DRA-4-RR:IT:EC 227084 GOB

U.S. Customs Service
Chief, Miami Drawback Office, Room 102
P.O. Box 025280
Miami, FL 33102-5280

RE: Request for internal advice; Drawback; 19 U.S.C. 1313(j)(1), (2), and (3); Commercial interchangeability; Pistols; Magazines

Dear Madam:

This is in response to a letter dated June 28, 1996 from counsel on behalf of Beretta USA Corp. ("Beretta"), requesting reconsideration of our internal advice Ruling 226473 to you of March 19, 1996. Counsel made an additional submission dated August 19, 1996.

FACTS:

In Ruling 226473, we held as follows:

1. A pistol which is imported with a magazine and exported without a magazine is not eligible for drawback pursuant to 19 U.S.C. 1313(j)(1).

2. An imported pistol with a magazine is not commercially interchangeable for the purpose of 19 U.S.C. 1313(j)(2) with an exported pistol without a magazine.

Beretta asks for reconsideration of the second holding, supra. It states that "Beretta's requests for drawback only concerned the importation of model 92FS pistols and the subsequent exportation of model 98FS pistols."

With respect to the first holding of Ruling 226473, supra, it states that it "has not sought drawback for the exportation of imported pistols after their magazines have been removed."

Thus, the issue presented is: Whether the exported merchandise (Beretta 98FS pistol without magazine) and the imported merchandise (Beretta 92FS pistol with magazine) are commercially interchangeable for the purpose of 19 U.S.C. 1313(j)(2).

Beretta make the following claims.

1. All conditions for drawback eligibility under 19 U.S.C. 1313(j)(2) are satisfied.

2. The "functional identity" test of Ruling 226473 must be rejected because it is inconsistent with the drawback statute and with Congressional intent. Beretta states that "...the exported pistol (without a magazine) can be used in the same manner' as a hand-loaded pistol that was imported with a magazine." (Emphasis in the original.)

3. It cites the various operations permitted under 19 U.S.C. 1313(j)(3), and states that performing any of these operations on substituted merchandise could result in the merchandise failing the "functional identity" test.

4. 19 U.S.C. 1313(a) supports the payment of drawback under 19 U.S.C. 1313(j)(2) because 19 U.S.C. 1313(a) recognizes that the exportation of products that are derived from and therefore different from imported merchandise may qualify for drawback. 19 U.S.C. 1313(a) expressly permits prorated drawback to be paid.

5. Beretta pistols model 98FS (the export) and 92FS (the import) are commercially interchangeable.

6. The amended drawback statute permits the determination of interchangeability from the perspective of the seller, instead of from the perspective of the buyer. It is appropriate to look at the goods from the perspective of a seller of those goods and determine whether it would make a difference to the seller whether the export were substituted for the imported article. A worldwide seller of both models would be able to sell both interchangeably.

7. The 98FS pistol is functionally identical to the 92FS pistol. The 98FS can fire the same ammunition as the 92FS, although the 92FS cannot fire the same ammunition as the 98FS. (Beretta states: "They are identical in all relevant respects but one: the 98FS can fire both 9mm x 21mm and 9mm x 19mm ammunition, while the 92FS can only fire 9mm x 19mm ammunition.") For drawback eligibility, the imported and exported goods do not need to be mutually interchangeable. The exported merchandise qualifies for drawback if it is commercially interchangeable with the imported merchandise.

ISSUE:

Whether the exported merchandise (Beretta 98FS pistol without magazine) and the imported merchandise (Beretta 92FS pistol with magazine) are commercially interchangeable for the purpose 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 if there is, with respect to imported duty-paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise and if the following requirements are met. The other merchandise must be exported or destroyed within three years from the date of importation of the imported merchandise. 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. The party claiming drawback must either be 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 statute was substantively amended by section 632, title VI - Customs Modernization, Pub. L. No. 103-182, the North American Free Trade Agreement Implementation ("NAFTA") Act (107 Stat. 2057), enacted December 8, 1993. Before its amendment by Public Law 103-182, the standard for substitution was fungibility. House Report 103-361, 103d Cong., 1st Sess., 131 (1993) contains language explaining the change from fungibility to commercial interchangeability. According to the House Ways and Means Committee Report, the standard was intended to be made less restrictive, i.e., "the Committee intends to permit 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 industry standards, part numbers, tariff classification, and relative values. (Emphasis supplied.)

The Senate Report for the NAFTA Act (S. Rep. 103-189, 103d Cong., 1st Sess., 81-85 (1993)) contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability.

Ruling 226392

In a related case, Ruling 226392 dated November 8, 1996, the issue was whether Beretta model 98FS pistols are commercially interchangeable with Beretta model 92FS pistols. (The magazine is not removed from the exported model 98FS pistol in the facts of Ruling 226392.) In Ruling 226392, we stated:

In summary, the criteria listed in the legislative history to section 632 of the NAFTA Implementation Act to be used in determining commercial interchangeability do not support a finding of commercial interchangeability in this case. That is, although the tariff classification of the imported and exported merchandise is the same, there was no persuasive evidence submitted concerning the governmental and recognized industry standards criterion, there was no evidence in the file accounting for the disparity in the relative values of the imports and exports, nor the difference in model numbers and product codes. Moreover, we are not persuaded by Beretta's argument regarding the ability of the 98FS to fire both a 19mm and 21mm cartridge. Accordingly, the exported 98FS pistols are not commercially interchangeable with the imported 92FS pistols, and are not, therefore, eligible for drawback pursuant to 19 U.S.C. 1313(j)(2).

Ruling 226392 effectively resolves the matter at issue here, for if the model 92FS pistols and the model 98FS pistols are not commercially interchangeable in a situation where both types of pistols have magazines, the same two types of pistols clearly are not commercially interchangeable where the model 98FS pistol is exported without a magazine. A more lengthy excerpt from Ruling 226392 is contained in our analysis of Claim No. 5, infra.

Nevertheless, we will discuss each of Beretta's claims, as stated supra.

Claim No. 1

We note initially that your earlier request for internal advice pertained only to the commercial interchangeability issue. As stated supra, the sole issue here is whether a Beretta 98FS pistol without a magazine (the exported merchandise) and a Beretta 92FS pistol with magazine (the imported merchandise) are commercially interchangeable within the meaning of 19 U.S.C. 1313(j)(2). We do not rule on Beretta's overall eligibility for drawback pursuant to 19 U.S.C. 1313(j)(2). This ruling does not involve requirements of 19 U.S.C. 1313(j)(2) other than the commercial interchangeability of the pistols.

Claim No. 2

In Ruling 226473, we stated:

When we compare a pistol imported with a magazine with another pistol which is exported without a magazine, we find it to be very significant, and dispositive, that the exported pistol cannot be used for its normal purpose in its condition as exported because it does not include a magazine. There is a material difference between the pistol imported with magazine and the pistol exported without magazine. As a result of the fact that the exported pistol cannot be used in the same manner as the imported pistol, and the fact that there is a material difference between the imported and exported pistol, we determine that an imported pistol with a magazine is not commercially interchangeable with an exported pistol without a magazine.

We are not satisfied that Beretta has established that there is not a material difference between a pistol with a magazine and a pistol without a magazine. Beretta has not established that a pistol with a magazine is commercially interchangeable with a pistol without a magazine.

Claim No. 3

Beretta's third claim, supra, pertains to 19 U.S.C. 1313(j)(3). 19 U.S.C. 1313(j)(3) provides:

(3) The performing of any operation or combination of operations (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking), not amounting to manufacture or production for drawback purposes under the preceding provisions of this section on- (A) the imported merchandise itself in cases to which paragraph (1) applies, or (B) the commercially interchangeable merchandise in cases to which paragraph (2) applies, shall not be treated as a use of that merchandise for purposes of applying paragraph (1)(B) or (2)(C). (Emphasis supplied.)

19 U.S.C. 1313(j)(3) pertains to the use requirement of 19 U.S.C. 1313(j)(1) and (j)(2). We stated in Ruling 226473 that:

The removal of the magazine would appear to be a "disassembly." It is not a manufacture or production for drawback purposes. Thus, we find that 19 U.S.C. 1313(j)(3) applies, and the eligibility under 19 U.S.C. 1313(j)(1) [and 19 U.S.C. 1313(j)(2)] is not eliminated merely by reason of removal of the magazine.

However, 19 U.S.C. 1313(j)(3) and the excerpt supra have no effect upon the commercial interchangeability issue of 19 U.S.C. 1313(j)(2). The commercial interchangeability requirement of 19 U.S.C. 1313(j)(2) is a separate issue from the requirement of 19 U.S.C. 1313(j)(2) that the substituted merchandise not be used in the United States prior to exportation or destruction. 19 U.S.C. 1313(j)(3) pertains only to the "use" issue.

Claim No. 4

With respect to Beretta's fourth claim, supra, we find Beretta's citing of 19 U.S.C. 1313(a) in support of its commercial interchangeability position to be unpersuasive. 19 U.S.C. 1313(a) is a different statutory provision from 19 U.S.C. 1313(j)(2). We do not believe that any language or concept embodied in 19 U.S.C. 1313(a) can be read to be supportive of Beretta's claim that the two types of pistols (one without magazine) are commercially interchangeable within the meaning of 19 U.S.C. 1313(j)(2).

Claim No. 5

As noted supra, in Ruling 226392 we held that the model 98FS pistols are not commercially interchangeable with the model 92FS pistols. In that ruling, we stated:

Beretta also contends that recognized industry experts make no distinction between the 92FS and 98FS models. For example, with its letter of June 28, 1996, Beretta submitted excerpts from a book, Modern Beretta Firearms, wherein it provides that "[t]he current Model 98-type pistols have since 1989 been manufactured to the Model 92FS standard (i.e., with the slide retention device added as a result of U.S. military experience). Externally, they are indistinguishable (except for their caliber markings) from the more common 9mm Parabellum Model 92 pistols (emphasis added)." G. Gangarosa (Stoeger Publ. Co., 1994) at 208-212. Because the significance of the difference in caliber markings is the issue presently before this office, the value of this statement is questionable.

Moreover, in Modern Beretta Firearms, it states that, along with the lengthening of the firing chamber by 2mm, the only other changes necessary to convert the 92FS to the 98FS was "to stamp the 9 x 21 designation on the barrel to warn a shooter against loading the wrong cartridge and thus causing malfunctions." Id. at 210 (Beretta disputes this claim, arguing that one can "readily interchange" a 9mm x 19mm cartridge with a 9mm x 21mm cartridge when using the 98FS--this issue will be discussed in detail infra). Accordingly, we conclude that the governmental and recognized industry standards criterion is not supportive of Beretta's position regarding commercial interchangeability. ... Invoices provided by Beretta list the model number of the pistol in question (the 92FS when imported into the United States, and the 98FS when exported from the United States). Beretta does not have invoices that show sales of both the 92FS and 98FS pistols to the same customer, or invoices showing the replacement of one of those models for the other to a distributor or end-user. Beretta argues that "[t]he absence of sales should not, however, have any impact on whether from an objective standpoint the two pistols are commercially interchangeable." We disagree, as such evidence would tend to show that the merchandise is bought and sold without regard for the given model numbers.

Purchase orders submitted by Beretta show that they uniformly describe the pistols by model number and cartridge designation. For example, the sales invoice of November 17, 1994, describes the pistol invoiced by a product code, model (98FS) and cartridge designation (9 x 21 IMI). The invoice of December 18, 1991, identifies the pistols by model (92FS) and cartridge designation (9mm para.).

Beretta's sales literature shows that the pistols are marketed by model number and cartridge designation. The material contains a chart that lists the model number, cartridge designation and other specifications of Beretta pistols. Beretta has also provided a statement of its counsel dated August 15, 1996, in which it was stated that the model 98FS chambered for the 9 x 21 IMI cartridge was fired with 100, 9 x 19 cartridges without mishap. However, such is not a "commercial" test. In fact, Beretta permanently marks the proper cartridge designation on each pistol. Beretta does not allege that the model 98FS chambered for the 9 x 21 IMI cartridge is so marked "9 x 21 IMI" or "9 x 19 para." See Modern Beretta Firearms, page 210 (wherein it states that with respect to the model 98, Beretta stamps the "9 x 21 designation on the barrel to warn a shooter against loading the wrong cartridge and thus causing malfunctions"). Moreover, a review of the literature supplied by Beretta, fails to demonstrate a single instance stating that the user of the model 98FS may use the 19mm and 21mm cartridges interchangeably. In fact, references in this material lead to a different conclusion.

On page 49 of Beretta's catalog, it states that "[a]ll 92 models are chambered for 9mm Parabellum ammunition . . . . 98 models use 9mm x 21 IMI caliber ammunition . . . ." On pages 22 and 26 of the operating manual, it specifies the differences in caliber between the model 92 (9mm Parabellum) and model 98 (9mm x 21 IMI), and cautions, on page 20, that "Beretta assumes no responsibility for product malfunction or for physical injury or property damage resulting . . . from . . . use of defective, improper, hand-loaded or reloaded ammunition (emphasis added)." It also provides, on page 20, that the user should "[b]e sure to use correct . . . ammunition (emphasis added)."

In Premier Graining Company, Inc., et al. v. United States, 57 Cust. Ct. 32 (1966), the Court stated that commercial paper, such as, billings, price lists, purchase orders, invoices, bills of lading, etc., like the people who use them, speak the "language of commerce." The information contained in Beretta's price lists, invoices, purchase orders, sales literature and catalogs, speaks the "language of commerce." This information corroborates the earlier information discovered by your office in the form of interviews with licensed firearms dealers that the model 98FS chambered for the 9 x 21 IMI cartridge is not commercially interchangeable with the model 92FS chambered for the 9 x 19 para. cartridge.

The evidence shows that firearms are marketed and sold on the basis of model number and cartridge designation. There is simply no evidence to show that commercial transactions in firearms are done solely on the basis of the nominal diameter of the barrel, as asserted by counsel. Beretta readily admits that the 92FS is not "commercially interchangeable" with the 98FS. In other words, they could not claim drawback if they imported the 98FS and exported the 92FS. We conclude that the converse is also true.

In summary, the criteria listed in the legislative history to section 632 of the NAFTA Implementation Act to be used in determining commercial interchangeability do not support a finding of commercial interchangeability in this case. That is, although the tariff classification of the imported and exported merchandise is the same, there was no persuasive evidence submitted concerning the governmental and recognized industry standards criterion, there was no evidence in the file accounting for the disparity in the relative values of the imports and exports, nor the difference in model numbers and product codes. Moreover, we are not persuaded by Beretta's argument regarding the ability of the 98FS to fire both a 19mm and 21mm cartridge. Accordingly, the exported 98FS pistols are not commercially interchangeable with the imported 92FS pistols, and are not, therefore, eligible for drawback pursuant to 19 U.S.C. 1313(j)(2).

Accordingly, based upon the analysis and authority of Ruling 226392, we find that the model 98FS pistols are not commercially interchangeable with the model 92FS pistols.

Claim No. 6

Additionally, we do not agree with Beretta's assertion that the two pistols (one without magazine) are commercially interchangeable based upon its claim that the pistols are interchangeable "from the perspective of the seller," as opposed to "the perspective of the buyer." Any determination with respect to commercial interchangeability must consider the entire commercial situation with respect to the merchandise at issue. To confine the analysis to the perspective of the seller, and to ignore the perspective of the buyer (as well as the totality of the commercial situation), would result in an incomplete and flawed analysis and would not be a legitimate analysis of the commercial interchangeability issue.

Beretta asserts that the 98FS can use 9mm by 19 mm ammunition. However, it permanently marks the 98FS to be used with only 9mm by 21 mm ammunition. Further, Beretta's sales brochure and owner's manual warn the user to use only correct ammunition. and it denies liability if a malfunction or injury is the result of the incorrect use of ammunition.

Claim No. 7

Similarly, Beretta appears to be urging a finding that the exported merchandise (98FS without magazine) is commercially interchangeable with the imported merchandise (92FS with magazine) because the 98FS pistol can use all of the ammunition that the 92FS can, while at the same time admitting that the imported merchandise is not commercially interchangeable with the exported merchandise because the imported merchandise cannot use all of the ammunition that the exported merchandise can. (The 92FS pistol cannot fire the same ammunition as the 98FS pistol.) We do not agree with this reasoning.

The issue is whether the two types of merchandise are commercially interchangeable with each other. We believe that the analysis would be strained and incomplete if we were to conclude that the 98FS (without magazine) is commercially interchangeable with the 92FS (with magazine), while at the same time concluding that the 92FS (with magazine) is not commercially interchangeable with the 98FS (without magazine).

Further, as stated supra, the issue is whether the two types of merchandise are commercially interchangeable with each other. Our analysis is not affected by which of the two types of merchandise is stated to be commercially interchangeable with the other, i.e., whether the exported merchandise or the imported merchandise is stated first in the sentence which states the issue.

HOLDING:

Ruling 226473 is affirmed. The Beretta model 92FS pistol (with magazine) is not commercially interchangeable for the purpose of 19 U.S.C. 1313(j)(2) with the Beretta model 98FS pistol (without magazine).

A copy of this ruling is being mailed to counsel for Beretta. Sixty days from the date of this ruling, the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access channels.


Sincerely,

Director,
International Trade Compliance
Division