DRA 4
OT:RR:CTF:ER H237492 GGK
Helen Merenda
Comstock & Theakston, Inc.
466 Kinderkamack Road
Oradell, NJ 07649-1536
RE: Lucite International Inc.: Request for a determination of commercial interchangeability under substitution unused merchandise drawback, 19 U.S.C. § 1313(j)(2), for Methyl Methacrylate (“MMA”)
Dear Ms. Merenda:
This is in response to your application, dated January 8, 2013, on behalf of Lucite International Inc. (“Lucite”), for a formal ruling on the commercial interchangeability of imported and substitute Methyl Methacrylate, also known as MMA, for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
FACTS:
Lucite is engaged in the manufacture and sale of Methyl Methacrylate, or MMA. The company produces MMA domestically, as well as imports MMA from different sources around the world. Both imported MMA and substitute MMA have the same Chemical Abstracts Service (CAS) Registry number, 80-62-6, and the same use in the composition of polymers and copolymers. Based on consultation with CBP's Laboratories and Scientific Services Directorate (“LSSD”), we note that MMA is offered for sale based on purity, acidity, water content, color specifications, and parts per million (“ppm”) of inhibitor. According to Lucite, all MMA imported and substituted by the company for drawback purposes must meet these specifications for purity, acidity, water content and color:
Ester Named, % minimum: 99.9
Acid as Methacrylic, % maximum: 0.003
Water, % maximum: 0.03
Color as Shipped, APHA maximum: 8
The type and concentration of inhibitors, however, will vary depending on customer preference.
MMA is a monomer, and unstable. Consequently, different types and concentrations of inhibitors are added to stabilize the chemical for transportation and storage. The inhibitor type and concentration does not alter the chemical composition of MMA. Once MMA is stored in a tank under temperature-controlled conditions or used in a manufacturing operation, the inhibitor can be removed as it serves no other purpose.
According to information provided by Lucite, the company imports MMA containing various types and concentrations of inhibitors. Upon receipt of the chemical, the company removes the inhibitors completely and stores the MMA molecules in refrigerated tanks, where the chemical is maintained and stabilized through temperature. Once an order for MMA is placed, the company will add different types and concentrations of inhibitors, based on customer preference and demand, to stabilize the chemical for transportation and storage.
Moreover, according to LSSD, if the inhibitor is not removed from MMA before further manufacturing takes place, the inhibitor becomes inactive during the manufacturing process and only trace amounts can be found in the end product. Moreover, the inhibitor does not react during the polymerization process; it only becomes inactivated. Although the inhibitor does not serve a purpose during manufacturing, the type of inhibitor and different concentration of the inhibitor does affect the polymerization rate. Furthermore, the process of removing different inhibitors varies and end users of MMA may be set up to only remove specific types of inhibitors. Therefore, end users of MMA have specific preferences on which inhibitor and inhibitor concentration is best for their storage needs, manufacturing process and so forth. In light of the specific preferences by end users for type and concentration of inhibitors, Lucite has proposed that for purposes of commercial interchangeability, imported MMA will only be substituted with MMA containing the same inhibitor type and falling within the same concentration ranges. The concentration ranges for inhibitors are: 8 to 25 ppm; 25 to 50 ppm; and 50 to 75 ppm.
The specifications and certificates of analysis for the imported and substituted MMA, along with the proposed inhibitor concentration ranges, were sent to LSSD for an opinion on whether the imported and substituted product could be used interchangeably. We note that the certificates of analysis submitted by Lucite included an Inhibitor Certificate for the exported merchandise. The inclusion of this specific certificate highlights the importance of the inhibitor type and concentration for end consumers of MMA. It is the opinion of the LSSD that the minimum and maximum specifications required by Lucite for purity, acidity, water content, and color are sufficient to guarantee that the imported and substituted MMA, without inhibitors, could be used interchangeably on a technical basis. However, this is provided that substitution is made on an inhibitor for inhibitor only basis and within the same concentration ranges, as proposed by Lucite.
Finally, in support of Lucite’s commercial interchangeability application, the company provided documents representing a typical import and export transaction. In terms of the import transaction, the company submitted a CBP Form 7501, which identifies a shipment of Methyl Methacrylate entered under subheading 2916.14.2020 of the Harmonized Tariff Schedule of the United States (“HTSUS”). The accompanying import invoice, dated April 27, 2010, identifies the merchandise as “Methyl Methacrylate Monomer” and includes a seller-assigned product number. According to the import Certificate of Analysis (“COA”), values for purity, acidity, water content, and color all fall within the specifications required by Lucite. Finally, the import COA indicates that the shipment of MMA contains Topanol A as the type of inhibitor and the concentration level is at 9 ppm.
For the export transaction, Lucite provided an AES Transmission Report and a Tanker Bill of Lading for a shipment of Methyl Methacrylate. Both documents identify the merchandise by chemical name. In addition, the AES Transmission Report indicates that the exported merchandise is classified under subheading 2916.14.2020 of the HTSUS and Schedule B. Moreover, the export invoice, dated May 2, 2011, for the shipment describes the merchandise as “Methyl Methacrylate Monomer and includes a product number assigned by Lucite. Based on the import COA, the values for purity, acidity, water content, and color all fall within the specifications required by Lucite. Finally, the COA accompanying the export shipment indicates that the MMA contains Topanol A as the inhibitor type and the concentration level to be at 19 ppm.
ISSUES:
Whether the imported MMA is commercially interchangeable with the substituted merchandise, for purposes of substitution unused merchandise drawback pursuant to 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 that CBP considers is whether the imported and exported merchandise adhere to governmental and recognized industry standards. Governmental and recognized industry standards assist in the determination of commercial interchangeability, because those 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 same industry standard may be used to produce the same products" or used for the same purposes. See HQ H074002 (Dec. 2, 2009). For MMA, there are no published government and recognized industry standards. However, Lucite provided the Chemical Abstract Service (CAS) number for the imported and substituted merchandise. CAS registry number is a unique number used to identify compound product for both the imported and substituted merchandise. According to the American Chemical Society which assigns and maintains the CAS Registry Numbers, the CAS numbers “are unique identifiers for chemical substances.” See www.acs.org; see also HQ H071657 (July 28, 2010). The CAS registry number for both the imported and substituted merchandise is CAS-80-62-6. A CAS registry number itself has no inherent chemical significance but provides an unambiguous way to identify a chemical substance or molecular structure when there are many possible systematic, generic, proprietary, or trivial names. CBP has held that the CAS registry number, although not conclusive, may support a finding of commercial interchangeability. See e.g., HQ H095404 (June 29, 2011). In this case, however, LSSD has indicated that many different grades and purities (including different impurities) of MMA on the market fall under the CAS registry number CAS-80-62-6. Therefore, the CAS registry number for MMA is not specific enough to support a finding of commercial interchangeability.
When there are no applicable government or industry standards, CBP considers contractual product specifications, as a critical property, especially when governmental and industry standards are not available. See, e.g., H030097 (Aug. 29, 2008) (determining that where the technical product specifications sufficiently describe the product, this would also support a determination of commercial interchangeability). Product specifications are used to guarantee the uniformity of merchandise. In other words, if product specifications are sufficiently detailed, then any merchandise sharing those specifications will generally be uniform in nature. The Court of International Trade has found that private contract standards may be used to determine commercial interchangeability. See Pillsbury Co. v. United States, 293 F. Supp. 2d 1351, 1356-57 (Ct. Int’l Trade 2003) (explaining that, “[e]vidence of different contract standards would indicate that the designated and substitute [product] are not commercially interchangeable”). Thus, when goods are sold or purchased pursuant to the same detailed product specifications, evidence that the imported and substitute merchandise share the same product specifications tends to support a general finding of commercial interchangeability and thus, satisfies the standards criterion.
Lucite provided product specifications identifying the physical properties of MMA, and certificates of analysis of samples of the import and substituted export product. The specifications are as follows:
Ester Named, % minimum: 99.9
Acid as Methacrylic, % maximum: 0.003
Water, % maximum: 0.03
Color as Shipped, APHA maximum: 8
All MMA imported and substituted by Lucite are required to have minimum or maximum specifications that fall within the percentages identified above. However, these specifications, alone, are not sufficient to establish commercial interchangeability. Rather, Lucite must also account for the different type and concentration of inhibitor included in MMA.
Specifically, the addition of different types and concentrations of inhibitors is based on customer preference. Such preference is derived from the end user’s transportation, storage and manufacturing capabilities. Specifically, because MMA is unstable, care must be used when storing and transporting MMA. The concentration of inhibitors in MMA will determine what storage and transportation equipment are necessary to ensure product safety. In other words, not all storage and transportation equipment can safely handle MMA containing different concentrations of inhibitors. Likewise, end users of MMA will often remove inhibitors before using the chemical. The process of removing an inhibitor differs and is specific to the inhibitor type being removed. Therefore, end users of MMA may be set up to remove a certain type of inhibitor only. Consequently, the concentration and type of inhibitor used to stabilize MMA matters to the reasonable competitor purchasing the chemical.
To address the different storage and transportation requirements, Lucite has proposed three different concentration ranges for inhibitors: 8 to 25 ppm; 25 to 50 ppm; and 50 to 75 ppm. Upon reviewing these ranges, LSSD confirmed that imported and substitute MMA containing concentrations of the same inhibitor that falls within the same range will share the same storage and transportation requirements. In comparison, manufacturing processes to remove inhibitors are specific to the type of inhibitor. Based on these findings, we conclude that this criterion is satisfied provided that the MMA falls within the specifications stated above and contains the same type of inhibitor with concentration levels that fall within the same range.
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 catalogs, and in the import and export documents, it would support finding them to be commercially interchangeable. See, e.g., HQ H074002 (Dec. 2, 2009); HQ H122535 (Feb. 9, 2011). For MMA, standardized part numbers are not assigned. Rather, all purchases and sales of MMA are identified specifically by chemical name. Moreover, the import and export documentation provided reflects that the merchandise is packaged and sold in bulk. In a prior ruling, CBP noted that merchandise sold in bulk may not have part numbers. See HQ H190457 (June 11, 2012). Therefore, part numbers are not applicable to this product and this criterion is not relevant in determining 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). Based on the CBP Form 7501 submitted as a part of the import documentation, the imported merchandise is classified under HTSUS subheading 2916.14.2020. Likewise, the AES Transmission Report demonstrates that the exported merchandise is classified under HTSUS/Schedule B subheading 2916.14.2020. Therefore, the fact that the imported and substituted MMA are both classified under the same HTSUS subheading indicates that this criterion is satisfied.
Relative Value
Finally, 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 H174276 (July 3, 2012) (finding that a 34 percent price difference was the result of external market factors and, thus, did not preclude a finding that the imported and substituted merchandise were commercially interchangeable); HQ 229838 (May 30, 2003) (holding that a value difference of 8.32 percent, explained by profit mark up and costs, does not preclude a finding of commercial interchangeability).
A comparison of the invoices for the imported and substituted MMA show that the difference in price is 35 percent. According to Lucite, the difference in value is due to volatility in the market and varies by geographical regions. For the sample transactions provided by Lucite, the import commercial invoice is dated April 27, 2010, and the export commercial invoice is dated May 2, 2011. To demonstrate that the 35 percent price differential for the imported and exported MMA is due to market forces rather than a difference in quality, Lucite provided published MMA industry pricing reports for the applicable geographical regions during the corresponding timeframes. These industry pricing reports are used by companies to validate market prices of merchandise. When purchasing MMA for importation into the United States, Lucite references the reported US market price. By comparing the documents, we note that the invoiced prices for the imported and exported MMA closely corresponds to the applicable regional prices found on the published industry pricing reports. Moreover, the MMA prices on the industry pricing reports for the applicable regions and timeframes also reflect a value differential that is similar to the 35 percent illustrated by Lucite’s sample import and export transactions. In light of the close correlation between the invoice prices and the regional market prices documented by industry pricing reports, we find that the value differential is due to market forces. Accordingly, we determine that this fluctuation in price does not preclude a determination of commercial interchangeability.
HOLDING:
Based on the above findings, we determine that imported and substituted Methyl Methacrylate meeting the specifications listed above and containing the same type of inhibitor and falling within the same range for inhibitor concentration are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. § 1313(j)(2).
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 ruing 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 activities vary from the facts stipulated to herein, this decision shall not be binding on CBP, as provided for in 19 C.F.R. § 177.9(b).
Sincerely,
Carrie L. Owens, Chief
Entry Process & Duty Refunds Branch