DRA-4-RR:CR:DR 228171 IOR
John T. Denninger
J.G. Eberlein & Co., Inc.
145 Higbie Lane
West Islip, NY 11795-3236
RE: Commercial interchangeability; 19 U.S.C. 1313(j)(2); 70 denier polyester yarn
Dear Mr. Denninger:
The following is in response to your request for a ruling on the commercial interchangeability under 19 U.S.C. §1313(j)(2) of imported and domestic 70 denier polyester yarn which is purchased by Stokes County Yarn Company ("Stokes").
Stokes has provided documentation and samples pertaining to the imported and domestic polyester yarn.
The purchase order for the imported yarn is dated September 4, 1995, and provides for the purchase of 45,000 pounds of "70 Denier (75 dtex) 33-36 Filament Texturized Polyester Yarn" at a per pound price. The purchase order includes specifications for the yarn. The Entry Summary, CF 7501, is for the importation of "yarn, textured: polyester, single" subheading 5402.33.3000, HTSUS, imported on December 11, 1995. The commercial invoice for the imported merchandise provides the quantity and price of merchandise and is consistent with the information contained on the purchase order. The commercial invoice also describes the merchandise. There is another commercial invoice with the same information (the amount owed in U.S. $ is incorrectly calculated), which is a textile export visa. A sample of the imported polyester yarn was provided.
EXPORTED DOMESTIC MERCHANDISE
There were two sales of the domestic merchandise thus there are two prices for the domestic merchandise. One price was that paid by Stokes to the domestic supplier, and the second price was that charged by Stokes to its purchaser. Details of these transactions are discussed below. In the first instance, the purchase order for the domestic yarn is dated March 17, 1997, and provides for Stokes’ purchase of 200,000 pounds of "70 Denier (75 dtex) 33-36 Filament Texturized Polyester Yarn" at a per pound price, from a U.S. supplier. In this first sale, the per pound price of the imported yarn described above was 41% greater than the per pound price for the domestic yarn purchased by Stokes. The purchase order includes specifications for the yarn.
In the second instance, the contract for Stokes’ sale of the domestic merchandise, to a U.S. company is dated March 6, 1998, and provides for the sale of 120,000 pounds of "Textured Polyester 70 Denier" at a per pound price. In this second sale, the per pound price for the imported yarn was 98% greater than the per pound price for the domestic merchandise. There is an invoice for the sale of the domestic merchandise, to the U.S. company, for 40,126.7 net pounds of merchandise at the same per pound price as provided in the sales contract. A straight bill of lading is dated April 2, 1998, and provides for shipment, by the same U.S. company which purchased the yarn from Stokes, of 43,932 gross pounds of the merchandise to "Lattakia" (sic), Syria. There is another bill of lading, dated April 19, 1998, for shipment of the merchandise to Latakia, however the gross weight is different from that on the April 2 bill of lading and the commercial invoice, and the exporter is a different U.S. company than that which is identified as the purchaser and shipper of the yarn on the other documents.
The specifications are the same for the domestic merchandise in both sales. A sample of the polyester yarn was provided.
The documents submitted also include a copy of a page from an inventory control log. The log describes with respect to the yarn, the supplier, the ply (ie. single-ply), denier, filaments, lustre, color, and average cost. There is also a column described as “additional description” which according to Stokes includes any incidental information such as a part number. On the sample log sheet, some of the yarns are described as dull and some as semi dull. All of the yarns are single ply, 70 denier, and the filament ranges from 33-36 with one exception where the filament is 100. All of the yarns are natural in color. Most of the items have a part number, although some do not. The part numbers for one yarn type with the same vendor, ply, denier, filament, lustre, and color, are the same, and some with the same characteristics do not have any part number. In another instance, two yarns with identical descriptions including the vendor, have part numbers which differ in that one has a “z” suffix. According to the broker for Stokes, the part numbers are provided by the vendor. In the instance where the part number differs by the suffix, the difference is stated to be due to the twist of the yarn. The average cost for all of the yarns varies.
According to a submission from Stokes dated November 5, 1999, the exported yarn is classified under subheading 5402.33.3000, HTSUS. In the same submission, Stokes described the textile yarn market as having surplus stocks which resulted in severe price declines. According to the submission, for the past several years Stokes has brought in new products at lower prices, while many transactions on the sales side have resulted in sales of older high priced inventories at depressed sales prices. In another submission of November 30, 1999, Stokes submitted articles that discuss how the fiber industry was affected by the “Asian economic crisis”. No average price guide for the subject merchandise is provided. The articles discuss the effect of the crisis generally, and make some general references to the textile industry. Some articles mention trends in the context of discussing specific corporations involved in polyester manufacture. One Wall Street Journal article, undated but indicating a fax date of July 22, 1998, states that polyester prices have plummeted 60% from their peak in mid-1995. A “DNR” article dated February 8, 1998, refers to “plunging prices” for polyester and refers to prices of polyester staple and polyester filament as being down 10% in the past year.
The specifications for the imported and domestic merchandise are as follows:
Denier 70-75 (dtex 75-78) +/- 5
Elongation 20% +/- 5%
Oil Content 3-5% +/- 2%
Moisture Regain 1% +/-.5%
Shrinkage (BWS) 2% +/- 1%
Tenacity (g/d) 3.5 - 4.0 +/- 1.0
Crimp 20-25% +/- 5%
Whether the imported polyester yarn and substituted polyester yarn is commercially interchangeable for purposes of 19 U.S.C. §1313(j)(2).
LAW AND ANALYSIS:
Under 19 U.S.C. §1313(j)(2), as amended, substitution unused merchandise drawback may be granted if there is, with respect to imported dutypaid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise and if the following requirements are met. The other merchandise must be exported or destroyed within 3 years from the date of importation of the imported merchandise. 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. The party claiming drawback must be either 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. The statute did not define commercially interchangeable.
The drawback statute was substantively amended by section 632, title VI Customs Modernization, Pub. L. No. 103182, the North American Free Trade Agreement Implementation (NAFTA) Act (107 Stat. 2057), enacted December 8, 1993. Before its amendment by Public Law 103182, the standard for substitution was fungibility. House Report 103361, 103d Cong., 1st Sess., 131 (1993) contains language explaining the change from fungibility to commercial interchangeability. According to the House Ways and Means Committee Report, the standard was intended to be made less restrictive, i.e., "the Committee intends to permit 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 C.F.R. §191.2(l)), prior to their amendment on
March 5, 1998. 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 industry standards, part numbers, tariff classification, and relative values.
The Senate Report for the NAFTA Act (S. Rep. 103189, 103d Cong., 1st Sess., 8185 (1993)) contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability. In addition, the Senate Report states that Customs “should evaluate the critical properties of the substituted merchandise, rather than basing its determination on subjective standards.” Senate Report, at page 83.
In order to determine commercial interchangeability, Customs adheres to the Customs regulations which implement the operational language of the legislative history. The best evidence whether those criteria are used in a particular transaction are the claimant’s transaction documents. 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. The purchase and sale documents also provide the best evidence with which to compare relative values. Also, if another criterion is used by the claimant to sort the merchandise, the claimant’s records would show that fact which will enable Customs to follow the Congressional directions.
In order to determine whether the polyester yarn is commercially interchangeable, an analysis of the following factors must be done:
1. Governmental and Recognized Industry Standards
In an Office of Laboratories and Scientific Services (OLSS) report dated April 27, 1999, it was concluded that the specifications submitted are not sufficient to make a determination on commercial interchangeability. In addition to those specifications provided, in order to make a determination on commercial interchangeability, specifications for twist, luster and quality (i.e., first quality) would be required. OLSS stated that although there are no industry or government standards for polyester yarn, criteria required for evaluation of the commercial interchangeability of polyester yarns are denier, filament count, luster, twist, grade (quality) and tenacity. The sample imported and exported yarns were analyzed by a Customs laboratory, where the
following was determined:
The yarns have been texturized and are without twist. The laboratory confirmed the fiber content and determined that the denier and filament count were within the range listed in the specifications. The laboratory also determined that both yarns are of semi-dull luster, and no optical brighteners were detected. Twist was not determined due to inadequate sample size, and also because the samples had been unwound from a cone prior to submission for lab analysis. Yarn must be carefully unwound from a cone as part of lab analysis to make an accurate determination of twist.
The OLSS determined that the specifications and ranges given for the yarn indicate a first quality product.
Although the specifications alone, in this case were not sufficient on which to base a determination of commercial interchangeability, the combination of the specifications and the results of the laboratory analysis combined, in this case are sufficient, as both the imported and domestic yarn were determined to be semi-dull, without twist, and of first quality. In this case, we conclude that the specifications and characteristics of the imported and domestic yarns support a finding that the merchandise is commercially interchangeable. If, in fact the imported and domestic yarns are with twist, unless the twists are the same, because they were not included in this analysis, this decision would no longer be applicable to the merchandise. For example, without a further analysis, the yarn identified with a “z” in the part number pertaining to the twist, would not be commercially interchangeable with any other yarn, as no analysis with respect to the twist was made in this case.
2. Tariff Classification
According to the CF 7501 submitted, the imported merchandise is classified in subheading 5402.33.3000, HTSUS. According to Stokes, the exported yarn is classified under the same subheading as the import. As both the imported and domestic merchandise is classified under the same HTSUS subheading, a finding of commercial interchangeability is supported by this criteria.
3. Part Numbers
According to the documentation submitted, part numbers are not used in the purchase and sale of the imported and domestic merchandise. However, part numbers are included by Stokes for purposes of its inventory, but according to Stokes, the part numbers are assigned by the supplier. We find that because part numbers are not used in the sale and purchase of the merchandise, and there is no evidence to suggest that merchandise with different part numbers could not be substituted provided the industrial standard criteria is met, we find the use of part numbers in inventory does not preclude a finding of commercial interchangeability.
4. Relative Values
The evidence submitted shows that the value for the merchandise imported December 11, 1995, is 98% greater than the value of the exported merchandise identified on the bill of lading dated April 2, 1998. The value of the import is 41% greater than the value of the domestic merchandise purchased by Stokes, on March 17, 1997, which was to be later sold for exportation. The documentation submitted does support a decrease in the price of polyester textile products, however it does not support a decrease of 98% between December, 1995 and April, 1998. At the most, the articles submitted describe a fall of 60% from mid-1995 to July, 1998. Stokes has not provided any other information that supports the 98% difference in price between the import and export. This criteria does not support a finding of commercial interchangeability, as the evidence does not support the difference in price. However, this criteria also does not preclude a finding of commercial interchangeability, because the evidence does support a general decrease in prices in the polyester industry.
Because we find that the governmental and recognized industry standards criteria and the tariff classification criteria are met, and the part number criteria is inapplicable and the relative value criteria is not conclusive, the imported and exported merchandise are commercially interchangeable.
The imported polyester yarn and substituted polyester yarn is commercially interchangeable for purposes of 19 U.S.C. §1313(j)(2).
Commercial Rulings Division