DRA-4 CO:R:C:E 223136 DHS
U.S. Customs Service
423 Canal Street
New Orleans, Louisiana 70130-2341
RE: Protest #200291000118; TRADECOM, INC.; 19 U.S.C. 1313(j)(2);
Fungibility of crude degummed soybean oil
The above-referenced protest has been forwarded to this
office for further review. We have considered the points raised
by the protestant and your office. Our decision follows.
A claim by the protestant regarding the crude degummed
soybean oil (CDSBO) in question was considered by headquarters,
in the form of an internal advice. In response to this claim,
our office issued HRL 222500, dated July 16, 1990, wherein we
held that merchandise held in bailment would not defeat the
physical and legal possession requirements of 19 U.S.C.
1313(j)(2) same condition drawback law, provided several criteria
were met. The ruling did not address the issue of the
fungibility of the CDSBO other than to state that if fungibility
was not found, then the requirements of 19 U.S.C. 1313(j)(2)(A)
would not be met.
The following series of events occurred regarding the
entries in question.
The initial entry was filed on July 7, 1989. On July 31,
1989, amended entries were filed and the initial designation was
made. A redesignation of import entries was made on December 6,
1990. The drawback entries were liquidated and fungibility was
denied on February 1, 1991. The original protest was filed on
February 5, 1991. On February 27, 1991, the amended protest was
Several Certificates of Analysis have been submitted for the
imported and the exported merchandise. A synopsis of the dates
and test results of each vessel follow.
Petrobulk Panther - This is the export vessel which was loaded
in New Orleans, Louisiana.
July 22, 1989 - Certificate of Analysis from Inspectorate
Worldwide Quality Services.
FFA = .45%
July 22, 1989 - Certificate of Analysis from Inspectorate
Worldwide Quality Services.
FFA = .80%
(This document was submitted as a substitute for the
previous document. Customs contends that this document
is an altered copy of the previous July 22, 1989
Certificate of Analysis.)
Iver Hawk - import vessel
July 30, 1988 - Certificate of Analysis from Charles V. Bacon,
Inc.. Tested in Port Newark, New Jersey.
FFA = .36%
Team Progress - An import vessel with the final destination of
New Orleans, Louisiana.
October 20, 1988 - Certificate of Analysis from Thionville
Inspectorate de Cargas E Analises, Ltda.. Tested in
Rio Grande, Brazil.
FFA = .85%
November 9, 1988 - Certificate of Analysis from Thionville
Laboratories, Inc.. Tested at the time of discharge at
FFA = .58%
November 17, 1988 - Certificate of Analysis from Calebb Brett
U.S.A., Inc.. Tested as it was loaded into storage
tanks from the Team Progress, at Pan Ocean Terminal,
Garden City, Georgia, on November 13-15, 1988.
FFA = .58%
September 19, 1990 - Certificate of Analysis from Thionville
Laboratories, Inc.. The sample represents oil loaded
into barges with the cargo discharged from the M/T
Iverhawk and the M/T Team Progress in 1988.
FFA = .62%
The New Orleans Customs Laboratory, in a report to the
Liquidation Branch, dated August 29, 1990, determined that the
imported and exported shipments (vessel Petrobulk Panther) did
not meet the fungibility requirements. It based its decision
upon certificates of analysis, revealing independent surveyors'
tests for certain physical properties such as free fatty acids
(FFA), phosphorus, etc..
Protestant was advised of the findings on October 10, 1990.
They responded by submitting a substituted and "corrected"
certificate of analysis for the export shipment on October 30,
1990. Protestant stated in this submission that the first
analysis providing an FFA of .45% was in error. The corrected
certificate on the export shipment indicated a FFA of .80% when
rechecked. Both documents are dated July 22, 1989.
On November 14, 1990, the corrected certificates were
submitted to the Customs Laboratory to be evaluated. On November
27, 1990, a second report was issued by the Customs Laboratory
stating that the merchandise was not fungible.
Before the broker received this report, it submitted another
certificate of analysis and possession documents for a new import
entry from another vessel, the Team Progress, arriving in
Savannah, Georgia. The liquidation branch denied this claim
on the basis of nonfungibility by letter, dated December 19,
1990, without submitting it to the Customs Laboratory.
The application for drawback was submitted on July 7, 1989
and denied on February 1, 1991.
The protest was filed on February 5, 1991, contesting the
denial of the claim of same condition drawback on the basis that
the imported and exported material are fungible within the
standards of C.S.D. 87-6. In this submission the protestant
submitted the certificates of analysis discussed above, several
warehouse receipts and documents describing the inventory
procedures reflecting upon the possession issue, bills of lading,
a copy of the import consumption entry filed in Savannah,
Georgia, a copy of the liquidation notice, shippers export
declaration, Customs Form 7511, and the calculation of duty.
An amended protest was filed on February 27, 1991,
contesting the denial of the claim of same condition substitution
on the basis that the imported and exported material are not
fungible. In support of this amendment the protestant put forth
three alternative arguments which have been addressed below.
On April 16, 1991, an examiner was appointed by the United
States Trustee pursuant to an order of the United States
Bankruptcy Court in order to receive and maintain all drawback
payments upon reimbursement to Tradecom, Inc..
Whether crude degummed soybean oils that are subject to
deviations as indicated in Section 3A, Rule 103, of the rules
published by the National Soybean Processors Association (NSPA)
satisfies the fungibility requirements of the substitution same
condition drawback law.
LAW AND ANALYSIS:
The protest and amendment have been properly filed within
the provisions of 19 CFR 174.12 and 174.14(a), since both the
original and the amended protest have been filed within 90 days
after the date of notice of liquidation or reliquidation.
Under section 313(j)(2), Tariff Act of 1930, as amended (19
U.S.C. 1313(j)(2)), upon the exportation or destruction under
Customs supervision of merchandise (whether imported or domestic)
which is fungible with imported merchandise, assuming compliance
with other requirements in the statute and applicable regulations
(19 CFR Part 191), same condition substitution drawback may be
claimed. This provision specifically permits the substitution of
merchandise (whether imported or domestic) for imported
merchandise, provided that they are fungible.
The term "fungible merchandise" is defined in the Customs
Regulations as "merchandise which for commercial purposes is
identical and interchangeable in all situations." (Emphasis
added) 19 CFR 191.2(b)(1). This definition is consistent with
the clearly expressed intent of the Congress when it enacted 19
U.S.C. 1313(j)(2). See, House Report (Ways and Means Committee)
No. 98-1015, September 12, 1984, reprinted at 1984 U.S.C.C.A.N.
4960, 5023; see also 129 Cong. Rec. E 5339 (daily ed. November 4,
The Court of International Trade gave support to Customs
interpretation of the term "fungible merchandise" in the case of
Guess? Inc. v. United States, Slip Op. 90-121 (CIT November 26,
1990), Vol. 24 Cust. Bull. & Dec. No. 51, p. 26. The Court
stated that "...the choice of the word 'fungible' indicates an
intention by Congress to identify merchandise which stands in the
place of the imported merchandise in all respects." (emphasis
added) In this case, the court concluded that the existence of a
customer preference destroyed the fungibility between the
imported and exported merchandise.
In order to meet the fungibility requirements the
specifications submitted must meet the maximum and minimum
analytical requirements of Section 3A, Rule 103, of the Trading
Rules for the Purchase and Sale of Soybean Oil published by the
The NSPA is recognized by traders and users throughout the
world. The NSPA rules for soybean oil are the most widely used
rules in domestic and international trade under which soybean oil
is traded. It thereby, represents the industry's treatment of
the merchandise as commercially identical and fungible.
In C.S.D. 87-6, we held that crude degummed soybean oils
that meet the specifications outlined in Section 3A, Rule 103,
NSPA, and which are not subject to contract adjustments for
deviations in the specifications as provided for in the Rule, are
fungible for drawback purposes.
Section 3A, Rule 103, provides the allowable discounts for
deviations from the standard for certain properties such as free
fatty acids (FFA) and phosphorus. Under Section 3A, Rule 103,
the maximum standard for FFA is .75%. Discounts in the contract
price are allowable for deviations in the quality of the
properties. This section provides:
a. Free fatty acids .76% - .85% - 0.2% of contact price
.86% - .95% - 0.4% of contract price
.96% - 1.05% - 0.6% of contract price
1.06% - 1.15% - 0.9% of contract price
1.16% - 1.25% - 1.2% of contract price
Protestant contends that certain ranges of physical
properties (FFA content) of CDSBO are identical (interchangeable)
in all situations. In support of this contention protestant has
submitted letters from two industry sources (Colfax, Inc. and
Riceland Foods, Inc.). Both of these companies advocate that the
CDSBO containing FFA content below .75% is, for commercial
purposes, identical and interchangeable in all situations with
CDSBO containing FFA content between .76% and 1.25%.
The NSPA has not indicated any minimum standard for the FFA.
The amounts above the .75% however, fall within the deviations
listed above in Section 3A, Rule 103. The discounts in the
contract price allowable for the deviations are synonymous with
different ranges in the quality of the physical properties. It
is therefore, our position that the different ranges indicated in
Section 3A, Rule 103, are purposeful and may not be
interchangeable for fungibility purposes.
The protestant contends that the original certificate of
analysis on the Petrobulk Panther which indicated the FFA to be
.45% is the proper document to utilize in the determination of
fungibility. Additionally, the protestant contends that the
certificate of analysis which provides the results of sampling
the contents of the import vessel, the Team Progress, in Brazil
is the proper document to utilize in the determination of the
imported merchandise. The FFA provided on this certificate is
In the alternative, the protestant contends that the
certificates of analysis showing the resulting FFA of .58% after
sampling the oil from the import vessel, the Team Progress, at
the time of discharge in Savannah, should be utilized to
The proper certificate of analysis regarding the export
vessel, the Petrobulk Panther, is the resubmitted certificate.
The protestant has substituted a "corrected" certificate because
the original was "in error." The FFA of .80% in this certificate
is above the maximum standard of .75% and falls within the
deviations described above in Section 3A, Rule 103.
In order to use a certificate of analysis to determine
fungibility of the imported merchandise, sampling must occur at
the time the vessel enters the port. Therefore, the samples
taken at the port in Rio Grande, RS, Brazil, on the import vessel
Team Progress, would not be sufficient to determine fungibility.
Additionally, the certificate, dated September 19, 1990,
representing the samples of soybean oil loaded into barges from
the cargo discharged from the Iverhawk and the Team Progress
would not be sufficient for this same reason. In the
alternative, the protestant suggests the utilization of the
certificate procured at the time of discharge in Savannah. We
are in agreement that this would be the proper certificate for
purposes of determining fungibility. Based upon the discussion
above however, regarding the deviations in standards, the FFA of
.58% from this import vessel would not be fungible with an FFA of
.80% as provided from the export vessel.
Finally, it is the position of the Customs Service, with
respect to CDSBO, to apply the industry standard in the
determination of the fungibility of merchandise. We cannot find
the operations of two companies alone indicative of an industry
standard, where the published standards of that industry conflict
with the standards used by those two companies.
The subject protest should be DENIED in full.
A copy of this decision should be attached to the CF 19,
Notice of Action, sent to the protestant to satisfy the notice
requirement of section 174.30(a), Customs Regulations.
John A. Durant, Director
Commercial Rulings Division