DRA
OT:RR:CTF:ER
H233919 CSO
Ms. Andrea Artero
Mr. Brett Garlock
Sandler & Travis Trade Advisory Services, Inc.
36555 Corporate Drive, Suite 400
Farmington Hills, Michigan 48331
Re: Unused Merchandise Drawback: Ruling Request for Commercial Interchangeability of Invicta Watch Company of America’s watch movements.
Dear Ms. Artero and Mr. Garlock:
This is in response to your request, dated October 2, 2012, on behalf of Invicta Watch Company of America (Invicta) for a ruling on the commercial interchangeability of imported watch movements. Our determination follows.
FACTS:
Invicta is an importer and exporter of watches for men, women and children. Invicta argues that certain watch movements that it imports and exports are commercially interchangeable pursuant to 19 U.S.C. § 1313(j)(2). In support of finding the watches commercially interchangeable, Invicta provided the following documentation: copies of import and export invoices, packing lists of the merchandise to be substituted, and purchase orders from the claimant to the foreign supplier and from the foreign purchaser to the claimant.
In support of its argument, Invicta alleges that the imported and substituted watch movements use the same classification number. Invicta also states that the imported watch movements are imported by style numbers and are always substituted style number for style number. Invicta provided the following chart for the style numbers, Harmonized Tariff of the United States (HTSUS) numbers and the Schedule B numbers:
Style Number HTSUS Schedule B number
G15.211 9108.19.80 9108.19.00
G15.261 9108.19.80 9108.19.00
G10.211 9108.11.80 9108.11.00
7750 9108.20.40 9108.20.00
A07.171 9108.20.40 9108.20.00
A07.211 9108.20.40 9108.20.00
G10.711 9108.19.80 9108.19.00
251.272 9108.19.80 9108.19.00
Invicta selected style number G10.211 as the example for how the import style numbers are matched to the substituted style numbers. Invicta states that the eight (8) style numbers represent a complete list of all styles that will be used for its 19 U.S.C. § 1313(j)(2) claims. Invicta states that no other style numbers for the watch movements will be used in 19 U.S.C. 1313(j)(2) claims.
Invicta also states that there are no government or industry standards for the watch movements. The price of the imported movement was provided on the sample invoice. Invicta also provided invoices for the export or substituted watch movements, which show that for style number G10.211, the price is 0.1% less than the imported movement.
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. Id.
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.
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).
Invicta asserts that there are no government and recognized industry standards applicable to the watch movements. We confirmed with the National Commodity Specialist Division that there are no government or recognized industry standards applicable to the Invicta watch movements. Thus, we are not evaluating this factor for a commercial interchangeability determination.
Part or Style 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 such as style numbers are used in catalogues, and in the import and export documents, it would support a finding of commercial interchangeability. See, e.g., HQ H074002. In this case, Invicta provided eight (8) specific style numbers and a sample of import and export documents including invoices for style number G10.211. Upon review of the example import and export invoices that were provided, we find that the imported movement part number, G15.211, is also listed on the export invoices for the substituted merchandise. Hence, this criterion is satisfied.
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). In this case, the imported and substituted products are classified under similar tariff headings with the HTSUS and Schedule B. The Statistical Classification of Domestic and Foreign Commodities Exported from the United States, also known as Schedule B, is a list of approximately 9,000 commodity classifications for classifying exports from the United States and in compiling the official statistics on exports of merchandise from the United States. See Census Product Catalog, http://www.census.gov (last visited December 31, 2013).
In this instance, the entry summary, CBP Form 7501 classifies G10.211 under subheading 9108.11.80, HTSUS, which provides for " [w]atch movements, complete and assembled: Electrically operated: [w]ith mechanical display only or with a device to
which a mechanical display can be incorporated: other." The export commercial invoice classifies the substitute watch movement G10.211, under Schedule B number 9108.11.00 which also provides for " [w]ith mechanical display only or with a device to which a
mechanical display can be incorporated" and mirrors the language in HTSUS subheading 9108.11.80. We confirmed with our National Commodity Specialist Division that these subheadings correlate. Because both the imported and substituted products are classified similarly, the tariff classification criterion is satisfied.
Relative 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, e.g., 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). In this case, the difference in price is 0.1%, well within the range of accepted price difference values. Hence, this criterion is satisfied.
HOLDING:
Based on the above findings, because the tariff classification, style numbers, the HTSUS numbers and the relative value, we determine that the imported watch movements and the substituted watch movements are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. § 1313(j)(2) as long as Invicta substitutes style number for style number and that the substation is limited to the eight (8) style numbers that were provided: G15.211, G15.261, G10.211, 7750, A07.171, A08.211, G10.711 and 251.272.
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 CBP 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 Owens, Chief
Entry Process and Duty Refunds Branch