DRA-1-09-RR:CR:DR 228211 SMC
Ms. Susan H. Brogan
S.H. Brogan Consulting, Inc.
P. O. Box 284
Morris Plains, NJ 07950-0284
RE: Substitution unused merchandise drawback; commercial interchangeability; pigments; blending; 19 U.S.C. 1313(j)(2)
Dear Ms. Brogan:
This is in reference to your letter dated September 29, 1998, concerning your client Uhlich Color Company, Incorporated’s (Uhlich) previous drawback applications under 19 U.S.C. 1313(b). In previous decisions dated October 7, 1996, October 7, 1997 and April 16, 1998, this office held that your client’s operation did not constitute a manufacture or production for drawback purposes under §1313(b). In our most recent letter to you dated April 16, 1998, we advised that if provided the Munsell color system values for lightness, hue (color spectrum) and chroma for the unblended lots of dye(s) and the finished blended dye lot(s), and these properties differed, we would be in a position to approve your client’s application under §1313(b) based on a change in character resulting in a new and different article.
In your September 29 inquiry, you have stated that your client “...could provide numerical values, using the Munsell color system, to both the unblended and blended lots for the properties of value (lightness), hue (color spectrum) and chroma.” However, you further state that since your client blends the pigments totally on the basis of “sight” and “the customers accept and reject the product by sight”, it does not use the Munsell color system and providing such information would be unrealistic. You remain of the opinion that your client’s operation constitutes a manufacture or production under §1313(b) drawback and that its initial application should be approved. You again request our reconsideration of this issue. If our position remains as previously stated, you have asked us to consider the applicability of 19 U.S.C. 1313(j)(2) to your client’s operation.
Uhlich imports methyl violet toner-molybdated (pigment) and produces domestic methyl violet toner-molybdated (pigment). The complete specifications for the imported and domestic methyl violet toner-molybdated (pigment) follow:
IMPORTED MERCHANDISE OR DUTY-PAID, DUTY-FREE OR DOMESTIC
DRAWBACK PRODUCTS TO BE MERCHANDISE OF THE SAME KIND AND
DESIGNATED AS THE BASIS QUALITY AS THAT DESIGNATED WHICH
FOR DRAWBACK ON THE WILL BE USED IN THE PRODUCTION OF
EXPORTED PRODUCTS THE EXPORTED PRODUCTS
Methyl Violet Toner- Methyl Violet Toner-
Molybdated (pigment) Molybdated (pigment)
Color Index Name: Violet 3 Color Index Name: Violet 3
Product Class: Basic Dye Toner Product Class: Basic Dye Toner
Product Code: MT0310 Product Code: VT8015
Principal CAS #: 68647-35-8 Principal CAS #: 68647-35-8
Appearance: Violet Powder Appearance: Violet Powder
Purity: 100% Purity: 100%
Particle Size: 2.5 - 3.3 um Particle Size: 2.5 - 3.3 um
Moisture: 98 - 99.5% Moisture: 98 - 99.5%
Molybdenum: 32.5 -33.5% Molybdenum: 32.5 - 33.5%
Solubility in Water: Insoluable Solubility in Water: Insoluable
Loss on Ignition: 66.5 - 67.5% Loss on Ignition: 66.5 - 67.5%
Alkalinity Level (pH): 3.6 - 5.0 Alkalinity Level (pH): 3.6 - 5.0
Tinting Strength: N/A* Tinting Strength: N/A*
*Relative term *Relative term
Lots of imported or imported and domestic methyl violet toner-molybdated (pigment) are blended together to meet customer “quality and performance” characteristics. There may be more than one blending. The blending results in methyl violet toner-molybdated (pigment) which is exported. The exported methyl violet toner-molybdated (pigment) is intended to be used in the production of inks.
Since the property values that can be established with the use of the Munsell color system have not been provided, we do not have additional new information to analyze in order to reconsider the applicability of §1313(b) and specifically whether the blending operation results in a manufacture or production of an article with a distinctive name, character or use. The blended lots meet the “quality and performance” characteristics required by a particular customer, NOT a particular or different use. Whether the blended lots meet these customer “quality and performance” characteristics is determined solely on the basis of sight using “drawdown” samples. Both the raw merchandise and the final blended product are identical pigments. We remain of the opinion that neither the name, character, or use of the pigment have changed as a result of the blending operation and 19 U.S.C. §1313(b) is inapplicable..
Whether the imported and substituted (exported) methyl violet toner-molybdated (pigment) 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, substitution unused merchandise 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 certain requirements are met. The other merchandise must be exported or destroyed within 3 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 be either the importer of the 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 statute did not define commercially interchangeable.
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 fungiblity 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 prior to their amendment in 1998 (19 C.F.R. §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.
The Senate Report for the NAFTA Act (S. Rept. No. 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.
In order to determine whether the pigment lots are commercially interchangeable, the following factors must be analyzed.
1. Governmental and Recognized Industry Standards
Governmental and recognized industry standards are generally considered the most important element with respect to the issue of commercial interchangeability, if used in the
purchase and sale of the merchandise in question.
The industry standards for dyes and pigments are contained in the Color Index (C.I.). The Color Index was established and published by the Society of Dyers and Colourists with acknowledgement to the American Association of Textile Chemists and Colorists. It is the most comprehensive reference on dyes, pigments and coloring materials which is used worldwide by the textile industry and many other industries involved with the production or use of coloring materials. Under the Color Index, a classification name and serial number is assigned to commercial preparations composed of the same essential colorant having the same chemical constitution. In earlier decisions by this office, it has been held that pigments identified by the same Color Index Name and Number may have different purities. Therefore if the pigments so identified by the same Color Index Name and Number also has a purity of at least 95%, the merchandise would meet the “same kind and quality” requirement under 19 U.S.C. 1313(b). Commercial interchangeability is more restrictive than this “same kind and quality” requirement.
We are not in receipt of sales invoices or purchase orders showing the use of C.I. Names or C.I. Numbers in the purchase or sale of pigments. Nonetheless, technical Data Sheets, Material Safety Data Sheets and a page from the National Printing Ink Research Institute (NPIRI) Raw Materials Data Handbook were submitted by Uhlich in support of its claim that the imported and substituted domestic pigment blends are “commercially interchangeable”. The ruling request and data information was forwarded to the Customs laboratory at Headquarters, the Laboratories and Scientific Services office (LSS). That Office reviewed the technical data and advised that the imported unblended pigment and exported domestic blended pigment are classified by the same Color Index Name: Pigment Violet 3 and Color Index Number: 42535.2, and have the same physical characteristics. Both have a purity of 100%. The two pigments, both within the same Color Index and both 100% pure would satisfy this criterion.
2. Part Numbers
The imported pigment lots have been assigned Product Code: MT0310 by the applicants foreign suppliers. The exported substituted pigment lots are assigned Product Code: VT8015. The imported lots are never sold “as is” without one or more blendings. The inquirer states however that if an imported pigment is sold as imported i.e. unblended, it would be sold under the Product Code: VT8015. It is stated that all sales of the pigment identified by the Color Index name of Pigment Violet 3 are under Product Code VT8015. Customer orders are by Product Code VT8015 and the applicant invoices all pigments by Product Code VT8015.
Documentation submitted by Uhlich includes purchase order #608397 to one of its overseas suppliers. The order does not reference a part number. The pigment is ordered by reference to the Color Index Name (Pigment Violet 3) only. The corresponding sales invoice from its overseas supplier does reference the pigment as “methyl violet classic - code MT0310". In a purchase order No. 3700-118207 of one of its domestic customers the pigment is identified by Product Code VT8015. Copies of other sales invoices (A36270 and A35865) also use the Product Code VT8015. Both product codes are used on Uhlich Material Safety Data Sheets and the Technical Data Sheets. Since there does not appear to be a consistent use of part numbers on the documentary evidence this criterion does not appear to be applicable.
3. Tariff Classification
Uhlich advises that the tariff classification for the imported pigment is 3204.17.9085 HTSUS. The domestic pigment, if imported would also be classified as 3204.17.9085 HTSUS. The exported pigment has a Schedule B number of 3204.17.10. The Schedule B number is a commodity number from Schedule B, a Statistical Classification of Domestic and Foreign Commodities Exported from the United States, published by the U.S. Department of Commerce, Bureau of the Census. The first six digits of the commodity numbers in chapters 1 through 97 of both the HTSUS and the Schedule B are identical with respect to descriptions and codes.
Uhlich has provided a copy of an Entry Summary, CF7501, and the accompanying invoice which shows the imported pigment classified under 3204.17.9085 and 3204.17.00 HTSUS respectively. Subheading 3204.17.90 of the HTSUS covers pigments of various colors. Reliance solely on the Tariff Classification criteria therefore is inappropriate in making the commercial interchangeability decision.
4. Relative Values
According to the documentation submitted, the purchase price for the imported pigment is $7.71/lb. The price of the domestic pigment (exported) ranges from $12.00/lb to $15.60/lb. Thus a comparison of the relative values of the pigments indicates a variance range of 2.33% to 55.64%, i.e. the value of the exported pigment is 2.33% to 55.64% greater than the imported pigment. The higher export prices are asserted to be due to handling costs, including blending and the seller’s markup. The evidence is consistent with that assertion.
With regard to the “use” restriction contained in 19 U.S.C. §1313(j)(2), 19 U.S.C. 1313(j)(3) specifically provides that--
(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).
A blending operation is specifically provided for in the exemplars of §1313(j)(3) provided such an operation does not amount to a manufacture or production for drawback purposes. In earlier decisions on the applicability of manufacturing drawback under 19 U.S.C. §1313(b), it was determined that Uhlich’s operation did not amount to a manufacture or production for drawback purposes since the name, character, or use of the pigment is unchanged as a result of the blending. The blending of the pigment, therefore, shall not be treated as a use of that merchandise for purposes of applying paragraph 19 U.S.C. §1313(j)(2)(C). After evaluating all the relevant criteria suggested by the legislative history, we find that commercial interchangeability of the pigments has been established because (1) the specifications for the pigments are in the same Color Index and both are 100% pure; (2) the part number criterion does not appear to apply inasmuch as the documentary evidence on their use is inconsistent; (3) both the imported and substituted domestic pigments are classifiable under the same tariff classification; and (4) the difference in relative values between the imports and exports has been explained consistent with the evidence.
The imported and domestic (substituted) pigments are commercially interchangeable for purposes of the substitution unused merchandise drawback law of 19 U.S.C.§1313(j)(2).
Commercial Rulings Division