DRA 4
OT:RR:CTF:ER H283749 KF
Matthew Anderson
Charter Brokerage, LLC
22762 Westheimer Parkway Suite 530 Katy, TX 77450
RE: Weatherford Artificial Lift Systems: Request for a determination of commercial interchangeability under substitution unused merchandise drawback; 19 U.S.C. § 1313(j)(2); Oil Equipment Parts.
Dear Mr. Anderson:
This is in response to your application, dated February 14, 2017, on behalf of Weatherford Artificial Lift Systems (“Weatherford”), for a formal ruling on the commercial interchangeability of imported and exported oil equipment parts, for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
FACTS:
Weatherford is a manufacturer of various oil extraction equipment and technologies within the United States. Weatherford is engaged in the manufacture, purchase, sale, import, export, marketing, and distribution of oil equipment parts used as part of: artificial lift system technologies, fluid control equipment, measurement solutions, separation systems, and automation/control solutions. Weatherford explains that it imports parts that are sourced from various countries, and exports parts to customers abroad for purposes of repair, and to international affiliates for distribution to foreign markets.
Weatherford states that its oil equipment parts are assigned unique and specific part numbers, such that at no time is a part number used to identify more than a single precise part. Weatherford explains that due to the highly specialized nature of oil extraction equipment and technology, part numbers are used to identify a single part with a specific function, size, shape, material, or other criteria critical to distinguishing that part from all other parts within Weatherford’s inventory system. Weatherford states that it utilizes part numbers to track parts within its inventory system, and that part numbers are critical to its operations such that part numbers are included in purchase orders, commercial invoices, inventory tracking reports, and import and export documents to identify specific parts. Weatherford asserts that purchasers of its oil equipment parts deem any part commercially acceptable so long as the part is identified by the same unique part number.
Weatherford has provided import and export transaction documents for part numbers 751152, 1767832, and 2197171 as representative of its oil equipment parts. Weatherford submitted several import transaction documents for part number 751152, including a purchase order, dated May 14, 2014, listing part number 751152. The CBP Form 7501 submitted, dated January 8, 2015, demonstrates that Weatherford imported numerous oil well drilling components under varied tariff classifications, highlighting subheading 8483.40.5050, Harmonized Tariff Schedule of the United States (“HTSUS”), under invoice number SLEX2014US37, for 14 parts valued at $174,580.00. The commercial invoice referenced on the CBP Form 7501, number SLEX2014-US37, dated November 29, 2014, is for the sale of varied parts including part number 751152, priced at $12,470.00 per unit, for a total of 14 units with a total cost of $174,580.00. The corresponding packing list for commercial invoice number SLEX2014-US37, also dated November 29, 2014, lists part number 751152, for a delivery of 14 pieces. Weatherford additionally submitted data from its internal tracking system, which Weatherford uses consistently to track all inventory parts, indicating that part number 751152 corresponds with subheading 8483.40.5050, HTSUS.
The export transaction documents Weatherford submitted for part number 751152 include a Bill of Landing (“BOL”) that references International Transaction Number (“ITN”) X20150220798794 and commercial invoice number 10452370-2. ITN X20150220798794 is also referenced in the Automated Export System (“AES”) document submitted, which lists an oil field equipment part under subheading 8483.40.5050, HTSUS, that was valued at $16,704.00. The departure date for the goods listed on the AES document is February 24, 2015. The commercial invoice corresponding to the BOL, number 10452370-2, dated February 19, 2015, lists part number 751152 at a unit price of $16,703.93. Weatherford explains the $0.07 difference between the unit price specified in the AES document and commercial invoice as caused by the freight forwarder, who prepared the AES document, rounding up the price in order to reflect whole-dollar values. The corresponding packing list, dated February 16, 2015, lists part number 751152 under commercial invoice number 10452370-S2. A comparison of the price per unit for the imported and substituted part number 751152 shows a price difference of 33.95 percent.
Weatherford submitted several import transaction documents for part number 1767832, including CBP Form 7501, dated June 8, 2015, demonstrating that Weatherford imported numerous pumping units under varied tariff classifications, highlighting subheading 8501.20.6000, HTSUS, under invoice number WFTSC15033, as the tariff classification for line numbers 002 and 003. Line number 002 indicates that four parts were sold for a total value of $11,704.00. Line number 003 indicates that two parts were sold for a total value of $4,378.00. The commercial invoice referenced on the CBP Form 7501, number WFTSC15033, dated April 14, 2015, is for the sale of varied parts including part number 1767832, priced at $11,704.00 for four parts (or $2,926.00 per part), and part number 1770455, priced at $4,378.00 for two parts (or $2,189.00 per part). The corresponding packing list for commercial invoice number WFTSC15033, also dated April 14, 2015, lists part number 1767832 for a delivery of four pieces, and part number 1770455 for a delivery of two pieces. Weatherford additionally submitted data from its internal tracking system indicating that part numbers 1767832 and 1770455 correspond with subheading 8501.20.6000, HTSUS.
The export transaction documents Weatherford submitted for part number 1767832 include a BOL, dated June 28, 2016, that references invoice number 237351, AES ITN X20160623251447, and order number 11857649-S2. The corresponding AES document referencing ITN X20160623251447 lists subheading 8501.20.6000, HTSUS, within the Item Information section but does not identify the part to which this subheading applies or reference a corresponding invoice. The Item Information section indicates that 15 units of parts classified under subheading 8501.20.6000, HTSUS, were sold for a total cash value of $50,300. Weatherford asserts that the total cash value specified on the AES document reflects the rounded down whole-number value of the total cost for 15 units of part number 1767832, $48,836.20, plus an added-on GSS Markup cost of $1,465.06 identified by part number 2027446. Weatherford states that, as of February 2016, a GSS Markup cost is included with each sales order and added onto the part or parts within the order. Weatherford explains that the GSS Markup cost is consistently identified by part number 2027446 for transactions post February 2016, and by part number 781993 for transactions as of January 2017. The markup cost of $1,465.06 added to the total purchase cost of 15 units of part number is designated by part number 1767832. The commercial invoice referenced on the BOL, number 237351, dated June 29, 2016, indicates that 15 units of part number 1767832 were sold at $3,255.86 per part, for a total value of $48,835.20, and exported under subheading 8501.20.60, HTSUS. The commercial invoice references order number 11857649-S2, which is also referenced in the packing list, dated June 7, 2016, for shipments of part number 1767832. A comparison of the price per unit for the imported and substituted part number 1767832 shows a price difference of 11.27 percent.
Weatherford submitted several import transaction documents for part number 2197171, including a purchase order, dated January 21, 2016, for 30 units of part number 2197171 at a price per unit of $1,115.85, with a total value of $33,475.50. The CBP Form 7501 submitted, dated May 6, 2016, demonstrates that Weatherford imported numerous oil well equipment parts under varied tariff classifications, highlighting subheading 8483.30.8090, HTSUS, under invoice number 16013W, for 30 parts with a total value of $34,107.00. Weatherford states that the difference in the total value for 30 units of part number 2197171 specified in its purchase order and CBP Form 7501 is attributable to the inclusion of a loading or shipping cost that is added onto all the goods within a particular entry. Weatherford asserts that that $631.50 in shipping costs was added onto the entry of part number 2197171, increasing the total value specified to $34,107.00. The commercial invoice referenced on the CBP Form 7501, number 16-013W, dated March 11, 2016, is for the sale of varied parts including 30 units of part number 2197171, priced at $1,115.85 per unit, for a total value of $33,475.50. The invoice report submitted lists $34,106.58 as the total value for 30 units of part number 2197171.
The export transaction documents Weatherford submitted for part number 2197171 include a BOL, dated October 21, 2016, that references invoice number 252072, order number 12016716-S2, and AES ITN X20161012995784. The corresponding AES document referencing ITN X20161012995784 lists subheading 8483.30.8090, HTSUS, within the Item Information section but does not identify the part to which this subheading applies or reference a corresponding invoice. The Item Information section indicates that two units of parts classified under subheading 8483.30.8090, HTSUS, were sold for a total cash value of $3,332.00. The commercial invoice referenced on the BOL, number 252072, dated September 28, 2016, indicates that two units of part number 2197171 were sold at $1,656.11 per part, for a total value of $3,332.22, and exported under subheading 8483.30.8090, HTSUS. Weatherford explains the $0.22 difference between the unit price specified in the AES document and commercial invoice as caused by the freight forwarder, who prepared the AES document, rounding down the price in order to use whole-dollar values. A comparison of the price per unit for the imported and substituted part number 2197171 shows a price difference of 48.41 percent.
ISSUE:
Whether Weatherford’s imported oil equipment parts are commercially interchangeable with substituted oil equipment parts, within the meaning of the substitution unused merchandise drawback statute 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 which 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), 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 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)).” Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999). Thus, the Federal Circuit sets 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.
We note that United States Customs and Border Protection (“CBP”) “is unable to rule that a category of domestic and imported goods, e.g., lubricating oil additives [or oil equipment parts], are ‘commercially interchangeable’ for purposes of substitution, unused merchandise drawback.” See HQ 228810 (November 6, 2000). However, CBP is able to rule that specific parts within a category of goods are commercially interchangeable if each part is capable of satisfying the requirements for a finding commercial interchangeability. See HQ H268179 (October 11, 2016).
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 the same industry accepted standard may be used to produce the same products” or used for the same purposes. See HQ H074002 (December 2, 2009). Weatherford states that no government or industry standards exist for its oil equipment parts. We therefore conclude that this criterion is inapplicable.
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 (August 29, 2008) (determining that where the technical product specifications sufficiently describe the product, this would also support a determination of commercial interchangeability). Weatherford indicates that product specifications are directly linked with part numbers for its oil equipment parts, with each part number designating a specific function, size, shape, material, and other applicable specifications. We therefore find that the absence of government or industry standards, and technical specifications, for Weatherford’s oil equipment parts does not prevent a finding of commercial interchangeability. See e.g. HQ H268179 (October 11, 2016).
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, this would support a finding of commercial interchangeability. See e.g. HQ H074002; and HQ H122535.
Weatherford explains that each oil equipment part within its inventory is assigned a specific and unique part number that is not duplicated for any differing or other part. Weatherford utilizes unique and specific part numbers for its oil equipment parts to ensure proper inventory tracking and unambiguously identify parts within its operational and commercial systems. The import and export transaction documents for part numbers 751152, 1767832, and 2197171, evidence that part numbers are not duplicated for parts of different descriptions and values. Weatherford asserts that part numbers 751152, 1767832, and 2197171 are representative of its oil equipment parts. Accordingly, we find that 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.
Weatherford states that “no part number [within its’] system is broad enough to encompass more than one 10 digit HTSUS classification. Stated another way, each part number can only have one HTSUS classification.” The three CBP Form 7501s and AES documents submitted by Weatherford evidence that imported and substituted part number: 751152 is classified under subheading 8483.40.5050, HTSUS; 1767832 is classified under subheading 8501.20.6000, HTSUS; and 2197171 is classified under subheading 8483.30.8090, HTSUS.
For part number 1767832, Weatherford submitted a CBP Form 7501 and corresponding commercial invoice, number WFTSC15033, dated April 14, 2015, which demonstrate that both part numbers 1767832 and 1770455 are classified under subheading 8501.20.6000, HTSUS. Weatherford’s representative transaction documents therefore contravene its statement that no oil equipment part number encompasses more than one tariff classification. We nevertheless find that this criterion is satisfied because the critical determination is whether a specific and unique part number that is imported and substituted has a single tariff classification.
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 (March 23, 2010) (finding a price difference of 4.5 percent to be acceptable). CBP has also 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, did not preclude a finding of commercial interchangeability); and HQ 228580 (August 20, 2002) (holding that a value difference of 27 percent did not preclude a finding of commercial interchangeability when the difference in value was attributable to processing and manufacturing costs). Conversely, see HQ 228519 (June 5, 2002) (denying commercial interchangeability when no explanation was provided to explain why exported tapes, as indicated by the invoices, were all sold at costs proportionately higher than the imported tapes).
A comparison of the import and export transaction documents submitted by Weatherford establish a 33.95 percent price difference for part number 751152, an 11.27 percent price difference for part number 1767832, and a 48.41 percent price difference for part number 2197171. Despite the substantial difference in the import and export transaction values for part numbers 751152 and 2197171, CBP has held that a 55.64 percent difference in value arising from the applicant’s mark-up and the handling costs for merchandise shipments did not preclude a finding of commercial interchangeability. See HQ 228211 (August 4, 1999); see e.g. HQ 225483 (July 19, 1995); HQ 227473 (March 3, 1998) (finding that a 42 percent price difference was explained by substantial market fluctuations within the industry resulting in contract price increases for merchandise unrelated to its quality). Weatherford has submitted catalog information describing part numbers 751152, 176783, and 2197171 as a gear reducer, electric motor, and saddle bearing, respectively. The specifications for each part are highly complex, technical, and precisely specialized, demonstrating that substantial fluctuations in the value of Weatherford’s oil equipment parts are not attributable to the substitution of an inferior quality exported part being substituted for a higher quality imported part. See HQ 227473; HQ 230172 (February 26, 2004) (quoting Texport Oil Company v. United States, 185 F3d 1291 (Fed. Cir. 1990)) (holding that highly specialized specifications for merchandise “avoids the concerns of overbroad descriptions of merchandise on transaction documents, prone to manipulation”). Accordingly, we find that the value differences between imported and substituted part numbers 751152, 1767832, and 2197171 do not preclude a finding of commercial interchangeability.
The facts of the case, the precise identification of oil equipment parts with a unique and specific part number, the fact that imported and substituted oil equipment parts are classified under the same HTSUS subheading, and the fact that the relative value differences between imported and substituted merchandise is not attributable to differences in the parts themselves, allow for a finding of commercial interchangeability.
HOLDING:
Based on the above findings, we determine that imported and substituted oil equipment parts, that are identified by unique and specific part number, and are classified under the same subheading, with a comparable or less price difference, are commercially interchangeable for the purposes of the substitution unused merchandise drawback statute, 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,
Monika R. Brenner, Acting Chief
Entry Process & Duty Refunds Branch