DRA-4
OT:RR:CTF:ER
H242068 RGR
J.W. Brown
DHL Drawback Services
22210 Highland Knolls Drive
Katy, TX 77450
RE: Unused Merchandise Substitute Drawback Ruling Request for 2-Ethylhexl Acrylate (“2EHA”)
Dear Mr. Brown:
We are writing in response to your letter, dated May 9, 2013, on behalf of Dow Chemical Company (“Dow”) regarding the commercial interchangeability of imported 2-Ethylhexl Acrylate (“2EHA”). Please find our office’s determination of commercial interchangeability of the merchandise below.
FACTS:
In the course of its normal business operations, Dow imports 2EHA under its own name and exports it under its own name to its various foreign customers. In support of Dow’s claim for commercial interchangeability, you provided documents representing a typical import and export transaction. In your letter dated May 9, 2013, you state that Dow’s minimum purity requirement for 2EHA is 99.5% or greater. As a representative import, you provided a Customs and Border Protection (“CBP”) form 7501 entry summary, which has an entry date of November 28, 2012, and which describes the imported product as “2-ETHYL-1-HEXYL ACRYLATE,O,” classified under subheading 2916.12.5040 of the Harmonized Tariff Schedule of the United States (“HTSUS”) and indicates it is imported in “bulk.” Dow explained that there is no industry or governmental standard. Instead, Dow provided a set of specifications that both the import and substitute 2EHA will satisfy. Furthermore, we contacted CBP’s Laboratories and Scientific Services Division (“LSSD”) and in its opinion, the specifications for purity and other factors identified above are sufficiently specific to define the 2EHA, and that the import and export fall within those specifications. The corresponding invoice, dated October, 2, 2012, reflects the sale of 2EHA and indicates its value at the time of import. Dow provided the following product specifications for 2EHA:
Property
Specification
2EHA
Purity (WT PCT)
DOWM 102198-E06B Standard
99.5% Min
Water Content (WT PCT)
ASTM E203
0.04% Max
Acidity as Acrylic Acid (WT PCT)
DOWM 102337-E08A
0.009% Max
Specific Gravity (20°C/20°C)
1B-2C1.11-1u-1 (Dow)
0.885–0.897
Color (Pt/Co Color)
ASTM D1209
10 Max
For the export transaction, Dow provided a bill of lading showing an export of 2EHA, dated February 25, 2013. The corresponding export invoice, dated March 1, 2013, shows that the value of the exported 2EHA is 9.8% less than the value of the imported 2EHA. Dow has also provided a copy of its shipper’s export declaration showing the 2EHA’s Schedule B number as 2916.12.5040.
ISSUE:
Whether the imported 2EHA is 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:
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 duties on the imported merchandise, a certificate of delivery transferring to that party, the imported merchandise, commercially interchangeable merchandise, or any combination thereof.
U.S. Customs and Border Protection (“CBP”) regulation, 19 C.F.R. § 191.32(c), concerning substitution drawback, provides as follows:
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 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 (Mar. 25, 2009); and HQ H122535 (Feb. 9, 2011). 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 at 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, in accordance with Texport, commercial interchangeability is determined using an “objective standard—analyzed from the perspective of a hypothetical reasonable competitor.” Id. Therefore, we analyze commercial interchangeability pursuant to 19 C.F.R. § 191.32(c), for a hypothetical reasonable competitor.
Government and Recognized Industry Standards
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 (Mar. 23, 2010). Dow stated that there are no governmental or industry standards for 2EHA and we confirmed this with CBP’s LSSD.
Dow, however, has identified internal specifications identifying the physical properties of 2EHA, and provided certificates of analysis of samples of the import and substituted export product. Where no government or recognized industry standards govern, CBP has relied on product specifications. See HQ H103577 (Oct. 12, 2010) (noting that contractual standards and product specifications can be used as evidence of commercial interchangeability rather than governmental or recognized industry standards) (citing Pillsbury v. United States, 293 F.Supp. 2d 1351, 1356-57 (Ct. Int’l Trade 2003)); see also, HQ H064679 (Dec. 18, 2009) (relying on specifications provided by the applicant, as well as certificates of analysis for representative samples of the imported and exported product since no government or industry standard criteria was available). As shown above, the specifications provided by Dow identified the minimum and maximum levels required, and CBP’s LSSD confirmed that imported and substituted 2EHA with characteristics that fall within the noted specifications sufficiently describe the product. We are persuaded by the LSSD opinion that if the import and substitute product fall within the ranges identified above, this criterion is met.
Part Numbers
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 (Dec. 2, 2009); and HQ H122535 (Feb. 9, 2011). CBP has also determined, however, that the absence of part numbers on commercial import and export documentation does not preclude a finding of commercial interchangeability. See HQ 227106 (September 3, 1997). In HQ 227106, bulk aspartame could be ordered in different types of packaging so that there was no reference to part numbers. CBP concluded that the imported and substituted aspartame was commercially interchangeable even though the part number criterion was not satisfied, stating that "the fact that the part numbers and lot codes are not used on all documents, but are used only in some, supports the view that the part numbers and lot codes do not preclude a finding of commercial interchangeability." See HQ227106 (September 3, 1997).
Dow states that it uses Global Material ID (“GMID”) codes in addition to the branded naming convention for the 2EHA. The GMID codes are used to build sales orders, purchases, and commercial invoices, but they are not used in catalogs. This nomenclature is used to identify the merchandise in Dow’s computerized inventory from receipt at Dow through shipment to customers. Dow uses different GMID codes for bulk shipments and container shipments. Dow explains that the difference between the GMID codes depends on the volume being ordered or shipped. Here, both the import and export transaction documents indicate that the 2EHA shipments consisted of bulk shipments. If Dow buys or sells in bulk volumes, it uses a specific GMID code for bulk shipments. On the other hand, if smaller quantities are purchased, then Dow uses a separate GMID code to identify that merchandise. The goods may be identical, but two different GMID codes are used simply because one shipment is a bulk shipment and the other is a smaller shipment. Therefore, the GMID codes do not identify the product for purposes of commercial interchangeability.
Further, we note that 2EHA is sold in bulk. In a prior ruling, CBP noted that merchandise sold in bulk may not have part numbers. See HQ H190457 (June 11, 2012). Here, the import and export documentation provided reflects that the merchandise is packaged and sold in bulk. As such, part numbers are not applicable to this product. Therefore, this criterion is not relevant in determining commercial interchangeability.
Tariff Classification
Another factor CBP considers when determining commercial interchangeability is whether the imported and exported goods are classified under the same subheading of the HTSUS. See, e.g., HQ H074002 (Dec. 2, 2009). The HTSUS classification of the imported 2EHA, as set forth in the CBP form 7501 is subheading 2916.12.5040. Dow has provided a copy of its shipper’s export declaration showing the 2EHA’s Schedule B number as 2916.12.5040. Because the imported and exported merchandise is classified under the same subheading, we find that this criterion is established.
Value
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. See, e.g., HQ H090065 (Mar. 23, 2010) (finding a price difference of 4.5 percent to be acceptable). However, 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., Pillsbury, 293 F.Supp.2d at 1357-58 (concluding that the price difference between the import and export product would not detract from a commercial interchangeability finding since the difference was not based on the quality of the merchandise, but rather on the packing costs and supply of the product in the market); 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); HQ 228655 (November 2, 2001) (holding that a value differential in excess of 32% is acceptable because the merchandise qualified under the critical properties criterion); HQ 227220 (February 10, 1997) (determining that price difference in excess of 24% is acceptable because the imported and exported merchandise qualified under the applicable industry standards; therefore, relative value did not have as much weight when determining commercial interchangeability).
Here, the price difference between the imported 2EHA and the substituted 2EHA is 9.8%. The import commercial invoice for the 2EHA is dated October 2, 2012, and the export commercial invoice is dated March 1, 2013. The substituted export 2EHA was sold by Dow to one of its foreign subsidiaries based on standard inter-company pricing for Dow. Dow explains that the imported 2EHA was a third party “spot buy” purchase from an unaffiliated company, which is reflected in the import invoice. As such, that company charged a price that was slightly higher than the price of the substitute 2EHA, leading to a difference in value between the imported and substitute 2EHA of 9.8%. We determine that a 9.8% price difference does not preclude our finding that these products are commercially interchangeable.
HOLDING:
Based on the above findings, we determine that the imported 2EHA and the substituted 2EHA are commercially interchangeable for purposes of substitution drawback pursuant to 19 U.S.C. § 1313(j)(2). Drawback is only permissible on 2EHA that satisfies the stated specifications listed above.
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.” If the terms of the import or export contracts vary from the facts stipulated to herein, this decision shall not be binding on CBP as provided in 19 C.F.R. § 177.2(b)(1), (2) and (4), and § 177.9(b)(1).
Sincerely,
Carrie L. Owens, Chief
Entry Process & Duty Refunds Branch