OT:RR:CTF:ER
H223980 PTM
J.W. Brown
DHL Drawback Services
Attorney in Fact
22210 Highland Knolls Drive
Katy Texas, 77450
RE: Unused Merchandise Substitute Drawback Ruling Request
Dear Mr. Brown: This is in response to your letter, dated June 22, 2012, on behalf of The Boeing Company (“Boeing”) regarding the commercial interchangeability of imported titanium alloy plate, sheet, billet, bar and ingots. Please find our office’s determination of commercial interchangeability of the subject merchandise below.
FACTS:
As an initial matter, we note that this application for commercial interchangeability was initially filed with U.S. Customs and Border Protection (CBP) on May 13, 2009. That request was withdrawn on August 5, 2009, to acquire additional information to submit with the claim. The claim was resubmitted on September 2, 2010. This office determined that the titanium shapes would not be commercially interchangeable for the purposes of substitution, unused merchandise drawback due to differences in dimension and price between the imported and substituted merchandise. See HQ H122535 (Feb. 9, 2011). On April 6, 2010, you submitted a request for a nonbinding commercial interchangeability ruling with the CBP Drawback Office in San Francisco. That request was denied on July 5, 2011, because the application had previously been denied by this office. The current application was filed to correct deficiencies in the previous applications.
Boeing is engaged in the manufacture and sale of commercial and military aircraft. In the course of its normal business operations, Boeing may purchase and resell titanium in order to satisfy product or program requirements. Boeing purchases imports and in turn exports for its own needs and maintains consistent inventory supplies to ensure its ability to meet market opportunities and demands for titanium shapes. The material may be plate, sheet, billet, bar, and ingots. The billet and bar are rectangular in shape while the ingot may be rectangular or round. The imported shapes are produced by Boeing’s suppliers in different countries and the substitute shapes may be either foreign or domestic product. You state that the imported and substituted titanium shapes will be of the same thickness and dimension. You state that substitution will be done on a form for form basis, i.e., plate for plate, sheet for sheet, rectangular for rectangular, round for round. However, you state that it is common in the aircraft and defense industries for variations in dimensions to exist between titanium imports and substituted titanium shapes, resulting in weight differences between the two products. Further, you state that the substituted titanium will normally have a length and width equal to or less than the imported titanium due to any cutting and slitting. You assert that this is the ordinary course of business and reflects a fundamental premise of the titanium market: that titanium forms are bought and sold according to the closest match to the customer order according to weight; the dimensions simply indicate the quantity of titanium needed by the customer.
You provided documents representing two typical import and export transactions. For the first set of transactions, you provided a CBP form 7501 showing the importation of a quantity of titanium shapes classified under 8108.90.6045 of the Harmonized Tariff Schedule of the United States (HTSUS) from Russia. The corresponding invoice shows the importation of titanium plates of alloy “6AL-4V under AMS-T-9046 A” with thickness of 2.5 inches, length 36 inches and width 96 inches. The inspection certificate also shows the same dimensions. An export bill of lading shows a shipment of titanium plates to Japan. The dimensions shown are thickness 2.5 inches, length 34 inches, and width 75 inches. The price difference between the first representative import and export transactions is 2.2%, as shown on the respective invoices.
For the second set of representative import and export transactions, you provided a CBP form 7501 showing the importation of titanium bar classified under 8108.90.6045 HTSUS from Russia. The corresponding inspection certificate shows the importation of titanium of 3.5 inch diameter, and no length listed. The corresponding exported titanium also has a diameter of 3.5 inches and a length of 126 inches. Each bar weighs 216 pounds. The difference in price between the imported and substituted titanium is 31% for the second set of transactions, as shown on the respective invoices.
ISSUE:
Whether imported titanium shapes are commercially interchangeable with substituted titanium shapes on a form-for-form, thickness-for-thickness basis, for the purpose of substitution unused merchandise drawback under 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 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 exported merchandise adhere to government and recognized industry standards. Governmental 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). Both the imported and substituted titanium in this case meet the Unified Numbering system (UNS) standard for TI R56400, reflecting that it has the same chemical composition. We forwarded the specifications you provided for the imported and substituted titanium to the CBP Office of Laboratory and Scientific Service, and it confirmed that the characteristics for the representative imported and substituted titanium conform to the noted specifications. Thus, provided the imported and substituted titanium conform to this standard, this criterion is 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). You state that the titanium forms are not assigned a part number. Therefore, this criterion is not determinative of whether the substituted merchandise is commercially interchangeable with the imported merchandise.
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). The HTSUS classification of the imported and substituted titanium shapes is 8108.9060. The fact that the imported and substituted merchandise is classified under the same eight digit subheading indicates that this criterion is satisfied.
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).
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 HQ 228580 (August 20, 2002) (holding that a value difference of 27% did not preclude a finding of commercial interchangeability when the difference in value is attributable to processing and manufacturing costs). See also, HQ H106515 (March 18, 2011) (holding that although there was a difference in value between the sample import and export was 70%, the difference did not preclude a determination of commercial interchangeability because the value difference was the result of market forces rather than a difference in quality of the merchandise).
The first representative transaction shows a difference in price between the imported and substituted merchandise of only 2.2%, well within the range found acceptable in prior CBP rulings. The second representative transaction shows a price difference of 31%. Boeing states that the price difference is entirely due to market conditions and does not represent any difference in quality between the imported and exported shapes. We reviewed the price of titanium as published U.S. Geological Survey for the time period between the import and export dates. The price of titanium fluctuated 34% during that time period. Therefore, evidence supports that the price difference between the imported and substituted products is attributable to prevailing market conditions. Consequently, we find that this criterion has been established.
Dimensions
Another element we may consider when determining whether a reasonable competitor would accept either the imported or exported good is the dimensional measurements of the titanium shapes. Your previous application, which we considered in our ruling HQ 122535, dated Feb. 9, 2011, we noted that there were significant differences in dimensions (0.5” x 6” x 31” for the export and 4” x 36” x 136” for the import). We noted that titanium shapes of different dimensions would need to be welded, rolled, or cut before they could be used for the same purpose. Id. Of particular concern in that application was the difference in thickness, as CBP has consistently ruled that differences in the thickness of metals affects its suitability for specific purposes. See, e.g., HQ W231519 (Jan. 7. 2010) stating “the thickness of steel could make it more suitable for certain operations or processing.” In HQ 122535 we explained, “a part required to be 4” thick cannot be made with a plate that is only 0.5” thick.” The extreme difference in dimension in that case also led to a difference in price of 56.8%, which also did not support a finding of commercial interchangeability.
In this case, the imported and substituted titanium are of similar dimensions: for example, 2.5” x 36” x 96” for the imported titanium and 2.5” x 34” x 75” for the substituted titanium. Notably, the thickness dimensions of the imported and substituted titanium are the same. This revised application specifically restricts matching to grade, form and thickness. By matching the thickness dimension, the price discrepancy was also resolved. The similarity of the dimensions of the imported and substituted titanium described herein supports a finding of commercial interchangeability.
HOLDING:
Based upon the findings above, we find that the imported and substituted titanium shapes are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. §1313(j)(2). Drawback is only permissible on a form for form basis of the same thickness, i.e., bars for bars, plate for plate or billet for billet of the same thickness.
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." If the terms of the import or export contracts vary from the facts stipulated to herein, this decision shall not be binding on 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 and Duty Refunds Branch