Danzas AEI Drawback Services, Inc.
Attn: Jim Stanka
1718 Fry Road, Suite 240
Houston, Texas 77084
Dear Mr. Stanka:
This letter is in response to your March 2, 2000, request to issue a ruling concerning the commercial interchangeability of electronic components, tranceivers, and mobile phone accessories which are imported and exported by your client, Nokia Mobile Phones (Nokia). Our decision follows.
Nokia Mobile Phones (Nokia) imports electronic components, transceivers, and mobile phone accessories. Nokia is claiming duty drawback under the unused merchandise provisions of 19 U.S.C. § 1313(j)(2) for the foregoing merchandise that it exports, as well as domestically manufactured merchandise exported in substitution thereof. Nokia has provided sample import and export documents, which are discussed below, to support its request.
CF 7501 indicating import date as September 20, 1999 and the tariff classification as 8518.30.2000, HTSUS
Invoice to Nokia Texas from a Japanese company for 5,000 headsets—part number indicated 0694061
Purchase order from Nokia Texas to Japanese company for part number 0694061
CF 7501 indicating import date as August 2, 1999 and the tariff classification as 8536.4010, HTSUS
Invoice to Nokia Texas from a Taiwanese company for 62,930 units of connectors—part number indicated 542Y014
Purchase order to Taiwanese company from Nokia Texas for part number 542Y014
CF 7501 indicating the import date as November 13, 1999 and the tariff classification as 8532.21.0050, HTSUS
Invoice to Nokia Texas from a Japanese company for 501,000 units of tantalum capacitors—part number indicated 2610100
Purchase order from Nokia Texas to Japanese company for tantalum capacitors—part number indicated 2610100
CF 7501 indicating the import date as November 13, 1999; the tariff classification as 8507.80.8000, HTSUS; and that the parties are related
Invoice to Nokia Texas from Nokia Japan for 37,800 batteries—part number 470057
Purchase order from Nokia Texas to Nokia Japan for batteries—part number 470057
Commercial Invoice #80653493 from Nokia Texas to Nokia Hong Kong for 400 units of headsets –part number 0694061, Schedule B #8518.30.2000
Warehouse inventory sheet showing entry for invoice #80653493 for 400 units of part number 0694061
Commercial invoice #80596264 from Nokia Texas to foreign purchaser for purchase of 18,000 units of connectors—part number indicated 542Y014, Schedule B, subheading 8529.90.5000
Warehouse inventory sheet showing entry for invoice
#80596264 for 18,000 units of part number 542Y014
Sales Order confirmation dated October 22, 1999, from Nokia Texas to foreign purchaser for tantulum capacitors—part number indicated 2610100
Commercial invoice #80659565 from Nokia Texas to foreign purchaser for 800,000 capacitors—part number indicated 2610100.
Air waybill dated October 22, 1999, indicating shipper as Nokia Texas and foreign purchaser as consignee
Warehouse inventory sheet showing entry for invoice #80659565 for 800,000 of part number 2610100
Purchase order dated August 24, 1999 from Nokia Korea to Nokia Texas for 50,000 batteries—part number 470057
Commercial Invoice #80621468 from Nokia Texas to Nokia Korea for part #470057; Schedule B #8529.90.5000 dated September 21, 1999
Air waybill dated September 23, 1999
Delivery list showing entry for invoice #80621468 for part number 4700057
Whether the Nokia mobile phone accessories under consideration meet the requisite criteria for commercially interchangeable merchandise for purposes of the unused merchandise drawback provisions set forth in 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, duty-paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise provided certain 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 law was substantively amended by § 632, title VI - Customs Modernization Act, Public Law 103-182, The North American Free Trade Agreement ("NAFTA") Implementation Act (107 Stat. 2057), enacted December 8, 1993. Before its amendment by Public Law 103-182, the standard for substitution under § 1313(j)(2) was "fungibility". House Report No. 103-361, 103d Cong., 1st Sess. (1993) contains language explaining the change from fungibility to commercial interchangeability. According to the Report (at p. 131), 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)), prior to their amendment on March 5, 1998. The Report, at p. 131, also states:
The Committee further intends that in determining whether the 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. 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 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. See 19 C.F.R. § 191.32. Underlying purchase and sales contracts, purchase invoices, purchase orders, and inventory records show whether a claimant has followed a particular recognized industry standard or governmental standard, or any combination of the two, relative values of the imported and exported merchandise, and whether a claimant uses part numbers to buy, sell, and inventory the merchandise in issue. See HQ 227473(March 3, 1998)(determining whether imported and exported merchandise met government and industry standards and relative values using contracts and purchase orders); HQ 227106 (September 3, 1997)(determining use of part numbers, using purchase orders, sales documents and invoices, and warehouse receipts). See also, 19 C.F.R. § 177.2(b)(4)(“If the question or questions presented in the ruling request directly relate to matters set forth in any invoice, contract, agreement, or other document must be submitted with the request.”)
Our review of the commercial documentation you submitted yields the following analysis.
Preliminarily, we note that Nokia submitted a list of merchandise, with corresponding part numbers and descriptions, for which it seeks unused merchandise drawback; however, Nokia did not submit any evidence to support the import and export value nor tariff classification thereto. Further, Nokia provided sample import and export documents for the HDC-3P Headset (headset), Tantulum Capacitor, Polycene Battery 3.3V, and Coaxial Connector (Connector); however, with regard to the Tantulum Capacitor and the Polycene Battery, the export documents predate the import documents. For example, the documents supporting the commercial interchangeability of the battery show that the export waybill indicates that the export shipment was received by the carrier on September 23, 1999, and apparently was received in a Korean export zone on October 1, 1999. The CF 7501 on the import shows an import date of November 13, 1999. Consequently, that import could not be the designated import entry against the export even if the imported and exported battery were commercially interchangeable because pursuant to 19 U.S.C. § 1313(j)(2)(B), before the close of the three-year period beginning on the date of importation of the imported merchandise, the substitute merchandise must be exported. The three-year period for an import which, begins on November 13, 1999, cannot be satisfied by an export that occurred in September or October 1999. Because the import documents predate the export documents, the evidence may only be used to illustrate of commercial interchangeability, it may not be used as the basis for drawback of this merchandise.
1. Governmental and Recognized Industry Standards
In Nokia’s April 13, 2001, letter, Nokia states that “there are no published government standards for the part number specific items purchased by NMP. The specifications are established on a part by part basis by the vendor, and are reflected in our purchase orders to the vendor.” As such, it appears that the first criterion is inapplicable this case.
2. Part Numbers
According to the documentation submitted, part numbers are used in the purchase, sale, and inventory of the imported and exported merchandise. In order to determine whether the use of the part numbers support the commercial interchangeability of the merchandise, we need to examine the “arms-length negotiations between the commercial actors, the description of the goods on the bills of sale or invoices, as well as other factual evidence . . .” Texport Oil Company v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999)(internal citations omitted).
With regard to the connectors, capacitors, and the headsets, the import documents show that the import seller and Nokia used the same part numbers and Nokia and the export purchaser used same part numbers identical to those used in the import transactions. Coupled with the fact that both the import and export transactions were at arm’s-length, (with the exception of the export sale of the headphones) it would appear, based on the use of the part numbers on the foregoing accessories, that they are treated as commercially interchangeable by Nokia and its customers. See Texport Oil Company, 185 F.3d at 1295. With regard to the battery, the import documents, which indicate the transaction was between Nokia Japan and Nokia Texas, and the export documents, which indicate a sale between Nokia Korea to Nokia Texas, use identical part numbers. Based on the foregoing, we conclude that the part numbers criterion has been met.
3. Tariff Classification
With regard to the headset, the CF 7501 indicates the import classification as 8518.30.2000, HTSUS, and the export commercial invoice from Nokia to Nokia Hong Kong indicates the export classification as subheading 8518.30.2000, Schedule B. Both subheading 8518.30.2000, HTSUS and 8518.30.2000, Schedule B cover “‘Other’ Headphones, earphones and combined microphone.” Based on the identical classifications of both the import and export merchandise, it appears that the tariff classification criterion, with regard to the headsets, has been met. See Cust. B. Vol. 32, No. 10 (March 11, 1998)(explaining that full tariff classification, whether from either the HTSUS or Schedule B, is required to establish commercial interchangeability).
The import documents for the connectors, including the CF 7501, indicates that the import classification as 8536.69.4010, HTSUS which are defined as “Coaxial connectors; cylindrical multi-contact connectors; rack and panel connectors; printed circuit connectors; ribbon or flat cable connectors.” The export commercial invoice indicates the export classification as subheading 8529.90.5000, Schedule B. Subheading 8529.90.5000, Schedule B, provides in pertinent part:
Parts suitable for use solely or principally with the apparatus of headings 8525 to 8528:
Of television apparatus:
Convergence assemblies, flybacks, focus coils and degaussing coils
Of radar, radio navigational aid or radio remote control apparatus . . .
The import HTSUS classification for the connectors do not appear to describe the same items as the export Schedule B classifications inasmuch as the Schedule B classification is a broader description. However, after further research we found that Nokia used the incorrect Schedule B subheading on its commercial invoice. The correct Schedule B subheading is 8536.69.4010 defined as “Coaxial Connectors.” Insofar as the foregoing correct Schedule B subheading and the import classification are identical, we conclude that the tariff classification criterion, with regard to the connectors, has been met.
The import documents for the batteries, including the CF 7501, indicates that the import classification is 8507.80.8000, HTSUS which is defined as “Other storage batteries. . . Other.” The export commercial invoice, similar to the commercial invoice for the connectors, indicates the export classification for the battery as 8529.90.5000, Schedule B, which is provided above. As with the connectors, the import HTSUS classification for the batteries do not appear to describe the same items as the export Schedule B classifications inasmuch as the Schedule B classification is a broader description. We have found that Nokia also used the incorrect Schedule B subheading on its commercial invoice for the batteries. Instead, the correct Schedule B subheading is 8507.80.8000, which is defined as “Other storage batteries.” Insofar as the foregoing correct Schedule B subheading and the import classification are identical, we conclude that the tariff classification criterion, with regard to the connectors, has been met.
With regard to the capacitor, the CF 7501 reveals that it is classified as 8532.21.0050, HTSUS; however, the export documents provided do not indicate the export classification of the capacitor. Hence, the tariff classification criterion as to the capacitors has not been met.
4. Relative Values
a. Headset, Connector, and Battery
With respect to the relative values, the record indicates that the export price is only 4% greater in value than the import price for the headsets and with respect to the connectors, the record indicates that the export price is only 2% greater than the import price. Likewise, the export price of the battery is only 2% greater than the import price. Inasmuch as there is only a slight difference between the import and export price of the headsets, batteries, and the connectors, the fourth criterion has been met. See HQ 227470(February 9, 1998)(holding that 6.7% difference in import and export price was not significant enough to effect commercial interchangeability);HQ 227473(March 3, 1998)(holding that a 14% difference in import and export price was not significant enough to effect commercial interchangeability).
However, with regard to the capacitors, there is a substantial difference in the import and export price, inasmuch as the export price exceeds the import price by 400%. We have held that such a variance in price does not preclude a finding of commercial interchangeability, when other critical properties have been met or when sufficient evidence is provided to support the material difference in value. See HQ 225483 (July 19, 1995)(holding that although the price difference of the imported and exported merchandise was in excess of 50%, the imported and exported merchandise qualified under the applicable industry standards and thus, relative value did not have as much weight when determining commercial interchangeability); HQ 228211 (August 4, 1999)(holding that the 55.64% difference in value was supported by the explanation and evidence in support thereto that the difference was a result of handling, blending, and seller’s mark-up).
Since it has been stipulated that government or industry standards are not applicable in this case and there is no explanation evident in the documents provided which support the variance in price, we cannot determine that the value criterion has been met with regard to the capacitors.
We conclude, with regard to the headsets, connectors, and batteries, notwithstanding government or industry standards are not applicable to the purchase and sale of such, that the three remaining criteria have been met and therefore, are commercially interchangeable for purposes of 19 U.S.C. § 1313(j)(2).
With regard to the capacitors, only one of the remaining three criteria have been met insofar as we do not have any evidence to show the export classification that was used nor is there any evidence to support the substantial difference in value between the import and export price. Therefore, whether the import and export capacitors are commercially interchangeable cannot be determined at this time. However, you may cite this ruling as authority for obtaining drawback on the capacitors should you meet the requirements of § 1313(j)(2) in the future. See 19 C.F.R. § 177.9(a)(“In the absence of a change of practice or other modification or revocation which affects the principle of the ruling set forth in the ruling letter, that principle may cited as authority in the disposition of transactions involving the same circumstances.”)
The Nokia headsets, connectors, and batteries under consideration are commercially interchangeable for purposes of the unused drawback provisions set forth in 19 U.S.C. § 1313(j)(2).
John Durant, Director
Commercial Rulings Division