DRA-4 CO:RR:IC 226996 CB
Port Director
U.S. Customs Service
P.O. Box 52-3215
Miami, FL 33052-3215
Attn.: Joyce Stark
RE: Request for Internal Advice; Commercial Interchangeability;
Substitution Same Condition Drawback; 19 U.S.C. 1313(j)(2);
Substitution Unused Merchandise Drawback; Woven Fabric
Dear Sir/Madame:
This is in reply to your request for internal advice dated
May `3, `996 (your file no. DRA-1 PD:A:TC:D JTS) regarding Swift
Textiles, Inc.'s request to file drawback substituting domestic
woven fabric for imported woven fabric.
FACTS:
The claimant, Swift Textiles Inc., has requested approval to
file for drawback under 19 U.S.C. 1313(j)(2), unused
merchandise, substituting domestic woven fabric styles Swift
S/27690 and S/37603 for imported woven fabric Dominion Tunisian
style 01486. Fabric specifications and samples have been
provided.
LAW AND ANALYSIS:
Under 19 U.S.C. 1313(j)(2), as amended, drawback may be
granted if, among other requirements, there is, with respect to
imported duty-paid merchandise, any other merchandise that is
commercially interchangeable with the imported merchandise. To
qualify for drawback, the other merchandise must be exported or
destroyed within 3 years from the date of importation of the
imported merchandise. Also, 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. Further, the party claiming drawback must be
either the importer of the imported merchandise or have received
from the person who imported and paid any duty due on the
imported merchandise a certificate of delivery transferring to
that party the imported merchandise, commercially interchangeable
merchandise, or any combination thereof.
Section 632, title VI - Customs Modernization, Pub. L. No.
103-182, the North American Free Trade Agreement Implementation
Act (107 Stat. 2057), enacted December 8, 1993, changed the
standard for substitution unused merchandise drawback from
"fungibility" to "commercial interchangeability". According to
the applicable legislative history, the standard was intended to
be made less restrictive (i.e., "the Committee intends to permit
the substitution of merchandise when it is commercially
interchangeable,' rather than when it is commercially
identical'")(the reference to "commercially identical" derives
from the definition of fungible merchandise in the Customs
Regulations (19 CFR 191.2(l))). See H.R. Rep. No. 103-361,
103d Cong., 1st Sess., 132 (1993). The Report (at page 131) also
states:
The Committee further intends that in
determining whether two articles were
commercially interchangeable, the criteria to
be considered would include, but not be
limited to: Governmental and recognized
industrial standards, part numbers, tariff
classification and relative values.
The Senate Report for the NAFTA Act (S. Rep. No. 103-189, 103d
Cong., 1st Sess., 81-85 (1993)) contains similar language and
states that the same criteria should be considered by Customs in
determining commercial interchangeability.
In order to determine whether the woven fabrics are
commercially interchangeable, an analysis of the following
factors must be done:
Part Numbers:
No sales or purchase contracts were provided. Copies of
Swift's inventory records which might show the use of style
numbers were likewise not provided. However, from the
information contained in the March 26, 1996, letter from Customs
Advisory Services, Inc., it is apparent that Swift distinguishes
the two types of fabrics through the use of part or style numbers
(e.g., S/37603 vs. Tunisian 01486). That evidence does not
support a conclusion that Swift treats the imported and
substituted fabric as being interchangeable.
Although Swift asserts that its customers will accept either
merchandise to fill an order, it has provided absolutely no
evidence in support of that assertion. Part or style numbers are
a relevant criterion in the analysis of commercial
interchangeability. We would expect to see representative
contracts of purchase and sale in order to evaluate the basis of
this assertion.
Tariff Classification:
With respect to tariff classification, the claimant asserts
that both the imported and substituted fabric are classified
under subheading 5209.32.0020, Harmonized Tariff Schedule of the
United States (HTSUS). We have not received any information
which would rebut this assertion. The Shipper's Export
Declaration which would have provided the tariff classification
was not included. We assume, for the purpose of this letter,
that the importer's assertion can be supported.
Relative Values:
With respect to the relative values of the imported and
substituted merchandise, the importer asserts that it "... sells
both items for the same amount to any customer." However,
we note that, according to information you have provided, the
import price is $3.34 per yard. The export price is $4.05 per
yard. The difference in value is 21% which could well be
considered a material difference and there is no explanation to
account for the difference in value. We also note that the
import invoice specifies the goods are grade "A" and the export
invoice is silent as to grade.
Governmental and Recognized Industry Standards:
These standards are generally considered the most important
of the four criteria with respect to the issue of commercial
interchangeability. We referred the matter at issue to our
Customs laboratory at Headquarters, the Office of Laboratories &
Scientific Services ("OLSS"). In a memorandum dated October 1,
1997, that office stated in pertinent part:
... the only industry standard specification
related to fabrics with a similar end use is
ASTM D3780 - Standard Performance
Specification for Men's and Boys' Woven Dress
Suite Fabrics and Woven Sportswear Jacket,
Slack, and Trouser Fabrics.... Critical
properties related to drawback for textile
fibers, yarns and fabrics have traditionally
included applicable basic physical and/or
chemical tests which can be determined using
standardized test methods from standards
writing organizations that are widely used
throughout the industry. The applicant has
provided such specifications for fiber
content, width, weight, weave, number of warp
and filling yarns per inch, and yarn count.
The specifications show that the fabrics are
essentially identical, which our laboratory
testing has confirmed....
The Lab also reviewed the specifications given for the woven
fabrics. In the advice we received from them it was noted that
specifications were provided for width, weight, number of warp
and filling yarns per inch, yarn count, and fiber count. The Lab
determined that all of the specifications are within a +/- 3% or
less range.
To summarize, OLSS has determined that the ASTM standard is
not necessary to determine commercial interchangeability with
regard to this particular woven fabric. Part numbers are a
relevant criterion but no information has been provided to enable
us to make a determination. No explanation has been provided
regarding the difference in price between the imported and
substituted fabric. There does not seem to be any difference in
tariff classification and, thus, it does not affect commercial
interchangeability. After evaluating all the relevant criteria
suggested by the legislative history, we find that commercial
interchangeability of the woven fabrics has not been established.
HOLDING:
We are unable to conclude that the imported and substituted
woven fabric are commercially interchangeable for purposes of 19
U.S.C. 1313(j)(2). However, you may be able to make a
determination regarding commercial interchangeability if
information is provided addressing the issues of the difference
in pricing, style/part numbers and grading difference.
In accordance with Section 3A(11)(b) of Customs Directive
099 3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision should be mailed by your office, with
the Customs Form 19, to the protestant no later than 60 days from
the date of this letter. Any reliquidation of the entry in
accordance with the decision must be accomplished prior to
mailing of the decision. Sixty days from the date of the
decision the Office of Regulations and Rulings will take steps to
make the decision available to Customs personnel via the Customs
Rulings Module in ACS and the public via the Diskette
Subscription Service, Freedom of Information Act, and other
public access channels.
Sincerely,
John A Durant, Director
Commercial Rulings Division