Comstock & Theakston Inc.
466 Kinderkamack Rd.
Oradell, NJ 07649-1536
RE: Revere Smelting & Refining Corporation: Request for a determination of commercial interchangeability under substitution unused merchandise drawback, 19 U.S.C. § 1313(j)(2), for refined lead
Dear Ms. Merenda:
This is in response to your application, dated March 30, 2015, on behalf of Revere Smelting & Refining Corporation (“RSR”), for a formal ruling on the commercial interchangeability of imported and substitute refined lead, for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
RSR imports duty-paid refined lead from various countries and intends to export domestic substituted refined lead to consumers abroad. According to RSR, all refined lead imported and substituted/exported by the company for drawback purposes has a lead purity of a minimum 99.97 percent. RSR explains that this specification is based on the American Society for Testing and Materials (“ASTM”) requirements and little if any weight should be given to any other criteria for interchangeability.
As a representative import, you provided a Customs and Border Protection (“CBP”) Form 7501, dated September 23, 2008 showing the importation of a quantity of “Lead Refined Unwrought” classified under subheading 7801.10.00 of the Harmonized Tariff Schedule of the United States (“HTSUS”). The corresponding invoice, dated September 11, 2008, shows the importation of “Block of soft lead” and the accompanying Certificate of Analysis (“COA”), dated August 25, 2008. For the export transaction, RSR provided a Bill of Lading with accompanying Automated Export System (“AES”) filings for shipments of anodes, dated September 2, 2011; a commercial invoice, dated September 7, 2011; and several COAs. The Bill of Lading and AES filing demonstrate that the exported merchandise is classified under subheading 7806.00.8000, HTSUS. The September 7, 2011, invoice describes the merchandise as “Pure Lead Corroding grade 99.97% up to 99.98%.”
Furthermore, the specifications and COAs for the imported and substituted lead, were sent to CBP’s Laboratories and Scientific Services Directorate (“LSSD”) for an opinion on whether the imported and substituted product could be used interchangeably. It is the opinion of the LSSD that the minimum specifications required by RSR for purity are sufficient to determine that the imported and substituted refined lead, could be used interchangeably in commerce, on a technical basis. However, LSSD also indicated that commercial interchangeability was dependent on the end use. LSSD stated:
on a technical basis, the end use may be based solely upon the high lead purity content and not the physical form. For example, if the intention is to add the lead to a melt to create an alloy or other material, the original physical form of the lead is inconsequential as it will liquefy and mix other materials. In this instance, on a technical basis, the two products would be interchangeable.
Conversely, the end use may be based upon both the high purity level and a physical form of lead (such as lead sheeting for shielding purposes or lead anodes for electrical work). In this case, imported unwrought lead would require substantively more processing than exported semi-manufactured lead (presumably, unwrought lead would be processed into a bar, sheet, wire, or other form, and then manufactured to the desired end product, as appropriate). In this instance, on a technical basis, the two products would not be interchangeable as unwrought lead would require more work to the same end-point than semi- or fully-manufactured lead . . .
Whether the imported refined lead 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:
Under 19 U.S.C. § 1313(j)(2), as amended, drawback may be granted on merchandise, which is commercially interchangeable with imported merchandise if the commercially interchangeable merchandise is exported or destroyed within three years from the date of importation of the imported merchandise, and before the exportation or destruction, the commercially interchangeable merchandise is used in the United States and is 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.
The CBP regulation, 19 C.F.R. § 191.32(c), provides that 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.
The best evidence of whether the above quoted criteria are used in a particular transaction are 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)).” Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999). Thus, the Federal Circuit sets forth 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 that CBP considers is whether the imported and exported merchandise adhere to governmental and recognized industry standards. Governmental and recognized industry standards assist in the determination of commercial interchangeability, because those 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 same industry standard may be used to produce the same products” or used for the same purposes. See HQ H074002 (Dec. 2, 2009). For refined lead, the recognized industry standard for the imported and substituted merchandise, requires a 99.97 percent purity, per the ASTM B 29 “Standard Specification for Refined Lead,” 1997 revision.
RSR provided product specifications identifying the physical properties of the refined lead, and certificates of analysis of samples of the import and substituted export product. All refined lead imported and substituted by RSR are required to have a minimum purity of 99.97 percent. Upon review of this specification, LSSD confirmed that it was sufficiently narrow to describe the merchandise. Both the imported and substituted merchandise fall within the required specification. Accordingly, based on these findings, we conclude that this criterion is satisfied.
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, this will support a finding of commercial interchangeability. See, e.g., HQ H074002; and HQ H122535. For refined lead, standardized part numbers are not assigned. In a prior ruling CBP observed that merchandise packaged and sold in bulk may not have part numbers. See HQ H190457 (June 11, 2012). The import and export documentation provided reflects that merchandise is packaged and sold in bulk. As such, part numbers are not applicable to this product. In view of the above, we determine this criterion will not factor into our decision on commercial interchangeability.
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. Based on the CBP Form 7501 submitted as a part of the import documentation, the imported merchandise is classified under subheading 7801.10.0000, HTSUS. However, the export Bill of Lading and AES filing demonstrate that the exported merchandise is classified under subheading 7806.00.8000, HTSUS. The HTSUS article description under subheading 7801.10.0000, is “unwrought lead refined lead”, yet the description found under subheading 7806.00.8000 is “other articles of lead”; these subheadings have different duty rates.
CBP highlighted the significance of different tariff classifications in HQ H036362, dated March 27, 2009. This office stated:
In O.A. Both Corp. v. United States, 63 Cust. Ct. 443, 445 (1969), the U.S. Customs Court, Second Division, noted the significance of different tariff classifications when reviewing the definition of a product described as metallic flitters. In analyzing whether a particular imported article constituted flitters or flakes, the court stated, “The premise from which we necessarily proceed is that when Congress provided in the tariff schedules eo nomine, separately, for flakes and for flitters, there were intended two distinguishable classifications for two different articles of commerce, flakes and flitters.”
Similarly, because Congress established separate tariff classifications for sparkling wine, effervescent wine, and other wine (i.e., table wine), we may presume that Congress intended to distinguish carbonated wines, such as sparkling and effervescent wines, and non-carbonated table wine as distinct articles of commerce . . . carbonated and non-carbonated wines are not commercially interchangeable.
HQ H036362 (Mar. 27, 2009).
You indicated that the import and export tariff classifications differ, because the merchandise form has changed. RSR explains: “[t]he import HTSUS of 7801.10 is for refined lead in block form (2,000 lbs. blocks). The AES filing for the export is for refined lead in pig form (65 lbs. cast ingots).” The change in form is distinguishable as separate tariff classifications. As the LSSD explained, it will make a difference dependent on the end use of the lead, and therefore, the imported and substituted lead may not be deemed interchangeable to the hypothetical reasonable competitor. Accordingly, because the imported and substituted refined lead are not classified under the same HTSUS subheading, this criterion is not satisfied, and it precludes a determination of commercial interchangeability.
Finally, goods that are commercially interchangeable generally have similar values when sold at the same place and same time, to like buyers from like sellers. We explained in HQ 231555, dated October 30, 2006, that when the time or place of the sale or the buyers or sellers vary, goods that are commercially interchangeable may be traded for different prices. Accordingly, when the prices paid and charged for purportedly commercially interchangeable goods are significantly different, it must be demonstrated that the difference is attributable to market forces or some circumstance other than a material difference between the imported and exported goods. HQ 231555 (Oct. 30, 2006); see, e.g., HQ H090065 (Mar. 23, 2010) (finding a price difference of 4.5 percent to be acceptable). CBP has held that a variance in price does not preclude a finding of commercial interchangeability when there is sufficient evidence to support the material difference in value. See HQ H174276 (July 3, 2012) (finding that a 34 percent price difference was the result of external market factors and, thus, did not preclude a finding that the imported and substituted merchandise were commercially interchangeable); HQ 229838 (May 30, 2003) (holding that a value difference of 8.32 percent, explained by profit mark up and costs, does not preclude a finding of commercial interchangeability). See conversely, HQ 228519 (June 5, 2002) (holding no commercial interchangeability when no explanation was provided to show why “[e]xport invoices indicate that similar tapes were all sold at costs proportionately higher than at the imported costs.”); and HQ H200995 (Nov. 26, 2013) (importer failed to provide evidentiary support for a 96 percent price difference, and the relative value criterion was not satisfied).
A comparison of the invoices for the imported and substituted refined lead show that the difference in price is 35 percent. According to RMR, the difference in value is due to timing and changing market conditions. For the sample transactions provided by RSR, the import commercial invoice is dated September 11, 2008, and the export commercial invoice is dated February 2, 2011. The merchandise was exported 2.5 years after import from France and was sent to Venezuela. During the review process we requested more information to support the difference in value. You contend that the price disparity is “purely” market driven and partly determined by the London Metal Exchange’s (“LME”) price for lead in metric tons (MT). To demonstrate that the 35 percent price differential for the imported and exported refined lead is due to market forces rather than a difference in form and quality, RSR provided a copy of the LME’s pricing for the applicable timeframes. When purchasing refined lead for importation into the United States, RSR references the LME market price. By comparing the documents, we note that the invoiced prices for the imported and exported refined lead closely correspond to the applicable prices determined by the LME. The LME prices for the applicable timeframes reflect a 39 percent value differential, which is similar to the 35 percent illustrated by RSR’s sample import and export transactions. In light of the close correlation between the invoice prices and the market prices documented by LME, we find that the value differential is due to market forces. However, we note that the LME determines the standard price of lead, regardless of its form. Accordingly, we find that this fluctuation in price does not preclude a determination of commercial interchangeability.
Based on the facts presented, we find that the imported and substituted refined lead are not commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. §1313(j)(2). Drawback is only permissible on refined lead that meets industry standard specifications, with the same tariff classifications and end use, allowing for a finding of commercial interchangeability, despite any possible value and part number differences.
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 ruing 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 activities vary from the facts stipulated to herein, this decision shall not be binding on CBP, as provided for in 19 C.F.R. § 177.9(b).
Monika R. Brenner, Acting Chief
Entry Process & Duty Refunds Branch