DRA-4 RR:CR:DR 227537 CB
Tom Winkowski, Port Director
Miami Service Port
U.S. Customs Service
P.O. Box 025280
Miami, FL 33102
RE: Request for Internal Advice; Commercial Interchangeability of Cranberry Juice Concentrate; 19 U.S.C. §1313(j)(2); Drawback; HQ 225409; Proof of Export; Untimely Claim
Dear Mr. Winkowski:
This is in reply to your letter of April 22, 1997, on behalf of, Lykes Pasco, Inc., wherein you requested internal advice concerning the commercial interchangeability of cranberry juice concentrate (“CJC”). As noted in the claimant’s letter of March 10, 1997, this issue was the subject of an internal advice decision (HQ 225409, dated August 29, 1995), wherein we held that we were unable to conclude that the imported and substituted merchandise were commercially interchangeable for the purpose of 19 U.S.C. §1313(j)(2).
Additionally, we also note that Lykes Pasco has requested confidential treatment of product specifications and sales documentation. Please be advised that we have reviewed the submission and concluded that the submission contains proprietary business information. Your request for confidential treatment of those documents is hereby GRANTED.
Lykes Pasco filed two substitution unused merchandise drawback claims which were the subject of a request for internal advice with respect to whether certain substituted CJC was commercially interchangeable with certain imported CJC. Lykes Pasco’s attorney states that, at the time the advice was rendered, Lykes Pasco was not aware that internal advice had been sought. Thus, it was unable to provide the information required for a determination of commercial interchangeability. The internal advice (HQ 225409) indicated that after a review of the available evidence, we were unable to conclude that the evidence supported a finding that the merchandise was commercially interchangeable.
Lykes Pasco has now provided additional information which addresses the criteria set out in the legislative history to 19 U.S.C. §1313(j)(2), as amended in 1993. More specifically, Lykes Pasco submitted additional evidence on the issue of relevant Governmental Standards, product specifications, and a summary of receiving reports and purchase orders.
The subject request involves two substitution unused merchandise drawback claims. Specifically, entry nos. 032-XXXXX41-3 and 032-XXXXX38-9. The issue centers on whether the CJC is commercially interchangeable for purposes of 19 U.S.C. §1313(j)(2). Drawback entry no. 41-3, designates CJC imported on import entry no 032-XXXX091-0 covering 72 drums of 65? Brix. A copy of the CF 7501 with an accompanying invoice is attached. The substitute exported CJC consisted of 78 drums of 58? Brix. There is no invoice showing the value of the substitute exported CJC. There is a copy of a Transportation Entry and Manifest of Goods Subject to Customs Inspection and Permit (CF 7512) dated April 28, 1994 showing that 78 drums of 58? Brix CJC (gross weight 24043 lbs.) were shipped to FTZ 99. A companion CF 214 shows that what appears to be 8 drums (gross weight 41.437 lbs.) were admitted in zone restricted status on May 4, 1994.
Drawback entry no. 38-9 designates CJC imported on import entry no. 032-XXXX398-0 covering 268 drums of CJC of 65?Brix and 335 drums of 58? Brix CJC as being exported. A copy of the CF 7501 and invoice is attached. The CF 7539 indicates the value of the imported CJC as $XXX,XXX. The accompanying invoice covers 268 drums for a total price that is $5,000 more than shown on the CF 7539. The substitute exported CJC consisted of 335 drums of 58? Brix. The CF 7539 shows the value of the exported CJC was about $18,000 more than the value of the import designated on the CF 7539. Also attached to the CF 7539 is a copy of a change order dated March 8, 1994 covering what appears to be a sale of 38,000 gallons of CJC 58? Brix. Also attached is a copy of a CF 7512 covering 335 drums of 58? Brix CJC a copy of an accompanying Sea Waybill. There does not seem to be an invoice or purchase order covering these exported 335 gallons.
Are the imported and substituted cranberry juice concentrates commercially interchangeable for the purpose of 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, among other requirements, there is, with respect to imported duty-paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise. To qualify for drawback, the other merchandise must be exported or destroyed within 3 years from the date of importation of the imported merchandise. Also, 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. Further, the party claiming drawback must either be the importer of the imported merchandise or have received from the person who imported and paid any duty due on the imported merchandise a certificate of delivery transferring to that party the imported merchandise, commercially interchangeable merchandise, or any combination thereof.
Section 632, title VI - Customs Modernization, Pub. L. No. 103-182, the North American Free Trade Agreement Implementation Act (107 Stat. 2057), enacted December 8, 1993, changed the standard for substitution unused merchandise drawback from “fungibility” to “commercial interchangeability.” According to the applicable legislative history, the standard was intended to be made less restrictive (i.e., “the Committee intends to permit the substitution of merchandise when it is ‘commercially interchangeable,’ rather than when it is ‘commercially identical’”) (the reference to “commercially identical” derives from the definition of fungible merchandise in the Customs Regulations (19 CFR §191.2(l))). See H.R. Rep. No. 103-361, 103d Cong., 1st Sess., 132 (1993). The Report (at page 131) also states:
The Committee further intends that in determining whether two articles were commercially interchangeable, the criteria to be considered would include, but not be limited to: Governmental and recognized industrial standards, part numbers, tariff classification and relative values.
The Senate Report for the NAFTA Act (S. Rep. No. 103-189, 103d Cong., 1st Sess., 81-85 (1993)) contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability.
In order to determine whether the cranberry juice concentrates are commercially interchangeable, an analysis of the following factors must be done:
Governmental and Recognized Industry Standards
Governmental and recognized industry standards are generally considered the most important of the four elements with respect to the issue of commercial interchangeability, if used in the purchase and sale of the merchandise in question. In HQ 225409 we concluded that the evidence, available at the time, indicated that the imported and substituted CJC were not commercially interchangeable. The evidence consisted of an Office of Laboratories & Scientific Services (“the Lab”) report, USDA document A-A-20201 and 22 F.R. 5853. The Lab report stated that the available technical information indicated that European Vaccinium oxycoccus, and North American Vaccinium macrocarpon cranberries were different in many aspects, such as, variety, chemical composition, taste and price.
Lykes Pasco contends that the Government specifications cited in HQ 225409 are not relevant to commercial interchangeability of the CJC. Rather, Lykes Pasco has provided two government standards for our consideration. The first “standard” is from the U.S. Food and Drug Administration (“FDA”). This consists of an FDA letter dated January 31, 1984, stating that “[I]n our opinion, the only species which should be labeled as ‘cranberry juice’ are v. macrocarpus [sic], domestic cranberry, and v. oxycoccus, European cranberry.” The letter is signed by an Assistant to the Director, Division of Regulatory Guidance, Bureau of Foods. We note that the letter does not bear an inside address and there is no indication as to the context within which this response was issued. There is also another letter dated March 29, 1992, from the FDA reiterating that, in the agency’s opinion, “. . . the only species that are considered to be cranberry in the United States are Vaccinium macrocarpon and Vaccinium oxycoccus.” There is also a third letter from the FDA (dated June 19, 1997) stating that “[i]n the United States, the common or usual name ‘cranberry’ refers to the domestic cranberry, Vaccinium macrocarpon, and the European cranberry, Vaccinium oxycoccus.”
The second standard offered by Lykes Pasco is one issued by the Codex Alimentarius Commission (the “Codex”). This is the international body responsible for the execution of the United Nations’ Joint Food and Agriculture Organization /World Health Organization Food Standards Programme. The Codex standard for cranberries lists both Vaccinium macrocarpon and Vaccinium oxycoccus under the category of “cranberries.” However, we note that the Codex standard provided by Lykes Pasco is for pulpy nectars intended for direct consumption and not for concentrate for manufacture. Additionally, Lykes Pasco has submitted an affidavit from Dr. R.E. Wrolstad, a professor on the faculty of Oregon State University, in the Department of Food Science and Technology. In his affidavit, Dr. Wrolstad states that “I have reported the compositional differences between V. Macrocarpon and V. Oxycoccus and our results are very similar to those reported by Coppola, 1989; . . .” Dr. Wrolstad states that, among other things, the European cranberry contains less quinic acid than the North American cranberry. Dr. Wrolstad goes on to state that “ not only are these compositional differences minor but compared with other fruits, these differences are even more insignificant.” However, this conclusion is contradicted by Dr. Wrolstad’s own statement that his laboratory is often requested to analyze a cranberry juice concentrate to determine whether it is V. macrocarpon or V. oxycoccus because if the formula for the substitute concentrate is applied to a juice made from the imported concentrate, the percent of juice estimate will be lower.
At this office’s request, the Lab reviewed the additional information submitted by Lykes Pasco. The Lab contacted Dr. Elia Coppola, who works for Ocean Spray Cranberries, Inc. and sought his technical advice. Dr. Coppola provided Customs with a copy of his report entitled “Authenticity of Cranberry Products Including Non-Domestic Varieties.” In his report, Dr. Coppola states that, in his opinion, these two species are different in many aspects, such as, chemical composition, taste and price. Specifically, Dr. Coppola’s report states that “quinic acid is the most important cranberry acid and a very expensive chemical. Addition of synthetic quinic to juice to parallel the natural occurring quinic acid levels of cranberry juice is uneconomical.”
Thus, the government standards and the technical experts contradict each other. The Codex Alimentarius, FDA and Dr. Wrolstad indicate that the two species are interchangeable. The USDA standard and Dr. Coppola indicate that the two species have different composition, taste, and price and would not be interchangeable. Because no purchase or sales contracts were submitted by Lykes Pasco, it is impossible to determine whether Lykes Pasco used the Codex Alimentarius or the FDA standard or some other standard in its commercial transactions. In any event, there is no consistency between the published standards. Thus, we are unable to reach a conclusion with respect to this criterion.
Lykes Pasco contends that this criterion is not applicable because CJC is not sold with reference to part numbers. This assertion is not borne out by the documentary evidence. According to an affidavit from Sean H. Frielich, an employee of Lykes Pasco, material designated as “cranberry 50" and “cranberry 58" are domestic-origin concentrates meeting the specifications for “LPS-002 and LPS-029,” respectively. “Cranberry 65" is an imported concentrate meeting the specifications for “LPS-033.” This coding systems appears to be used in the change order dated March 8, 1994, which refers to LPS-020. There is no explanation as to which product “LPS-020" refers to. Additionally, we note that the blend formulas refer to the different types of CJC by a separate product or material code (i.e., “cranberry 50" = 51-1560051, etc.).
Since Lykes Pasco has failed to provide copies of inventory records we are unable to determine exactly how these codes are used. Thus, based on the evidence in the file we must conclude that this criterion is applicable and that product is sold using product codes. That evidence does not support a conclusion that Lykes Pasco treats the imported and substituted CJC as being commercially interchangeable.
Regarding tariff classification, both the imported and substituted cranberry juice concentrate are classified under subheading 2009.80.60, Harmonized Tariff Schedule of the United States (“HTSUSA”). Thus, this criterion is not informative with respect to any potential difference.
HQ 225409 found that complete information had not been provided with respect to the relative value criterion. Based on the available information in the file, we determined that the difference in relative values between the imported designated and exported CJC was about 12 per cent.
As stated in the FACTS portion of this ruling, the subject drawback claims did not contain invoices or purchase orders for the substitute exported CJC. By way of a telephone conference on April 15, 1998 and follow-up letter dated April 21, 1998, Lykes Pasco’s counsel was advised that the file did not contain documentary evidence addressing the relative value criterion. Lykes Pasco was afforded an opportunity to submit the pertinent information. A complete copy of all documentation pertaining to the purchase and/or sale of the imported and substituted goods is essential to a determination of commercial interchangeability. Copies of import and export invoices, packing lists for the merchandise to be substituted, and purchase orders from the claimant to the foreign supplier and from the foreign customer to the claimant are necessary in order to properly apply the relative value criterion. Under cover of a letter dated October 2, 1998, Lykes Pasco’s counsel submitted copies of purchase orders for both the imported and substitute concentrate. Thirteen purchase orders (and one change order) were provided. Seven of these orders are dated December 1995 to December 1996. They would appear to be irrelevant to the subject claims since the time frame covered by these claims is 1991 (date of imports) to 1994 (date of exports). There are four other purchase orders (and the one change order) dated between 1989 and 1991. These purchase orders cover domestic purchases of CJC. However, the relevancy of these orders is also not readily apparent. In a written statement attached to the drawback claims, dated March 31, 1994, the claimant states that the substitute exported CJC was supplied by Company A. The purchase orders are addressed to Company B. No explanation has been provided as to this apparent discrepancy. The remaining two purchase orders are for the imported CJC. However, we are unable to do a relative value comparison in the absence of pricing information for the substitute CJC.
Likewise, when a claimant is alleging that the difference in relative values result from fluctuations in supply, due to seasonality, weather factors, or other natural forces that affect production levels, such an allegation must be corroborated by independent evidence. Such independent evidence should consist of trade letters, technical bulletins, literature, etc. Unsupported, self-serving assertions are not evidence. See generally, Bar Bea Truck Leasing
Co., Inc. v. United States, 5 CIT 124 (1983). Lykes Pasco has submitted copies of articles from several trade publications. The articles, from Food News, Food Institute Report and Yakima-Herald Republic . These articles indicate that the 1995 cranberry crop was affected by several factors such as heat, drought conditions and hail. The other publication submitted by Lykes Pasco is the August/September 1995 and June 1997 Cranberry Marketing Committee (CMC), Stats and Facts Newsletters. As stated by counsel, the narrative discusses the likely effect of weather conditions on the 1995 crop. The June 1997 newsletter does not shed any light on the issue of relative values. The applicability of these articles is also not readily apparent. These articles pertain to the 1995 crop. The instant claims are based on 1994 exports which presumably must have been harvested in 1994, if not earlier.
We also note that Dr. Coppola’s report includes a Table listing the 1993 Market Prices Per Gallon of Fruit Juice Concentrates. This table includes pricing information for both the v. macrocarpon and v. oxycoccus concentrates showing market price at 50% concentration. The table discloses that the v. macrocarpon was valued at $56.50 per gallon and the v. oxycoccus
ranged from $38 to $49. Thus, according to Dr. Coppola, the difference in relative values between the imported designated and exported CJC ranged from 15% to 49% .
Lastly, having said all of the above, we also conclude that the claims should be denied because they fail on other grounds. One of the claims is untimely and both contain inconsistencies and are missing crucial information. To-wit:
1. Claim 032-XXXXX38-9: The CF 7539 shows that 268 drums (65? Brix) imported under consumption entry 032-XXXX398-0 with a value of $XXX,XXX are being designated. It also indicates that duties were paid in the amount of $X,XXX. The invoice attached to the claim shows a sales price with a difference of about $5,000 from that indicated on the CF 7539. As to the substitute exported CJC, the CF 7539 states that 335 drums (58? Brix) were exported with a total value of $XXX,XXX. Attached to the claim is a CF 7512 and a Sea Waybill showing the movement of 335 drums. There is no invoice covering the exported merchandise so there is no way to determine the value of the export. We note that there is a “Change Order” included with the claim but there is no indication as to how it fits in with either the designated imported or exported substitute CJC. It cannot, presumably, pertain to the imported CJC because the order refers to 58? Brix (the imported CJC was 65? Brix). Likewise, it cannot pertain to the exported CJC because although the Brix match, according to the order the CJC is to arrive at Lykes Pasco’s facilities after the date of exportation of the substitute CJC.
Additionally, we note that there is no proof of exportation, certified or uncertified. See 19 CFR §191.52 (1997). The Sea Waybill only shows that the carriage line received 335 drums on or about April 7, 1994. This does not meet the regulatory requirements for uncertified notice of exportation which requires that the supporting documentary evidence shall establish fully the time and fact of exportation. 19 C.F.R. §191.52(c)(2) (1997). Nor, is there any indication that a CF 7511 was filed and certified by Customs at the time of exportation.
2. Claim 032-XXXXX41-3: The CF 7539 indicates that 72 drums (65? Brix) imported under consumption entry no. 032-XXXX091-0 with a value of $XXX,XXX are being designated. It also indicates that duties were paid in the amount of $XXX. The claim includes an invoice pertaining to the imported CJC. As to the substitute exported CJC, the CF 7539 states that 78 drums (58? Brix) were exported with a total value of $XXX,XXX, which exceeds that on the import by about $4,000. There is no invoice included with the claim and, thus, we cannot determine if the value listed on the CF 7539 is correct. There are attached a CF 214 and 7512 pertaining to the exported substitute CJC which contain several discrepancies. The CF 7512 covers 78 drums weighing 24,043 lbs. being moved to FTZ 99. The value shown is the same as that shown on the CF 7539. The CF 214 shows that 8 drums weighing 41.457 lbs were placed in FTZ 99 in zone restricted status. The total value indicated is $5,000 less than shown on the CF 7512 for the import. Thus, there are discrepancies in the number of drums, weight and value of the exported substitute CJC.
Additionally, and more importantly, this claim should be denied because the exportation did not occur within 3 years from the date of importation. The statutory language is very clear. Exportation must occur before the close of the 3-year period beginning on the date of importation. See 19 U.S.C. §1313(j)(2)(B). The date of importation was May 4, 1991. The exported substitute CJC was not received into FTZ 99 until May 4, 1994. Under 19 U.S.C. §81c(a) merchandise which has been taken into the a zone shall be considered to be exported for the purpose of drawback. In the instant case, the CJC was not taken into the zone in zone- restricted status until May 4, 1994. Thus, the deemed exportation, pursuant to 19 U.S.C. §81c(a) did not occur until after expiration of the 3-year period.
3. With respect to both claims, as discussed above, the two shipments (one is a exportation and the other is a deemed exportation) are covered by a CF 7512 (Transportation Entry and Manifest of Goods Subject to Customs Inspection and Permit). Under 19 U.S.C. §1313(u), “[I]ported merchandise that has not been regularly entered or withdrawn for consumption shall not satisfy any requirement for use, exportation, or destruction under this section.” 19 U.S.C. §1313(u). A review of each CF 7512 seems to indicate that the substitute CJC was imported, entered for warehousing, and then withdrawn from a warehouse and moved in bond to the port of exportation. In one case, it was shipped overseas. In the other case, it was admitted into a zone in zone-restricted status which would be a deemed exportation. We draw your attention to the certification portion of the CF 7512 wherein there are references to merchandise being withdrawn from a warehouse. Thus, if the claimant withdrew the substitute CJC from a bonded warehouse without having first entered it for consumption, these exportations cannot be used to satisfy the statutory requirements. You need to ascertain if this is in fact what happened. If so, this would be an additional ground on which to deny drawback.
Commercial interchangeability has not been established. Additionally, the claims should be denied based on (1) the untimeliness of the one claim and (2) the failure to prove the time of
exportation for the other claim. Additionally, both claims may be denied if the exported substitute CJC was not entered for consumption prior to exportation.
You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide
Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and
other methods of public distribution.
John Durant, Director
Commercial Rulings Division