 2008 Act or the generally applicable standard under 19 U.S.C. § 1313(j)(2).
ISSUE:
Whether duties and taxes paid on the imported wines at issue, which contain more than 14 percent alcohol by volume, are eligible for refund under unused substitution drawback.
LAW AND ANALYSIS:
In general, in order to be eligible for substitution unused merchandise, drawback pursuant to 19 U.S.C. § 1313(j)(2), the exported or destroyed merchandise must be “commercially interchangeable” with the imported merchandise. See 19 U.S.C. § 1313(j)(2)(A). The determination of commercial interchangeability is based on the critical properties of the merchandise. In evaluating the critical properties under this standard, CBP considers factors such as the tariff classification of the merchandise, the relative value of the merchandise, the relevant governmental and recognized industrial standards for the product, the merchandise’s part numbers, and any other relevant factors. See 19 C.F.R. § 191.32(c). As recognized by the courts, commercial interchangeability has been determined by an “objective, market-based consideration of the primary purpose of the goods in question,” based on an analysis of whether the substituted goods are interchangeable “from the perspective of a hypothetical reasonable competitor.” See Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999) (citations omitted).
For table wine, however, Congress established a more lenient standard of commercial interchangeability for substitution drawback in the 2008 Act. Under that standard, substituted wines were deemed to be commercially interchangeable if they had the same color and the price variation did not exceed 50 percent.
We first analyze whether the wines at issue in the protest are eligible for substitution drawback under the new standard established in the 2008 Act. In arguing that section 15421, codified at 19 U.S.C. § 1313(j)(2), applies to wine of more than 14 percent alcohol FWE conflates two distinct issues. The first issue, on which there is no dispute, is whether Congress intended to change the standard of commercial interchangeability for wine products under 19 U.S.C. § 1313(j)(2). Section 15421 establishes a new standard of commercial interchangeability based on the color and relative value of imported and exported wines. The second question is whether Congress, in adopting a standard of commercial interchangeability for wine based on color and relative value, also intended to expand the scope of what constitutes “wine” for purposes of 19 U.S.C. § 1313(j)(2), thereby including wines that contains more than 14 percent alcohol by volume. Based on the language and legislative history of section 15421, including the Harmonized Tariff Schedule of the United States (“HTSUS”), as well as the federal regulations governing wine, we find that Congress did not intend to expand the definition of wine.
Section 15421 of the Food, Conservation, and Energy Act of 2008 provides as follows:
In General.—Section 313(j)(2) of the Tariff Act of 1930 (19 U.S.C. 1313(j)(2)) is amended by adding at the end the following: “For purposes of subparagraph (A) of this paragraph, wine of the same color having a price variation not to exceed 50 percent between the imported wine and the exported wine shall be deemed to be commercially interchangeable.”
Before reviewing the substantive question of whether 19 U.S.C. § 1313(j)(2) applies to wine that contains more than 14 percent alcohol we first consider whether the statute is clear and unambiguous on its face. As explained by the Supreme Court:
If the statute is clear and unambiguous ‘that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’ . . . The traditional deference courts pay to agency interpretation is not to be applied to alter the clearly expressed intent of Congress.
Board of Governors, FRS v. Dimension Financial Corp., 474 U.S. 361, 368 (1986), quoting Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984). But, when a statute is silent or ambiguous with respect to a particular issue, an agency must consult a statute’s legislative history to discern Congressional intent. See United States v. Daas, 198 F.3d 1167, 1174 (9th Cir. 1999).
FWE argues that section 15421 clearly applies to all wines regardless of alcoholic content. According to FWE, because Congress unambiguously intended to include wines that exceeded 14 percent alcohol, CBP is precluded from interpreting the statute to further define the term wine to exclude certain wines. We find that the language of section 15421 is not clear on its face. The pivotal question in this protest is whether “wine” includes wine with an alcohol content of greater than 14 percent. The statute did not specify what is encompassed by its reference to “wine,” thus we rely upon the legislative history of this provision.
A review of the legislative history for section 15421 reveals Congress’ intent to limit the scope of the provision to table wine. The relevant provision of the Conference Report 110-627, May 13, 2008, which accompanied the 2008 Act, reads as follows:
Section 313(j)(2) of the Tariff Act of 1930 does not contain a definition of “commercially interchangeable.” From late 2001 to May 2007, U.S. Customs and Border Protection (CBP) paid drawback claims on wine based on white domestic and imported table wine being commercially interchangeable with relatively valued imported white table wine. Red domestic and imported table wine was also considered to be commercially interchangeable with relatively valued imported red table wine. Relatively valued wine was considered to be wine within a price range of 50%.
* * *
The new provision carries forward the standard used for commercial interchangeability from 2001 to May 2007, and provides certainty for the filing and processing of unused drawback claims for imported and exported wine.
Food, Conservation, and Energy Act of 2008, Conf. Rept. 110-627, May 13, 2008 (emphasis added).
From 2001 to 2007, as indicated in the nonbinding predetermination letters, CBP only allowed drawback claims based on domestically-produced and imported table wine, of no greater than 14 percent alcohol, provided the substitute wine was of the same color (i.e., red, white, or rosé), and the relative value of the imported wine was within 50 percent of the substitute wine. Under the standard applied from 2001 to 2007, CBP did not allow drawback under 19 U.S.C. § 1313(j)(2) for wine when the alcoholic content exceeded 14 percent. Because the Conference Report states that the “new provision [section 15421] carries forward the standard used for commercial interchangeability from 2001 to May 2007,” Congress did not expand the scope of articles covered by the new commercial interchangeability standard. The remainder of that sentence, which reads, “. . . and provides certainty for the filing and processing of unused drawback claims for imported and exported wine,” expresses the intent that the standard will not be changed.
In its protest, FWE argues that because the 2008 Act does not mention the 14 percent criteria, the definition was intended to apply to all wine regardless of alcoholic content. FWE argues that the last sentence of the Conference Report’s explanation of section 15421 demonstrates that Congress intended the provision to apply to wine in general, as opposed to table wine, as determined in HQ H036362. As explained above, however, the legislative history referenced only table wine, and supported CBP’s prior practice of only determining wine to be commercially interchangeable under the generally applicable standard if the alcohol content was no greater than 14 percent.
Further, the ordinary meaning of “table wine” relies upon a threshold of 14 percent alcohol. For the ordinary meaning of a term, we rely upon dictionary definitions of the term. See, e.g., Best Power Tech Sales Corp. v. Austin, 984 F.2d 1172, 1177 (Fed. Cir. 1993) (“It is a basic principle of statutory interpretation, . . . , that undefined terms in a statute are deemed to have their ordinary understood meaning. For that meaning, we look to the dictionary”) (citations omitted). A definition of the term “table wine” based on a leading dictionary defines “table wine” as:
A wine of not more than 14 percent alcohol by volume that is red (as Burgundy or claret), white (as Chablis or Rhine wine), or rosé and usu. served with food; esp : one that is still – called also light wine, natural wine.
Webster’s Third New International Dictionary (1993) (emphasis added). Thus, the ordinary meaning would limit “table wine” to that having an alcohol content of no greater than 14 percent.
FWE argues that its claim is supported by the commonly used dictionary definition of the wine. FWE notes that according to Webster’s New World Dictionary (2010), “table wine” is defined as “a still and usually dry wine for serving with meals, usually containing no more than 14% alcohol by volume.” However, this definition supports our position that “table wines” usually do not contain more than 14 percent alcohol. FWE next relies upon the The American Heritage Dictionary of the English Language, which defines “table wine” as “an unfortified wine considered suitable to be served with a meal.” However, that definition does not address the alcoholic content of table wine and thus, does not speak to the issue of whether a table wine is normally understood as being no greater than 14 percent alcohol.
Furthermore, FWE argues that the common meaning of “table wine” is based on the use and purpose of the product, not the alcoholic content. In support of this assertion, FWE notes that many restaurant wine lists commonly include table wines that exceed 14 percent alcohol by volume. However, even if restaurant wine lists could establish an industry standard, FWE relies only upon anecdotal evidence and not an industry-wide analysis.
FWE further argues that it is inappropriate for CBP to rely on regulations promulgated by Alcohol and Tobacco Tax and Trade Bureau (“TTB”), U.S. Department of Treasury, to determine whether a wine product is within the scope of section 15421. In HQ H036362, we relied, in part, on regulations promulgated by, and codified at 27 C.F.R. § 4.21. The TTB regulations, codified at 27 C.F.R. Subpart C, establish standards for identifying various alcoholic beverages for labeling and advertising purposes. Specifically, the TTB regulations define the term “table wine” as a “grape wine having an alcoholic content not in excess of 14 percent by volume.” 27 C.F.R. §4.21(a)(2). FWE cites five court cases of the customs and international trade courts to support its position that the regulations and standards of other government agencies are not controlling with respect to determinations concerning tariff usage and meaning. See Bestfoods v. United States, 342 F.Supp. 2d 1312, 1316-17 (Ct. Int'l Trade 2004); C.J. Tower & Sons of Niagara, Inc. v. United States, 52 Cust. Ct. 14, 17 (1964); United States v. Mercantil Distribuidora, 45 C.C.P.A. 20, 25-27 (1957); Amersham Corp. v. United States, 564 F. Supp. 813 (Ct. Int'l Trade 1983); and United States v. Mercantil Distribuidora, 43 C.C.P.A. 111, 116 (1956). According to FWE, these cases support the proposition that unless the tariff classification under the HTSUS was drafted with reference to specific regulation by another government agency, CBP is not bound to classify imported products according to the regulations of other agencies. However, in each of the five cases cited by FWE involved the courts reviewed the use of other government agency regulations to determine the proper tariff classification of imported merchandise. In contrast, the present matter does not involve the tariff classification of imported merchandise, but instead involves the interpretation of a statute and its legislative history. Moreover, C.J. Tower recognized that “regulations may throw light on trade practices and help establish common meaning, when that is a controverted issue.” 52 Cust. Ct. at 17. See also, Mercantil Distribuidora, 45 C.C.P.A. at 25 (explaining that another agency’s regulations although not controlling, may be pertinent). Therefore, the court cases cited by FWE do not oppose the reliance on TTB’s regulations as informative of the ordinary meaning of “table wine.”
Contrary to FWE’s claim, the Court of International Trade has recognized that it is appropriate to consider the regulations of other government agencies when determining the ordinary meaning of ambiguous terms in the customs statute when those regulations are consistent with other reliable sources. See DMV USA, Inc. v. United States, 25 C.I.T. 970, 975 (Ct. Int'l Trade 2001) (“While these [FDA and USDA] definitions are not binding on the Court, because they are in accord with other reliable sources, they do provide support for the definitions found in those sources”) (citations omitted); and Foodcomm International, Inc. v. Michael Kantor, 914 F. Supp. 548, 553 (Ct. Int'l Trade 1995) (“[W]hile the [USDA] regulations do not control the determination of the common meaning of ‘beef’ for tariff purposes, they provide support for the previously cited definition of ‘beef’ accepted by the Court.”) Consequently, we find that it is appropriate to consider the TTB’s regulations since they are consistent with the definition in Webster’s Third New International Dictionary to inform our determination of the ordinary meaning of the term “table wine.” Therefore, we continue to find that the TTB regulations support our determination that the term “table wine” is limited to wine that contains less than 14 percent alcohol.
In addition to the ordinary meaning of table wine, CBP may also look to the overall framework of the customs code, as codified in Title 19 of the U.S. Code and the HTSUS, codified at 19 U.S.C. § 1202, to inform our interpretation and implementation of section 15421. See, e.g., FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (“It is a ‘fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.’”) (quoting Davis v. Michigan Dep’t of Treasury, 489 U.S. 803, 809 (1989)). Therefore, it is appropriate for CBP to look to the framework of the customs code and HTSUS to inform its administration of 19 U.S.C. § 1313(j)(2).
In HQ H036362, we relied, in part, on the HTSUS in making our determination that section 15421 did not apply to wine that exceeded 14 percent alcohol. The HTSUS is informative in discerning the ordinary meaning of the term “table wine.” As explained in HQ H036362, the 14 percent limit on alcoholic content for table wine is recognized in the HTSUS. Wines not over 14 percent alcohol are specifically described in subheadings 2204.21.30, 2204.21.50, 2204.29.20, and 2204.29.60, HTSUS. By contrast, wines over 14 percent alcohol are provided for in subheadings 2204.21.60, 2204.29.40, and 2204.29.80, HTSUS. This distinction further supports our conclusion that the reference to table wine in the legislative history of section 15421 refers to wine with an alcohol content of no greater than 14 percent.
Finally, FWE argues that applying 19 U.S.C. § 1313(j)(2), as amended by section 15421, to wines that exceed 14 percent alcohol would be “revenue neutral” because the Government is not entitled to collect duties and taxes on substituted wine that has been exported out of the United States. However, because we have determined that the language in the Conference Report demonstrates Congress’ intent that this is limited to table wine (i.e., wine of no greater than 14 percent alcohol) the issue of budget neutrality is not relevant.
In sum, based on the Conference Report 110-627, Congress ratified the standard of commercial interchangeability for wine that had been used by the San Francisco drawback center from 2001 to 2007. Because the standard used by the San Francisco drawback center only applied to table wine of less than 14 percent alcohol, we find no basis in the statute or legislative history of section 15421 to expand the scope of wine products subject to the new standard of commercial interchangeability.
Although the imported and exported wine products that exceed 14 percent alcohol in FWE’s drawback claim are not within the scope of section 15421 of the 2008 Act, CBP will, pursuant to 19 U.S.C. § 1313(r)(2), consider whether the subject wines qualify for drawback under any other provision of the drawback statute. As noted above, FWE could have claimed substitution drawback under the general standard of commercial interchangeability of 19 U.S.C. § 1313(j)(2).
Based on the information presented, we determine that FWE’s drawback claim does not meet the general standard of commercial interchangeability under section 1313(j)(2). Under 19 C.F.R. § 191.32(c), there are three ways to determine whether imported and exported goods are commercially interchangeable. First, a claimant may obtain a nonbinding predetermination of commercial interchangeability directly from the drawback center where the claim will be filed. Second, a claimant may submit a request for a formal ruling letter from this office. The third method for establishing the commercial interchangeability of imported and exported articles is through the “submission of all required documentation necessary to make a commercial interchangeability determination with each individual drawback claim filed.” 19 C.F.R. § 191.32(c)(2). We concur with your conclusion that FWE failed to establish commercial interchangeability through any of these options.
As stated above, to determine commercial interchangeability based on the documentation filed with a drawback claim, CBP evaluates the critical properties of the merchandise. In evaluating the critical properties, CBP may consider factors such as the tariff classification of the merchandise, the relative value of the merchandise, the relevant governmental and recognized industrial standards for the product, the merchandise’s part numbers, and any other relevant factors. See 19 C.F.R. § 191.32(c), and Texport Oil Co. v. United States, 185 F.3d at 1295 (explaining that commercial interchangeability is determined by an “objective, market-based consideration of the primary purpose of the goods in question”). 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.
You have advised this office that FWE failed to obtain either a formal ruling or a nonbinding predetermination on commercial interchangeability pursuant to 19 C.F.R. § 191.32(c). Further, FWE failed to submit the necessary documents for you to assess commercial interchangeability with this filed claim in accordance with 19 C.F.R. § 191.32(c)(2). To the extent that FWE did provide some of the required information discussed in 19 C.F.R. § 191.32(c), when reviewing the value per unit between the imports and substituted wine, we noted a range of greater than 1000%. Thus, the value criterion is not satisfied. There was insufficient information submitted by FWE with its claim or protest to properly evaluate the remaining criteria. Therefore, FWE failed to establish commercial interchangeability for the imported and substituted wine pursuant to 191.32(c).
HOLDING:
For the reasons discussed, we determine that FWE’s drawback claim for wine that exceed 14 percent alcohol does not meet the standard of commercial interchangeability under 19 U.S.C. § 1313(j)(2), either as set forth in section 15421 of the 2008 Act or as applied more generally by the courts. No later than 60 days from the date of this letter, the Office of International Trade will make the decision available to CPB personnel, and to the public on the CPB Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division