DRA 4 OT:RR:CTF:ER HQ H231035 JLG
Mr. Micah McDonald
DHL Drawback Services
22210 Highland Knolls Drive
Katy, TX 77450
RE: Unused Merchandise Drawback; Ruling Request for Commercial Interchangeability of Monoethylene Glycol
Dear Mr. McDonald:
This is in response to your request, dated August 1, 2012, submitted on behalf of Nan Ya Plastics Corp. America (“Nan Ya”) for a ruling on the commercial interchangeability of imported and substituted ethylene glycol (a/k/a “monoethylene glycol” or “MEG”). CBP previously determined that monoethylene glycol is commercially interchangeable under ruling H00572; however, Nan Ya states that it seeks a commercial interchangeability ruling for its own clarification. We note that Nan Ya did not request confidentiality pursuant to 19 C.F.R. § 177.2(b)(7), for any of the information provided.
FACTS:
Nan Ya manufactures, purchases, and resells monoethylene glycol to various overseas markets. Monoethylene glycol is a colorless, virtually odorless liquid used in the production of polyester, polyethylene terephthalate, and automotive antifreeze solutions. It is also used as a dehydrating agent and an industrial solvent.
In support of its claim for commercial interchangeability, Nan Ya provided documentation for the sample import and substituted export product, as well as certificates of analysis identifying the specifications and critical properties of the imported and substituted product. As evidence of an import transaction, Nan Ya submitted an Entry Summary (CBP Form 7501) for Entry No. 322xxxxx484, two commercial invoices, and two Certificates of Analysis. The Entry Summary has an entry date of March 8, 2012, and describes the imported product as “Ethylene glycol.” The commercial invoice number 810848726, which is representative of the other invoices submitted, is dated January 2, 2012. The invoice reflects the sale of “Monoethylene glycol (BIO-MEG). Both the CBP Form 7501 and the commercial invoice classify the merchandise under subheading 2905.31.00 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Additionally, Nan Ya states that it uses product nomenclatures, i.e., name/description, instead of part numbers or material numbers to identify the merchandise in Nan Ya’s inventory.
The Certificate of Analysis for the import transaction provides the following product details:
Parameter
Specifications
Analysis
1
Appearance
Colourless, Transparent with no suspended impurities
Complies
2
Odour
Mild
Complies
3
Colour (APHA)
5.0 Max
5
4
Specific gravity @20¢XC
1.1151 -1.1156
1.1152
5
MEG (%)
99.80 Min.
99.90
6
Distillation range @760mmHg:
IBP (¢XC)
196.0 Min
196.6
7
Distillation range @760mmHg:
DP(¢XC)
199.0 Max
198.4
8
Moisture w/w (%)
0.060 Max
0.05
9
DEG(%)
0.060 Max
0.04
10
Aldeyhde (as formaldehyde)(ppm)
10.00 Max
4
11
Acidity as acetic acid(%)
0.0010 Max
< 0.0010
12
Iron content(ppm)
0.10 Max
< 0.10
13
Chloride(ppm)
0.20 Max
0.10
14
Ash content(%)
0.0010 Max
< 0.0010
15
UV transmittance @220nm(%)
70.0 Min
94
16
UV transmittance @275 nm (%)
95.0 Min
98
17
UV transmittance @350nm (%)
98.0 Min
100
18
Grade
BIO MEG
BIO MEG
For the export transaction, Nan Ya submitted an export invoice, bill of lading, and Certificate of Quality. The invoice is dated May 18, 2012, and reflects the sale of 1,045.00 MTS of “mono ethylene glycol (MEG) fiber grade” to a foreign customer in Hong Kong. Further, the bill of lading indicates that 1,045.00 MTS of “mono ethylene glycol (MEG) fiber grade” was laden in Texas and bound for China on May 18, 2012. Both the invoice and bill of lading reflect that the merchandise is shipped in bulk. The price of the import was approximately 35.2 % higher than the price of the export. The Certificate of Analysis for the export transaction specifies the following:
Test
Method
Results
Specifications
ASH, PPM. WT%
ASTM D 482
< .0010
10 Max
WATER, WT. WT%
ASTM E 203
.0081
0.05
MEG, WT. PCT.%
ASTM E 611
> 99.9
0.08 Max
Acidity As Acetic Acid OOM Wt%
ASTM D 1613
0.0001
10 Max
Relative Density (20/20c°)
ASTM D 4052
1.1151-1.1156
1.1153
IBP, c°
197.1
196 Min
DP, c°
197.7
200 Max
Color, PT-CO
ASTM D 1209
1
5 Max
The above information was submitted to CBP’s Office of Laboratories and Scientific Services (OLSS) for review. In a memorandum dated September 12, 2012, OLSS stated that the specifications for purity and other chemical and technical factors were sufficiently detailed to describe both the imported and substituted merchandise.
ISSUE:
Whether imported monoethylene glycol is commercially interchangeable with substituted monoethylene glycol within the meaning of the substitution unused merchandise drawback statute, 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, 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 since no government or industry standard criteria was available).
We are aware of no governmental standards for monoethylene glycol. However, Nan Ya provided product specifications identifying the physical properties of monoethylene glycol, and certificates of analysis of samples of the import and substituted export product. As shown above, the specifications provided by Nan Ya identified the minimum and maximum levels required, and CBP’s OLSS confirmed that imported and substituted monoethylene glycol with characteristics that fall within the noted specifications sufficiently describe the product. Further, Nan Ya confirmed that the specifications for the imported and substituted merchandise would be identical. Thus, provided the imported and substitute exported monoethylene glycol fall within the range of specifications identified above, the governmental and recognized industry standards criterion 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 Harmonized Tariff Schedule of the United States (“HTSUS). Both the import invoice and the Automated Export System documentation indicate the HTS number is 2905.31.00. The 2012 HTSUS classifies monoethylene glycol as “acyclic alcohols and their halogenated, sulfonated, nitrated or nitrosated derivatives” under subheading 2905.31.00. The U.S. Census Bureau – Foreign Trade Schedule B (2012) also classifies monoethylene glycol under subheading 2905.31.00. Accordingly, the classification criterion is met.
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 a finding of commercially interchangeability. 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). In HQ 227106, bulk aspartame could be ordered in different types of packaging, thus, there was no reference to part numbers. CBP concluded that the imported and substituted aspartame was commercially interchangeable although the part number criterion was not satisfied stating that “the fact that the part numbers and lot codes are not used on all documents, but are used only in some, supports the view that the part numbers and lot codes do not preclude a finding of commercial interchangeability.”
According to Nan Ya, the product nomenclature “Monoethylene glycol – MEG” rather than part numbers is used to identify the imported and substituted merchandise. In a prior ruling CBP observed that merchandise sold in bulk may not have part numbers. See HQ H190457 (June 11, 2012). The import and export documentation provided reflects that the merchandise is packaged and sold in bulk. As such, part numbers are not applicable to this product. Furthermore, Nan Ya states that since “there is no variation in the [monoethylene glycol] they import or produce . . . there is no reason to apply a part number or material number.” Because the imported and substituted merchandise are consistently described only as “monoethylene glycol” and/or “MEG” in the provided documentation, we find that this supports a finding that part numbers are not relied upon in the sale of this product. In view of the above, we determine this criterion will not factor into our decision on commercial interchangeability.
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).
According to the sample import and export documentation provided, the price of the imported monoethylene glycol is approximately 35.2 % higher than the price of the substituted monoethylene glycol. The import commercial invoice is dated January 2, 2012, and the export commercial invoice is dated May 18, 2012. Thus, there is nearly a five-month time lapse between the imported and exported merchandise. Additionally, Nan Ya explains that the difference in value is due solely to volatility in the market. To support this contention, Nan Ya provided industry pricing reports noting the decline in price of Asian monoethylene glycol from March through May 2012. The goods were imported and exported into different geographical areas, there is a five-month time gap between the import and exported products, and supporting evidence shows prices dropped during this period. Accordingly, we determine that this fluctuation in price does not preclude a determination of commercial interchangeability.
HOLDING:
The sample import and substituted export product fall within the range of specifications provided, and the tariff classification criterion is satisfied as well. Further, part numbers are not utilized for this bulk chemical, and the difference in price was supported by evidence of a market shift in price. Therefore, we conclude that the imported and substituted monoethylene glycol described above are commercially interchangeable for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
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