H271805
DRA 4
H271805 SMS
OT:RR:CTF:ER
J.W. Brown
DHL Drawback Services
Attorney-in-Fact
15915 Katy Freeway, Suite 602
Houston, TX 77094
RE: Request for a determination of commercial interchangeability, The Dow Chemical Company, under substitution unused merchandise drawback, 19 U.S.C. § 1313(j)(2), for Bio Aqucar PS 75 IBC
Dear Mr. Brown:
This is in response to your application, dated December 10, 2015, on behalf of The Dow Chemical Company (“Dow”), for a formal ruling on the commercial interchangeability of imported and substitute Bio Aqucar PS 75 IBC (“Aqucar™”), also known as Bio Aqucar PS 75 NF IBC and Bio DMC THPS Formulation IBC, for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
FACTS:
Dow, is a chemical company engaged in the manufacture, import, purchase, and resale of Aqucar, under the three names listed above, which Dow indicates are compositionally identical. Dow explains that the compounds are identical, but there are three different names to differentiate between the merchandise that is registered for potential sale domestically and the merchandise that is not registered, and therefore, for export only. The merchandise is a product of China. Dow maintains consistent inventory supplies of Aqucar to ensure its ability to meet high market demands for the product. Dow imports Aqucar from China and intends to export substituted Aqucar to various oversees customers. Dow explains that after the Aqucar is imported, it is tested and certified, then exported. This certification, performed in the United States, increases the export price.
According to Dow, all Acquar that is imported and substituted/exported by the company for drawback purposes will fall within the specified tolerances of 75.0 - 78.8 percent. However, there are no published government and recognized industry standards for Aqucar. As a representative import, DOW provided a Customs and Border Protection (“CBP”) Form 7501, dated August 25, 2014, showing the importation of “84 IBC Aqucar (TM) PS 75 Water Treatment Related” “Organo-Phosphorus Compound” classified under subheading 2931.90.9043 Harmonized Tariff Schedule of the United States (“HTSUS”). The corresponding invoice, dated August 14, 2014, shows the importation of “Aqucar (TM) PS 75 Water Treatment Microbiocide”, with Product No. 00011085075. The accompanying twelve Certificates of Analysis’ (“COA”), dated July 28, 2014, identify batches of “Aqucar (TM) PS 75 Water Treatment Microbiocide” with Product No. 00011085075 and the following ranges of specifications:
A.I. (THPS): 75.0 – 78.8 percent
pH: 3.0-5.0
Density: 1.37 – 1.40 g/mL.
For the export transaction, Dow provided a waybill for a shipment of “Toxic Liquid, Organic/ DMC THPS Formulation 1400 KG IBC” dated November 19, 2014. The waybill indicates that the merchandise is classified under subheading 2931.90.9043, HTSUS. The commercial invoice, also dated November 19, 2014, and COAs indicate that the exported merchandise is classified under Product No 00000331167 and describe the merchandise as “DMC THPS Formulation 1400 KG IBC.” Dow exported the merchandise to Dow Europe GMBH in Antwerp, Belgium, which meets its internal specifications as noted above. A comparison of the invoices for the imported and substituted Aqucar show that the difference in price is 32.1 percent. Based on the six COAs accompanying the export shipment for the DMC THPS Formulation, the value ranges all fall within the specifications required by Dow. Specifically the purity values of the exported merchandise ranged between 75.9 to 76.2 percent.
Furthermore, the specifications and COAs for the imported and substituted Aqucar, were sent to CBP’s Laboratories and Scientific Services Directorate (“LSSD”) for an opinion on whether the imported and substituted product could be used interchangeably. It is the opinion of the LSSD that the required purity level of the active ingredients, between 75 and 78.8 percent, is a reasonable variation to determine that the imported and substituted Aqucar would be sufficient to describe the product.
ISSUE:
Whether the imported Aqucar 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 on merchandise, which is commercially interchangeable with imported merchandise if the commercially interchangeable merchandise is exported or destroyed within three years from the date of importation of the imported merchandise, and before the exportation or destruction, the commercially interchangeable merchandise is used in the United States and is 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.
The CBP regulation, 19 C.F.R. § 191.32(c), 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 are 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 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)).” Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999). Thus, the Federal Circuit sets forth 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 that CBP considers is whether the imported and exported merchandise adhere to governmental and recognized industry standards. Governmental and recognized industry standards assist in the determination of commercial interchangeability, because those 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 same industry standard may be used to produce the same products” or used for the same purposes. See HQ H074002 (Dec. 2, 2009). For Aqucar, there are no published government and recognized industry standards.
When there are no applicable government or industry standards, CBP considers contractual product specifications, as a critical property, especially when governmental and industry standards are not available. See, e.g., H030097 (Aug. 29, 2008) (determining that where the technical product specifications sufficiently describe the product, this would also support a determination of commercial interchangeability). Product specifications are used to guarantee the uniformity of merchandise. In other words, if product specifications are sufficiently detailed, then any merchandise sharing those specifications will generally be uniform in nature. The Court of International Trade has found that private contract standards may be used to determine commercial interchangeability. See Pillsbury Co. v. United States, 293 F. Supp. 2d 1351, 1356-57 (Ct. Int’l Trade 2003) (explaining that, “[e]vidence of different contract standards would indicate that the designated and substitute [product] are not commercially interchangeable”). Thus, when goods are sold or purchased pursuant to the same detailed product specifications, evidence that the imported and substitute merchandise share the same product specifications tends to support a general finding of commercial interchangeability and thus, satisfies the standards criterion.
Dow provided product specifications identifying the purity of Aqucar, and certificates of analysis of samples of the import and substituted export product. The purity of the Acquar must range between 75.0 – 78.8 percent. All Aqucar imported and substituted by Dow are required to have the minimum or maximum specifications that fall within the percentages identified above. Upon review of these ranges, LSSD confirmed that it was sufficiently narrow to describe the merchandise. Both the imported and substituted merchandise fell within these required standards. Based on these findings, we conclude that this criterion is satisfied provided that the Aqucar falls within the specifications stated above.
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 catalogs, and in the import and export documents, this will support a finding of commercial interchangeability. See, e.g., HQ H074002; and HQ H122535. You indicate that Aqucar is identified commercially by the Global Market Information Database (“GMID”) Code 00000331167 for exports to Belgium only; 00011028966 for exports to Argentina and Brazil; and that codes 00011085075 and 00011014455 are only used for imports. The import invoice identified the merchandise, with the Product No. 00011085075, and the export invoice identified the merchandise under Product No. 00000331167. Dow states that it uses GMID codes in addition to the branded naming convention for Aqucar. This nomenclature is used to identify the merchandise in Dow’s computerized inventory from receipt at Dow through shipment to customers. When Dow imports Aqucar, it uses a specific GMID code for those shipments. On the other hand, when Aqucar is exported to a different country, Dow uses a separate GMID code to identify that merchandise. The goods are identical, but two different GMID codes are used to identify country information. We find that although different GMID codes are used by Dow to identify the merchandise, Dow has provided a sufficient explanation as to why these part numbers are different. Accordingly, we conclude that the difference in part numbers does not preclude a finding of 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. Based on the CBP Form 7501 submitted as a part of the import documentation, the imported merchandise is classified under subheading 2931.90.9043, HTSUS. The provided AES Transmission Report demonstrates that the exported merchandise is classified under HTSUS/Schedule B subheading 2931.90.9043. Therefore, the fact that the imported and substituted Aqucar are both classified under the same HTSUS subheading indicates that this criterion is satisfied.
Relative Value
Finally, goods that are commercially interchangeable generally have similar values when sold at the same place and same time, to like buyers from like sellers. We explained in HQ 231555, dated October 30, 2006, that when the time or place of the sale or the buyers or sellers vary, goods that are commercially interchangeable may be traded for different prices. Accordingly, when the prices paid and charged for purportedly commercially interchangeable goods are significantly different, it must be demonstrated that the difference is attributable to market forces or some circumstance other than a material difference between the imported and exported goods. HQ 231555 (Oct. 30, 2006); see, e.g., HQ H090065 (Mar. 23, 2010) (finding a price difference of 4.5 percent to be acceptable). CBP has held that a variance in price does not preclude a finding of commercial interchangeability when there is sufficient evidence to support the material difference in value. See HQ H174276 (July 3, 2012) (finding that a 34 percent price difference was the result of external market factors and, thus, did not preclude a finding that the imported and substituted merchandise were commercially interchangeable); HQ 229838 (May 30, 2003) (holding that a value difference of 8.32 percent, explained by profit mark up and costs, does not preclude a finding of commercial interchangeability). See conversely, 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.”); and HQ H200995 (Nov. 26, 2013) (importer failed to provide evidentiary support for a 96 percent price difference, and the relative value criterion was not satisfied).
A comparison of the invoices for the imported and substituted Aqucar show that the difference in price is 32.1 percent. According to Dow, the difference in value is due to testing and certification performed after importation. For the sample transactions provided by Dow, the import commercial invoice is dated August 14, 2014, and the export commercial invoice is dated November 19, 2014. The merchandise was exported over three months after import to Dow Europe GMBH in Antwerp, Belgium.
During the review process we requested more information to support the difference in value. Dow provided documentation for Environment Protection Agency registration under the Federal Insecticide, Fungicide, and Rodenticide Act and label notification for the Aqucar. Dow contends the certification allows for a higher export price; however, no evidentiary support or documents were provided to support the mark-up, after government testing, registration and certification. While the LSSD indicated that the specific purity level of the active ingredient between 75 and 78.8 percent was a reasonable variation for this type of water-treatment microbiocide, it noted that it is possible to import the 78.8 percent more concentrated product at the less expensive price, and export the 75 percent less concentrated product at the more expensive price, which would account for a 24.3 percent price difference. However, the LSSD noted that because the products are technically interchangeable, it is their opinion that the concentration driven value difference is insignificant. Dow also indicated that the Aqucar is not diluted before it is exported. Therefore, although we find that the difference in value does not support a finding of commercial interchangeability, as the LSSD explained, the concentration-based price difference accounts for the majority of the relative value difference. Therefore, we conclude that the value difference does not preclude a finding of commercial interchangeability.
Based on the facts presented, the precise specifications of the chemical Aqucar, which define the product to a high degree of exactness and the fact that the imported and substituted Aqucar are both classified under the same HTSUS or Schedule B subheadings, allow for a finding of commercial interchangeability, despite the value and part number difference. See HQ 228655 (Nov. 2, 2001) (holding that although the difference of the imported and exported merchandise was in excess of 32 percent, the merchandise qualified under the critical properties criterion).
HOLDING:
Based on the above findings, we determine that the imported and substituted Bio Aqucar PS 75 IBC are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. § 1313(j)(2).
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 ruing 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 activities vary from the facts stipulated to herein, this decision shall not be binding on CBP, as provided for in 19 C.F.R. § 177.9(b).
Sincerely,
Monika R. Brenner, Acting Chief
Entry Process & Duty Refunds Branch