DRA-4
OT:RR:CTF:ER H048939 ECD
Mr. Steve Johnsen
Director, International Trade & Compliance
Bayer Corporation
100 Bayer Road
Pittsburgh, Pennsylvania 15205-9741
RE: Substitution, unused merchandise drawback: commercial interchangeability; 19 U.S.C. § 1313(j)(2) and (j)(3); 19 C.F.R § 191.32(c); methylenedi-p-phenylene isocyanate (“MDI”), Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, and Desmodur 44 S Fused; CAS Registry Number 101-68-8
Dear Mr. Johnsen:
This is in response to your request, on behalf of Bayer MaterialScience LLC (“BMS”), for a formal ruling on the commercial interchangeability of imports and exports of “methylenedi-p-phenylene isocyanate (‘MDI’),” Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, and Desmodur 44 S Fused, which U.S. Customs and Border Protection (“CBP”) received on January 8, 2009.
FACTS:
According to BMS’s submission, BMS purchases, imports, and resells various polymers, copolymers, monomers, and other organic compounds. The types of isocyanates at issue are “methylenedi-p-phenylene isocyanate (‘MDI’),” Mondur M-Flaked, Mondur M-Fused, Mondur M-Molten, and Desmodur 44 S Fused. According to BMS, it trades methylenedi-p-phenylene isocyanate in three forms, flaked, solid, and liquid, which are used in liquid form for the production of polyurethane. BMS sells methylenedi-p-phenylene isocyanate under the trade name “Mondur M” in three forms: Flaked, Fused, and Molten. Mondur M-Molten is liquid, is sold in bulk, in truck trailers, for immediate use. Mondur M-Molten has a shelf-life of about three weeks. Mondur M-Flaked and Mondur M-Fused are solid forms that have a longer shelf life, approximately three months, may be sold in smaller amounts, and may be used for small batches or for later use. Both Mondur M-Flaked and Mondur M-Fused must be heated before use; Mondur M-Flaked is a different particle form than Mondur M-Fused for easier melting, and BMS markets Mondur M-Flaked as a convenient form for smaller operations. According to an email message from a representative of BMS, “Desmodur 44 S Fused is just a re-label of Mondur M-Fused. All properties and characteristics are identical and they are only marketed under different names.”
BMS has product numbers that are specific to the merchandise at issue. To identify Mondur M-Flaked, BMS uses the following material numbers:
01702568
01702576
02453391
05212189
80942649
80942657
To identify Mondur M-Fused, BMS uses the following material numbers:
01668408
01702584
02453413
0589084
03804139
To identify Mondur M-Molten, BMS uses the following material numbers:
01702606
02453448
05326974
03695745
03806522
80940115
80940123
To identify Desmodur 44 S Fused, BMS uses the following material numbers:
5831059
04435900
02924483
According to BMS, these material numbers are the same regardless of the origin of the product, and may differ only based on the package size or end use. BMS qualifies its statement that the list of material numbers could change with the addition of new package sizes or trade names. BMS stated that the value of the imported merchandise ranges from $[xxxx]/kg to $[xxxx]/kg; however, the “import/domestic value of the substituted merchandise” ranges from $[xxxx]/kg to $[xxxx]/kg. The range in values between imported and substituted merchandise depends on contractual obligations, raw material prices, and overall business profitability.
To support the claim that the isocyanates are commercially interchangeable, BMS provided sample import and export documents, and general information about Mondur M-Flaked, Mondur M-Fused, Mondur M-Molten, and Desmodur 44 S Fused. BMS did not provide data sheets for generic “methylenedi-p-phenylene isocyanate (‘MDI’)” or a data sheet for Desmodur 44 S Fused.
For a sample import, BMS provided a Customs Form 7501 and CBP Form 3461 for Entry No. 110-xxxxx28-5, which was entered on July 28, 2006, and contained two line items of subheading 2929.10.8010, Harmonized Tariff of the United States (“HTSUS”), of 15,000 kg, each, with entered values of $[xxxx] and $[xxxx], respectively. BMS provided a Sea Waybill for two containers of Mondur M-Flaked, which correspond to the container numbers listed on the Customs Form 7501, and two sales invoices, whose numbers correspond to the invoice numbers listed on the Customs Form 7501. The values listed on the invoices are $ [xxxx]/kg and $[xxxx]/kg for 01348926 Mondur M-Flaked, and the invoices are dated July 10 and July 11, 2006. The country of origin of the Mondur M-Flaked was Germany. BMS also provided two purchase orders, one dated March 20, 2006, and another dated June 2, 2006, from BMS in the United States to BMS AG in Germany, both for material number 01348926 “Desmodur” and both to be delivered on July 27, 2006.
For a sample export of domestically produced merchandise, BMS provided packing list for 140 drums of Product No. 02924483 Desmodur 44S, dated September 3, 2006; two signed and dated September 3, 2006, Certificates of Origin for 70 drums, each, of Desmodur 44S, from the United States, with container numbers and a Bill of Lading number that correspond to the numbers on the signed Bill of Lading No. APLU 083746144, dated September 3, 2006. BMS also provided two invoices, dated August 21, 2006, for Item No. 02924483 Desmodur 44 S and delivery number 81236988, for the shipment to China. BMS also provided three certificates of analysis, dated August 21, 2006, for delivery number 81236988, “Cust. Product code 000000000002924483” for Desmodur 44 S in 55 gallon drums.
BMS provided BMS Material Safety Data Sheets for Mondur M (Molten), Mondur M (Fused), and Mondur M (Flaked), and a Product Information sheet. CBP also reviewed BMS’s Product Index, Polyurethane Raw Materials, Prepolymers and Systems, Products and Properties (“Product Index”), at http://www.bayermaterialsciencenafta.com.
A comparison of Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, and Desmodur 44 S Fused according to the physical properties provided, are provided in this table:
Properties
Mondur M Flaked
Mondur M
Fused
Mondur M
Molten
Des-modur
44 S Fused
Des-modur
44 S
Cert. of Analysis
Des-modur
44 S
Specs on Cert. of Analysis
Assay, wt. % (min)
99.5
99.5
99.5
99.5
99.9
> = 99.5
Acidity (as HCL) % ppm (max)
15
15
15
15
5
< = 10
Dimer, wt. %
0.1-1.0
0.1-1.0
0.1-1.0
0.1-1.0
0.1
< = 0.1
Hydrolyzable chloride, ppm (max)
20
20
15-20
20
4-5
< = 10
Color of melt, APHA (max)
200
20
20
n/a
10
< = 20
Specific Gravity @ 50 C/15.5C
1.19
1.19
1.19
1.19
n/a
n/a
Flash point, PMCC, °C
202
202
202
202
n/a
n/a
Freezing temperatures °C
39
39
39
39
n/a
n/a
Recom-mended storage temperature
5°C max
5°C max
41-44°C
5°C max
n/a
n/a
Storage time at recommended temperature (max)
3 months
3 months
3 weeks
n/a
n/a
n/a
Shipping containers
4-20 lb pails, 88 lb drums
1-5 lb pails, 55 gal drums
Truck trailers 1,500-4,500 gal
n/a
n/a
n/a
Type/ Appearance
High-purity-grade difunctional isocyanate
Diphenylmethane 4,4’-diisocyanate (MDI),
white to slightly yellow solid
High-purity-grade difunctional isocyanate
Diphenylmethane 4,4’-diisocyanate (MDI),
Color-less solid cake
High-purity-grade difunctional isocyanate
Diphenylmethane 4,4’-diiso-cyanate (MDI),
Colorless liquid
n/a
n/a
n/a
Customer uses
Elastomers, TPU’s, adhesives, coatings, fibers
Elast-omers, TPU’s, adhe-sives, coatings, fibers
Elast-omers, TPU’s, adhe-sives, coatings, fibers
n/a
n/a
Price
$[xxxx]/kg -$[xxxx]/kg
$[xxxx]/kg
n/a
n/a
In its Product Information Sheet and in its Product Index, BMS treats Mondur M-Fused, Mondur M-Molten, and Mondur M-Flaked as a single product for the same uses.
Our office forwarded the ruling request and additional documents to the CBP’s Office of Laboratories and Scientific Services for its opinion on the commercial interchangeability of “methylenedi-p-phenylene isocyanate (‘MDI’)” with Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, and Desmodur 44 S Fused. The Office of Laboratories and Scientific Services issued a report, dated February 27, 2009, (“OLSS Report”). The OLSS Report confirmed that Desmodur 44 S Fused is the same product as Mondur M-Fused: Mondur M-Fused is relabeled as Desmodur 44 S for marketing. Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, and Desmodur 44 S Fused are also known as methylenedi-p-phenylene isocyanate or “MDI,” they require the same minimum purity levels (99.5%) of MDI and all have the same Chemical Abstracts Service (“CAS”) Registry Number 101-68-8. The OLSS Report explained that CAS Registry Number 101-68-8 is specific to the 4,4’ isomer of MDI, as denoted by the “p” (for “para” or the Greek letter “rho”) in methylenedi-p-phenylene isocyanate. No chemical change accompanies the physical phase change, i.e. melting the Mondur M-Fused, Mondur M-Flaked, or Desmodur 44 S-Fused from their solid forms to liquid for use.
ISSUES:
Whether the freezing or change to solid and repackaging of Mondur M-Fused, Desmodur 44 S Fused, or Mondur M-Flaked constitute a use, pursuant to 19 U.S.C. § 1313(j)(2)(C)(i) and (3).
Whether imported and exported generic “methylenedi-p-phenylene isocyanate (‘MDI’),” Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, and Desmodur 44 S Fused are commercially interchangeable with one another, pursuant to 19 U.S.C. § 1313(j)(2).
LAW AND ANALYSIS:
For a drawback claim for substituted unused merchandise, pursuant to section 1313(j)(2), the merchandise must be commercially interchangeable with the imported merchandise. See 19 U.S.C. § 1313(j)(2)(A). The merchandise that is commercially interchangeable with the imported merchandise must not be used within the United States before exportation or destruction. See 19 U.S.C.§ 1313(j)(2)(C)(i). In this case, the ultimate question is whether a reasonable competitor would purchase generic methylenedi-p-phenylene isocyanate, Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, or Desmodur 44 S Fused for the same primary purpose. CBP assumes that methylenedi-p-phenylene isocyanate may be imported in solid or liquid form.
The freezing or change to solid and repackaging of Mondur M-Fused, Desmodur 44 S Fused, or Mondur M-Flaked do not constitute a use, pursuant to 19 U.S.C. § 1313(j)(2)(C)(i) and (j)(3).
The first question, however, is whether rendering Mondur M-Molten into a solid form as Mondur M-Fused, Mondur M-Flaked, and Desmodur 44 S Fused, would constitute a use, pursuant to 19 U.S.C. § 1313(j)(2)(C)(i), and thus prohibit a refund as drawback. The statute specifies that any operations not amounting to manufacture or production on the commercially interchangeable merchandise shall not be treated as a use for purposes of determining a drawback refund. See 19 U.S.C. § 1313(j)(3). The statute lists the operations as including “testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking.” Id. CBP Regulations define “manufacture or production” as a “process, including but not limited to, an assembly, by which merchandise is made into a new and different article having a distinctive ‘name, character or use.’” See 19 C.F.R. § 191.2(q)(1). CBP has addressed similar facts in a Ruling involving hydroxypivalic acid neopentyl glycol ester, which Eastman Chemical Company sold in molten, slab, or nugget form. See HQ 228580 (August 20, 2002). Hydroxypivalic acid neopentyl glycol ester had the same applications regardless of its form, and Eastman Chemical broke the slabs of the chemical into nuggets for its customers’ convenience, which was to fit the chemical into their reactors and expedite dissolving the chemical. See id. In this case, Mondur M-Fused, Desmodur 44 S Fused, Mondur M-Flaked, and Mondur M-Fused all have the same use and characteristics, and, except for Desmodur 44 S Fused, they all have the same name, and Desmodur 44 S Fused is simply relabeled Mondur M-Fused. According to the OLSS Report, no chemical change accompanies the melting of the solid or flaked material, and all require the same minimum purity levels of methylenedi-p-phenylene isocyanate. The only differences are that the solid forms may be stored for up to three months, but the liquid forms may be stored up to three weeks, and that the solid forms may be sold in smaller containers. As in HQ 228580, BMS freezes the Mondur M into solid or flaked forms for customer convenience, which, in this case is the size of the customer’s operation, the size of its batches, or its storage needs. Therefore, the physical change from liquid to solid that Mondur M undergoes and its repackaging do not constitute a use within the meaning of 19 U.S.C. § 1313(j)(2)(C)(i).
Methylenedi-p-phenylene isocyanate, also known as MDI, Mondur M-Molten, Mondur M-Flaked, Mondur M-Fused, and Desmodur 44 S Fused, are commercially interchangeable with one another.
To determine commercial interchangeability, U.S. Customs and Border Protection (“CBP”) evaluates the critical properties of the merchandise. In evaluating the critical properties, CBP considers factors such as the tariff classification of the merchandise, the relative value of the merchandise, the relevant governmental and recognized industrial standards for the product, the merchandise’s part numbers, and any other relevant factors. See 19 C.F.R. § 191.32(c). Commercial interchangeability is determined by an “objective, market-based consideration of the primary purpose of the goods in question”; and CBP examines the products “from the perspective of a hypothetical reasonable competitor.” See Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999)(citations omitted).
In this case, the tariff classification is informative as to the commercial interchangeability of the chemicals. The subheading for Mondur M-Molten, Mondur M-Flaked, Mondur M-Fused, and Desmodur 44 S Fused is 2929.10.8010, HTSUS, which provides for Compounds with other nitrogen function: Isocyanates: Other: Other: Methylenedi-p-phenylene isocyanate (MDI). See NY N025673 (July 3, 2008). Methylene diphenyl diisocyanate includes three different isomers, which may have different applications: 2,2´-methylene diphenyl diisocyanate; 2,4´-methylene diphenyl diisocyanate; and 4,4´-methylene diphenyl diisocyanate, and the acronym “MDI” may appear in reference to any of the three isomers. However, as the OLSS Report explained, “p” (for “para” or the Greek letter “rho”) in methylenedi-p-phenylene isocyanate refers to the 4,4’ isomer of MDI specifically, or 4,4´-methylene diphenyl diisocyanate. An aromatic isocyanate prepolymer based on methylenedi-p-phenylene isocyanate, such as Mondur CD, may be called a modified MDI; however, its subheading is 3911.90.4500, HTSUS. See NY F87388 (September 28, 2000). Thus the subheading 2929.10.8010, HTSUS, is specific to one isomer of MDI alone, methylenedi-p-phenylene isocyanate. The tariff classification supports the commercial interchangeability of methylenedi-p-phenylene isocyanate, Mondur M-Molten, Mondur M-Flaked, Mondur M-Fused, and Desmodur 44 S Fused.
The second factor is the relative value of the imported merchandise to the substituted merchandise. 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 HQ 230898 (June 24, 20085); see also HQ H037294 (December 9, 2008)(10-63% price difference does not preclude commercial interchangeability); HQ 227473 (March 3, 1998)(65% price difference does not preclude commercial interchangeability, after evidence is provided showing market reason for price difference). According to BMS, the value of the imported merchandise ranges from $[xxxx]/kg to $[xxxx]/kg, and the value of the substituted merchandise ranges from $[xxxx]/kg to $[xxxx]/kg. Thus the relative value of the imported merchandise to the substituted merchandise could be anything from no difference in value, to a difference of $[xxxx]/kg or 337%. A comparison of the Mondur M-Flaked import invoices, dated July 10 and July 11, 2006, and the Desmodur 44 S export invoice, dated August 21, 2006, show the price of the imported Mondur M-Flaked is 13% and 22% greater than the price of the exported Desmodur 44 S. These relative values carry more weight, because they are close in time; however, they carry less weight because the documents represent related party transactions. Bayer stated that the difference in prices was the result of fluctuations in raw material prices, contractual obligations, and its objective of maintaining profitability. Therefore, the 13% and 22 % price differences are not dispositive.
As for the governmental and recognized industry standards, the OLSS Report reviewed the CAS Registry Numbers for the chemicals. A CAS Registry Number “is designed to readily identify a chemical substance in the broadest terms, even though it may have various technical names,” and “reflects {the} identity of the chemical substance from a market standpoint.” See HQ 950415 (April 27, 1992). The OLSS Report found that Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, and Desmodur 44 S Fused are all known as methylenedi-p-phenylene isocyanate, all are required to have the same minimum purity levels of methylenedi-p-phenylene isocyanate (99.5%), and all have the same CAS Registry Number 101-68-8. The CAS Registry Number 101-68-8 is specific to the 4,4’ isomer of MDI, or methylenedi-p-phenylene isocyanate. In one Headquarters Ruling, legacy Customs found that although milled and unmilled amoxicillin were identical chemically and had the same CAS Registry Number, the unmilled amoxicillin would have to be milled to be used as an oral suspension product, and was not commercially interchangeable with milled amoxicillin. See HQ 229070 (May 1, 2002). Thus the CAS Registry Number, although not conclusive, supports the commercial interchangeability of Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, Desmodur 44 S Fused, and methylenedi-p-phenylene isocyanate, because they all have the CAS Registry Number 101-68-8.
Differences in the physical form of the merchandise are relevant to a determination of commercial interchangeability if they have an effect on the industry’s primary purpose of the merchandise. In HQ 229070, even though the unmilled amoxicillin and the milled amoxicillin at issue had the same tariff classification subheading and CAS Registry Number, the unmilled and milled amoxicillin were found not to be commercially interchangeable, because the unmilled amoxicillin could be used as imported for tablets and capsules, but had to be finely milled to be used for the liquid form of the medicine. In other Headquarters Rulings, a significant factor is whether the form matters once the merchandise enters the production process. Exported powder aspartame was commercially interchangeable with imported granular aspartame because, among other factors, “once the aspartame is entered into the production process, the difference in form becomes irrelevant” despite an indication that customers might prefer the granular aspartame for bottling kits. See HQ 227106 (September 3, 1997). For similar reasons, imported thermoplastic Ryton PPS resin in pellets was commercially interchangeable with exported powder Ryton PPS resin, because, among other reasons:
{T}he difference between using pellets versus powder is essentially a handling issue at the beginning of the production cycle and that once the resins enter production for the uses described above {the same uses} the difference in form is irrelevant.
HQ 225882 (July 19, 2006). Unlike HQ 229070, the Mondur M-Fused, Desmodur 44 S, and Mondur M-Flaked can be used as imported for the same uses as Mondur M-Molten. While unmilled aspartame had to be subjected to additional process to change its grade to be used for liquid medicine, Mondur M-Fused, Desmodur 44 S Fused, and Mondur M-Flaked only have to be melted. As in HQ 225882, the difference between them and the liquid form is a handling and storage issue. The physical form of the methylenedi-p-phenylene isocyanate, Mondur M, or Desmodur 44 S is not relevant once the chemicals enter the process of producing elastomers, thermoplastic polyurethanes (“TPU’s”), adhesives, coatings, and fibers. Because the differences in physical form are immaterial to the ultimate products methylenedi-p-phenylene isocyanate, Mondur M, or Desmodur 44 S are used to produce, the industry uses them interchangeably for the same applications. Therefore, industry standards, the CAS Registry Number and the industry’s uses of methylenedi-p-phenylene isocyanate, Mondur M, and Desmodur 44 S, support a finding of commercial interchangeability.
The part numbers BMS provides are inconclusive as to whether a hypothetical reasonable competitor would use Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, Desmodur 44 S Fused, and methylenedi-p-phenylene isocyanate interchangeably. The material numbers BMS provided for Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, Desmodur 44 S Fused all differ; however, BMS explained that the material numbers were the same regardless of the origin of the product, and may differ only based on the package size or end use. Furthermore, although the export documents consistently list material number 02924483 for Desmodur 44 S, and the number corresponds to a number on BMS’s list for Desmodur 44 S, the material number listed in the import documents, material number 01348926, refers both to “Desmodur” and to Mondur M-Flaked, and does not appear in the list BMS provided. The BMS material number list and the export documents suggest that that material numbers are specific to Mondur M-Fused, Mondur M-Molten, Mondur M-Flaked, and Desmodur 44 S Fused. However, two other facts appear to support a finding of interchangeability: first, BMS’s explanation that the part numbers are the same “regardless of origin,” and second, the import documents that appear to show that Desmodur 44 S, a relabelling of Mondur M-Fused, is interchangeable with Mondur M-Flaked. Therefore, the material numbers BMS provided neither support nor refute a determination of commercial interchangeability.
Other factors to consider are how Bayer markets Mondur M and whether customers would accept Mondur M-Fused, Mondur M-Flaked, Mondur M-Molten, Desmodur 44 S, and generic methylenedi-p-phenylene isocyanate interchangeably. BMS treats Mondur M-Fused, Mondur M-Molten, and Mondur M-Flaked as a single product in its Product Information Sheet for “Mondur M” and in its Product Index. It also states the same applications for Mondur M-Fused, Mondur M-Flaked, Mondur M-Molten: for use in the production of elastomers, TPU’s, adhesives, coatings, and fibers. As discussed in reference to part numbers, although the export documents were all specifically for material number 02924483 for Desmodur 44 S, the two purchase orders from BMS in the United States to BMS in Germany, dated March 20, 2006 and June 2, 2006, were for material number 01348926, which it called “Desmodur.” In filling the order, BMS Germany shipped material number 01348926, which it described in the invoices dated July 10 and July 11, 2006, as Mondur M-Flaked. Material number 01348926 is not among the product numbers BMS provided; assuming that the original request was for Desmodur 44 S Fused, then the purchase orders and invoices show that a customer, albeit BMS, would accept Mondur M-Flaked in place of Mondur M-Fused or Desmodur 44 S. As already discussed, the export documents and import documents represent related party transactions, and thus both sets of documents have less weight in the analysis. Nevertheless, all the documents tend to support a conclusion that customers could interchangeably use Mondur M-Fused, Mondur M-Flaked, Mondur M-Molten, Desmodur 44 S Fused, or generic methylenedi-p-phenylene isocyanate, depending on the size of the batch and the immediate need for the chemical.
HOLDING:
Because the freezing or change to solid and repackaging of methylenedi-p-phenylene isocyanate or Mondur M-Molten into Mondur M-Fused, Desmodur 44 S Fused, or Mondur M-Flaked are only for storage and do not constitute a chemical change, the change in physical state does not constitute a use, pursuant to 19 U.S.C. § 1313(j)(2)(C)(i) and (j)(3).
Based on the weight of the evidence, because BMS markets Mondur M-Fused, Mondur M-Flaked, Mondur M-Molten, Desmodur 44 S Fused as a single product; BMS recommends Mondur M-Fused, Mondur M-Flaked, Mondur M-Molten, Desmodur 44 S Fused for identical applications; the tariff classification and industry standards treat Mondur M-Fused, Mondur M-Flaked, Mondur M-Molten, Desmodur 44 S Fused, and methylenedi-p-phenylene isocyanate as the same substance; and the physical state of the chemical is irrelevant for the downstream production operations in which they are used; a reasonable competitor would use Mondur M-Fused, Mondur M-Flaked, Mondur M-Molten, Desmodur 44 S Fused, or generic methylenedi-p-phenylene isocyanate for the same primary uses, and they are commercially interchangeable for purposes of substitution, unused merchandised drawback, pursuant to 19 U.S.C. § 1313(j)(2).
Sincerely,
William G. Rosoff, Chief
Entry Process and Duty Refunds Branch