DRA2-02
OT:RR:CTF:ER H103577 GGK
Ms. Michelle D. Riley
Compliance Specialist
BASF Corporation
100 Campus Drive
Florham Park, N.J. 07932
RE: Request for a determination of commercial interchangeability under substitution unused merchandise drawback, 19 U.S.C. § 1313(j)(2), for domestically manufactured Lupranate T80 Type 1 ISO and imported Lupranate T80 from Asia
Dear Ms. Riley:
This is in response to your request, dated April 15, 2010, on behalf of BASF Corporation (“BASF”), for a formal ruling on the commercial interchangeability of imported Lupranate T80 from Asia and exported domestic Lupranate T80 Type 1 ISO, for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
FACTS:
According to the information provided in your ruling request, BASF manufactures, imports and exports Lupranate T80 Type 1 ISO, which is the trade name for an 80% to 20% mixture of the 2,4 and 2,6 isomers of toluene diisocyanate. Toluene diisocyanate is also commonly known as “TDI.” The majority of the Lupranate T80 Type 1 ISO used by BASF is manufactured domestically. In early 2004, equipment failure at BASF’s Geismar, Louisiana production plant caused a shut down of the plant for approximately two months. Consequently, BASF imported a shipment of Lupranate T80 from Asia, on or about April 22, 2004, to meet customers’ demands. You assert that the imported Lupranate T80 from Asia and domestically produced Lupranate T80 Type 1 ISO are commercially interchangeable products. Moreover, you state that global consumers of TDI do not differentiate between Lupranate T80 Type 1 ISO and other TDI products manufactured by other companies. Therefore, you state that the imported Lupranate T80 from Asia and domestically produced Lupranate T80 Type 1 ISO are commercially interchangeable for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
As evidence of importation for the Lupranate T80 from Asia, you provided a commercial invoice (“purchase invoice”) and entry summary (CBP Form 7501) dated May 7, 2004. The entry summary indicates that the Lupranate T80 from Asia entered into the United States on April 27, 2004. Both the purchase invoice and the entry summary indicate that the imported product was classified under subheading 2929.10.1500 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Finally, you supplied a screen print from your internal merchandise tracking system indicating the imported Lupranate T80 from Asia was classified by BASF under product number 30076828.
In addition, you provided a commercial invoice (“sales invoice”) dated April 29, 2005, to demonstrate the export transaction of domestically produced Lupranate T80 Type 1 ISO. A screen print from your merchandise tracking system for the exported product indicates that the domestic Lupranate T80 Type 1 ISO was internally assigned to product number 30076828. To demonstrate the HTSUS rate for the exported Lupranate T80 Type 1 ISO, you included a screen print that shows product number 30076828 is internally assigned to HTSUS subheading 2929.10.1500. Finally, based on the purchase invoice, entry summary and sales invoice, it is determined that the products were imported from and exported to different global markets. Moreover, the documents demonstrate that there is a 26.7% difference in value between the imported Lupranate T80 from Asia and the exported domestic Lupranate T80 Type 1 ISO.
Furthermore, you supplied a BASF Safety data sheet for Lupranate T80 Type 1 Isocyanate; a National Institute of Standards and Technology (“NIST”) data sheet that describes the chemical formula, molecular weight and chemical structure of Benzene, 2,4-diisocyanato-1-methyl-, also known as 2,4 toluene diisocyanate; and the ASTM Standard Test Method for Polyurethane Raw Materials: Determination of Hydrolyzable Chlorine of Isocyanates. You explained that the aforementioned documents apply to both the imported Lupranate T80 from Asia and the exported domestic Lupranate T80 Type I ISO.
Moreover, you provided separate technical data sheets and certificates of analysis for the exported domestic Lupranate T80 Type 1 ISO and the Lupranate T80 imported from Asia. The technical data sheet for the exported Lupranate T80 Type 1 ISO (“export technical data sheet”) provides the following product details:
Type 1
Type2
Method (STI)
Assay, % by weight, minimum
99.5
99.5
8207
Total acidity as HCl, %
0.003 max.
0.007-0.009
8202
Hydrolyzable chloride, wt. %
0.007 max.
0.008-0.012
8203
Isomer ratio -2,4 wt. %
80 ± 1
80 ± 1
8207
-2,6 wt. %
20 ± 1
20 ± 1
8207
Color, APHA, maximum
15
15
8206
Typical Properties
Molecular weight
174.2
Specific gravity 25(C/25(C
1.22
Density @ 20(C, lbs/gal
10.2
Boiling point, 10 mm Hg, (F
248
Flash point, (F (COC)
270
Vapor pressure @ 20(C, mm Hg
0.01
Freezing point, (F
53.6
In comparison, the technical data sheet for the imported Lupranate T80 from Asia (“import technical data sheet”) specifies the following:
Type 1
Method (STI)
Assay, % by weight
min. 99.5
ASTM D1638-74
Total acidity as HCl, max. mg/kg
20
ASTM D1638-74
Hydrolyzable chloride, max. mg/kg
80
ASTM D1638-74
Isomer ratio -2,4 wt. %
80 ± 1
GC
-2,6 wt. %
20 ± 1
GC
Color, Pt/Co maximum
10
ASTM D1209-79
Typical Properties
Molecular weight
174.2
Specific gravity 25(/25(C
1.22
Density @ 20(C, g/liter
1222.38
Boiling point, 10 mm Hg, (C
120
Flash point, (C (COC)
132
Vapor pressure @ 20(C, mm Hg
0.01
Freezing point, (C
12
Lastly, you submitted a certificate of analysis for the exported domestic Lupranate T80 Type 1 ISO (“export certificate of analysis”) and a certificate of analysis for the imported Lupranate T80 from Asia (“import certificate of analysis”). Both certificates of analysis provided lab test results for the actual assay, total acidity as HCl, hydrolyzable chloride, isomer ratio, and APHA color contained in the imported Lupranate T80 from Asia and the exported domestic Lupranate T80 Type 1. In particular, the import certificate of analysis indicated that the hydrolyzable chloride content in the Lupranate T80 from Asia tested at a value that was far below the 0.007% maximum allowed on the export technical data sheet.
All of the above information was submitted to CBP’s Laboratories and Scientific Services (“LSS”) for review. In response, LSS issued an opinion on August 10, 2010, indicating that “the information provided is sufficient to ensure that the imported and domestic merchandise are commercially interchangeable in this specific case.” Moreover, the LSS opinion stated that:
[t]he values for “Acidity” and “Hydrolyzable Chloride” provided in the Certificate of Analysis of the imported product meets the specifications for Lupranate( T80 Type I ISO. It should be noted, however, that the two products would not be commercially interchangeable based solely upon the Technical Data Sheets provided since it is possible that there could be a value for Hydrolyzable Chloride for the imported product (max. .008%) that would not meet the specifications for Lupranate( T80 Type I ISO (max. .007%).
(emphasis omitted).
ISSUE:
Whether the imported Lupranate T80 from Asia and the domestically produced Lupranate T80 Type 1 ISO are commercially interchangeable for purposes of 19 U.S.C. § 1313(j)(2).
LAW AND ANALYSIS:
Pursuant to 19 U.S.C. § 1313(j)(2), drawback may be claimed on merchandise that is substituted for commercially interchangeable and unused imported merchandise, subject to specific conditions. Although the statute does not provide a definition for what constitutes “commercial interchangeability,” the Federal Circuit Court of Appeals has held that an objective market-based standard is necessary when determining products that are commercially interchangeable. See Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed Cir. 1999). Specifically, goods are commercially interchangeable pursuant to § 1313(j)(2) if “a reasonable competitor would accept either the imported or the exported good for its primary commercial purpose.” Id. To determine commercial interchangeability, CBP evaluates the critical properties of the merchandise. Critical properties to consider include, but are not limited to governmental and recognized industrial standards, part numbers, tariff classification and value. See 19 C.F.R. § 191.32(c) (2009); Texport Oil, 185 F.3d at 1295. Finally, “arms-length negotiations between commercial actors, the description of the goods on bills of sale or invoice, as well as other factual evidence presented by the parties” may also be relevant to the determination of commercial interchangeability. See Texport Oil, 185 F.3d at 1295 (internal citation omitted).
Governmental and recognized industry standards assist in the determination of commercial interchangeability, because such standards “establish markers by which the product is commoditized and measured against like products for use in the same manner, regardless of manufacturer…products that meet the same industry standard may be used to produce the same products” or used for the same purposes. HQ H090065 (March 23, 2010); HQ H074002 (December 2, 2009). Aside from governmental and recognized industry standards, the Court of International Trade has also found that private contract standards may be used to determine commercial interchangeability. See Pillsbury v. United States, 27 C.I.T. 1628, 1634-35 (Ct. Int'l Trade 2003) (explaining that, “[e]vidence of different contract standards would indicate that the designated and substitute [product] are not commercially interchangeable”). In this case, commercial buyers of Lupranate T80 Type I ISO do not follow governmental and recognized industry standards when purchasing the product. Rather, you have indicated that the goods are sold according to product specifications delineated in technical data sheets available to buyers and posted on your website. Domestic Lupranate T80 Type 1 ISO and Lupranate T80 from Asia must be produced in conformity with the product specifications contained in the technical data sheets provided. Consequently, these technical data sheets essentially delineate the private contract standards for the imported and exported goods.
By comparing the two data sheets associated with the domestic Lupranate T80 Type 1 ISO and Lupranate T80 from Asia, it is noted that most of the product specifications are equal in value and/or range allowed. However, according to the August 10, 2010 LSS opinion, the allowance of hydrolyzable chloride, as specified in the technical data sheet for the Lupranate T80 from Asia, equals a maximum of 0.008%. This value is greater than the maximum value allowed for the exported domestic Lupranate T80 Type 1 ISO, which is 0.007%. Since hydrolyzable chloride is a critical product specification, the technical data sheets alone do not support a finding of commercial interchangeability for the imported and exported goods. However, in this case, the amount of hydrolyzable chloride contained in the imported Lupranate T80 from Asia tested at a value that was far less than the 0.007% maximum allowed on the export technical data sheet. Moreover, all other product specifications are equal or within the specified range allowances. Thus, as long as the imported Lupranate T80 from Asia meets the more restrictive specification for the domestic Lupranate T80 Type 1 ISO and does not exceed 0.007% hydrolyzable chloride, then the contractual standards criteria for commercial interchangeability would not prevent a determination that these goods are commercially interchangeable.
In addition to contractual standards and product specifications, CBP also considers whether the imported and exported merchandise share the same part number. Internally, BASF utilizes a merchandise tracking system that assigns unique product numbers to different types of goods. Therefore, the product numbers assigned to different goods constitute the “part number” for purposes of determining commercial interchangeability. In this case, both the imported Lupranate T80 from Asia and the exported domestic Lupranate T80 Type 1 ISO are classified under product number 30076828. Since both goods share the same product number, the parts number criterion for commercial interchangeability is satisfied.
Another factor CBP considers when determining commercial interchangeability is whether the imported and exported goods are classified under the same subheading of the HTSUS. According to the entry summary, the imported Lupranate T80 from Asia was classified under HTSUS subheading 2929.10.1500. Moreover, as mentioned above, BASF’s internal merchandise tracking system designated the same product number to both the imported
Lupranate T80 from Asia and the exported domestic Lupranate T80 Type 1 ISO. This product number—product number 30076828—was assigned to HTSUS subheading 2929.10.1500 within BASF’s merchandise tracking system. Thus, BASF classifies both goods under HTSUS subheading 2929.10.1500, which satisfies the criterion for tariff classification.
Finally, CBP will consider the relative value of the imported merchandise to the substituted merchandise because goods that are commercially interchangeable generally have similar values. Nevertheless, if other critical properties have been met, or there is an explanation for the material difference in value, then a variance in price may not necessarily preclude a finding of commercial interchangeability. See, e.g., HQ 228580 (August 20, 2002) (holding that a value difference of 27% attributed to processing and manufacturing costs did not preclude a finding of commercial interchangeability when the critical properties criterion had been met); HQ 228655 (November 2, 2001) (holding that a value differential in excess of 32% is acceptable because the merchandise qualified under the critical properties criterion); HQ 227220 (February 10, 1997) (determining that price difference in excess of 24% is acceptable because the imported and exported merchandise qualified under the applicable industry standards; therefore, relative value did not have as much weight when determining commercial interchangeability). Here, it is noted that the entry summary and sales invoice indicate that the export price for the domestic Lupranate T80 Type 1 ISO is approximately 26.7% higher than the import price for Lupranate T80 from Asia. It is noted that the domestic Lupranate T80 Type 1 ISO was exported approximately one year after the Lupranate T80 from Asia was imported. See, e.g., HQ H004675 (May 4, 2007) (determining that an eight-month time lapse between the import and export of goods resulting in a price difference of less than $1.00 per kilogram is acceptable for purposes of commercial interchangeability). In this case, the actual difference in price was far less than $1.00 per kilogram.
Additionally, in its application, BASF explains that the market value of the good varies depending on different market areas. Consequently, BASF is obligated to purchase and/or sell the good at the market rate determined by the local regions of export/import. HQ H074002 (December 2, 2009) (determining that price differential due to buying or to selling at the price for the market area from which a good is imported or to which a good is exported does not preclude commercial interchangeability). Given that there is a one year lag between the prices and the fact that the goods were imported and exported to different global markets, we determine that a 26.7% difference in value does not preclude a finding of commercial interchangeability.
HOLDING:
Based on the above findings, we conclude that the imported Lupranate T80 from Asia referenced in this case and the exported domestically produced Lupranate T80 Type 1 ISO are commercially interchangeable for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
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 Customs and Border Protection as provided in 19 C.F.R. § 177.2(b)(1), (2) and (4), and § 177.9(b)(1) and (2).
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division