DRA 4
OT:RR:CTF:ER H277703 KF
Wes Herndon
Charter Brokerage LLC
22762 Westheimer Parkway, Suite 350 Katy, TX 77450
RE: Eastman Chemical Company: Request for a determination of commercial interchangeability under substitution unused merchandise drawback, 19 U.S.C. § 1313(j)(2), for 2-Ethylhexanol-1-OL.
Dear Mr. Herndon:
This is in response to your application, dated July 11, 2016, on behalf of Eastman Chemical Company (“Eastman”), for a formal ruling on the commercial interchangeability of imported and exported 2-Ethylhexanol-1-OL (“2EH”); for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
FACTS:
Eastman is a manufacturer, seller, marketer, and distributer of chemical and chemical-related products within the United States. Eastman is engaged in the import, export, and exchange of 2EH, an eight-carbon chiral alcohol that is a colorless liquid. Eastman explains that imported and domestically manufactured 2EH is utilized in solvents, flavors, fragrances, and for the production of emollients and plasticizers.
As a representative import, Eastman submitted a Customs and Border Protection (“CBP”) Form 7501 for 2EH imported on October 29, 2013, showing that Eastman imported a tank of 2EH, classified under subheading 2905.16.0010, Harmonized Tariff Schedule of the United States (“HTSUS”). CBP Form 7501 lacks a part number for the imported merchandise, and references invoice No. XXXXXX21. The corresponding commercial invoice, dated October 14, 2013, No. XXXXXX21, describes the import as a bulk quantity of “EASTMAN(TM) 2-ETHYLHEXANOL.” The commercial invoice identifies “10 GMN – P00175S0” as the part number or product identifier for the imported merchandise. The accompanying Certificate of Analysis (“COA”), dated October 5, 2013, identifies the import as Eastman(TM) 2-Ethylhexanol, Batch No. W213002615, subject to the following specifications:
Maximum Water: 0.050 percent
Maximum Acidity as Acetic Acid: 0.010 percent
Maximum Color PTCO: 5
Minimum and Maximum Specific Gravity at 20C: 0.8325 - 0.8345
Minimum 2-Ethylhexanol: 99.60 percent
Maximum 2-Ethyl Isohexanol: 0.250 percent
Minimum 2-Ethylhexenal: 0.005 percent
Maximum Carbonyl as CO: 0.030 percent
The October 5, 2013 COA shows the import batch tested satisfied all minimum and maximum specifications. The import batch additionally passed an appearance test.
For the export transaction, Eastman submitted a Bill of Landing (“BOL”), dated April 3, 2014; commercial invoice No. XXXXXX62, dated March 26, 2014; an Automated Export System (“AES”) document; and another COA, dated March 26, 2014. The BOL identifies the export as a bulk quantity of Eastman(TM) 2-Ethylhexanol, classified under subheading 2905.16.00, HTSUS. The BOL lacks a part number for the exported merchandise. The corresponding commercial invoice demonstrates that Eastman exported Eastman(TM) 2-Ethylhexanol in bulk quantity under subheading 2905.16.00, HTSUS. The container number for the exported merchandise listed in the March 26, 2014 invoice corresponds to the container number listed in the BOL. The commercial invoice identifies “10 GMN – P0017500” as the part number or product identifier for the exported merchandise. The AES document classifies the exported merchandise under subheading 2905.16.0010, HTSUS. The accompanying COA identifies the export as Eastman(TM) 2-Ethylhexanol, Batch No. XK14007523, subject to the following specifications:
Maximum Water: 0.050 percent
Maximum Acidity as Acetic Acid: 0.010 percent
Maximum Color PTCO: 5
Minimum and Maximum Specific Gravity at 20C: 0.8325 - 0.8345
Minimum 2-Ethylhexanol: 99.60 percent
Maximum 2-Ethyl Isohexanol: 0.250 percent
Minimum 2-Ethylhexenal: 0.005 percent
Maximum Carbonyl as CO: 0.030 percent
The March 26, 2014 COA shows the export batch tested satisfied all minimum and maximum specifications. The export batch additionally passed an appearance test. Eastman submitted its sales specifications for Eastman(TM) 2-Ethylhexanol, which are identical to the specifications identified in its COA for imported merchandise, Batch No. W213002615, and exported merchandise, Batch No. XK14007523.
In addition to satisfying the specifications identified in both the October 5, 2013 and March 26, 2014 COAs for Eastman’s imported and substituted merchandise, 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 Eastman(TM) 2-Ethylhexanol constitute commercially interchangeable 2EH, with very high purity levels of 99.60 percent, or greater, and this specification sufficiently describes the imported and substituted 2EH. The LSSD determined that 2EH and 2-Ethylhexanol constitute alternative nomenclature for the same merchandise.
A comparison of the price per kilogram (kg) derived from CBP Form 7501 and the March 26, 2014 commercial invoice for Eastman’s substituted merchandise shows a price difference of 0.39 percent.
ISSUE:
Whether the imported 2-Ethylhexanol-1-OL is commercially interchangeable with the substituted merchandise, within the meaning of the substitution unused merchandise drawback statute 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.
Eastman provided product specifications and industry standards identifying the physical properties of 2EH, and certificates of analysis of samples of the import and substituted export product. The specifications are as follows:
Maximum Water: 0.050 percent
Maximum Acidity as Acetic Acid: 0.010 percent
Maximum Color PTCO: 5
Minimum and Maximum Specific Gravity at 20C: 0.8325 - 0.8345
Minimum 2-Ethylhexanol: 99.60 percent
Maximum 2-Ethyl Isohexanol: 0.250 percent
Minimum 2-Ethylhexenal: 0.005 percent
Maximum Carbonyl as CO: 0.030 percent
All 2EH imported and substituted by Eastman is required to have the minimum or maximum specifications that fall within the percentages identified above. All 2EH imported and substituted by Eastman is additionally required to pass an appearance test. Eastman advocated that the specifications for purity, water, color, specific gravity, and appearance are controlling upon a determination of commercial interchangeability. Upon review of these ranges, CBP’s LSSD confirmed that it was sufficiently narrow to describe the merchandise. Both the imported and substituted merchandise have high purities levels that fell within these required standards. Based on these findings, we conclude that this criterion is satisfied provided that 2EH 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. 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).
Eastman’s October 14, 2013 commercial invoice for a bulk quantity of imported 2EH identifies “10 GMN – P00175S0” as the part number or product identifier for the merchandise. The March 26, 2014 commercial invoice for a bulk quantity of exported 2EH identifies “10 GMN – P0017500” as the part number or product identifier for the substitute merchandise. Eastman explains that 2EH is identified by Family No. 71000124 and Global Material No. P00175. Family No. 71000124 is not referenced in the documents submitted by Eastman, and is therefore excluded from consideration for this criterion. See HQ 228575 (October 3, 2000). Global Material No. P00175 is included in both the import and export part numbers or product identifiers. Although Eastman has not provided an explanation for the difference between “10 GMN – P00175S0” and “10 GMN – P0017500,” the difference in part numbers referenced in Eastman’s import and export documents will not preclude a finding of commercial interchangeability for the bulk sales of 2EH.
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. Eastman’s CBP Form 7501 shows that imported 2EH is classified under subheading 2905.16.0010, HTSUS. Eastman’s AES document shows that exported 2EH is also classified under subheading 2905.16.0010, HTSUS. Based on the fact that Eastman’s imported and substituted merchandise 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 2EH shows a price difference of $0.66 per kg, or of 0.39 percent. The import transaction occurred in October of 2013, and the merchandise was exported in March of 2014. The 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” Eastman’s merchandise because the value of the imported and substituted merchandise was roughly equivalent at purchase and sale. See HQ 249074 (October 10, 2014). Eastman explains the price difference is attributable to fluctuations in price based on market location and cargo timing. Therefore, we conclude the value criterion is satisfied.
The facts of the case, the precise specifications of 2EH’s composition that define the product to a high degree of exactness, and the fact that imported and substituted merchandise is of roughly equal relative value, allow for a finding of commercial interchangeability, despite the minor difference in part numbers or product identifiers applicable to bulk sales of imported and substituted merchandise.
HOLDING:
Based on the above findings, we determine that imported and substituted 2EH 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