DRA-4-CO:R:C:E 224740 PH

Regional Director
Commercial Operations
U.S. Customs Service
New Orleans, Louisiana 70130

RE: Internal Advice; "QUAB 188"; Fungibility; Commercial Interchangeability; Substitution Same Condition Drawback; Substitution Unused Merchandise Drawback; 19 U.S.C. 1313(j)(2); Public Law 103-182, section 632 Dear Sir:

Enclosed is a May 21, 1993, letter received by this office from the Degussa Corporation regarding fungibility, for drawback purposes, of its product QUAB 188. The letter states that "internal advice" is requested on the issue. Of course, internal advice requests are required to be sent from Customs field offices, not directly from an importer or other person in the private sector (19 CFR 177.11). Nevertheless, because it is stated that you have a number of unliquidated drawback claims awaiting resolution of the issues raised, and because a copy of the May 21, 1993, letter is indicated to have been provided to you, we are treating this request as an internal advice request from your Region. We are so advising the Degussa Corporation. Please provide that company with a copy of this ruling after you have had an opportunity to review and comment on it.


The inquirer states that it has been advised by your office that there are questions concerning the fungibility of varying concentrations of its product QUAB 188 and the absence of data from an independent laboratory supporting the in-house analytical testing of Degussa Corporation. The inquirer states that drawback claims have been for "like concentration products" (e.g., 65% for 65% or 69% for 69%).

The inquirer states that your office has raised a question about the absence of independent laboratory test documentation for the merchandise in question. The documentation is described as follows:

... In the case of the imported product, the Certificates of Analysis were prepared by Degussa AG in Knapsack, Germany for its customer Degussa Corporation. For the QUAB exported from the US the Certificates of Analysis are generated at Degussa Corporation's Mobile plant. The same test methods are used at both locations and were developed by Degussa AG.

The inquirer goes on to state that "[t]he use of independent laboratories, although occasionally used for corroboration of results is not a normal part of day to day operations [and] [s]ince the use of independent laboratories is not common, the only data available on the subject imported and exported material is from Degussa analyses." The inquirer provides copies of the analytical method for the analysis of the active method for the analysis of the active component in QUAB 188. In addition, we have obtained copies of the specifications for the imported merchandise and the exported merchandise (copy enclosed for your information).


Is the merchandise in this case commercially interchangeable, for purposes of the substitution unused merchandise drawback law (19 U.S.C. 1313(j)(2), as amended by Public Law 103-182, section 632)?


Under 19 U.S.C. 1313(j)(2), as amended, drawback may be granted if, among other requirements, there is, with respect to imported duty-paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise. To qualify for drawback, the other merchandise must be exported or destroyed within 3 years from the date of importation of the imported merchandise. Also, 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. Further, the party claiming drawback must be either the importer of the imported merchandise or have received from the person who imported and paid any duty due on the imported merchandise a certificate of delivery transferring to that party the imported merchandise, commercially interchangeable merchandise, or any combination thereof.

The drawback law was substantively amended by section 632, title VI - Customs Modernization, Public Law 103-182, the North American Free Trade Agreement Implementation Act (107 Stat. 2057), enacted December 8, 1993. The foregoing summary of section 1313(j)(2) is based on the law as amended by Public Law 103-182. Title VI of Public Law 103-182 took effect on the date of enactment of the Act (section 692 of the Act). According to the applicable legislative history, the amendments to the drawback law (19 U.S.C. 1313) are applicable to any drawback entry made on or after the date of enactment as well as to any drawback entry made before the date of enactment if the liquidation of the entry is not final on the date of enactment (H. Report 103-361, 103d Cong., 1st Sess., 132 (1993); see also provisions in the predecessors to title VI of the Act; H.R. 700, 103d Cong., 1st Sess., section 202(b); S. 106, 103d Cong., 1st Sess., section 202(b); and H.R. 5100, 102d Cong., 2d Sess., section 232(b)).

House Report 103-361, supra, also contains language explaining the change from fungibility to commercial interchangeability as a standard for substitution for drawback under 19 U.S.C. 1313(j)(2). According to the Report (at page 131), the standard was intended to be made less restrictive (i.e., "the Committee intends to permit the substitution of merchandise when it is 'commercially interchangeable,' rather than when it is 'commercially identical'") (the reference to "commercially identical" derives from the definition of fungible merchandise in the Customs Regulations (19 CFR 191.2(l))). The Report (at page 131) also states:

The Committee further intends that in determining whether two articles were commercially interchangeable, the criteria to be considered would include, but not be limited to: Governmental and recognized industrial standards, part numbers, tariff classification, and relative values.

Before enactment of the above-described changes to 19 U.S.C. 1313(j)(2) by Public Law 103-182, we had requested a Headquarters laboratory review of the fungibility of this merchandise. In the advice we received from the Office of Laboratories & Scientific Services (OL&SS), it was noted that the specifications for epoxide content, glycol content, DCP content, and pH are slightly different. Nevertheless, OL&SS advised that merchandise meeting the provided specifications was fungible, provided, that substitution should only be allowed between products with the same purity (e.g., QUAB 188 65% (+/- 1%) could only be substituted for QUAB 188 65% (+/- 1%)). We note the statement by the inquirer in its November 2, 1993, communication that "[e]ven though the specification was changed slightly [i.e., to provide a standard specification that would encompass production in all three of the inquirer's plants and reflecting the inquirer's current knowledge about the reliability and limits of detection of its analytical methods] the manufacturing process remained the same and the products from the 3 plants are and were functionally interchangeable in all applications." Since commercial interchangeability, the new standard for substitution for purposes of 19 U.S.C. 1313(j), is less restrictive than fungibility, and since we have been advised that QUAB 188 meets the standard for fungibility, we conclude on the basis of the foregoing that the QUAB 188 is fungible, with the above-described condition (i.e., substitution is only allowed between products with the same purity). According to the inquirer, that is true of its drawback claims.

As to the issue of independent analysis, OL&SS advised that "[w]hile [it] would prefer to have certificates of analysis from third party laboratories, we can accept analytical results from the party claiming drawback. In these instances, if Customs is not satisfied that the claimed laboratory report is sufficient, Customs would request a third party laboratory report." The report language for Public Law 103-182 also casts some light on this issue. Section 613 of the Public law amends 19 U.S.C. 1499 (providing for examination of merchandise) to authorize Customs to, among other things, set procedures for the accreditation of commercial laboratories. House Report 103-361, supra, explicitly states that: "This section is not intended to preclude Customs from accepting a company's in-house laboratory report or analyses pertaining to its own imports." Based on the foregoing, unless you are not satisfied with the in-house laboratory reports submitted by the inquirer, those reports may be accepted to establish commercial interchangeability for purposes of its drawback claims.


The merchandise in this case (QUAB 188) is commercially interchangeable (when substitution is sought between products of the same purity, e.g., QUAB 188 65% (+/- 1%) for QUAB 188 65% (+/- 1%)), for purposes of the substitution unused merchandise drawback law (19 U.S.C. 1313(j)(2), as amended by Public Law 103- 182, section 632). The inquirer's in-house laboratory reports may be accepted to establish commercial interchangeability unless Customs is not satisfied with those reports.

The Office of Regulations and Rulings will take steps to make this decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels 60 days from the date of this decision.


John Durant, Director
Commercial Rulings Division