Mr. Michael Kerlen
Comstock & Theakston, Inc.
466 Kinderkamack Road
Oradell, New Jersey 07649-1536
Re: Substitution, unused merchandise drawback; commercial interchangeability; 19 U.S.C. § 1313(j)(2); 19 C.F.R. § 191.32(c); rhenium pellets
Dear Mr. Kerlen:
This is in response to your letter, dated May 13, 2010, on behalf of Traxys North America, LLC (Traxys) regarding the commercial interchangability of rhenium metal pellets.
Traxys operates as a metals marketing, distribution, and trading company. Traxys imports and exports rhenium metal pellets as part of its business. In support of its claim for commercial interchangeability, Traxys provided sample documents representing typical import and export transactions. As an example of an import transaction, Traxys provided an entry summary (CBP Form 7501) number xxx-xxxx965-6 dated April 14, 2008, which describes the product as “Rhenium Unwrought; and art.” The rhenium pellets are classified in the Harmonized Tariff Schedule of the United States (HTSUS) under subheading 8112.92.5000.
The Certificate of Analysis that was provided for the imported rhenium pellets shows the rhenium content value as 100%. The certificate of weight and analysis documents for the exported rhenium shows the rhenium content at 99.9%. Traxys substitutes imported rhenium metal pellets for exported rhenium pellets. Traxys maintains that there are no differences between the imported rhenium pellets and the exported rhenium pellets. The Minor Metals Trade Association (MMTA) provides the standard specification for rhenium metal, super alloy grade, which is 99.9%.
Traxys provided pricing data that showed the imported rhenium was bought in April 9, 2008, for $[X,XXX]/lb. The sample invoice for the exported rhenium shows that it was sold on March 25, 2010 at $[X,XXX]/lb. The difference between the $[X,XXX] and $[X,XXX] is approximately 70%.
On November 5, 2010, our office sent a request to Traxys and its broker asking for market data or other information to explain the 70% price difference. Traxys responded on November 8, 2010, and provided market data from Metal-Pages, a metal-market news and information service company that provides historical pricing market data to companies that subscribe to Metal-Pages services. Specifically, the data shows that the price of rhenium in April 8, 2008, ranged from $4,700 - $5,000/lb and the market price of rhenium on March 25, 2010 ranged from $1,800 – $2,050/lb.
Whether the imported rhenium pellets are 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:
Traxys argues that its imported rhenium pellets are commercially interchangeable with its exported rhenium pellets, pursuant to 19 U.S.C. § 1313(j)(2). However, 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 that:
[i]n 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.
Hence, in analyzing commercial interchangeability CBP considers governmental and recognized industrial standards, part numbers, tariff classification and value, among other factors. 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 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., 185 F.3d 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.
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. See HQ H064679 (December 18, 2009).
In this case, Traxys provided certificates of analysis providing that all the imported and exported rhenium meets the 99.9% pure specification as set forth in the Minor Metals Trade Association (“MMTA”) standard, a recognized industry standard. The MMTA provides the standard specification for rhenium metal, super alloy grade, which is 99.9% rhenium. We consulted our Laboratory and Scientific Services, and confirmed that the specifications for both the imported and exported rhenium satisfies the MMTA standard of being 99.9% pure rhenium. Because both the imported and exported pellets satisfy the same recognized industry standard, this weighs in favor of finding them to be commercially interchangeable.
One of the factors that CBP considers in making a commercially interchangeable determination is whether the merchandise shares the same part numbers. If the same part numbers or product identifiers are used in catalogues, and in the import and export documents, it would support a finding of commercially interchangeable. See 19 C.F.R. § 191.32(c). Both the designated import and export merchandise use the product description “rhenium pellets” as evidenced by both import and export documents. No part numbers are used to further identify the goods other than by lot numbers. Consequently, we find that the part numbers criterion is not useful in the analysis of commercial interchangeability.
Another factor CBP considers is whether the imported and exported merchandise are classified under the same subheading of the HTSUS. See 19 C.F.R. § 191.32(c). If the imported and exported merchandise is classified under the same subheading, this fact would bolster a finding of commercial interchangability. See, e.g., HQ H071657 (July 28, 2010). Traxys claims that the HTSUS number for imported and exported merchandise is subheading 8112.92.50 that states “[r]henium, unwrought; and art.” The term “art” references “articles of these metals” that is included in the heading 8112 of the HTSUS. Because the imported and exported merchandise are classified under the same subheading, we find that the tariff classification supports finding these to be commercially interchangeable.
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. However, CBP has ruled that a variance in price does not necessarily 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 e.g., HQ H071657 (July 28, 2010) (stating that because the applicant provided reasons for the value fluctuations and CBP had accepted value differences greater than 25% in the past, the difference in value did not preclude a finding of commercial interchangability); HQ 230898 (June 24, 2005) (stating that although the imported and exported merchandise differed in price by 16%, commercial interchangability may exist when sufficient evidence is provided to support the material difference in value); see also HQ H037294 (December 9, 2008) (concluding that a 10-63% price difference does not preclude a finding of commercial interchangeability); HQ 227473 (March 3, 1998) (determining that a 65% price difference does not preclude a finding of commercial interchangeability after evidence is provided showing a market reason for the price difference).
In this case, the difference in value between the sample import and the export is large, approximately 70%. The export invoice and the import invoice were issued more than one year apart. Traxys submitted historical pricing data for rhenium issued by Metal-Pages that provides market data for the international metal markets. The Metal-Pages data shows that the price of rhenium pellets in April 2008 (when Traxys purchased the rhenium pellets) ranged from $4,700 - $5,000/lb. The price for rhenium pellets in March 25, 2010 when Traxys sold the pellets, dropped to a range of $1,800 – $2050/lb. Thus, the decrease in prices ranged from 59% to 62%. Based on the market data provided by Traxys, the disparity in price appears to be accounted for by the fluctuation in the market price between Traxys’ imported and exported pellets rather than a difference in the quality of the rhenium. Hence, although the value difference is 70%, such a difference does not preclude a determination of commercial interchangability because the value difference is the result of market forces rather than a difference in quality of the merchandise.
Based on the above findings, we determine that the imported rhenium pellets and the substituted rhenium pellets are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. § 1313(j)(2).
Please note that 19 C.F.R. § 177.9(b)(1) provides that "[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based."
Myles B. Harmon
Commercial and Trade Facilitation Division