DRA 4
OT:RR:CTF:ER H277475 KF
J.W. Brown
DHL Drawback Services
15915 Katy Freeway, Suite 602 Houston, TX 77094
RE: Lyondell Chemical Company: Commercial interchangeability under substitution unused merchandise drawback; 19 U.S.C. § 1313(j)(2); Ethyl tertiary butyl ether.
Dear Mr. Brown:
This is in response to your application, dated June 23, 2016, on behalf of Lyondell Chemical Company (“Lyondell”), for a formal ruling on the commercial interchangeability of imported and substituted ethyl tertiary butyl ether (“ETBE”) for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
FACTS:
Lyondell is an importer, exporter, manufacturer, seller and reseller of various chemicals within the United States. Lyondell is engaged in the import and export of ETBE, a gasoline additive it manufactures at its Channelview, Texas plant. Lyondell utilizes ETBE as a high octane blend component of gasoline blending. Lyondell explains that its imported and domestically produced ETBE is comingled in specialized shore tanks located at the Vopak Terminal Deer Park in the Port of Houston.
As a representative import, Lyondell submitted a Customs and Border Protection (“CBP”) Form 7501, dated June 10, 2016. CBP Form 7501 demonstrates that Lyondell imported in bulk quantity “Ethers of Monohydric ALCLS,” classified under subheading 2909.19.1800, Harmonized Tariff Schedule of the United States (“HTSUS”). CBP Form 7501 lacks a part number for the importation. The corresponding commercial invoice, dated January 12, 2016, No. XXXXX95, describes the imported ether as “ETBE – ETHYL – TER – BUTIL – ETHER” under subheading 2909.19.1800, HTSUS. The January 12, 2016 invoice number matches the invoice number specified on the CBP Form 7501. The commercial invoice lacks a part number for the imported ETBE. The accompanying Certificate of Analysis (“COA”), dated February 4, 2016, Report No. 13051/00045539.1/L/16, identifies the sample as ETBE subject to the following specifications:
Minimum Ethyl Tertiary-Butyl Ether: 90.0 percent
Maximum Tertiary Butyl Alcohol: <3.0 percent
Maximum Ethyl Secondary Butyl Ether: <1.0 percent
Maximum Water: 500 ppm
Maximum Methy Tertiary Butyl Ether: 6.0 percent
Maximum Methanol: 0.10 percent
Maximum Ethanol: 3.0 percent
Maximum Isobutylene with DIB: 2.0 percent
Minimum Total of Above: 98.5 percent
The February 4, 2016 COA shows the ETBE tested satisfied all minimum and maximum specifications.
For the export transaction, Lyondell submitted a Tanker Bill of Landing (“TBL”), dated March 29, 2016, commercial invoice No. XXXXXXXX54, dated March 30, 2016, and another COA, dated March 28, 2016, Report No. 13051/00045942.3/L/16. The TBL identifies the export as ETBE classified under subheading 2909.19.1800, HTSUS. The TBL lacks a part number for the ETBE. The TBL also identifies reference Nos. 4147604/87915854 for the shipment. The corresponding commercial invoice, dated March 30, 2016, demonstrates that Lyondell exported ETBE in bulk quantity under subheading 2909.19.1800, HTSUS. The March 30, 2016 invoice reference numbers correspond to the reference numbers specified in the TBL. The commercial invoice identifies Product No. 15174 for the ETBE. The accompanying COA identifies the sample as ETBE subject to the following specifications:
Minimum Ethyl Tertiary-Butyl Ether: 90.0 percent
Maximum Tertiary Butyl Alcohol: <3.0 percent
Maximum Ethyl Secondary Butyl Ether: <1.0 percent
Maximum Water: 500 ppm
Maximum Methy Tertiary Butyl Ether: 6.0 percent
Maximum Methanol: 0.10 percent
Maximum Ethanol: 3.0 percent
Maximum Isobutylene with DIB: 2.0 percent
Minimum Total of Above: 98.5 percent
The March 28, 2016 COA shows the ETBE tested satisfied all minimum and maximum specifications.
A comparison of the price per ton listed in the invoices for the imported and substituted ETBE shows a price difference of 0.01 percent. In addition to satisfying the specifications identified in both the February 4, 2016 and March 28, 2016 COAs for Lyondell’s imported and substituted ETBE, the COAs were sent to CBP’s Laboratories and Scientific Services Directorate (“LSSD”) for analysis. It is the opinion of the LSSD that the imported and substituted ETBE both had high purity levels of 90.00 percent, or greater, and this specification sufficiently describes the imported and substituted ETBE.
ISSUE:
Whether the imported ETBE is commercially interchangeable with the substituted ETBE, 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 not 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 (March 25, 2009); and HQ H122535 (February 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 the same industry accepted standard may be used to produce the same products” or used for the same purposes. See HQ H074002 (December 2, 2009). For 2EH, 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 (August 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.
Lyondell provided product specifications and industry standards identifying the physical properties of ETBE, and certificates of analysis of samples of the imported and substituted export product. The specifications for imported and substituted ETBE are listed above. All ETBE imported and substituted by Lyondell is required to have the minimum or maximum specifications that fall within the percentages listed above. Upon review of these ranges, LSSD confirmed that they were sufficiently narrow to describe the merchandise. Both the imported and substituted merchandise have high purity levels with low impurities that fall within these required standards. Based on these findings, we conclude that this criterion is satisfied provided that the ETBE falls within the specifications stated above, to the exclusion of ETBE used for blending with aviation spark-ignition engine fuel subject to the recognized industry standard specifications of ASTM D7618. Both Lyondell’s imported and substituted ETBE fails the maximum 1.5 percent ethanol specification required by ASTM D7618.
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. 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) (“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”); and HQ H190457 (June 11, 2012) (holding that merchandise sold in bulk may lack part numbers).
Lyondell’s January 12, 2016 commercial invoice for imported ETBE makes no reference to the Product No. 15174 listed in the March 30, 2016 commercial invoice for exported ETBE. Lyondell explains that it uses Product No. 15174, its internal designation for ETBE, concurrently with the product’s nomenclature to designate “the same material with the same specification.” Lyondell’s CBP Form 7501 and March 30, 2016 commercial invoice demonstrate that it imports and exports ETBE in bulk quantities identified by product name regardless of whether a part number or product identifier is included. Therefore, part numbers are not applicable to this product and 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 (December 2, 2009). Lyondell’s CBP Form 7501 and January 12, 2016 commercial invoice, submitted as a part of its import documentation, show that imported ETBE is classified under subheading 2909.19.1800, HTSUS. Lyondell’s TBL and March 30, 2016 commercial invoice, submitted as part of its export documentation, show that exported ETBE is classified under subheading 2909.19.1800, HTSUS. Additionally, Lyondell’s Automated Export System Shipment Record shows that exported ETBE is classified under HTSUS/Schedule B subheading 2902.19.1800. Based on the fact that Lyondell’s imported and substituted ETBE is classified under the same HTSUS subheading, we conclude that this criterion is satisfied.
Relative Value
Finally, 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 (March 23, 2010) (finding a price difference of 4.5 percent to be acceptable). CBP has also 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, did not preclude a finding of commercial interchangeability); and HQ 228580 (August 20, 2002) (holding that a value difference of 27 percent did not preclude a finding of commercial interchangeability when the difference in value was attributable to processing and manufacturing costs). Conversely, see HQ 228519 (June 5, 2002) (denying commercial interchangeability when no explanation was provided to explain why exported tapes, as indicated by the invoices, were all sold at costs proportionately higher than the imported tapes).
A comparison of the invoices for the imported and substituted ETBE show a price difference of $5.31 per metric ton, or of 0.01 percent. The import transaction occurred in January of 2016, and the merchandise was exported in March of 2016. The very minimal difference in the relative value between the imported and substituted merchandise indicates that the price difference is not attributable to “chemical or physical differences between” Lyondell’s ETBE because the value of the imported and substituted merchandise was roughly equivalent at purchase and sale. See HQ 249074 (October 10, 2014). Lyondell noted that a price difference below 1.0 percent between imported and substituted merchandise falls within CBP guidelines for commercial interchangeability, citing rulings HQ 226074 (September 29, 1995) and HQ 228580 (August 20, 2002) which held that the relative value criterion was satisfied based on the explanation provided by the applicant which attributed the difference in merchandise pricing to factors other than differences between the composition or quality of merchandise. Lyondell explains the minimal value difference is attributable to market fluctuations caused by purchasing and selling ETBE at different times, and variations in the contractual requirements between purchase and sale from distinct parties. See HQ H106515 (March 18, 2011); and HQ 227473 (March 3, 1998) (finding “[t]he disparity in the relative values of the imports and exports in this instance does not appear to be significant enough to affect the[ir] commercial interchangeability …[because this is not] a case where an inferior product will be substituted for a higher-quality imported product. Rather, the disparity in price appears to be the result of the market at the time of purchase/sale of the paste”).
We find that given the precise specifications of ETBE’s composition that define the product to a high degree of exactness, the fact that imported and substituted ETBE is classified under the same HTSUS subheading, and that there is a minimal relative value difference not attributable to differences between the imported and substituted ETBE, a finding of commercial interchangeability is supported.
HOLDING:
Based on the information provided, we determine that imported and substituted ETBE that satisfy the specifications listed above and are classified under the same subheading, with a comparable or less price difference, are commercially interchangeable for the purposes of the substitution unused merchandise drawback statute, 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