OT:RR:CTF:ER
H235456 ASL
J.W. Brown
AEI Drawback Services, Inc.
22210 Highland Knolls Drive
Katy, TX 77450
RE: Unused Merchandise Substitute Drawback Ruling Request
Dear Mr. Brown: This is in response to your letter, dated November 8, 2012, on behalf of Dow Chemical Company (“Dow”) regarding the commercial interchangeability of imported 2-Ethylhexanoic Acid. Please find our office’s determination of commercial interchangeability of the merchandise below.
FACTS:
In the course of its normal business operations, Dow manufactures, purchases, and resells 2-Ethylhexanoic Acid in order to maintain consistent inventory supplies and meet market opportunities and demands. Dow purchases imported and domestic 2-Ethylhexanoic Acid and exports it to its foreign clients. You provided documents representing a typical import and export transaction. Dow imports 2-Ethylhexanoic Acid from various suppliers. In a March 14, 2013 email, you stated that Dow will accept any 2-Ethylhexanoic Acid as long as the purity is greater than 99.0 percent, the water percentage is less than or equal to 0.2 percent, and the color maximum is 25. As a representative import, you provided a Customs and Border Protection (“CBP”) form 7501 showing the importation of a quantity of 2-Ethylhexanoic Acid classified under 2915.90.1800 of the Harmonized Tariff Schedule of the United States (“HTSUS”). The corresponding invoice shows the importation of 2-Ethylhexanoic Acid. The accompanying certificate of analysis identifies the 2-Ethylhexanoic Acid with a purity of 99.42 percent, a water percentage of 0.06, and a color unit of 7.
Dow exports 2-Ethylhexanoic Acid to its subsidiary, which meets its internal specifications as noted above. The transaction’s certificate of analysis showed the 2-Ethylhexanoic Acid had a purity of 99.5 percent, a water percentage of 0.02, and a color unit of 4. There was a 22 percent difference in value between the imported 2-Ethylhexanoic Acid and the substituted 2-Ethylhexanoic Acid. Furthermore, we contacted the Office of Laboratories and Scientific Services (“OLSS”) and it confirmed that the specifications were sufficiently narrow to describe the merchandise.
ISSUE:
Whether imported 2-Ethylhexanoic Acid is commercially interchangeable with substituted 2-Ethylhexanoic Acid, 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.
CBP’s regulation, 19 C.F.R. § 191.32(c), further provides that in determining commercial interchangeability it:
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). However, no government or industry standard applies to this product.
Instead, you provide specifications for the product. 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, since no government or industry standard criteria was available). In an email on March 14, 2013, you identified that Dow will accept any 2-Ethylhexanoic Acid as long as its purity is greater than 99.0 percent, the water percentage is less than or equal to 0.20 percent, and the color unit is a maximum of 25. Upon review of this specification, OLSS confirmed that it was sufficiently narrow to describe the merchandise. Furthermore, OLSS identified an analytical grade of 2-Ethylhexanoic Acid as being above 99.5 percent purity, which would be different from a low grade that was below 99.5 percent. Both the imported and substituted merchandise fell below the analytical grade of 2-Ethylhexanoic Acid. Thus, provided the imported and substituted 2-Ethylhexanoic Acid conform to Dow’s identified standard and are below the analytical grade, 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). In a prior ruling CBP observed that merchandise packaged and sold in bulk may not have part numbers. See HQ H190457 (June 11, 2012). The import and export documentation provided reflects that the 2-Ethylhexanoic Acid is packaged and sold in bulk. As such, part numbers are not applicable to this product. In view of the above, we determine this criterion will not factor into our decision on commercial interchangeability.
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 HTSUS. See, e.g., HQ H074002 (December 2, 2009). The HTSUS classification of the imported 2-Ethylhexanoic Acid, as set forth in the CBP form 7501, is 2915.90.1800. The export invoice description and product specification sheet indicate that the substituted 2-Ethylhexanoic Acid is classified in subheading 2915.90.1800, HTSUS. Therefore, this criterion is established.
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). The imported 2-Ethylhexanoic Acid and the substituted 2-Ethylhexanoic Acid had a price difference of 22 percent. Dow states that the price difference is due to market conditions over a period of time, as the import transaction occurred in August of 2011 and the export transaction in June of 2012, and does not represent any difference in quality between the imported and exported 2-Ethylhexanoic Acid. Furthermore, the applicant stated that the import price included the cost of shipping. We find that despite the discrepancy between the imported and substituted merchandise this criterion has been established.
HOLDING:
Based upon the findings above, we find that the imported and substituted 2-Ethylhexanoic Acid are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. §1313(j)(2). Drawback is only permissible on 2-Ethylhexanoic Acid that meets Dow’s stated specifications as provided to CBP.
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