DRA-4-OT: RR: CTF: ER
DHL Drawback Services
Attorney in Fact
22210 Highland Knolls Drive
Katy Texas, 77450
RE: Unused Merchandise Substitute Drawback Ruling Request
Dear Mr. Brown: This is in response to your letter, dated September 2, 2010, on behalf of The Boeing Company (“Boeing”) regarding the commercial interchangeability of imported titanium alloy plate, sheet, billet, and bar in both rectangular and round form of UNS TI R56400, a/k/a 6.4, a/k/a 6AL-4V, a/k/a Boeing 6-4 titanium (herein “shapes”). The material is covered by ASTM-B348, Grade 6, which is a titanium alloy containing 5 percent aluminum and 2.5 percent tin. Please find our office’s determination of commercial interchangeability of the subject merchandise below.
Your letter and supplemental information provided indicates that Boeing imports and exports titanium in plates, sheets, billets and round and rectangular bar form of UNS TI R56400 titanium as part of its overall business operations, supplying customers overseas and in the United States, in addition to using it in manufacturing its own aircraft. Boeing exports these products in its own name. Boeing stated that the substitution of the commercially interchangeable shapes would be done on a form for form basis, i.e. plate for plate, sheet for sheet, etc.
The imported shapes are produced by Boeing’s suppliers in different countries and the substitute shapes may be either foreign or domestic product. The invoice submitted in this case for the export indicates that the titanium plate exported measured 0.5” x 6” x 31”, yet the coordinating import for which the exported titanium plate is to be substituted measured 4” x 36” x 136”.
Initially, we note that Boeing has withdrawn its original request for a ruling on the commercial interchangeability of its shapes when doing a dimensional match between its substituted and imported titanium shapes. This dimensional match would have involved Boeing cutting the substituted titanium to mirror the dimensions of the imported titanium. However, in a September 30, 2010 letter, Boeing formally abandoned this request. Therefore, the only issue raised in this ruling is commercial interchangeability between Boeing’s imported and exported titanium shapes on a form by form basis, without restriction on the size of the substituted merchandise.
Whether imported titanium shapes are commercially interchangeable with other imported or domestically produced titanium shapes of differing dimensions, on a form-for-form basis, for the purpose of a substitution unused merchandise drawback claim under 19 U.S.C. § 1313(j)(2)?
LAW AND ANALYSIS:
Boeing argues that its substituted titanium shapes are commercially interchangeable with its imported titanium shapes even if the dimensions of the shapes are vastly different. However, to be commercially interchangeable, a reasonable competitor must accept either good for its purposes. Because a reasonable competitor would not accept titanium shapes of significantly different dimensions and prices, Boeing’s substituted shapes are not commercially interchangeable.
Under 19 U.S.C. § 1313(j)(2), as amended, drawback may be granted if there is, with respect to imported duty-paid merchandise, 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 be either, the importer of the imported merchandise or must have received from the party that imported and paid owed duties on the imported merchandise, a certificate of delivery transferring to that party, the imported merchandise, commercially interchangeable merchandise, or any combination thereof.
The Customs and Border Protection (“CBP”) Regulation, 19 C.F.R. § 191.32(c), further provides 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.
The best evidence of whether the above quoted criteria are used in a particular transaction is the claimant’s transaction documents. See, e.g., HQ H048135 (March 25, 2009). 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. Id. The purchase and sales documents also provide the best evidence with which to compare relative values. Id.
In Texport Oil Co. v. United States, the United States Court of Appeals for the Federal Circuit determined that: “[c]ommercial interchangeability 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)).” 185 F.3d 1291, 1295 (Fed. Cir. 1999). Thus, it is not sufficient for the requestor to argue that it considers the dimensions of the steel to have no impact on whether the steel is commercially interchangeable. Instead, the Federal Circuit set forth an “objective standard—analyzed from the perspective of a hypothetical reasonable competitor.” Id. Therefore, we analogize commercial interchangeability pursuant to 19 C.F.R. § 191.32(c), for a hypothetical reasonable competitor.
One of the factors CBP considers is whether the imported and exported merchandise adhere to government and recognized industry standards. 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). Under normal circumstances, materials that meet the same industry accepted standards can be used to produce the same products or utilized for the same purposes. See, e.g., HQ 074002 (December 2, 2009). Both the imported and substituted titanium in this case meet the Unified Numbering System (UNS) standard for TI R56400, reflecting that it has the same chemical composition.
In evaluating the critical properties of the merchandise, CBP also considers the part numbers of the merchandise. If the same part numbers or product identifiers are used in catalogues, and in the import and export documents, it would support finding them to be commercially interchangeable. See, e.g., HQ H074002 (December 2, 2009). However, there is no part number for the imported or exported shapes other than their description in grade and form. Further, Boeing’s method of categorizing by grade and form is not specific enough to the merchandise to serve the same function as a part number. Therefore, this criterion is not applicable and does not factor into the commercial interchangeability determination.
Another factor CBP considers when determining commercial interchangeability is whether the imported and exported goods are classified under the same subheading of the Harmonized Tariff Schedule of the United States (“HTSUS”). The HTSUS classification for titanium ingots (both imported and substituted) is 8108.9060, HTSUS, which provides for “Titanium and articles thereof, including waste and scrap: Other: Other…..” The fact that the imported and substituted titanium is classified under the same eight digit subheading indicates that this criterion is satisfied.
CBP will also consider the relative value of the imported merchandise to the substituted merchandise because goods that are commercially interchangeable generally have similar values. See HQ 228519 (June 5, 2002) (holding no commercial interchangeability when no explanation was provided to show why “[e]xport invoices indicate that similar tapes were all sold at costs proportionately higher than at the imported costs.”). 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).
In this case, the price per kilogram on the imports and exports provided in the samples varies greatly. This difference works to a 56.8% difference in price between the imported and exported titanium shapes. The applicant asserts that it is due entirely to fluctuations in market demand, which determines price, and the price discrepancy is not representative of any difference in quality between the imported and exported shapes. However, Boeing never supplied any evidence to substantiate this claim.
Not only does Boeing fail to provide any evidence to support this assertion, evidence on titanium prices contradicts Boeing’s claims. Since the titanium shapes are titanium alloys composed nearly entirely of titanium (only 5% is aluminum and 2.5% is tin), titanium would drive the price for these titanium shapes as it represents most of the material costs. Price fluctuations for titanium are published by the United States Geological Survey. Therein, the largest price difference in the five year time frame of 2005 to 2009 was 45.2% in price as titanium increased from $75 to $137 per metric ton. During 2005-2009 $75 was the lowest price for titanium and was found from the fourth quarter of 2005 through all quarters of 2007. The highest price for titanium at $137 occurred in the second through fourth quarter of 2008. Therefore, even the most conservative estimate of titanium prices demonstrates that the price differential between the imported and exported plate is due to more than simply a change in the price of titanium. Therefore, because of this and the fact that Boeing failed to provide any support for its claims, we determine that this unexplained difference in value does not support finding these shapes to be commercially interchangeable.
Another element we considered when determining whether a reasonable competitor would accept either the imported or exported good is the dimensional measurements of the titanium shapes. This is because additional processing is necessary before the shape could be used. The shapes would need to be welded, rolled, or cut before they could be used for the same purpose. The export invoice submitted in this case indicates that the titanium plate exported measures 0.5’’ x 6” x 31”, while the coordinating import for which the exported titanium plate is to be substituted measures 4” x 36” x 136”. Dimensions are critical as they affect its suitability for specific types of processing. See, e.g., W231519 (Jan. 7, 2010) (finding no commercial interchangeability because “the thickness of steel could make it more suitable for certain operations or processing”). As these two plates vary significantly in dimensions, we do not find them to be commercially interchangeable. For example, a part required to be 4” thick cannot be made with a plate that is only 0.5” thick. Similarly, a part required to be 36” wide cannot be made from a plate that is only 6” wide. Therefore, a reasonable competitor would not equally accept titanium shapes with these significant differences in dimensions. Consequently, this factor also does not support a finding of commercial interchangeability.
Based on the above determinations, we conclude that the titanium shapes having different dimensions would not be commercially interchangeable for the purposes of substitution, unused merchandise drawback law of 19 U.S.C. §1313(j)(2).
Myles B. Harmon,
Commercial and Trade Facilitation Division