DRA-4
OT:RR:CTF:ER
H278337 ABH
Thomas Ferramosca
87 Fillmore Avenue
Staten Island, NY 10314
Re: DAK Americas, LLC: Request for a determination of commercial interchangeability for substitution unused merchandise drawback, 19 U.S.C. § 1313(j)(2), for polyethylene terephthalate resin
Dear Mr. Ferramosca:
This is in response to your letter dated April 20, 2017, on behalf of DAK Americas, LLC (hereinafter “DAK”), for a formal ruling on the commercial interchangeability of polyethylene terephthalate (“PET”) resin, for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
FACTS:
According to the information provided in your ruling request, DAK is both the importer and exporter and possesses the substituted PET being exported. You state that the substituted exported merchandise is not used in the United States before exportation. You state that DAK imports PET from Russia called EKOPET SP. The exported PET may be any of the following substitute products: Laser+® 7000 (B92A); Laser+® B90A; Laser+® C (E60A); Laser+® GP 2400 (B12A); Laser+® W (L40A); Laser+® W (P41A); Array™ 9921M; Laser+® C 9921 (F65A); or Laser+® HS CF746A (D53A).
You state that the imported and substituted exported PET resins were classified in subheading 3907.60.0030, Harmonized Tariff Schedule of the United States (“HTSUS), through 2016. You state that the classification starting in 2017 is under subheading 3907.61.0000, HTSUS. You also state that any substituted exported PET and imported EKOPET designated for payment will have a viscosity number of 78 ml/g or higher.
You state that the values of the substituted exported products are greater than that of the imports. A comparison of the import and export transaction documents submitted by DAK establish a 77.34 percent price increase between the imported and exported PET resin. You state that the import and export price variations are for normal market condition reasons. For example, the cost of production of the imported PET is less than the cost of production in the United States. Additionally, you state that the price for the exported PET includes normal mark up for profit.
You indicate that the PET resin imported from Russia can be used to satisfy the same demand generated by the clear rigid beverage container markets as the substituted export PET resins. You state that EKOPET SP is primarily used for making the handle ware version PET bottles. For examples the bottles made to contain orange juice, various other fruit juices, iced tea, green tea, dry snacks, and pet foods.
The evidence submitted for the imported merchandise consists of five different entry packet documents including, inter alia, an entry summary, entry/immediate delivery form, invoice, packing list, and bill of lading. The entries at issue are XXX-XXXX248-3, XXX-XXXX244-2, XXX-XXXX803-3, XXX-XXXX190-4, and XXX-XXXX860-2. The documents included with entry summary (CBP Form 7501) XXX-XXXX248-3, will be used as a sample example. The entry summary indicates an import date of November 4, 2013, for PET from Russia, which is classified under subheading 3907.60.0030, HTSUS. The entry summary indicates invoice #XXX026, which was also provided by DAK, and provides for the sale of PET. While the invoice indicates a “customs code” as 3907602000, a handwritten note on the invoice indicates the subheading 3907.60.0030, HTSUS. The packing list references the same invoice and indicates the same value declared at the time of entry on the entry summary.
The evidence submitted for the exported merchandise consists of two invoices and two waybills from November and December 2013. The waybills indicate shipment of PET resin to customers in Italy and cite the product number 9921M. Both waybills indicate subheading 3907.60, HTSUS. The invoices are billed to the same corresponding customers in Italy and indicate product numbers 9921M and 9921MJ.
ISSUE:
Whether the imported PET resin and the domestically produced PET resin are commercially interchangeable for purposes of 19 U.S.C. § 1313(j)(2).
LAW AND ANALYSIS:
Under 19 U.S.C. § 1313(j)(2), as amended, drawback may be granted on merchandise that is commercially interchangeable with imported merchandise if the commercially interchangeable merchandise is exported or destroyed within three years from the date of importation of the imported merchandise, and before the exportation or destruction, the commercially interchangeable merchandise is not used in the United States and is 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 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 (March 25, 2009); and HQ H122535 (February 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 at issue. Id. The purchase and sale 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 (“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 (March 23, 2010).
For each of the imported and substituted export products, DAK provided product information, typical properties, and sales specifications. Of the most relevance in this case were the intrinsic viscosity ranges and acetaldehyde content for the PET resin. We find that the imported bottle grade PET resin EKOPET SP with an intrinsic viscosity range between 0.78 dL/g and 0.86 dL/g and an acetaldehyde content of 2 ppm max is technically interchangeable with the exported Laser+® 7000 (B92A), Laser+® B90A, Laser+® C (E60A), Laser+® GP 2400 (B12A), Array™ 9921M, Laser+® C 9921 (F65A), and Laser+® HS CF746A (D53A) as long as the exported products’ parameters are within the intrinsic viscosity range between 0.78 dL/g and 0.86 dL/g and an acetaldehyde content of 2 ppm max.
Based on the product information sheets provided by DAK, Laser+® W (L40A) has an intrinsic viscosity of 0.75 +/-0.02 dL/g and Laser+® W (P41A) has an intrinsic viscosity of 0.72 +/-0.02 dL/g. Accordingly, Laser+® W (L40A) and Laser+® W (P41A) are not technically interchangeable.
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 import and export documents, it can support finding them to be commercially interchangeable. See e.g., HQ H074002 (December 2, 2009); and HQ H122535 (February 9, 2011). DAK does not assign standardized part numbers to the PET resins. Rather, all purchases and sales of the PET resins are identified specifically by chemical name. 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). As discussed above, entry summary XXX-XXXX248-3, indicates an import date of November 4, 2013, for PET from Russia, which DAK classified under subheading 3907.60.0030, HTSUS. The evidence submitted for the exported merchandise consists of two waybills that indicate shipment of PET resin is classified under HTSUS subheading 3907.60. You state that through 2016 the imported and substituted exported PET resins were classified under HTSUS subheading 3907.60.0030, “Poly(ethylene terephthalate); Packaging grade (bottle grade and other, with an intrinsic viscosity of 0.70 or more but not more than 0.88 deciliters per gram).” You accurately note that as of January 1, 2017, HTSUS subheading 3907.60.0030 has been deleted pursuant to 19 U.S.C. § 1484(f). At the same time, Presidential Proclamation 9549 added subheading 3907.61.00.00, “Poly(ethylene terephthalate): Having a viscosity number of 78 ml/g or higher.” Provided that the governmental and contractual standards and relative value factors for the imported and substitution merchandise are satisfied, a difference in tariff classification under subheadings 3907.60.0030 and 3907.61.00.00 would not preclude a finding of commercial interchangeability. HQ H074002 (Dec. 2, 2009) (holding that tariff classification changes resulting from modifications in the International Harmonized System nomenclature does not preclude a finding of commercial interchangeability.
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 other critical properties have been met or when there is sufficient evidence to support the material difference in value.” HQ 228580 (Aug. 20, 2002).
As discussed above, a comparison of the import and export transaction documents submitted by DAK establish a 77.34 percent price increase between the imported and exported PET resin. DAK states that the import and export price variations are for normal market condition reasons. First, the cost of production of the imported PET is less than the cost of production in the United States. Secondly, the price of the exported PET includes a normal mark up for profit. Upon request, DAK provided data outlining the U.S. cost of production for PET resin in further support for the variation in value. DAK indicates that the difference between that cost of production and the export value is DAK’s profit mark up.
Because the critical properties have been met for the five designated import entries for the exported Laser+® 7000 (B92A), Laser+® B90A, Laser+® C (E60A), Laser+® GP 2400 (B12A), Array™ 9921M, Laser+® C 9921 (F65A), and Laser+® HS CF746A (D53A) – as long as the exported products’ parameters are within the intrinsic viscosity range between 0.78 dL/g and 0.86 dL/g and an acetaldehyde content of 2 ppm max – we conclude the value criterion has been met for these designated import entries only. When a drawback claim is made, however, we recommend that the documents supporting the claim be examined closely with respect to relative values and as stated above, critical properties.
HOLDING:
Based upon the findings above, the designated import entries (XXX-XXXX248-3, XXX-XXXX244-2, XXX-XXXX803-3, XXX-XXXX190-4, and XXX-XXXX860-2), notwithstanding that part numbers are not applicable in this case, have met the remaining three criteria and are therefore, commercially interchangeable for purposes of substitution drawback pursuant to 19 U.S.C. § 1313(j)(2) to the extent that the exported products’ parameters are within the intrinsic viscosity range between 0.78 dL/g and 0.86 dL/g and an acetaldehyde content of 2 ppm max. Based on these parameters, Laser+® 7000 (B92A), Laser+® B90A, Laser+® C (E60A), Laser+® GP 2400 (B12A), Array™ 9921M, Laser+® C 9921 (F65A), and Laser+® HS CF746A (D53A) are commercially interchangeable with EKOPET SP and Laser+® W (L40A) and Laser+® W (P41A) are not commercially interchangeable with EKOPET SP.
The holding set forth above applies only to the specific factual situation and procedures and processes identified in the ruling request. This position is set forth in 19 C.F.R. § 177.9(b)(1), that states 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.”
Sincerely,
Monika R. Brenner, Acting Chief
Entry Process & Duty Refunds Branch