DRA-4
OT:RR:CTF:ER H036362 DCC
Ms. Catherine A. Markey
Drawback Chief, San Francisco Area Port
U.S. Customs and Border Protection
555 Battery Street
San Francisco, CA 94111
RE: Commercial Interchangeability of Table Wine; Drawback; Food, Conservation, and Energy Act of 2008
Dear Ms. Markey:
This is in response to a request for internal advice by your office pursuant to 19 C.F.R. § 177.11. In response to pending drawback claims received by your office, you request guidance regarding implementation of section 15421 of the Food, Conservation, and Energy Act of 2008 (the “Act”), Public Law No. 110-234, 122 Stat. 923 (2008), codified at 19 U.S.C. § 1313(j)(2) (2008), which was enacted by Congress on May 22, 2008.
FACTS:
On October 8, 1999, a major U.S. winery submitted a request to this office for a formal ruling, pursuant to 19 C.F.R. § 191.32(c), regarding the commercial interchangeability of table wine for customs duty drawback under 19 U.S.C. § 1313(j)(2). That ruling request proposed that imported and substituted “table wine” be treated as commercially interchangeable provided the table wines were of the same color, and that the relative value of the substitute table wine was within 50 percent of the imported table wine.
In support of the ruling request, this office received background material on the wine market and commercial documents describing representative import and export transactions involving table wine. These materials all pertained to red and white table wine. Specifically, this office was advised that the imported table wine was classified under one of two possible subheadings, 2204.29.20 and 2204.29.60, HTSUS, both of which provide for the classification of red and white table wine.
After reviewing the ruling request, this office requested documentation to demonstrate the claim of commercial interchangeability. Although additional information was provided, this office advised counsel that the evidence presented did not support a determination of commercial interchangeability of table wine based on color and 50 percent relative value. Counsel subsequently withdrew its request on December 12, 2000.
Approximately two months later, counsel made a nearly identical submission in the form of a request for a “predetermination letter” from the regional drawback office located in San Francisco, California, pursuant to 19 C.F.R. § 191.32(c). Under section 191.32(c), drawback claimants may submit requests for nonbinding predetermination letters to CBP’s regional drawback offices. The record does not indicate that the San Francisco drawback office was advised that a previous request for a formal ruling on the same issue had been made and subsequently withdrawn.
On April 19, 2001, the San Francisco drawback office issued a nonbinding ruling letter that approved the proposed standard for determining the commercial interchangeability of table wine, i.e., imported and substituted red table wine, as well as imported and substituted white table wine, should be deemed to be commercially interchangeable provided the relative value of the imported and substituted table wine was within 50 percent. Between April 19, 2001, and March 23, 2007, the San Francisco drawback office issued similar predetermination letters to several major wineries. In response to requests submitted by some of the same wineries, the San Francisco drawback office subsequently applied the same standard for rosé table wine.
In May 2007, upon reconsideration of the matter, the San Francisco drawback office advised the recipients of the predetermination letters that the letters were being revoked, as well as the authorization for accelerated payment of drawback based on those letters. In June and July 2007, the San Francisco drawback office subsequently reinstated accelerated payment and withdrew its revocation of the predetermination letters.
Since enactment of the Act your office has received numerous drawback claims under the new provision for various alcoholic beverages including dessert wine, sparkling wine, and hard liquor. In connection with these pending claims, you now seek advice regarding the scope of products covered by section 15421. You also request guidance regarding issues related to container size and the relative value criterion that will facilitate the administration of the new provision.
ISSUES:
Whether wines produced from fermented rice or fruit other than grapes, such as cider, perry, plum wine, prune wine, sake, and mead, are within the scope of section 15421 of the Act.
Whether fortified wines that contain in excess of 14 percent alcohol by volume (including fortified dessert wine, sherry, port, and vermouth) are within the scope of section 15421 of the Act.
Whether carbonated wines, such as crackling wine, sparkling wine, or effervescent including champagne, are within the scope of section 15421 of the Act.
Whether imported and substituted wines in different size containers are within the scope of section 15421 of the Act.
Whether imported or substituted rosé table wine is commercially interchangeable with either red or white table wine.
LAW AND ANALYSIS:
Section 15421 of the Food, Conservation, and Energy Act of 2008 provides as follows:
In General.—Section 313(j)(2) of the Tariff Act of 1930 (19 U.S.C. 1313(j)(2)) is amended by adding at the end the following: “For purposes of subparagraph (A) of this paragraph, wine of the same color having a price variation not to exceed 50 percent between the imported wine and the exported wine shall be deemed to be commercially interchangeable.”.
In interpreting the scope of section 15421 we must initially review the text of the statutory provision. See United States v. Alvarez-Sanchez, 511 U.S. 350 (1994) (“When interpreting a statute, we look first and foremost to its text.”). “If the statute is clear and unambiguous ‘that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’ . . . The traditional deference courts pay to agency interpretation is
not to be applied to alter the clearly expressed intent of Congress.” Board of Governors, FRS v. Dimension Financial Corp., 474 U.S. 361, (1986), quoting Chevron U.S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, (1984). But if a statute is silent or ambiguous with respect to a particular issue, an agency shall consult a statute’s legislative history to discern Congressional intent. See United States v. Daas, 198 F.3d 1167, 1174 (9th Cir. 1999).
The first three issues concern the scope of section 15421 of the Act, which amended section 313(j)(2) of the Tariff Act of 1930 with regard to the determination of commercial interchangeability for wine for purposes of customs duty drawback. In order to determine whether Congress intended section 15421 to include various wine products in addition to table wine—such as cider, plum wine, sake, mead, sparkling wine, effervescent wine, and fortified wines such as dessert wine, sherry, port, and vermouth—it is appropriate to review the legislative history of the Act for guidance. The goal of examining legislative history is to uncover the intent of Congress in enacting the statute, thus “giving effect to the will of Congress.” Negonsott v. Samuels, 507 U.S. 99, 104 (1933). With regard to reviewing legislative history of a statute, we note that a conference report “represents the final statement of terms agreed to by both houses, [and] next to the statute itself is the most persuasive evidence of congressional intent.” Demby v. Schweiker, 671 F.2d 507, 510 (D.C. Cir. 1981).
A review of the legislative history for section 15421 reveals Congress’ clear intent to limit the scope of the provision to “table wine.” The relevant provision of Conference Report 110-627, which accompanied the Act, reads as follows:
Section 313(j) of the Tariff Act of 1930 (19 U.S.C. 1313(j)) currently provides for unused merchandise drawback. Unused drawback is permitted if imported merchandise is exported or destroyed within 3 years of import without being used in the United States. Pursuant to section 313(j)(2) of the Tariff Act of 1930 (19 U.S.C. 1313(j)(2)), domestic or imported merchandise that is commercially interchangeable with the imported merchandise may be substituted for the imported merchandise and drawback granted on the export or destruction of the substituted merchandise within the 3-year period beginning on the date of importation. The drawback is limited to 99% of the duty, tax and fee imposed under Federal law on the imported merchandise upon entry or importation.
Section 313(j)(2) of the Tariff Act of 1930 does not contain a definition of “commercially interchangeable.” From late 2001 to May 2007, U.S. Customs and Border Protection (CBP) paid
drawback claims on wine based on white domestic and imported table wine being commercially interchangeable with relatively valued imported white table wine. Red domestic and imported table wine was also considered to be commercially interchangeable with relatively valued imported red table wine. Relatively valued wine was considered to be wine within a price range of 50%.
CBP informed wine drawback claimants in May 2007 that, effective immediately, the above standard for commercial interchangeability was no longer applicable. CBP did not provide a definitive new standard but stated that the criterion of the varietal wine should have been a determining factor in determining commercial interchangeability.
The new provision carries forward the standard used for commercial interchangeability from 2001 to May 2007, and provides certainty for the filing and processing of unused drawback claims for imported and exported wine.
Food, Conservation, and Energy Act of 2008, Conf. Rept. 110-627, May 13, 2008 (emphasis added).
The Conference Report states that section 15421 continues CBP’s standard from 2001 through 2007 for determining whether wine was commercially interchangeable. During that period, as indicated in the nonbinding predetermination letters, CBP allowed drawback claims based on domestically-produced and imported table wine, provided the substitute wine was of the same color (i.e., red, white, or rosé), and the value of the imported wine was within 50% of the substitute wine.
In addition to the Conference Report, the legislative history of the Act includes a cost estimate for implementing section 15421. See Estimated Revenue Effects of the Conference Agreement for Title XV of H.R. 2419, Joint Committee on Taxation, Report No. JCX-38-08 (May 14, 2008), (“Cost Estimate”). According to the Cost Estimate, the Congressional Budget Office (“CBO”) projected that implementation of section 15421 would have “no revenue effect” from fiscal year 2008 through fiscal year 2018. Based on the fact that
CBO estimated the provision would not affect the Federal government’s revenue, it is apparent that Congress did not intend section 15421 to expand the scope of commercial interchangeability to include wine products other than table wine because such an expansion would have increased the number of drawback claims, which would have a direct effect on revenue.
Based on the Conference Report and Cost Estimate, it is clear that Congress intended to continue CBP’s approach for determining the commercial interchangeability of wine from 2001 through 2007. It is therefore apparent that Congress intended to limit section 15421 to table wine.
With regard to the type of products that constitute table wine, regulations issued by Alcohol and Tobacco Tax and Trade Bureau (“TTB”), U.S. Department of Treasury provide guidance on the scope of products considered to be table wine. The regulations, codified at 27 C.F.R. Subpart C, establish standards for identifying various alcoholic beverages for labeling and advertising purposes. Section 4.21(a) defines the terms “grape wine” and “table wine” as follows:
§4.21 The standards of identity.
Standards of identity for the several classes and types of wine set forth in this part shall be as follows:
Class 1; grape wine—(1) Grape wine is produced by the normal alcoholic fermentation of the juice of sound, ripe grapes (including restored or unrestored pure condensed grape must), with or without the addition, after fermentation, of pure condensed grape must, and with or without added grape brandy or alcohol, but without other addition or abstraction except as may occur in cellar treatment: . . .
* * *
Table wine is grape wine having an alcoholic content not in excess of 14 percent by volume. Such wine may also be designated as “light wine,” “red table wine,” “light white wine,” “sweet table wine,” etc., as the case may be.
27 C.F.R. §4.21(a)(1)-(2).
Based on the TTB regulations, the term “table wine” does not encompass alcoholic beverages produced from fermented fruit other than grapes such as cider, perry, plum wine, and prune wine; cereals such as rice wine or sake; or other products such as honey wine or mead. In addition, because the TTB’s definition is limited to grape juice that has been fermented, the term excludes brandy, a liquor produced through the distillation of wine, or unfermented grape juice known as “must.”
Furthermore, the TTB regulations limit the alcoholic content of what may be considered table wine to 14 percent by volume. Based on this limitation, fortified wines that contain in excess of 14 percent alcohol by volume, including fortified dessert wine, sherry, port, and vermouth, are not considered table wines, and therefore, are not within the scope of section 15421 of the Act.
In addition to the TTB regulations, it is appropriate to review the Harmonized Tariff Schedule of the United States (“HTSUS”) for guidance on the definition of table wine. In O.A. Both Corp. v. United States, 63 Cust. Ct. 443, 445 (1969), the U.S. Customs Court, Second Division, noted the significance of different tariff classifications when reviewing the definition of a product described as metallic flitters. In analyzing whether a particular imported article constituted flitters or flakes, the court stated, “The premise from which we necessarily proceed is that when Congress provided in the tariff schedules eo nomine, separately, for flakes and for flitters, there were intended two distinguishable classifications for two different articles of commerce, flakes and flitters.”
Similarly, because Congress established separate tariff classifications for sparkling wine, effervescent wine, and other wine (i.e., table wine), we may presume that Congress intended to distinguish carbonated wines, such as sparkling and effervescent wines, and non-carbonated table wine as distinct articles of commerce. Between 2001 and 2007, CBP only accepted drawback claims for non-carbonated wine. Because, as stated above, the legislative history indicates an intent to continue the approach taken by CBP in this matter, carbonated and non-carbonated wines are not commercially interchangeable.
We further note that the 14 percent limit on alcoholic content for table wine is recognized in the HTSUS. Such wine in containers holding two liters or less is specifically described in subheading 2204.21.50. Table wine in containers holding more than two liters and less than four liters is classifiable in subheading 2204.29.20, while such wine in containers of more than four liters is classifiable in subheading 2204.29.60.
In addition, you asked whether table wine may be commercially interchangeable when it is sold in containers of different sizes. Section 15421 contains no requirement that the imported and substituted table wine be in the same size containers. Moreover, between 2001 and 2007, CBP accepted drawback claims for table wine in various size containers. Because, as stated above, Congress intended to continue CBP’s approach in analyzing the commercially interchangeability of wine products, the size of the container may not be considered when determining whether imported and substituted table wines are commercially interchangeable.
You also ask whether rosé table wine is commercially interchangeable with red or white table wine. Based on the legislative history that indicates the provision is intended to continue CBP’s standard for determining the commercial interchangeability of table wine, it is apparent that Congress intended CBP to continue its practice of treating rosé table wine as its own category of table wine, which is not commercially interchangeable with red or white table wine.
Finally, we note that an article such as fortified wine not within the scope of section 15421 as construed in this ruling may still qualify for manufacturing drawback pursuant to 19 U.S.C. 1313(a) and (b), or unused merchandise drawback under 19 U.S.C. § 1313(j) provided it meets the applicable statutory and regulatory criteria including the traditional standard of commercial interchangeability.
HOLDING:
Pursuant to language and legislative history of the Food, Conservation, and Energy Act of 2008, table wine, as described above, shall be deemed to be commercially interchangeable for purposes of section 15421 of the Act, provided the imported and exported substitute table wines are of the same color (i.e., red-for-red, white-for-white, or rosé-for-rosé), have relative values within 50 percent, and notwithstanding the use of different size containers.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division