Mr. William A. Hagedorn
C.J. Hold & Co. Inc.
466 Kinderkamack Rd.
Oradell, NJ 07649
RE: Commercial Interchangeability; 19 U.S.C. §1313(j)(2); 19 CFR §191.32(c)
Dear Mr. Hagedorn,
This is in response to your letter, dated August 24, 2009, on behalf of BASF Corporation (herein “BASF”) regarding the commercial interchangeability of imported and substituted Propylheptanol.
According to the BASF technical data sheet, Propylheptanol is a mixture of isomeric decyl alchols. It is a clear and colorless, high boiling liquid with a mild characteristic. It is miscible with most common organic solvents but has law water solubility. It is used in the construction of flexible PVC applications.
In support of your claim for interchangeability you provided product specifications for both the imported and exported material. You have also provided CBP forms and invoices related to the respective import and export transactions.
For the import transaction, you submitted a copy of the Entry Summary (CBP form 7501) for entry no. 554-XXXXXXX-7, dated June 28, 2006 covering 1,001,071 kg of “SATURATED MONOHYDRIC ALCO” classified under HTSUS subheading 2905.19.0090. The HTSUS classification code number refers to the 2006 HTSUS heading for Acyclic alcohols and their halogenated, sulfonated, nitrated or nitrosated derivatives: Saturated monohydric alcohols: other. The HTSUS subheading was changed on February 5, 2007 to subheading 2905.19.9090. You have provided a commercial invoice showing the purchase of 1,001,071 kilograms of Propylheptanol with a product code (article number) of 57885022 at a unit price of $0.96 per kilogram. You have provided a data sheet from the National Institute of Standards and Technology (“NIST”) which describes the chemical formula, molecular weight and chemical structure of the product. You have also provided a technical data sheet for Propylheptanol. According to the data sheet, the product must conform to the following specifications and physical properties:
Total C10 Alcohols, wt. %, minimum
2-Propylheptanol, wt. % minimum
5-Methylpropylhexanol, wt. % maximum
Water, wt. %, maximum
Color, Pt-Co units, maximum
Acid number, mg KOH/g, maximum
Specific Gravity @ 25/25 °C ……………..…………………………..….… 0.8286
Distillation Range @ 1013 mbar,° C ……………..………………… ….. 207 – 212
Freezing Point, °C……………………………………………………………… <50
Refractive Index, nD20……………………………………………………… 1.4371
Viscosity, @25°C, cP…………………………………………………………. 12.8
Appearance ……………………………..……………………… Clear and colorless
For the export transaction, you state that the product must conform to the same recognized standards and consequently referred to the same data sheet from the National Institute of Standards and Technology. You also provided a commercial invoice for the purchase of 1,019,956 kilograms of Propylheptanol, Article No. 57885022 at a unit price of $1.16 per kilogram.
Whether the imported Propylheptanol is commercially interchangeable with the substituted merchandise, for purposes of substitution unused merchandise drawback, pursuant to 19 U.S.C. §1313(j)(2)?
LAW AND ANALYSIS
The statute that provides for substitution, unused merchandise drawback, 19 U.S.C § 1313(j)(2) does not specifically define what constitutes “commercially interchangeable” products. The CBP Regulations concerning substitution drawback, 19 C.F.R. 191.32 provides:
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.
Case law offers additional insight into the meaning of commercial interchangeability. In Texport Oil Co. v. United States, 185 F.3d 1291 (Fed. Cir. 1999), the Federal Circuit Court of Appeals (the “CAFC”) held that commercial interchangeability is “an objective, market-based consideration of the primary purpose of the goods in question” and that:
“commercially interchangeable” 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. U.S. at 1295.
Thus, commercial interchangeability is determined using an objective standard. If a hypothetical like-minded buyer would accept either good at the specified price for the purpose intended in an arms length transaction, the goods will be considered commercially interchangeable. In order to determine if either good at the specified price would be acceptable for the purpose intended, the relevant characteristics of the imported goods are compared with those characteristics of the substituted goods. Per the CBP Regulations, the pertinent characteristics include any governmental or industry standards applicable to the good, the tariff classification, part numbers if any, value, and any other characteristics relevant to the good.
Government and Recognized Industry Standards
Standards or grades established by the government or industry consensus aid in the determination of commercial interchangeability in that they establish markers by which the product is commoditized and measured against like products for use in the same manner, regardless of manufacturer. Generally, products that meet the same industry accepted standard may be used to produce the same products or utilized for the same purposes. These uses are typically indicated in the standard.
Here, both the imported and exported merchandise must comport to the qualities and characteristics embodied in the NIST data sheet and the BASF technical data sheet. As both the imported and exported product must meet these same recognized standards, we deem this criterion to be met.
Both the imported and exported product use the same part number, Article No. 57885022, on commercial invoices. As both products are designated by the same part number, we deem this criterion to be met.
The tariff classification of the import is listed as 2905.19.0090. The 2007 HTSUS became effective for goods entered or withdrawn from warehouse for consumption on or after February 3, 2007. The 2007 HTSUS included changes resulting from modifications in the International Harmonized System nomenclature, which are described in Presidential Proclamation 8097. Presidential Documents, 72 Fed. Reg. 453 (2007). After the change, the designation for Propylheptanol became 2905.19.9090. As the minor change in designation is the result of the 2007 change in nomenclature, we find that the tariff classification criterion is met.
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. Examples of the value of the imported and substituted Propylheptanol per the respective invoices are $0.96/kg and $1.16/kg, a difference of approximately 21%. BASF explains that when it imports or exports merchandise, it is obligated to buy or to sell at the price for the market area from which the merchandise is imported or to which the substituted merchandise is exported. Consequently, the value of the imported merchandise could be different from the value of the substituted merchandise due to these differences in market conditions.
CBP has ruled that a variance in price does not preclude a finding of commercial interchangeability when other criteria have been met or when there is sufficient evidence provided to support the material difference in value. See HQ 22865 (holding that although the difference of the imported and exported merchandise was in excess of 32%, the merchandise qualified under the critical properties criterion had been met as well). See, also HQ 228580 (holding that a value difference of 27% did not preclude a finding of commercial interchangeability when the difference in value is attributable to processing costs and manufacturing costs when the critical properties criterion had been met).
There is additional CBP precedent that demonstrates that a difference in value may not disqualify a product for substitution, unused merchandise drawback even in the absence of a change in market conditions, provided the difference is within an acceptable range. In HQ 230898, this office held that a 16% difference between import and export price still supported commercial interchangeability. In HQ 227473 this office held that a 14 percent difference in import and export price was not significant enough to affect commercial interchangeability.
In the instant case, the critical properties criterion has been met and the difference in value of 21% is less than the difference in value of merchandise in previous rulings where the product is found to be commercially interchangeable. Since the 21% difference is within an acceptable range pursuant to CBP precedent, we hold that the value criterion is met for the purposes of 19 U.S.C. §1313(j)(2).
Based on the above findings, we determine that the imported Propylheptanol and the substituted Propylheptanol are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. §1313(j)(2).
This decision is limited to the specific facts set forth herein. If the terms of the import or export contracts vary from the facts stipulated to herein, this decision shall not be binding on CBP as provided for in 19 C.F.R. § 177(b)(1), (2) and (4), and §177.9(b)(1) and (2).
William G. Rosoff, Chief
Entry Process & Duty Refunds Branch