- Type : HTSUS :
Mr. James W. Brown
Danzas AEI Drawback Services
2210 Highland Knolles Drive
Katy, TX 77450
RE: Commercial Interchangeability; 19 U.S.C. § 1313(j)(2); 19 C.F.R § 191.32(c)
Dear Mr. Brown,
This is in response to your letter dated June 16, 2009 on behalf of Dow AgroSciences LLC (hereinafter “Dow”) regarding the commercial interchangeability of Methoxyfenozide Technical, also known as RH2485 Technical.
Dow is an importer, manufacturer and distributor of specialty agricultural chemicals including RH 2485 Technical, which is used as an insecticide. Dow imports RH 2485 Technical and also purchases domestic material to fulfill its market demands.
RH 2485 Technical, according to Dow’s technical bulletin, is a diacylhydrazine and acts as a molt accelerating compound. It is used against a broad range of lepidopterous pests, but does not have an impact on beneficial insects. Products containing RH 2485 Technical are globally registered for use on a wide range of crops.
RH 2485 Technical is subjected to the following steps prior to exportation: milling if required, repackaging if required and a label identifying the product as Methoxyfenozide Technical or RH 2485 Technical is sometimes added to the package. Dow imports RH 2485 Technical to maintain consistent inventory supplies and to ensure its ability to meet market opportunities and demands. The substituted product is a domestic production. Dow states that different designations of product codes (GMIDs) are trade names only, used to represent the manufacturing origin. The following codes are used for RH 2485 Technical:
Export: 173897, 220066, 237861, 190052
In support of Dow’s claim for interchangeability, you provided documents representing a typical import and export transaction. For the import entry, you provided an entry summary (CBP form 7501) number 916-XXXXXXX-6 dated January 14, 2009 which describes the product as “METHXYFEN, CS161050584,2928.” It is listed as HTSUS 2928.00.2500. Invoice No 88/XXXXXXX9 shows a shipment of 77,000 drums of Methoxyfenozide Technical Insecticide, shipped from Mozzanica, Italy to Atlanta Hartsfield International Airport, shipping to Dow and dated January 8, 2009. According to the certificate of analysis for the imported product, the exported product tests at over 97% Methoxyfenozide Technical by percentage of weight.
For the export transaction, you provide a bill of lading showing a shipment of 60 drums of RH-2485 Technical insecticide, and certificate of origin listing the United States. According to the certificate of analysis for the exported product, each batch with one exception tests at over 97% Methoxyfenozide Technical by percentage of weight, with the one exception testing at 96.8%.
Whether the imported RH2485 Technical is commercially interchangeable with the substituted merchandise, for purposes of substitution unused merchandise drawback, pursuant to 19 U.S.C. §1313(j)(2)?
LAW AND ANALYSIS
The statute that provides for substitution, unused merchandise drawback, 19 U.S.C § 1313(j)(2) does not specifically define what constitutes “commercially interchangeable” products. The CBP Regulations concerning substitution drawback, 19 C.F.R. 191.32 provides:
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.
Case law offers additional insight into the meaning of commercial interchangeability. In Texport Oil Co. v. United States, 185 F.3d 1291 (Fed. Cir. 1999), the Federal Circuit Court of Appeals (the “CAFC”) held that commercial interchangeability is “an objective, market-based consideration of the primary purpose of the goods in question” and 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” according to 19 U.S.C § 1313(j)(2). Texport Oil Co. v. U.S. at 1295.
Thus, commercial interchangeability is determined using an objective standard. If a hypothetical like-minded buyer would accept either good at the specified price for the purpose intended in an arms length transaction, the goods will be considered commercially interchangeable. In order to determine if either good at the specified price would be acceptable for the purpose intended, the relevant characteristics of the imported goods are compared with those characteristics of the substituted goods. Per the CBP Regulations, the pertinent characteristics include any governmental or industry standards applicable to the good, the tariff classification, part numbers if any, value, an any other characteristics relevant to the good.
Government and Recognized Industry Standards
Standards or grades established by the government or industry consensus aid in the determination of commercial interchangeability in that they establish markers by which the product is commoditized and measured against like products for use in the same manner, regardless of manufacturer. Generally, products that meet the same industry accepted standard may be used to produce the same products or utilized for the same purposes. These uses are typically indicated in the standard.
Here, both the imported and exported product was tested against one standard: Methoxyfenozide Technical by percentage of weight. Dow informs us that all product must meet or exceed 96% Methoxyfenozide Technical by percentage of weight. While the standard used is a contract specification and not a government standard, the Court of International Trade has found that it is acceptable to use private contract standards instead of government standards to determine commercial interchangeability. See Pillsbury v. U.S., 27 C.I.T. 1628, 1634 (Ct. Int’l Trade 2003). Both the imported and exported product tested above 96% Methoxyfenozide Technical by percentage of weight. Since the designated imported product and substituted product conform to the sales specification, we deem this criterion to be met.
There is a product code (GMID) of 173897 for the import and 173897, 220066, 237861 and 190052 for the export. Dow informs us that these designations reflect country of origin, and that customers do not use the GMID to order the product. Consequently, we find that the part numbers applicable for this product are not useful in the analysis of commercial interchangeability.
You state that the HTSUS number for imported and substituted RH2485 Technical is 2928.00.25.00. Because the imported and exported merchandise is classified under the same subheading, we find that the tariff classification criterion is established.
Goods that are commercially interchangeable generally have similar values when sold at the same place, at the same time, to like buyers from like sellers. Examples of the value of the imported and substituted Methoxyfenozide Technical are $121.19 on the import and $87.7032 on the export. This amounts to a difference of $34.12/Kg or 28%. Dow states that the Methoxyfenozide is imported into the USA, milled (processed), and re-packaged for export. The freight and processing fee plus the legal transfer price adjustment account for the higher price of the exported product.
CBP has ruled that a variance in price does not preclude a finding of commercial interchangeability when other criteria have been met or when there is sufficient evidence provided to support the material difference in value. See HQ 22865 (holding that although the difference of the imported and exported merchandise was in excess of 32%, the merchandise qualified under the critical properties criterion had been met as well). See, also HQ 228580 (holding that a value difference of 27% did not preclude a finding of commercial interchangeability when the difference in value is attributable to processing costs and manufacturing costs when the critical properties criterion had been met).
In the instant case, the critical properties criterion has been met and the difference in value of 28% is slightly less than the difference in value of merchandise in previous rulings where the product is found to be commercially interchangeable. Since the difference is within an acceptable range pursuant to CBP precedent, we hold that the value criterion is met for the purposes of 19 U.S.C. §1313(j)(2).
Manufacture or Production
Substitution, unused merchandise drawback requires that the product not be “used.” Permitted operations performed on substituted merchandise are operations that are performed that do not amount to a manufacture or production. See 19 CFR 191.32(e). Per 19 CFR 191.2(q)(2), a manufacture or production means a process, including, but not limited to, an assembly, by which merchandise is made fit for a particular use. Concerning the milling process, Dow states:
Milling reduces the particle size of the active ingredient but it does not change the physical form, it is still a powder. Milling allows the active ingredient to suspend better in water versus the unmilled form. The milling service that Gowan performs does not add any other component to the active ingredient or change the insecticide characteristics of the molecule. The only reason for milling at Gowan is that the final formulation location does not have the proper equipment to conduct this operation.
Since the milling process makes the product better suited for suspension in water, this makes the product more fit for particular uses, such as mixing with water to spray on crops. The information provided does not sufficiently demonstrate otherwise. Consequently, we find that the milling process constitutes a “manufacture or production” per the CBP regulations and consequently renders the product ineligible for drawback pursuant to 19 U.S.C. §1313(j)(2). There is no evidence that repackaging would change any aspect of the Methoxyfenozide Technical and therefore would fall within the statutory exemption set forth in 19 U.S.C. §1313(j)(3).
Based on the above findings, we determine that the imported Methoxyfenozide Technical and the substituted Methoxyfenozide Technical are not commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. §1313(j)(2). Methoxyfenozide Technical of 96% purity that is not milled before export would be commercially interchangeable with imported 96% purity Methoxyfenozide Technical that is exported in substitution for the imported product, so long as both the imported and substituted Methoxyfenozide Technical have the same particle size.
This decision is limited to the specific facts set forth herein. If the terms of the import or export contracts vary from the facts stipulated to herein, this decision shall not be binding on CBP as provided for in 19 C.F.R. § 177(b)(1), (2) and (4), and §177.9(b)(1) and (2).
William G. Rosoff, Chief
Entry Process & Duty Refunds Branch