DRA-4-RR:CR:DR 228261 IOR
BDP International, Inc.
1017 4th Avenue
Lester PA 19029-1813
Re: Substitution unused merchandise drawback; commercial interchangeability; inhibited methyl methacrylate monomer; 19 U.S.C. 1313(j)(2)
Dear Ms. Crawford:
This is in response to your letter of November 13, 1998, in which you request a ruling on behalf of ICI Acrylics, Inc. (“ICI”), regarding the commercial interchangeability, under 19 U.S.C. §1313(j)(2), of imported and exported methyl methacrylate monomer (“MMA”). Our response follows receipt of supplemental information you provided by your letter of April 7, 1999 and the attachments.
ICI imports MMA from Germany, England, Mexico, and Spain. ICI produces MMA in its Tennessee and Texas plants. In its submission of November 12, 1997, to the Boston Drawback Unit, and letter of February 24, 1998 to the Chicago Customs Laboratory, the subject MMA was described.
MMA is a high purity industrial chemical (>99.8%) with stringent acid number, water content and color specifications. All the MMA imported by ICI meet ICI specifications and is chemically identical to MMA ICI manufactures in its US manufacturing plants. MMA is used in the composition of polymers and copolymers, in the glazing industry, in paints and in coatings.
MMA is a monomer, and unstable. The product grades relate only to the type and amount of inhibitor added to stabilize the material for transport and storage. The inhibitor does not alter the chemical composition of the MMA. The submission of November 12, 1997 states that MMA from all sources is accepted as “commercially interchangeable” in all instances, customers would accept either the designated imported article or any of the substituted articles, customers do not express a preference of MMA from whatever source, and type and quantity of inhibitor is the only request made by customers. With respect to inhibitor preference, in the February 24, 1998 letter ICI states the following:
MMA has been sold world wide for over 70 years, and during this time, customers have become accustomed to the use of a favorite inhibitor and inhibitor concentration. In fact, there is relatively little difference in inhibitor performance, and in most cases MMA customers could use any inhibitor at the minimum safe storage concentration. Tradition is difficult to change however, and customers wish to use what they used in the past. The result is that ICI and all major MMA producers continue to supply a large number of inhibitor grades.
The monomer ICI importers[sic] is stored in a single leased tank near [the ICI plant in] Texas, The domestic monomer is stores[sic] at our three manufacturing locations, [Texas], [Tennessee] and [West Virginia]. Our plants have storage tanks for inhibited monomer grades. The bulk of the domestic MMA however is stored in tanks without inhibitor. This uninhibited monomer is stabilized by storage at low temperature (-40 deg.C). The customer requested inhibitor as[sic] added to the uninhibited MMA as the MMA is packed for shipment.
The inhibitor added to MMA is used solely for safety reasons in shipping and storage. Once the MMA is stored in a tank under temperature-controlled conditions or used in a manufacturing operation, the inhibitor can be removed as it serves no other purpose. All of the inhibitors have the same purpose and according to ICI, any one could be substituted for another. The inhibitor becomes inactive during the manufacturing process and only trace amounts can be found in the end product. The inhibitor does not react at all during the polymerization process; it only becomes inactivated. ICI characterizes the 4-1000ppm amount of inhibitor present in the MMA as de minimis.
In the February 24 letter, it was stated that ICI imports the inhibitor grade that it believes will satisfy the largest portion of a single grade ordered by its customers, and that this percentage was estimated to be around 30%. The remainder is sent to an ICI plant for removal of the old inhibitor, and the new inhibitor is added prior to export. ICI states that it is difficult to maintain the identity of the imported and domestic MMA at the plants, and it is expected that commingling occurs.
In the November 12, 1997 letter to Customs, it is stated that the imported and substituted items are sold by ICI at the same price. In support, a Substitution Affidavit is referenced, however that affidavit does not address sales prices.
By letter dated April 27, 1998, from Customs Boston Drawback Unit, permission for ICI to file claims under 1313(j)(2), for the MMA described, was denied. The denial was based on the opinion of Customs Laboratory in Chicago that because many customers prefer certain inhibitors in their MMA, only about 30% of ICI’s customers accept the imported MMA with the inhibitor as imported, and for the balance, the imported inhibitor must be removed and replaced with the preferred inhibitor.
In the November 13, 1998 submission to Customs Headquarters, a reconsideration of the April 27, 1998 denial is requested on behalf of ICI. The November 13, 1998 submission attempts to explain and clarify the 30% figure cited in the February 24, 1998 letter, and further explain the purpose of the inhibitor.
With regard to the 30% figure, it is stated that the actual percentage of MMA sold to customers with the same inhibitor as that imported is 73%, and when the percentage is analyzed in volumes, the figure is increased to 80%.
The imported and exported MMA is classified under subheading 2916.14.2020, Harmonized Tariff Schedule of the United States “(HTSUS”). According to the CF 7501’s submitted for the imported merchandise, the imported merchandise is entered under subheading 2916.14.2020, HTSUS. ICI states that the HTSUS recognizes inhibitors as a necessary method of putting up the MMA for safety or transport, and that the inhibitor doesn’t render the MMA particularly suitable for specific use rather than general use. Chapter 29, Note 1(e), HTSUS provides as follows:
Products mentioned in (a), (b), or (c) above dissolved in other solvents provided that the solution constitutes a normal and necessary method of putting up these products adopted solely for reasons of safety or for transport and that the solvent does not render the product particularly suitable for specific use rather than for general use.
According to ICI, the MMA meets the requirement for Note (e), above. According to ICI, were it not for the presence of the inhibitor, the MMA would be classified in Chapter 38, HTSUS.
ICI’s position is that a de minimis amount of inhibitor in the MMA cannot be viewed as a critical property of MMA, and should not preclude a finding of commercial interchangeability between the imported inhibited MMA of one grade and exported inhibited MMA of a different grade.
In its submission, ICI provided product specifications for 26 grades of MMA. The specifications for assay, acidity as methacrylic acid, water, and color are identical. Each grade also has a specification either for hydroquinone, methyl ether of hydroquinone, AO-30, BHT, or irganox, and all of them are different. Exhibit “G” to the submission is a list of all possible grades of MMA. The list contains 31 different grades (two are MMA with no inhibitor). On the list there is the statement that the MMA is graded and coded according to the amount and type of inhibitor used.
ICI has provided its publication on the “Storage and Handling” of methacrylate esters, which includes MMA. The publication discusses the use of different types
and quantities of inhibitors, including the following:
Industrial experience has indicated that for large volume uses where the monomer is used promptly, methacrylate esters containing 10 ppm or less inhibitor can be shipped and handled safely.
The choice of grade will depend on the intended use for the monomer and the rate at which it will be consumed.
Higher inhibitor levels may be desirable to prevent polymerization during some typical intermediate chemical reactions or when storage conditions are adverse (long times or high temperatures).
Where freedom from color is critical, the methyl ether of hydroquinone [inhibitor] is preferred to hydroquinone [inhibitor] since it has less tendency to cause color formation in the presence of alkali.
The length of time for which methacrylate monomers can be stored safely without risk of spontaneous polymerization depends on the temperature as well as on the type and amount of inhibitor and the amount of air present.
Inhibited methacrylate monomers can be used as supplied for most applications.
ICI has provided transaction documentation for the imported and exported MMA.
ICI has provided eight invoices, but only four pertained to sales for importation to the U.S. (the other four were invoices from England for shipments of MMA from the U.S. to Venezuela). Of the four, three were for imports from England and one was for an import from Germany. One import from England identified the inhibited MMA as “Standard – TA 12” and the other two identified the inhibited MMA as “Standard – TA 10”. The ICI product number shown on the invoices for the three imports from England, is the same, 00072449. The import from Germany is identified as having inhibitor “Topanol 8-12 ppm” and the specified grade is MMA-M503. Three invoices are from purchases in 1995, and one invoice is for a purchase in 1996.
For the import of “Standard – TA 12” from England, there is a “Report of Survey” in the file. In the report, the merchandise is identified as “Methyl Methacrylate Monomer” and the survey indicates “inhibitor, as topanol, ppm”.
The average price of the imported MMA was $1,421.52. The price is the same for the TA 12 and one purchase of the TA 10, and the price varies between one purchase of TA 10 and a second purchase of TA 10.
None of the import documents provided give any correlation between Standard – TA 10 or 12, and the listed grades. According to ICI, “TA” is an abbreviation for “Topanol”.
ICI has provided four purchase orders for export shipments. All of the purchase orders appear to be from the same purchaser in England. The first two purchase orders are for MMA “Standard – TA 20” (also described as “Topanol 20 ppm”). These two purchase orders have a reference number that may or may not be a product number, 00072198. A third purchase order is for MMA “TA 15 ppm”, and a fourth purchase order is for MMA “topanol 15 ppm”. Both of these purchase orders have a reference number of 00104217, that may or may not be a product code.
The export invoices that correspond to the first two purchase orders for “Standard – TA 20”, describe the merchandise as “MMA-M502”, and are for shipment to Venezuela. There are two invoices for MMA “M502”, for shipment to South Africa. There is a fifth invoice for MMA “M503” for shipment to Singapore, which corresponds to the fourth purchase order for “topanol 15 ppm”. There is a sixth invoice for MMA “M502” for shipment to Venezuela. All of the export sale documents are from the second half of 1997.
The average price of the exported merchandise is $1140.17/MT. The price varies for different sales of the M502, and the sales of M502 and M503.
ICI has provided bills of lading for some of the invoiced merchandise. The bills of lading describe the merchandise as “inhibited class” MMA.
With respect to MMA, in a laboratory report dated January 8, 2001, the Office of Laboratories and Scientific Services, reported that there is no published governmental or recognized industrial standard. According to the OLSS report, MMA is identified by a product grades, which relate to the type and amount of inhibitor added. The OLSS concluded that because the type and quantity of inhibitor is the only specification made by customers, when purchasing MMA, the inhibitor is the determining factor in the designation of product grades.
With respect to customer preference for a specific inhibitor, the OLSS report concluded:
Further, customer preference regarding inhibitor appears to be based on more than tradition and force of habit as indicated by correspondence supplied by [ICI]. While the importer claims that there is little difference in inhibitor performance, customer preference is linked to individual company requirements for safe storage concentrations. While customers could accept MMA with any inhibitor, particular storage condisitons mandate inhibitors that, are not merely a favorite of the company, but inhibitors that meet safe storage guidelines beyond the bare minimum.
Whether the imported inhibited MMA is commercially interchangeable with substituted inhibited MMA for purposes 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 dutypaid 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. From the evidence submitted in this case, it appears that ICI had possession of the other, exported or destroyed merchandise, however the issue of possession will not be addressed in this decision.
The drawback statute was substantively amended by section 632, title VI Customs Modernization, Pub. L. No. 103182, the North American Free Trade Agreement Implementation ("NAFTA") 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 103182. Title VI of Public Law 103182 took effect on the date of enactment of the Act (section 692 of the Act).
Before its amendment by Public Law 103182, the standard for substitution was fungibility. House Report 103361, 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, 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. Rep. 103189, 103d Cong., 1st Sess., 8185 (1993)) contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability. The amended Customs Regulations, 19 CFR 191.32(c), provide 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.
In order to determine commercial interchangeability, Customs adheres to the Customs regulations which implement the operational language of the legislative history. The best evidence whether those criteria are used in a particular transaction are the claimant’s transaction documents. 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. The purchase and sale documents also provide the best evidence with which to compare relative values. Also, if another criterion is used by the claimant to sort the merchandise, the claimant’s records would show that fact which will enable Customs to follow the Congressional directions.
Our analysis of the four factors and critical properties follows.
The imported and exported MMA is classified under subheading 2916.14.2020, HTSUS, no matter what type of inhibitor is used. The exported and imported merchandise meet this criterion for commercial interchangeability.
Governmental and recognized industry standards
There is no published government standard or recognized industry standard, however there are grades of MMA. The grades relate to the type and amount of inhibitor added to the MMA. The merchandise is imported and exported with the inhibitor. The type of inhibitor is specified by the purchaser. A purchaser may require a specific inhibitor, and only MMA with the specified inhibitor would be acceptable to that purchaser, for transport and storage purposes. The specifications for the different grades of imported and exported MMA are the same, except for the type and amount of inhibitor added.
In HQ 228060, dated May 10, 2000, we determined that ceramic substrate units were commercially interchangeable, although customers ordered them using different specifications. In that case the substrates were determined to be the same in their make up but described differently, and different in size and shape. Prior to their use as catalytic converters, the substrates had no specific use other than to be coated, matted and housed, and all of the substrate units were equally suited for the coating, matting and housing procedures. There were no government and industry standards for ceramic substrate units, but the units did meet emission standards for catalytic converters. It was determined that as in HQ 227106, dated September 3, 1997, the merchandise consisted of a raw material in different forms, but meeting the same specifications and to be used for the same commercial purpose. The differences in the unit sizes were determined to be not relevant to the purpose of manufacturing the units into catalytic converters.
In HQ 227106, the issue was whether aspartame in granular form was commercially interchangeable with aspartame in powder form. We found that the merchandise was commercially interchangeable and specifically we found that the merchandise met the governmental and recognized industry standard criterion. Both forms of the merchandise met the FDA requirements and the Food Chemical Codex specifications for aspartame, and both forms of the merchandise had the same commercial purpose, that is, to sweeten foods, beverages, dietary supplements and medicines.
As there are no published government and recognized industry standards for MMA, we find this criterion to be inconclusive on the issue of commercial interchangeability.
The MMA is identified differently in the import and export transaction documents on the basis of the different inhibitors. One grade may encompass different amounts of inhibitors. For example for one of the imports the merchandise was described as “topanol 8-12 ppm” and the specified grade is M503. For one of the exports, the purchase order specified topanol 15 ppm and the merchandise delivered was described as M503. Therefore it appears that M503 covers different levels of topanol. We also note that on the list of grades, and on the specification sheet submitted by ICI, M503 consists of MMA with a “AO-30” inhibitor at 8 – 12 ppm. None of the other three import invoices identified the merchandise by grade. However the grade can easily be determined by reference to the specifications of each grade and comparing the inhibitor type and amount. The three export invoices corresponding with two of the purchase orders, identify the merchandise as grade M502, and according to the purchase order, MMA “TA 20” was ordered. On the list of grades and on the specification sheet, M502 consists of MMA with an “AO-30” inhibitor at 19-25 ppm.
The ICI product number for three of the imports is 00072449, although the imports are described as TA – 12 and TA – 10. Thus MMA with different amounts of inhibitor, but of the same grade, carry the same product number. No such product number was used on the invoice for the fourth import, or the other four invoices from England for shipments from the U.S. to Venezuela. For the exports, it is not clear whether the number referenced on the purchase orders is a product identification number. However, we note that such numbers are not used in the invoices for the exported merchandise.
Whether or not there are specific ICI product numbers corresponding to MMA with specific inhibitors, clearly the MMA is known by grade, or type and quantity of inhibitor. Either the grade or the type and quantity of inhibitor is specified in all of the transaction documents. Based on the information from the lab report, and the ICI “Storage and Handling” publication, the grade is relevant to the specific use for which the MMA is intended, the quantity in which it is purchased, the rate at which it will be used, and the method in which it is stored.
The different grades identify inhibited MMA suitable for particular uses, and we find the uses of grades in this case to be comparable to the use of part numbers. On this criterion, we find that the use of differerent grades for MMA with different types or amounts of inhibitor, precludes a finding of commercial interchangeability between different grades of the imported and exported inhibited MMA. Inhibited MMA of the same grade however meets this criterion for commercial interchangeability.
ICI states in its submission that the price for the imported and substituted MMA is the same, however, that statement is not supported by any of the evidence. The average price of the imported MMA is $1,421.52, and the average price of the exported MMA is $1,140.17. The average price of the imported MMA is approximately 25% greater than the average price of the exported MMA. As stated in the facts section, even among the imports of the same type of inhibited MMA there are differences in price. For example, there was a difference between the price for one importation of MMA inhibited with TA 10, and a second importation of MMA also inhibited with TA 10. Similarly, there was a difference between the price for one sale of MMA, grade M502, for export, and a second sale of MMA, grade M502, for export. There was a difference between the price for a sale of MMA, grade M502, for export, and a sale of MMA grade M503, for export.
In its submission, ICI has not acknowledged that there are price differences in the sales of the imported and exported inhibited MMA. ICI has also not provided any substantiated information regarding pricing. Given the difference in pricing between the same grades of MMA, and the different grades of MMA as well, we find that the relative value criterion is inconclusive on the issue of commercial interchangeability.
In HQ 227106, supra, we discussed customer preference and concluded that a prevalent customer preference of one form of product over another may be evidence that merchandise is not commercially interchangeable. In this case, based on the ICI “Storage and Handling” publication, we conclude that there are significant factors that would dictate which grade of MMA is purchased. The factors are the quantity ordered, rate of expected use, purpose of use, and storage method. One grade of MMA could not be substituted for another grade in many instances.
In Texport Oil Company v. United States, 185 F3d 1291 (Fed. Cir. 1999) (vacating the CIT decision in Texport Oil Company v. United States, 1 F. Supp. 2d 1393 (1998)), the CAFC stated that “a firmly objective standard—analyzed from the perspective of a hypothetical reasonable competitor” avoids the concerns of overbroad descriptions of merchandise on transaction documents, prone to manipulation, and the “analysis might also include evidence of arms-length negotiations between commercial actors, the description of the goods on bills of sale or invoices….” 185 F3d at 1295. The court stated that “’commercially interchangeable’ 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’”. Id.
In Texport, the CAFC cautioned against reliance on overly broad or vague descriptions in commercial documents. Further, the decision in Texport, supports a decision to rely on the descriptions of the actual merchandise at issue. In this case, the commercial documents are specific as to the different types of inhibited MMA in all of the transactions. The distinctions cannot be ignored.
ICI states that if one grade of MMA is preferred over another, the existing inhibitor is removed and replaced by the preferred inhibitor, in order to satisfy the purchaser’s request. That is evidence that the inhibitor is a critical property, and that the different grades of MMA are not commercially interchangeable. The fact that the grades can be changed, does not make them commercially interchangeable.
In HQ 228060, supra, we determined that the ceramic substrates, whatever their dimensions had the same commercial purpose. In this case, there is evidence that one MMA grade would not be suitable for the same specific commercial purposes as all other MMA grades. For example, according to ICI’s “Storage and Handling” publication, for freedom from color in manufacture, MMA with a certain type of inhibitor is better suited for use than MMA with another inhibitor.
Based on the analysis of the Part Numbers criterion, and the critical properties of the inhibited MMA, although the tariff classification criterion has been met, we find that the imported inhibited MMA is not commercially interchangeable with exported inhibited MMA of another grade. Based on the analysis of the same criteria and the critical properties, we find that the imported inhibited MMA is commercially interchangeable with exported inhibited MMA of the same grade, although the levels of inhibitor may vary.
Based on the analysis of the Part Numbers criteria, and the critical properties of the inhibited MMA, although the tariff classification criteria has been met, we find that the imported inhibited MMA is not commercially interchangeable with exported inhibited MMA of another grade under 19 U.S.C. §1313(j)(2). Based on the analysis of the same criteria and the critical properties, we find that the imported inhibited MMA is commercially interchangeable with exported inhibited MMA of the same grade, under 19 U.S.C. §1313(j)(2), although the levels of inhibitor may vary.