RR:CTF:ER H004401 PTM
Port Director
U.S. Customs and Border Protection
2350 N. Sam Houston Parkway East
Suite 1000
Houston, Texas 77032-3126
RE: AFR Protest No. 530105100301, substitution unused merchandise drawback, methanol, perfection of claim.
Dear Sir or Madam,
You have submitted an Application for Further Review (“AFR”) transmittal for the above-referenced protest. Our decision follows.
FACTS:
Protestant is Tauber Petrochemicals, Inc. (herein “Tauber”). Tauber filed a protest timely in accordance with 19 U.S.C. 1514 concerning the denial of unused substitution drawback pursuant to 19 U.S.C. §1313(j)(2) for shipments of methanol. Tauber filed drawback claim UI4-XXXXXXX6 on November 18, 2004 for designated import #113-XXXXXX9 of methanol, with exports occurring between September 29, 2003 and February 9, 2004 and drawback claim UI4-XXXXXXXX4 for designated import no #113XXXXXXX9 with exports occurring between December 16, 2003 and February 23, 2004.
The drawback office denied a portion of the claim on the ground that the evidence of commercial interchangeability on one export was inadequate. Specifically, the claim was denied because the drawback specialist was unable to determine whether the designated import and exported merchandise were commercially interchangeable due to confusion regarding the Certificate of Analysis provided for the exported product.
Commercial Interchangeability
The following are the facts and evidence relevant to the dispute regarding commercial interchangeability of the designated imports and exported merchandise.
The claimant designated import entry 113-XXXXXXX9 dated February 27, 2001 covering 852,903.195 kilograms of methanol imported on the vessel Stolt Effort.
There is a Product Exchange Agreement between Sabic Americas, Inc. (“Sabic”) and Tauber. Per the agreement, Sabic delivers approximately 840,000 gallons per month of methanol FOB Point: Deerpark Texas. The product specification is listed as “Sabic Specs” which suggests that Sabic determines which product characteristics must be met. The exchange partner (Tauber) delivers 840,000 gallons per month of methanol that meets Sabic specifications. The Agreement states that Tauber must use the SGS surveyor and pay all surveyor costs. The documents required from both partners are: bill of lading, certificate of analysis from SGS surveyor upon delivery into Sabic storage tank, and a weight certificate.
Pursuant to the exchange agreement, Tauber required that the import be tested to meet the specifications provided by Sabic. The test found: acidity as acedic acid by weight percentage (0.0011), appearance (clear & bright), Hydrocarbons (free of opalescence), iron ppm (0.02), permanganate time, min @ 15 C (>50), specific gravity @20/20 C (0.7924), specific gravity @25/25 C (0.7889), Water by weight % (0.022), Purity (99.98%) and Ethanol ppm (7).
Although the exchange agreement requires that the product must meet the specifications designated by Sabic, most of the tests performed are also required to meet the American Society for Testing Materials Standard Specification for Methanol (ASTM D 1152-97), and resulted in passing scores according to the specification.
The evidence of export consists of bill of lading 82-29957-0 covering 524.364 metric tons of methanol shown as clean on board the Panam Celeste on December 16, 2003, and the claimant’s invoice #200303503 dated December 24, 2003 shipment of 524.36 metric tons of methanol on the Panam Celeste.
The claimant provided a certificate of analysis for methanol discharged into a storage tank 100-6 in the period from December 3-5, 2003. “Storage Tank 100-6” refers to a tank at Sabic’s methanol storage facility at Deer Park, Texas where the product is delivered per the exchange agreement. According to the report, the analysis was performed on December 5, 2003. The analysis on shore tank 100-6 reveals passing scores on the specifications Sabic required per the exchange agreement for the following characteristics: acetone weight percentage, ethanol content, alcohols weight percentage, impurities, appearance, water content, color, carbonizable substances, odor, hydrocarbons, acidity as acetic acid, acetone and aldehydes by weight percentage, specific gravity @20\20C, specific gravity @25\25C, non-volatile matter, permanganate time @15C, chlorides, total sulfur, alkalinity as ammonia, iron, distillation range @720 Hg and purity.
The two claims were disallowed on May 6, 2005 for failure to produce evidence to support commercial interchangeability between the designated imported and exported methanol. Your office has requested review pursuant to 19 CFR 174.24(b) as a matter involving questions of law or fact which have not been ruled upon by the Commissioner of customs or his designee or by the Customs courts.
ISSUE
Whether the evidence shows that the methanol in Tank 100-6 on December 5, 2003 and that methanol was the same methanol exported on December 16, 2003 on the Panam Celeste.
Whether the protestant has demonstrated that the imported and substituted methanol are commercially interchangeable to permit substitution unused merchandise drawback pursuant to 19 U.S.C. §1313(j)(2).
LAW AND ANALYSIS
In order to qualify for duty drawback under 19 U.S.C. §1313(j)(2), a claimant must establish that the substituted merchandise was a) commercially interchangeable with the imported merchandise b) not used within the United States; c) in the possession of the claimant and d) not subjected to any process of manufacture or other operation except allowable incidental operations as illustrated in 19 U.S.C. §1313(j)(3).
Pursuant to 19 U.S.C. §1313(r)(1), a drawback entry and all documents necessary to complete a drawback claim shall be filed or applied for, as applicable, within 3 years after the date of exportation or destruction of the articles on which drawback is claimed. Under 19 CFR §191.51(a), a drawback claim consists of the drawback entry on Customs Form 7551, applicable certificate(s) of manufacture and delivery, applicable Notices of Intent to Export, Destroy or Return Merchandise for Purposes of Drawback, applicable import entry numbers, coding sheet and evidence of exportation or destruction. As an initial matter, we note that the drawback claim was timely filed on August 4, 2005, within three years of the date of export. Based on the documents provided, Tauber has not changed the listed import entries or export shipments from the version that was filed. Consequently, we find that the drawback claim was complete but needed to be perfected to CBP’s satisfaction. The CBP Regulations provide for the perfection of drawback claims under 19 CFR §191.52(b), which states:
If Customs determines that the claim is complete according to the requirements of § 191.51(a)(1), but that additional evidence or information is required, Customs will notify the filer in writing. The claimant shall furnish, or have the appropriate party furnish, the evidence or information requested within 30 days of the date of notification by Customs. Customs may extend this 30 day period for good cause if the claimant files a written request for such extension within the 30 day period. The evidence or information required under this paragraph may be filed more than 3 years after the date of exportation or destruction of the articles which are the subject of the claim.
Per 19 CFR §191.32(c), 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, Government and recognized industrial standards, part numbers, tariff classification and value. The certificate of analysis is instrumental in comparing the designated import with the substituted merchandise and establishing whether the product meets established government or industrial standards. The certificate of analysis purported to demonstrate that exported
goods met the same standards as the imported good. The Port of Houston was unable to determine whether the Certificate of Analysis provided for the export, the analysis on shore tank 100-6, actually pertained to the export. Tauber’s drawback claim depends on whether it can demonstrate that the certificate of analysis provided for the exported merchandise is an accurate representation of the quality of the product actually exported.
The Port contends that the portion of the drawback claim that was denied was for the export of methanol occurring on December 24, 2003, laden on the Panam Celeste. The claim was denied by the port because the port could not determine whether the cargo laden onto the Panam Celeste was the same kind and quality of methanol unladen into tank 100-6. The petitioner claims that the certificate provided is an accurate measure of the quality of the methanol exported. The claimant provided a statement certifying that no activity occurred in the tank between the time the product was offloaded into the tank on December 5, 2003 from the Iver Exact and later extracted for loading onto the Panam Celeste on December 16, 2003. At the time of liquidation, the claimant had not produced documentation such as tank activity reports to substantiate this claim. Absent such evidence, there was no way for the port to determine whether additional methanol was added to the tank in the intervening period between the date of the analysis and the date the methanol was extracted from the tank. If this had occurred, the certificate of analysis provided for the exported merchandise would not have been a reliable indicator of the qualities of the methanol actually exported.
In order to perfect the drawback claim, this office requested the tank records from the petitioner to substantiate its claim that the exported merchandise was commercially interchangeable with the designated imports. The petitioner has now provided this office with the tank records for tank 100-6 for the period of December 1, 2003 through December 31, 2003. These records show that 1,235,676.26 gallons were added to the tank from the Iver Exact on December 5, 2003. It shows that on December 16, 2003, 174,362.43 gallons were shipped on the Panam Celeste. The log shows that no additional methanol was added to the tank in the period between December 5, 2003 and December 16, 2003.
We requested information to clarify why an analysis was not performed on the merchandise when it was extracted from the tank for export on the Panam Celeste, and why Tauber instead provided a certificate of analysis for the methanol when it was unloaded into the storage tank. The protestant provided the following statement in response:
[I]n this claim the analysis was performed on the product in the tank for a prior lifting or at the time of discharge and when there has been no subsequent activity in the tank, it is the commercial practice to not run a new analysis report and the parties use the previously performed analysis. Please see the attached attestation letter from Tauber validating that there
was no activity in the tank between the time of the analysis being run on the Iver Exact into tank 100-6 and the loading of the Panam Celeste…the analysis report was run on December 5, 2003 and the product was pulled from that same tank and loaded on the Panam Celeste on December 16, 2003.
The tank records substantiate this assertion. The records show that there was no methanol added to the tank between the time when the analysis was performed on December 5, 2003 and the time the product was extracted for export. Consequently, we find the certificate of analysis provided with the claim is an accurate analysis of the product exported.
We now examine whether Tauber has established that the imported and substituted methanol are commercially interchangeable. Both the imported and exported product met or exceeded tests administered to determine the quality of critical properties of the merchandise required by the exchange agreement, which is indicative of commercial interchangeability. The exported methanol tested at 99.99% purity, and the imported methanol tested at 99.98% purity, almost identical marks and both exceeding the 99.85% acceptance criteria. The imported methanol had an acidity measure of 0.0011 by percentage weight, and the exported methanol had a reading of 0.0015. Both pass the acceptance criteria of 0.003% maximum. Both the imported and exported methanol passed the hydrocarbons acceptance criteria, which calls for the methanol to be free of opalescence. Both had the appearance acceptance criteria listed as “Bright Clear.” The exported cargo had an iron content of 0.01 and the imported cargo had an iron content of 0.02, both meeting the acceptance criteria. The permanganate time in minutes at 15 degrees Celsius were both over 50 minutes, resulting in passing scores for each. The specific gravity at 20/20 C was 0.7924 for the import and 0.7926 for the export which are each passing scores. The water content acceptance criteria is 0.05% by weight maximum. The import had a passing score of 0.022 and the export had a passing score of 0.01. The ethanol content acceptance criteria requires a maximum of 50 ppm. The import had a passing score of 7, and the export had a passing score of 3.
The courts have allowed the use of contract standards such as those in the exchange agreement to be used to determine whether imported and substituted goods are commercially interchangeable. In Texport Oil the U.S. Court of Appeals for the Federal Circuit noted that in addition to the criteria of governmental and industry standards, part numbers, tariff classification, and relative values, the commercial interchangeability analysis may also include a review of "the description of the goods on bills of sale or invoices." Texport at 1295. See also Pillsbury Co. v. United States, 293 F. Supp. 2d 1351, 1356 (Ct. Int’l Trade 2003) (noting that the determination of commercial interchangeability may consider whether "the designated and substitute [merchandise] may be traded on contract standards specific to individual labels").
Here, in addition to exceeding the acceptance criteria they were tested for, both the imported and exported products are described as “methanol” on import and export documentation such as the corresponding invoices and bills of lading. The imported and exported methanol are classified under HTSUS number 2905.11.20. Methanol is a bulk commodity and consequently have not part numbers. Since part numbers are inapplicable to methanol, it is not useful in the analysis of commercial interchangeability. Goods that are commercially interchangeable generally have similar values when sold at the same place, at the same time, to like minded buyers from like sellers. The value of the import is $217.93 per metric ton, and the value of the export is $219.80 per metric ton. This equates to a difference of less than one percent in value, well within established guidelines. See HQ22865 (holding that a difference in value of 32% did not preclude a finding of commercial interchangeability when the critical properties criterion had also been met). Consequently, the imported and exported product both meet the same contract standards. Both are described as “methanol” on import and export documentation. The tariff classification of each is the same. The imported and exported products are similar in value. Consequently, we determine that the imported and substituted methanol are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. §1313(j)(2)
HOLDING
You are instructed to GRANT the protest in full. Sixty days from the date of the decision Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director Commercial and Trade Facilitation Division