DRA-4-RR:IT:EC 226096 CC
Barbara Feeny
Drawback Specialist
Geo. S. Bush & Co., Inc.
P.O. Box 8829
Portland, OR 97208-8829
RE: Ruling request on behalf of Continental Resources, Inc.; ferrophosphorus; unused substitution drawback,
19 U.S.C. 1313(j)(2); HQ 225701
Dear Ms. Feeny:
This is in response to your letter of March 28, 1995, on
behalf of Continental Resources, Inc., requesting a ruling on the
substitution, under the unused substitution drawback law (19
U.S.C. 1313(j)(2)) of ferrophosphorus. Your letter was in
response to HQ 225701, dated March 13, 1995.
FACTS:
Ferrophosphorus is an alloy of iron and phosphorus used in
the steel industry for adjustments of phosphorus content of
special steels. Hawley's Condensed Chemical Dictionary, Twelfth
Edition. You have requested that we rule that duty-paid imported
ferrophosphorus is commercially interchangeable with exported
domestic merchandise for purposes of 19 U.S.C. 1313(j)(2).
With your original submission, sample domestic purchase
invoices and chemical analysis, and sample consumption entries
with chemical analysis were included. We requested further
information, including phosphorus and silicon content and
relative values of designated imported and exported merchandise.
In the specifications you have provided for the imported
material the phosphorus content ranged from 23.87% to 26.83%, and
the silicon content ranged from 1.12% to 2.72%. The
specifications listed for the exported ferrophosphorus are 25.2%
for phosphorus and 3.2% for silicon.
The value of the imported merchandise is listed as ranging
from $120/ metric ton (MT) to $142/MT. You have submitted
several examples of entry documents (CF 7501) substantiating this
information. The specifications list the value of the domestic
exported merchandise as $125/MT. The sample domestic purchase
invoices show the price as $63/ton (equivalent to approximately
$71/MT).
ISSUE:
Whether imported and domestic ferrophosphorus are
commercially interchangeable for purposes of 19 U.S.C.
1313(j)(2)?
LAW AND ANALYSIS:
The drawback law was substantially amended by section 632 of
Title VI (Customs Modernization) of the North American Free Trade
Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057,
2192 (1993). As amended, 19 U.S.C. 1313(j)(2) provides that
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.
Consequently, the standard for substitution for drawback
under 19 U.S.C 1313(j)(2), as amended, has been changed to
commercial interchangeability from fungibility. House Report
103-361 and Senate Report 103-189 contain language explaining
this change. Concerning commercial interchangeability, Senate
Report 103-189 states, at page 83, "The Committee intends that,
in determining the commercial interchangeability of two articles,
the Customs Service should consider the following criteria, among
other factors: governmental and recognized industry standards,
part numbers, tariff classification, and relative values." The
House Report language explaining this change is very similar.
Government and Recognized Industry Standards
There are no government or industry standards for
ferrophosphorus. Concerning recognized grading in the technical
literature, according to Hawley's Condensed Chemical Dictionary,
Twelfth Edition, there are two grades of ferrophosphorus: Grade 1
- 18% phosphorus, and Grade 2 - 25% phosphorus. Also, Ullmann's
Encyclopedia of Industrial Chemistry (5th Edition), Volume A19,
page 518, states the following:
Ferrophosphorus with a low silicon content (<3%)
has a fairly good market potential, and is used in the
manufacture of phosphorus-containing alloys. The
grades with a low phosphorus content are not in great
demand, but can be used in smelting low-phosphorus iron
ores or to increase the P2O content of basic Thomas
slag.
In the specifications you have submitted, for the imported
material the phosphorus content ranged from 23.87% to 26.83%, and
the silicon content ranged from 1.12% to 2.72%. The
specifications listed for the exported ferrophosphorus are 25.2%
for phosphorus and 3.2% for silicon. We forwarded for technical
review these specifications and the other background information
that you submitted to our Office of Laboratory and Scientific
Services (OLSS). OLSS made the following conclusions:
In our opinion, based on the composition provided
in the specification sheets, the imported and domestic
ferrophosphorous material is comparable to the 25%
phosphorous grade.... Although, the specification for
silicon in the exported material (3.2%) is slightly
greater than the three percent silicon listed in
Ullmann's Encyclopedia as a "low silicon content", in
our opinion the phosphorus and silicon content for the
imported and exported ferrophosphorous material is
similar for commercial purposes.
Since there are no government or industry standards for
ferrophosphorus, this criteria cannot be used to make the
commercial interchangeability determination. The commercial
standards contained in the technical literature, however, would
not preclude the imported and exported ferrophosphorus from being
considered commercially interchangeable.
Part Numbers
No evidence has been submitted to suggest that part numbers
are applicable in this case.
Tariff Classification
The tariff classification would be the same for both the
imported ferrophosphorous and what is stated to be the exported
ferrosphosphorus: subheading 7202.99.5020, Harmonized Tariff
Schedule of the United States (HTSUS).
Relative Values
According to your submissions, including entry
documentation, the value of imported ferrophosphorous ranges from
$120/MT to $142/MT. The specifications submitted list the value
of exported ferrophosphorus as $125/MT, although the sample
domestic purchase invoices show the price as $63/ton (equivalent
to approximately $71/MT). Mark Wolff of Continental Resources
indicated in a telephone conversation with Craig Clark of my
staff on January 4, 1996 that these invoices represented the
domestic merchandise for exportation. In addition, he stated
that the reason for the difference in price listed in the
specifications ($125/MT) and the in the domestic purchase
invoices ($71/MT) is due to shipping costs.
A review of the documentation submitted concerning the
imported merchandise shows that there exist shipping costs in
addition to the price of ferrophosphorus. For example, one
invoice shows the price for ferrophosphorus as $140/MT with a
freight cost of $35.50/MT. Therefore, a fair comparison of the
value of imported merchandise to that of domestic exported
merchandise should be made excluding shipping costs.
Such a comparison, based on the information submitted, shows
the value of the imported merchandise ranging from $120/MT to
$142/MT and the value of the domestic exported merchandise of
$71/MT. This difference in value of the imported and domestic
ferrophosphorus, therefore, differs from almost 70% to 100%.
Clearly, this difference in value is too great to conclude that
the imported and domestic ferrophosphorus is commercially
interchangeable.
HOLDING:
The imported and domestic exported ferrophosphorus are not
commercially interchangeable for purposes of the substitution
unused merchandise drawback law of 19 U.S.C. 1313(j)(2).
Sincerely,
Director, International Trade
Compliance Division