HQ H249074
DRA 4
OT:RR:CTF:ER
H249074 CSO
Mr. Steven Scoppetuolo
Chemoil Corporation
4 Embaracadero Center, 24th Floor
San Francisco, California 94111
Re: Commercial Interchangeability of undenatured fuel ethanol pursuant to 19 U.S.C. § 1313(j)(2)
Dear Mr. Scoppetuolo:
This is in response to your request, dated January 2, 2014, on behalf of Chemoil Corporation (Chemoil) for a ruling on the commercial interchangeability of undenatured fuel ethanol. Our decision follows.
FACTS
In support of its request for commercial interchangeability of undenatured fuel ethanol, Chemoil provided a post entry amendment (PEA) screenprint, a PEA supplemental attachment, an amended entry summary CBP Form 7501, an entry CBP Form 3461, and an invoice for the purchase of Anhydrous Ethanol also known as undenatured fuel ethanol. The entry summary shows that the imported merchandise is classified under the subheading 2207.06.6010 of the Harmonized Tarriff Schedule of the United States (HTSUS). Chemoil also submitted a certificate of quality (referred to as Certificate of Analysis or (COA)) for the imported undenatured fuel ethanol that was provided by a third party. The COA shows that the imported ethanol content is 99.5 percent by volume and methanol is 0.0074 percent by volume.
For the substituted merchandise, Chemoil provided an Automated Export System (AES) report, bill of lading, certificate of origin, and a sales contract for undenatured ethanol. Chemoil also provided a Report of Analysis (also referred to as Certificate of Analysis or (COA)) for a sample of the undenatured ethanol from the same shipment. The COA shows that the ethanol content is 99.19 percent by volume and the methanol content is 0.04 percent by volume. Chemoil also provided a certificate of origin for the export of undenatured fuel ethanol. The AES report shows that the substituted merchandise is classified under the eight digit subheading, 2207.06.6010. Chemoil argues that these documents all support a finding of commercial interchangeability for the imported and exported merchandise. Chemoil states that undenatured fuel ethanol purchased and sold by the company must meet the following specifications: 1) contains not less than 98 percent by volume of ethanol; and 2) contains impurities, including not more than 0.5 percent by volume of methanol, or ketones or both.
ISSUE
Whether the imported and substituted undenatured fuel ethanol are commercially interchangeable.
LAW AND ANALYSIS
Section 313 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 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.
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).
In this case, there is no specific industry standard for undenatured fuel ethanol. 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.
Chemoil asserts that both its imported and substituted undenatured fuel ethanol will contain not less than 98 percent by volume of ethanol and will have impurities that include not more than 0.5 percent by volume of methanol, or ketones, or both. The Laboratory and Scientific Services Directorate (LSSD) found that these specifications sufficiently describe the product. Chemoil’s COAs support its statement. The imported merchandise shows a fuel ethanol content of 99.5 percent by volume and methanol impurities at 0.0074 percent. For the exported merchandise the COA shows that there is an ethanol content of 99.19 percent by volume of fuel ethanol and methanol impurities of no more than 0.04 percent by volume. All of Chemoil’s imported and substituted undenatured fuel ethanol are required to have minimum or maximum specifications consistent with Chemoil’s statement and fall within the percentages identified above. Hence, this criterion is satisfied.
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 a finding of commercial interchangeability. See, e.g., HQ H074002 (Dec. 2, 2009). There are no part numbers assigned for the undenatured fuel ethanol and the undenatured fuel ethanol is 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). Because the entry summary documentation and the Schedule B number for the exported merchandise demonstrate that both the imported and substituted merchandise are classified under the same eight digit subheading, 2207.10.6010, we find that the tariff classification criterion is established.
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 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 percentage difference between the imported denatured fuel ethanol and the exported denatured fuel ethanol is only 7 percent. Chemoil states that the price difference is attributable to supply and demand and not to the chemical or physical differences between the imported and exported undenatured fuel ethanol. Because the price difference is minimal, we determine that this does not preclude a finding of commercial interchangeability.
HOLDING
Based on the above findings, because of the product specifications, HTSUS subheading numbers and the relative value factors we determine that the imported and substituted undenatured fuel ethanol 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 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 L. Owens, Chief
Entry Process and Duty Refunds Branch