DRA-4 OT:RR:CTF:ER H090065 RFA
Mr. Doug Meister
International Tariff Management, Inc.
127 Scott Road
Waterbury, CT 06705
RE: Commercial Interchangeability; Substitution, Unused Merchandise Drawback; 19 U.S.C. § 1313(j)(2); 19 C.F.R § 191.32(c)
Dear Mr. Meister:
This is in response to your letter, dated January 4, 2010, on behalf of Great Lakes Chemical Corporation (hereinafter "GLCC"), regarding the commercial interchangeability of Alkanox 240.
GLCC is an importer, manufacturer and distributor of specialty chemicals, including Alkanox 240, an organo-phosphite antioxidant. Alkanox 240 reduces peroxide induced oxidative degradation of most polymeric substances during processing. It has a low volatility which allows Alkanox 240 to be used at high temperatures required for processing thermoplastic polymers. The chemical name for this product is Tris (2,4-di-tert-butylphenyl) phosphate.
According to your submission, GLCC substitutes imported for imported products and imported for domestically produced products. GLCC claims that there are no differences between the imported and domestically produced products or between imported and exported products.
In support of GLCC's claim for interchangeability, you provided documents representing a typical import and export transactions. For the import entry, you provided an entry summary (CBP Form 7501) number 558-xxxxx88-5 dated May 8, 2007, which describes the product as "EST- OTH INORGAN:AROM:NOT". It is listed as subheading 2920.90.2000, HTSUS. Invoice No. 90xxxx07 shows a shipment of 38 pkgs. of Alkanox 240, 19,000 KG net weight, shipped from Italy to GLCC's facility in Texas.
For the export transaction, you provided a bill of lading showing a shipment of 950 bags of Alkanox 240 with a net weight of 19,000 KG, from the GLCC facility in Texas to Brazil. An export certificate of analysis was also provided.
The product specification and the submitted certificates of analysis for the Alkanox 240 and the domestically-sourced chemical have the following specifications:
Domestically-Sourced/Imported Alkanox 240
Exported Alkanox 240
White to off-white powder
White to off-white powder
White to off-white powder
Melting Point, °C
Clarity of Sol (10% w/v Toluene)
Tran. 425 nm (10% w/v Toluene)
Tran. 500 nm (10% w/v Toluene)
Volatiles (2 hr/ 105°C)
Whether the imported Alkanox 240 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:
Substitution, unused merchandise drawback under 19 U.S.C § 1313(j)(2) provides in relevant part that:
. . . if there is, with respect to imported merchandise on which was paid any duty, tax, or fee imposed under Federal law upon entry or importation, any other merchandise (whether imported or domestic), that-
(A) is commercially interchangeable with such imported merchandise;
(B) is, before the close of the 3-year period beginning on the date of importation of the imported merchandise, either exported or destroyed under customs supervision; and
(C) before such exportation or destruction-
(i) is not used within the United States, and
(ii) is in the possession of, including ownership while in bailment, in leased facilities, in transit to, or in any other manner under the operational control of, the party claiming drawback under this paragraph, if that party-
(I) is the importer of the imported merchandise, or
(II) received from the person who imported and paid any duty due on the imported merchandise a certificate of delivery transferring to the party the imported merchandise, commercially interchangeable merchandise, or any combination of imported and commercially interchangeable merchandise (and any such transferred merchandise, regardless of its origin, will be treated as the imported merchandise and any retained merchandise will be treated as domestic merchandise);
then, notwithstanding any other provision of law, upon the exportation or destruction of such other merchandise the amount of each such duty, tax, and fee paid regarding the imported merchandise shall be refunded as drawback under this subsection, but in no case may the total drawback on the imported merchandise, whether available under this paragraph or any other provision of law or any combination thereof, exceed 99 percent of that duty, tax, or fee.
19 U.S.C § 1313(j)(2), which provides for substitution, unused merchandise drawback, does not specifically define what constitutes "commercially interchangeable" products. Section 191.32(c) of the Customs and Border Protection (CBP) Regulations [19 C.F.R. §191.32(c)] provides in pertinent part:
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, 1295 (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).
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. Based on the CBP Regulations, the pertinent characteristics include any governmental or industry standards applicable to the good, the tariff classification, part numbers if any, value, an any other characteristics relevant to the good. See 19 C.F.R. § 191.32(c).
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.
Alkanox 240 must meet certain product specifications as outlined by GLCC. There are a number of product standards contained in the certificate of analysis for the import and export transactions, respectively. Both the designated import and export were tested for the following qualities: appearance, assay, melting point, clarity of solution, Tran. 425 nm, Tran. 500 nm, and volatiles. Both the designated import and export merchandise meet the appearance criterion of being a white to off-white powder and they both exceed the 99% assay minimum as required by the product specification range. Regarding the clarity of the solution, the designated import and the export merchandise both meet the product specification of having a clear solution. The product specification requires that the merchandise have a volatile factor (2 hr/105°C) of no more than 0.3% maximum. The designated imported merchandise has a volatile rating of 0.3% maximum, while the exported merchandise tested at 0.00%. The specification for assay requires a minimum of 99%. The designated imported merchandise has a minimum of 99% assay, while the exported merchandise tested at 99.5% which is above the minimum required by the specification. The specification also requires 98% minimum for its categories Tran. 425 nm and Tran. 500 nm standards. Both the designated imported merchandise and the exported merchandise meet or exceed these standards.
We do note that the applicable specification is set by GLCC, and is not a standard set by the U.S. Government. The Court of International Trade has found that it is acceptable to use private contract standards instead of government standards to determine commercial interchangeability. See Pillsbury v. United States, 27 C.I.T. 1628, 1634 (Ct. Int'l Trade 2003). Additionally, both the imported and exported products were measured against the same standard. Both the designated import and export merchandise met or exceeded all of the accepted criteria for Alkanox 240. Consequently, we find this criterion has been met.
Both the designated import and export merchandise use the product description Alkanox 240 as evidenced by both import and export documents. No part numbers are used to further identify the goods other than by batch numbers to track production. Consequently, we find that the part numbers criterion is not useful in the analysis of commercial interchangeability.
You state that the HTSUS number for imported and exported merchandise is subheading 2920.90.2000, HTSUS, which provides for: "[e]sters of other inorganic acids of nonmetals (excluding esters of hydrogen halides) and their salts; their halogenated, sulfonated, nitrated or nitrosated derivatives: [o]ther: [a]romatic: [o]ther . . . ." Because the imported and exported merchandise are classified under the same subheading, we find that the tariff classification criterion is established.
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 Alkanox 240 per the provided invoices show a difference of $0.15/KG between the import and the export. This translates to a difference of 4.5%.
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, e.g., HQ 228655, dated November 2, 2001 (holding that although the difference of the imported and exported merchandise was in excess of 32%, the merchandise qualified if other critical properties criterion had been met). See also, HQ 228580, dated August 20, 2002 (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). In these cases, CBP found that the change in market conditions and its impact on the difference in value did not preclude a finding of commercial interchangeability because the other criteria 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 that the difference is within an acceptable range. In HQ 230898, dated June 24, 2005, this office held that a 16% difference between import and export price still supported commercial interchangeability. In HQ 227473, dated March 3, 1998, this office held that a 14% 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 4.5% is considerably less than the difference in value of merchandise in previous rulings where the product was found to be commercially interchangeable. Since the 4.5% 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).
The imported and the exported merchandise meet the critical property criteria set forth in 19 C.F.R. § 191.32. Therefore, the products are commercially interchangeable for the purposes of substitution drawback.
Based on the above findings, we determine that the imported Alkanox 240 and the substituted Alkanox 240 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. § 177.2(b)(1), (2) and (4), and §177.9(b)(1) and (2).
Myles B. Harmon, Director
Commercial & Trade Facilitation Division