Lindsay B. Meyer, Esq.
600 Massachusetts Ave., NW
Washington, D.C. 20001
RE: Request for determination of drawback eligibility under 19 U.S.C 1313(j); and whether the post jet-milled mineral product is in the same condition pursuant to 19 U.S.C. 4534(a)
Dear Ms. Meyer:
The above-referenced prospective ruling request was forwarded to this office. We have considered the facts and issues raised, and our decision follows.
You assert that the disclosure of certain information relative to this matter could potentially cause substantial harm to the competitive position of the parties involved. Based on our review of the matter we have concluded that the information in question is eligible for confidential treatment under 6 C.F.R. 5.12; accordingly, we have granted the request for confidentiality. Appropriate steps will therefore be taken to ensure that the information remains confidential.
However, please note that the provisions of the Freedom of Information Act ("FOIA") (5 U.S.C. 552), the Trade Secrets Act (18 U.S.C. 1905) and/or the Privacy Act of 1974 (5 U.S.C. 552a) will prevail in any conflict that may arise regarding the confidentiality and disclosure of information. Accordingly, any information submitted in connection with this matter may be subject to disclosure, if requested, if it is subsequently determined that the information is not protected by the Trade Secrets Act, the Privacy Act, or an exemption of the FOIA.
Company X ("X") is an American chemical company. X proposes importing a granular mineral product ("product") into the United States.
Once imported into United States, the product will be placed into a jet mill that will utilize a dry-milling process to break apart larger crystals into smaller size crystals. X's jet mill forces compressed air into a milling chamber containing the product causing product particle-to-particle collisions that break down the granular product particles into a smaller size. X refers to the initial product as "received" product while the granular reduction is referred to as "jet-milled" product. However, X states that the product's chemical characteristics and catalytic functionality will remain unchanged. After completion, X will export the jet-milled product to Mexico.
X's product, whether received or jet-milled, is to be used in the production of X's proprietary preparation that contains the active catalyst components used in exhaust emissions aftertreatment systems. X states that as compared to the received product, the jet-milled product imparts characteristics to the preparation that results in a preparation that behaves differently in the catalytic conversion process. Based on the customer's equipment, X will provide a preparation containing either received or jet-milled product.
I) Whether post jet-milled product is eligible for drawback per 19 U.S.C. 1313(j)(1)?
LAW AND ANALYSIS:
I. DRAWBACK ELIGIBILITY
19 U.S.C. 1313(j): Unused Merchandise and "Use"
The Tariff Act provides for drawback, which is a refund of certain duties, taxes, and fees imposed on imported merchandise. Drawback may be paid after timely filing a claim with U.S. Customs and Border Protection. See 19 U.S.C. 1313. Drawback is a privilege, not a right, subject to compliance with prescribed rules and regulations. See 19 U.S.C. 1313(l). 19 U.S.C. 1313(j) deals with unused merchandise. Merchandise that was used prior to exportation is ineligible for drawback per 19 U.S.C. 1313(j)(1). Imported merchandise can undergo two kinds of use - 1) use as "intended" and; 2) use because of "manufacture." Here, the issue is whether, after having undergone the jet-milling operation, the product will still qualify as "unused" merchandise upon exportation to Mexico.
a. Use as "intended"
A definition of the term "unused merchandise" was not provided in the language of the Tariff Act. However, in circumstances where drawback is claimed on finished articles, the term "used" has long been defined by CBP as any operation employing an article for its intended purpose. See Customs Service Decision ("C.S.D.") 81-222 (May 27, 1981) (defining "use" by its ordinary meaning: "(to) employ [articles in the manner] for which they were manufactured and intended") (quoting Swalley v. Addressograph Multigraph Corporation, 158 F. 2d 51, 54 (7th Cir. 1946), cert. denied 330 U.S. 945 (1947)); see also C.S.D. 84-65 (January 6, 1984) ("[i]f a piece of equipment or a tool, etc., is put to its intended use and is found not to perform satisfactorily for any reason, that equipment or tool has nonetheless been used"). CBP thus deems an article used if it is employed for the use for which it was designed and manufactured. Here, post-jet milling, the product is a finished article. However, as stated in the facts, the product is not used for its intended purpose - as a component in the production of X's preparation - before exportation.
b. Use Because of "Manufacture"
In its request, X looks to substantial transformation analysis for help in determining whether there has been a manufacture. However, substantial transformation analysis is suitable only for country of origin analysis. As X is not contesting the product's country of origin, there will be no analysis as to whether substantial transformation has occurred. Instead, CBP will look to 19 C.F.R. 191.2(q)(2), which states that in the context of drawback "manufacture" may be defined as a "process, including, but not limited to, an assembly, by which merchandise is made fit for a particular use...."
Previously, CBP has ruled that milling - "as defined therein as 'reduc[ing] the particle size of the active ingredient'" - is a "manufacture." HQ H157615 (Jan. 23, 2012); see also HQ H065777 (Sept. 18, 2009). Therefore, since X states that their jet-milling process will reduce particle size, as a specific type of milling, jet-milling is deemed a manufacture. However, jet-milling in the instant matter is also a manufacture because it is a process that makes the product fit for a particular use. See 19 C.F.R. 191.2(q)(2).
In H065777, the merchandise could have performed its use in the pre-milled state, but it performed its use better in the post-milled state. In other words, it was more fit. The instant case is a direct parallel. Here, X states that while the end-use is the same, jet-milled product in the production of the preparation as compared to received product makes the preparation behave differently during the catalytic conversion process. Moreover, X supplies one of the two preparations based on X's customers' equipment. As X's process patently makes its product fit for a particular use, it is a manufacture. See 19 C.F.R. 191.2(q). Therefore, the product cannot be considered unused for purposes of drawback pursuant to 19 U.S.C. 1313(j).
Per North American Free Trade Agreement ("NAFTA")-regulation 19 C.F.R. 181.45(b), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition was eligible for drawback under 19 U.S.C. 1313(j)(1) without regard to the limitation on drawback provided for in NAFTA-regulation 19 C.F.R. 181.44 (i.e., that such drawback would be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). The United States-Mexico-Canada Agreement has replaced NAFTA. However, as the merchandise is ineligible for drawback pursuant to 19 U.S.C. 1313(j)(1), discussion on same condition eligibility is necessarily foreclosed.
Based on the above, we find: The jet-milled product is not eligible for unused merchandise drawback under 19 U.S.C. 1313(j) because jet-milling constitutes a "use." Further, the jet-milled product to be exported to Mexico would not be eligible for same condition treatment because the merchandise is not eligible for drawback under 19 U.S.C. 1313(j).
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 Customs and Border Protection as provided in 19 C.F.R. 177.2(b)(1), (2) and (4), and 177.9(b)(1) and (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 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 CBP 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."
Gail Kan, Chief
Entry Process & Duty Refunds
 Tropicana Products states: "...[T]he criterion of whether goods have been "manufactured" serves different purposes under different statutes...[S]ubstantial transformation criteria cannot be applied indiscriminately in the identical manner across the entire spectrum of statutes for which it is necessary to determine whether merchandise has been "manufactured." Tropicana Prods. Inc. v. United States, 789 F. Supp. 1154, 1158, 16 C.I.T. 155, 160 (1992); See also Nat'l Juice Prods. Assoc. v. United States, 628 F. Supp. 978, 988, 10 C.I.T. 48 (1986).