Gamesa Wind U.S.
1150 Northbrook Drive
Trevose, PA 19053
RE: Unused Merchandise Substitute Drawback Ruling Request
Dear Mr. McGovern:
We are writing in response to your letter, dated July 25, 2014, on behalf of Gamesa Wind U.S. (“Gamesa”) and your further submissions dated June 3, 2016, July 15, 2016, July 22, 2016, August 2, 2016, August 11, 2016, August 18, 2016, September 15, 2016, and January 9, 2017, regarding the commercial interchangeability of imported and substituted nacelles. Please find our office’s determination of commercial interchangeability of the merchandise below.
Gamesa is engaged in the global manufacture and distribution of wind turbine generators. Gamesa operates manufacturing and distribution facilities throughout the United States. Its primary customers include power generation companies and public utility authorities.
Gamesa seeks a determination regarding the commercial interchangeability of certain nacelles. A nacelle is a component of a wind powered, electricity-generating turbine, which is part of a wind farm that is the end product purchased by Gamesa’s customers. Regarding the nacelles at issue in this ruling request, Gamesa imports nacelles with two different part numbers, NF26E0010 and NF26A0007. The substituted exports at issue in this ruling request are U.S.-made nacelles, part number NF26E0011. This request concerns the commercial interchangeability of imported NF26E0010 and NF26A0007 nacelles with substituted NF26E0011 nacelles.
In your letter, you explained how the part numbers identify the nacelles at issue in this ruling request. You stated that the shared identifiers, “NF,” “2,” “6,” “A,” and “E” indicate “nacelle,” type of technology, 60 Hz, low temperature, and high temperature, respectively. In addition, the last four digits of the part numbers represent each nacelle’s production run. Thus, the imported NF26E0010 and exported NF26E0011 nacelles are high temperature nacelles while the imported NF26A0007 nacelles are low temperature nacelles.
You explain that Gamesa’s customers do not have the choice to accept or reject specific components of the wind turbine, including nacelles. Instead, they order a complete wind farm from Gamesa. Moreover, Gamesa decides which nacelles to use for each order based on available inventory and on what will meet the electricity production requirement of 2.0 megawatts (“MW”) for wind farms.
In support of Gamesa’s claim for commercial interchangeability, you provided documents representing typical import and export transactions. In connection with the imported NF26E0010 nacelles, you submitted two U.S. Customs and Border Protection (“CBP”) Form 7501 entry summaries identifying the import of NF26E0010 nacelles on April 27, 2011 and May 12, 2011. Regarding the April 27, 2011 import, there is an import invoice, dated March 23, 2011, identifying the shipment of NF26E0010 nacelles to the United States. Regarding the May 12, 2011 import, there is an import invoice, dated March 31, 2011, identifying the shipment of NF26E0010 nacelles to the United States. Both of these import invoices describe the merchandise as “Nacelle G8X DTC 60Hz/-20°C>>+40 0010” and cite to reference number NF26E0010. In connection with the imported NF26A0007 nacelles, you submitted a CBP Form 7501 entry summary identifying the import of NF26A0007 nacelles on May 16, 2011. Regarding the May 16, 2011 import, there is an import invoice, dated April 19, 2011, identifying the shipment of NF26A0007 nacelles to the United States. The import invoice describes the merchandise as “Nacelle G8X DTC 60Hz/-30°C>>+30°C 0007” and cites to reference number NF26A0007. The entry summaries state that the tariff classification for both the NF26E0010 and NF26A0007 nacelles is 8502.31.0000, Harmonized Tariff Schedule of the United States (“HTSUS”).
For the export transactions, Gamesa provided bills of lading showing two exports of the NF26E0011 nacelles on May 14, 2011 and June 17, 2011. The export invoices for both the May 14, 2011 and June 17, 2011 exports show that there is a 21.38% difference in value between the imported NF26E0010 and NF26A0007 nacelles and the exported NF26E0011 nacelles. Gamesa also provided copies of its EEI-USPPI Export Information for the May 15, 2011 and June 17, 2011 exports, which identify the NF2E0011’s Schedule B number as 8502.31.0000.
Whether the imported nacelles are commercially interchangeable with the substituted nacelles, for purposes of substitution unused merchandise drawback, pursuant to 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 there is, with respect to imported duty-paid merchandise, 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 three 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 must have received from the party that imported and paid duties on the imported merchandise, a certificate of delivery transferring to that party, the imported merchandise, commercially interchangeable merchandise, or any combination thereof.
CBP regulation, 19 C.F.R. § 191.32(c), concerning substitution unused merchandise drawback, provides as follows:
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, Government and recognized industrial standards, part numbers, tariff classification and value.
The best evidence of whether the above quoted criteria are used in a particular transaction is the claimant’s transaction documents. See, e.g., HQ H048135 (Mar. 25, 2009); and HQ H122535 (Feb. 9, 2011). 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. Id. The purchase and sales documents also provide the best evidence with which to compare relative values. Id.
In Texport Oil Co. v. United States, the United States Court of Appeals for the Federal Circuit determined that: “[c]ommercial interchangeability 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)).” 185 F.3d 1291, 1295 (Fed. Cir.1999). Thus, in accordance with Texport, commercial interchangeability is determined using an “objective standard—analyzed from the perspective of a hypothetical reasonable competitor.” Id. Therefore, we analyze commercial interchangeability pursuant to 19 C.F.R. § 191.32(c), for a hypothetical reasonable competitor.
Government and Recognized Industry Standards
One of the factors CBP considers is whether the imported and exported merchandise adhere to government and recognized industry standards. Governmental and recognized industry standards assist in the determination of commercial interchangeability, because such standards “establish markers by which the product is commoditized and measured against like products for use in the same manner, regardless of manufacturer . . . products that meet the same industry standard may be used to produce the same products” or used for the same purposes. HQ H090065 (Mar. 23, 2010).
We have determined that there are international standards promulgated by the International Electrotechnical Commission (“IEC”) for wind turbines and nacelles that the United States has adopted. In regards to nacelles, the standards adopted in IEC 61400-12-1, which cover power performance measurements of electricity-producing wind turbines. According to Gamesa, all of the nacelles at issue are tested in accordance with IEC 61400-12-1, and are capable of producing 2.0 MW of electricity. Thus, each of the nacelles is of a similar electricity-producing capacity, and Gamesa’s testing methodology for determining this is in accordance with the IEC standard. In sum, based on the imported and exported nacelles’ compliance with the IEC standard, this criterion has been established.
In evaluating the critical properties of the merchandise, CBP also considers the part numbers of the merchandise. If the same part numbers or product identifiers are used in catalogs, and in the import and export documents, it would support finding them to be commercially interchangeable. See, e.g., HQ H074002 (Dec. 2, 2009); and HQ H122535 (Feb. 9, 2011).
Where the imported and exported products have different part numbers, CBP considers the uses of the products with different part numbers and whether a hypothetical competitor would likely use both products in the same applications. For example, we examined the commercial interchangeability of imported and exported High Density Polyethelene (“HDPE”), in requests submitted by two different applicants. See HQ H043703 (March 25, 2009) and HQ H030096 (Oct. 21, 2008). In both requests, the imported and exported HDPE had different part numbers. However, we found the imported and exported HDPE in HQ H043703 was commercially interchangeable while the imported and exported HDPE in HQ H030096 was not commercially interchangeable. In HQ H043703, we held that the imported and exported HDPE were commercially interchangeable despite having different part numbers because the part numbers only indicated a difference in the source of production and not in the actual content of the product. There, we also noted that the imported and exported HDPE were intended for the same uses and met the same standards. On the other hand, in HQ H030096, the imported and exported HDPE were not commercially interchangeable, noting that the part numbers distinguished the types of HDPE, their uses, and that the two types of HDPE were not commingled. We also noted that “[t]he use of part numbers in the purchase and sale of merchandise indicates whether a customer would substitute merchandise with different part numbers.” HQ H030096 (Oct. 21, 2008) (citing HQ 228261 (Feb. 8, 2002) and HQ 228171 (Feb. 22, 2000)).
In your letter, you provided three different part numbers for the nacelles at issue: NF26E0010 and NF26A0007 for the imported nacelles and NF26E0011 for the exported nacelles. You also explained that the shared identifiers, “NF,” “2,” “6,” “A,” and “E” indicate “nacelle,” type of technology, 60 Hz, low temperature, and high temperature, respectively. In addition, the last four digits of the part numbers represent each nacelle’s production run. The first four digits of the model numbers, “NF26,” are identical, so we only need to consider the final five digits.
In comparing the imported NF26E0010 nacelle with the exported NF26E0011 nacelle, Gamesa explains that the only difference between the two part numbers is the last four digits representing the production run. For example, NF26E0010 was the tenth time part number NF26E was produced, while NF26E0011 was the eleventh time it was produced. Otherwise, the two part numbers are identically designed, as the part number only represents the manufacturing production line rather than technical output. Accordingly, we find that this criterion with respect to the imported NF26E0010 nacelle and exported NF26E0011 nacelle has been established.
Turning to the part numbers comparison between the imported NF26A0007 nacelle and exported NF26E0011 nacelle, Gamesa explained that part numbers NF26A and NF26E are internal identifiers that determine which accessories will be installed on location in the wind farm, and to indicate to the production and procurement teams which temperature configuration should be shipped to the customer. For example, if the nacelle has an “A” designation, the production team knows to include a heating unit in the bill of materials. At the time of importation, the heating units are not part of the NF26A007 nacelles and are shipped separately from the nacelles. As evidence of this, Gamesa provided a separate bill of lading, purchase order, commercial invoice, and bill of materials showing that the heating units are part of a field construction assembly kit, which are shipped and invoiced separately from the nacelles. In addition, Gamesa explains that cooling vents are installed on the NF26E0011 nacelles after exportation to assist with cooling in higher temperature climates. In support, Gamesa provided electronic export information, an export bill of lading, and export commercial invoices showing that the cooling vents were shipped as a separate line item from the nacelles. Thus, Gamesa argues that prior to shipment, the NF26A nacelles and the NF26E nacelles function identically under all temperature conditions, whether referenced as “high temperature” or “low temperature.” Further, Gamesa notes that Gamesa rather than the customer decides which components to send to a wind farm site, such that Gamesa alone may decide to substitute one part for another based on function and need.
Gamesa also notes that all of the nacelles at issue in this ruling request produce 2.0 MW of electricity and that there are no differences in the mechanical operations of the exported nacelles compared to the imported nacelles. Accordingly, Gamesa asserts that it would substitute an NF26A unit nacelle for an NF26E unit nacelle if it had inventory in one unit over another because the nacelles perform identical functions.
Where the nacelles have different part numbers, CBP focuses on whether a hypothetical reasonable competitor would likely accept either the imported or the exported nacelle for its primary commercial purpose in order to determine whether this criterion for commercial interchangeability is met. As explained above, Gamesa argues that the NF26A007 nacelles and N26E0011 nacelles have the same mechanical functionality despite having different part numbers and that they produce identical energy and functions for the wind farm. We contacted CBP’s Laboratories and Scientific Services (“LSS”) for its opinion regarding the functionality of the nacelles. In LSS’s opinion, the imported NF26E0010 nacelles and the exported NF26E0011 nacelles are technically interchangeable as imported, and the imported NF26A0007 nacelles and the exported NF26E0011 nacelles are technically interchangeable as imported. Further, Gamesa notes that it rather than the customer decides which components to send to a wind farm site, such that Gamesa alone may decide to substitute one part for another based on function and need. Thus, the ultimate customer of the wind farm does not choose which nacelle part number is used. Moreover, Gamesa states that it would substitute an NF26A unit nacelle for an NF26E unit nacelle if it had inventory in one unit over another because the nacelles perform identical functions. Based on all of the above, both the NF26A0007 nacelles and the NF26E0011 nacelles would likely be accepted by a hypothetical competitor for its primary commercial purpose, which is installation in a wind farm to produce 2.0 MW of electricity. Therefore, we find that this criterion is established for the nacelles at issue in this ruling request. .
Another factor CBP considers when determining commercial interchangeability is whether the imported and exported goods are classified under the same subheading of the HTSUS. See, e.g., HQ H074002 (Dec. 2, 2009). You indicated that the imported nacelles are classified under HTSUS subheading 8502.31.0000. You also provided a copy of the Electronic Export Information filed by Gamesa as the U.S. Principal Party In Interest (“USPPI”), indicating that the Schedule B number of the exported nacelles is 8502.31.0000. Provided that these classifications are accurate, we find that this 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. See, e.g., HQ H090065 (Mar. 23, 2010) (finding a price difference of 4.5 percent to be acceptable). However, if other critical properties have been met, or there is an explanation for the material difference in value, then a variance in price may not necessarily preclude a finding of commercial interchangeability. See e.g., Pillsbury, 293 F.Supp.2d at 1357-58 (concluding that the price difference between the import and export product would not detract from a commercial interchangeability finding since the difference was not based on the quality of the merchandise, but rather on the packing costs and supply of the product in the market); HQ 228580 (August 20, 2002) (holding that a value difference of 27% attributed to processing and manufacturing costs did not preclude a finding of commercial interchangeability when the critical properties criterion had been met); HQ 228655 (November 2, 2001) (holding that a value differential in excess of 32% is acceptable because the merchandise qualified under the critical properties criterion); HQ 227220 (February 10, 1997) (determining that price difference in excess of 24% is acceptable because the imported and exported merchandise qualified under the applicable industry standards; therefore, relative value did not have as much weight when determining commercial interchangeability).
Gamesa asserts that CBP has found that some instances involving higher value differences did not preclude a determination of commercial interchangeability where the difference was due to processing, manufacturing costs, or market forces rather than a difference in quality of the merchandise. According to Gamesa’s sample import and export documentation, there is a 21.38% difference in value between the imported NF26A0007 and NF26E0010 nacelles compared to the exported NF26E0011 nacelles. Gamesa attributes the 21.38% difference in value to the variance in cost of goods sold and to Gamesa’s mark up since there were separate negotiations for the nacelles between different buyers and sellers. In particular, Gamesa explains that the imported nacelles were purchased at a “wholesale” value from the seller while the exported nacelles were sold as part of an entire wind farm in a retail sale that included Gamesa’s markup. Thus, Gamesa has demonstrated that the value difference is a result of market forces rather than a difference in quality. Therefore, we find that for purposes of commercial interchangeability, the 21.38% difference in value between the imported and substituted nacelles does not preclude a finding of commercial interchangeability.
Based on the above findings, we determine that the imported NF26E0010 and NF26A0007 nacelles and substituted NF26E0011 nacelles are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. § 1313(j)(2).
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” 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 in 19 C.F.R. § 177.2(b)(1), (2) and (4), and § 177.9(b)(1).
Myles B. Harmon, Director
Commercial and Trade Facilitation Division