HQ H250452
DRA 4; DRA 1-09; PRO 2-05
OT:RR:CTF:ER
H250452 SMS
Port Director
U.S. Customs and Border Protection
Houston Service Port
2350 N. Sam Houston Parkway East, Suite 1000
Houston, TX 77032-3126
Attn: Christina Brooks, Drawback Specialist
Re: Application for Further Review of Protest No: 5309-13-100260; Commercial Interchangeability of undenatured fuel ethanol
Dear Port Director:
The purpose of this correspondence is to address the application for further review (“AFR”) of Protest Number 5309-13-100260, dated July 26, 2013, which we received on February 20, 2014. The protesting party is Louis Dreyfus Commodities Ethanol Partners, LLC, (“Louis Dreyfus”). We regret the delay in our response.
FACTS:
On November 10, 2011, Louise Dreyfus made two entries of “undenatured fuel ethanol.” On December 18, 2011, Louis Dreyfus exported “2207106010 undenatured ethanol” to Brazil. On March 23, 2012, Louis Dreyfus made two drawback entries of fuel ethanol based on unused substitution drawback pursuant to 19 U.S.C. §1313(j)(2). The imported merchandise designated in the claim, was presented under subheading 2207.10.6010, of the Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for “undenatured ethyl alcohol of an alcoholic strength by volume of 80 percent vol. or higher; ethyl alcohol and other spirits, denatured, of any strength: For nonbeverage purposes… For Fuel Use ….” On April 19, 2013, the Houston drawback office (“Drawback Office”) liquidated both drawback entries and denied the claim for drawback, based on the fact that the sales contract between Louis Dreyfus and its buyer in Brazil was for denatured ethanol while the drawback claim was for undenatured ethanol. Additionally, the Drawback Office asked whether the addition of .2 percent gasoline to the undenatured ethyl alcohol resulted in the exported merchandise being denatured ethanol and whether it was properly classified under 2207.20.0010, HTSUS, which provides for “ethyl alcohol and other spirits, denatured, of any strength: For Fuel Use.”
On July 26, 2013, Louis Dreyfus protested the decision to deny the drawback claim and requested further review. In its protest, Louis Dreyfus argues that the documents provided, support a finding of commercial interchangeability for the imported and exported merchandise and states that both the imported and exported ethanol are to be used for blending with motor gasoline for fuel use and both will contain a minimum ethanol content purity of 99.0 percent. As stated above, the Drawback Office denied the claim due to the sales contract being for denatured ethanol and the drawback claim being for undenatured ethanol (both the imported and exported merchandise are described as undenatured ethanol in the drawback claim). Additionally, the Drawback Office inquired whether the blending of gasoline at the level described resulted in it becoming denatured ethanol. Accordingly, the Drawback Office asserts that the imported and exported merchandise are not commercially interchangeable.
In support of its request for commercial interchangeability for the imported merchandise, Louis Dreyfus provided the entry summary CBP Form 7501, an invoice, and the sale confirmation between Louis Dreyfus and its domestic supplier for “fuel grade ethanol” containing quality requirements referencing “ANP specifications for imported anhydrous ethanol…” Louis Dreyfus also submitted a Certificate of Analysis (“COA”) for the imported undenatured fuel ethanol, dated November 11, 2011, provided by a third party, showing ethanol content at 99.21 percent by volume and methanol at less than 0.01 percent by volume. For the exported merchandise, Louis Dreyfus provided the sales contract between it and the buyer in Brazil for anhydrous, denatured ethanol, in bulk, containing quality requirements referencing “ANP import specifications”, the bill of lading indicating undenatured ethanol, the shipper’s export declaration listing undenatured ethanol and listing the Schedule B Number as 2207106010, Alcohol and Tobacco Tax and Trade Bureau (“TTB”) form for the withdrawal of spirits, specially denatured spirits, or wines for exportation, and the commercial invoice listing “anhydrous ANP Grade ethanol/Gasoline for use as a fuel containing 99.8 percent undenatured ethanol and 0.2 percent gasoline . . . NCM 2207.20.11” Representatives for Louis Dreyfus contend that the merchandise was indeed interchangeable. Louis Dreyfus states that the percentage difference of over 20 percent between the imported ethanol and the exported ethanol is attributable to differences in market conditions and explains that there can be a wide variability of ethanol prices. Louis Dreyfus took the view that neither the imported nor the exported ethanol could meet ASTM 4806-92 for denatured ethanol, nor was either the imported or exported ethanol properly classifiable under subheading 2207.20.11 because both had a purity content exceeding 99 percent ethanol. Louis Dreyfus also provided a COA with the exported ethanol listing the ethanol content at 99.42 percent by volume and the methanol at less than 0.01 percent by volume.
ISSUE:
Whether the imported and substituted ethanol are commercially interchangeable.
LAW AND ANALYSIS:
We note initially that the refusal to pay a claim for drawback is a protestable issue and that the protest was timely filed, within 180 days from the date of denial. See 19 U.S.C. § 1514(a)(6) and 19 U.S.C. § 1514(c)(3)(B). The drawback claim was liquidated without drawback paid on April 19, 2013, and this protest was filed on July 26, 2013. Further, the protestant requests further review per 19 CFR § 174.24. CBP’s regulations provide for further review of a protest when, inter alia, the decision against which the protest was filed:
(b) Is alleged to involve questions of law or fact which have not been ruled upon by the Commissioner of Customs or his designee or by the Customs courts 19 C.F.R. § 174.24(b).
Upon review of the application for further review, we find that these facts have not been the subject of a Headquarters ruling. See 19 CFR § 174.24(b) and 19 CFR § 174.26(b)(1)(iv). Accordingly, further review is warranted.
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 (Mar. 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. Accordingly, in this case, the issue is whether the documentation provided supports a finding of commercially interchangeability for the imported and exported merchandise.
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.
In this case, there are no part numbers assigned for the ethanol, which is sold in bulk. See HQ H190457 (June 11, 2012) (CBP noted that merchandise sold in bulk may not have part numbers). Therefore, part numbers are not applicable to this product and this criterion is not relevant in determining commercial interchangeability. Additionally, Louis Dreyfus states that the percentage difference of over 20 percent between the imported ethanol and the exported ethanol is attributable to differences in market conditions and explains that there can be a wide variability of ethanol prices. See HQ H106515 (March 18, 2011) (holding that although there was a difference in value between the sample import and export of 70 percent, 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). Accordingly, this factor does not preclude a finding of commercial interchangeability. Therefore, our review of the documentation yields the following analysis regarding the remaining factors involved here:
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).
There are no government or industry standards for undenatured 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., HQ 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.
In HQ H227220, dated February 10, 1997, we based the commercial interchangeability for denatured ethanol in part on its adherence to the American Society for Testing and Materials (“ASTM”) D-4806-92 standard. See HQ H227220 (Feb. 10, 1997). In that ruling, we stated that the specifications for fuel ethanol are fairly rigid and that ASTM D-4806 requires that fuel ethanol contain by volume more than 95 percent ethanol (the ethanol component must have a minimum ethanol volume of 98 percent); contain 2 to 5 percent of either unleaded gasoline or rubber hydrocarbon solvent as the denaturant; and contain by volume no more than 1.25 percent water. Id. In this case, per the COA on the exported ethyl alcohol, the exported product has an ethanol purity of 99.42 percent, zero hydrocarbons, and contains by volume 0.2 percent water. Therefore, despite the sales contract calling for denatured ethanol, because the ethanol purity is higher than the range provided for in ASTM-4806, the exported merchandise does not meet the ASTM specifications for denatured ethanol. In HQ H231236, dated May 5, 2006, CBP held that, for undenatured ethanol specifications, the ethanol content purity is a minimum of 99.0 percent. In HQ H249074, dated October 10, 2014, we held that the imported merchandise with a fuel ethanol content of 99.5 percent by volume and methanol impurities at 0.0074 percent was commercially interchangeable with the exported merchandise with a fuel ethanol content of 99.19 percent by volume and methanol impurities of no more than 0.04 percent by volume. Based on those specifications, we held that the government and recognized industry standard criterion was satisfied. In this case, the COA shows that the imported ethanol has 99.21 percent by volume and methanol at less than 0.01 percent by volume and the COA for the exported merchandise shows that there is an ethanol content of 99.42 percent and methanol is less than 0.01 percent. Moreover, as stated above, the exported merchandise did not meet the criteria for denatured ethanol as explained in HQ H227220, dated February 10, 1997. All of Louis Dreyfus’s imported and exported undenatured ethanol are required to have a minimum ethanol content purity of 99.0 percent; therefore, 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 HTSUS. See e.g., HQ H074002 (Dec. 2, 2009). The CBP Form 7501 indicates that the undenatured ethyl alcohol was imported under subheading 2207.10.6010, HTSUS, which provides for Undenatured ethyl alcohol of an alcoholic strength by volume of 80 percent vol. or higher; ethyl alcohol and other spirits, denatured, of any strength: Undenatured ethyl alcohol of an alcoholic strength by volume of 80 percent vol. or higher: For nonbeverage purposes… For Fuel Use…. The shipper’s export declaration lists “2207106010” in the schedule B number column. Moreover, despite the Drawback Office inquiring whether the ethanol could be classified as denatured ethanol under 2207.20.0010, HTSUS, as stated above, the exported article does not meet the ASTM specifications for denatured ethanol. Accordingly, because the entry summary documentation and the Schedule B number for the exported merchandise demonstrate that both the imported and substituted merchandise are classified the same, we find that the tariff classification criterion is established.
The Drawback Office had a concern regarding the language in the sales contract between Louis Dreyfus and the buyer in Brazil being for denatured ethanol. As stated above, the exported merchandise, as shown in the provided documentation, does not meet the ASTM specifications for denatured ethanol, and both the imported and exported merchandise are classified under the HTSUS subheading for undenatured ethanol. Therefore, in this case, we find the COA documentation for the imported and exported ethanol outweighs the language of the contract, and as such, it does not preclude a finding of commercial interchangeability.
HOLDING:
The protestant has met the requirements to establish a drawback claim under 19 U.S.C. § 1313(j)(2). The Protest should be GRANTED in full. No later than 60 days from the date of this letter, the Office of Regulations and Rulings will make the decision available to CPB personnel, and to the public on the CPB Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision to counsel for the protestant, together with the Customs Form 19, no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division