DRA-4-CO:R:C:E 223352 TLS
Joel R. Junker, Esq.
Graham & Dunn
33rd Floor
1420 Fifth Avenue
Seattle, Washington 98101-2390
RE: Ruling request concerning fungibility of dehydrated onion
products; 19 U.S.C. 1313(j)(2); 19 CFR 191.2(1); substitution
same condition drawback.
Dear Mr. Junker:
We have received the above-referenced ruling request. The
points you have raised have been considered and our decision
follows.
FACTS:
The importer operates manufacturing plants in this country
and in Mexico. The factories operate with the capacity to
dehydrate onions and make products ranging from powdered onion to
sliced onions. The merchandise is produced from onions grown
during different complimentary seasons from similar seed stock.
The Mexican onion harvest season occurs from February to June
while the U.S. harvest takes place from May to October. The
dehydration process is done from mid-February through June in
both instances.
Apparently 11 different products are made from the onion
crop which fall under three different levels of quality. The
lowest level is called Standard Product (we will refer to this as
level 1 for the purposes of discussion), the intermediate level
is called Low Bacteria (level 2), and the highest level is Extra-
Low Bacteria (level 3). As the two highest levels suggest, the
quality of the end products are determined by how little bacteria
they contain. The fewer grams of bacteria the onion product
contains, the better the product. Quality standards for
dehydrated onion products are set by the American Dehydrated
Onion and Garlic Association (ADOGA). ADOGA is a non-profit
organization consisting of company officials from the industry
itself. You have stated that approximately 85-90% of the entire
industry is formally represented in the association while the
other 10-15% follows the standards it sets. There are no
government set standards for these products and ADOGA is the only
institution that sets standards for dehydrated onions.
You seek a ruling on the fungibility of the higher level
products with the lower level products. For instance, you
contend that level 3 is fungible with levels 2 and 1 and level 2
is fungible with level 1. Level 1 products would of course be
fungible with their level 1 counterparts. This contention is
based on the fact that the highest level would meet the standards
of its own level and of the lower levels as well. In the same
vein, level 2 products would meet the standards of its own level
and level 1.
ISSUE:
Whether Extra-Low Bacteria dehydrated onion products are
fungible with Low Bacteria and Standard Product dehydrated onions
and Low Bacteria products with Standard Product merchandise.
LAW AND ANALYSIS:
The importer seeks to have the exportations of dehydrated
onion products ruled eligible for substitution same-condition
drawback under 19 U.S.C. 1313(j)(2), which provides that:
If there is, with respect to imported merchandise on
which was paid any duty, tax, or fee imposed under
Federal law because of its importation, any other
merchandise (whether imported or domestic) that-
(A) Is fungible with such imported
merchandise;
(B) Is, before the close of three-year period
beginning on the date of importation of the
imported merchandise, either exported or
destroyed under Customs supervision;
(C) Before such exportation or destruction-
(i) Is not used within the United
States, and
(ii) Is in the possession of the
party claiming drawback under this
paragraph; and
(D) Is in the same condition at the time of
exportation or destruction as was the
imported merchandise at the time of its
importation;
then 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, 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% of that duty, tax,
or fee. (emphasis added.)
The products at issue are 11 different products ranging from
powdered onion to dehydrated sliced onions. As noted above, the
quality standards are in three stages, Standard Product, Low
Bacteria, and Extra-Low Bacteria. The importer has submitted a
chart that graphs how many bacteria may be present in any of the
products to fall under one of the three categories. It reads as
follows:
INDUSTRY MICROBIOLOGICAL
REQUIREMENTS SCHEDULE
(Maximum Levels Per Gram)
Product
Powdered,
Granulated,
and Ground
Onion
Minced,
Chopped,
Special
Large
Chopped,
Sliced, and
Diced Grade
Low
Bacteria
Extra-Low
Bacteria
Low
Bacteria
Extra-Low
Bacteria SPC
300,000
100,000
200,000
100,000 Yeast &
Mold
500
100
300
100 Coliform
500
100
300
100
The SPC (Standard Plate Count), Yeast & Mold (Y&M), and Coliform
are forms of bacteria. As the chart indicates, each form of
bacteria has different levels of quality to meet one of the three
standards set by the industry. We recognize the standards set by
ADOGA as being directly relevant to the determination of
fungibility between these different products. See Customs ruling
HQ 219181 (June 6, 1989).
We agree with the importer that drawback laws have been
enacted by Congress over the years to assist U.S. business and
labor in competing more effectively in foreign markets. Such has
been significantly noted in a recent Court of International Trade
(CIT) ruling. 718 Fifth Avenue v. United States, 741 F. Supp.
1577, 1580 (CIT 1990). We also agree that same condition
substitution drawback hinges upon whether the domestic
merchandise is fungible with the imported product. To meet the
requirement of fungibility, the merchandise must be commercially
identical and interchangeable in all respects. Guess? Inc. v.
United States, slip op. 90-121, 24 Cust. Bull. no. 51, p. 26 (CIT
1990).
In the present case, the importer acknowledges the
differences between the three quality levels set for dehydrated
onion products by the industry. It is argued that the higher
quality products are fungible with the lower quality products
because purchasers routinely accept the higher quality products
as substitutes when the lower quality merchandise was ordered but
was not available. The importer does not seek to claim drawback
in cases where the lower quality might be accepted as a
substitute for the higher quality.
The courts and Customs rulings have defined "commercially
identical and interchangeable" in several contexts. In Guess?,
the court found commercially identical to be merchandise
"stand[ing] in the place of imported merchandise but... not...
more desirable than the imported merchandise." In HQ 221765
(March 5, 1990), Customs found that kosher peaches of the same
grade and packing medium as non-kosher peaches are nonetheless
not fungible with its non-kosher counterparts. The matter of
commercial preference and desirability was crucial to the
decision; some customers simply preferred the kosher variety,
although it did not matter to other customers. In C.S.D. 85-52,
it was held that "when two or more units of apparently identical
properties are treated differently by the commercial world for
any reason, they are not fungible. Thus, the fact that customers
might accept one product for another does not conclude the
question of identicality or interchangeability. We must
determine whether the products are distinguished in the
commercial world at all, for whatever reason.
In the present case, the onion products are separated by
bacteria content. Level 1 products are without question not
fungible with levels 2 and 3 and level 2 is likewise not fungible
with level 3. The reason is simple; the higher level products
are more desired strictly on a quality level. It stands to
reason that customers would accept the higher quality for the
same price if offered such. The importer states that this is
routinely done. The opposite is not true, however. In applying
the Guess? decision to this case, we are compelled to reject the
notion of fungibility between the subject products going one way
but not the other because one product will always be desired over
the other. Furthermore, any distinction between the products
alone defeats fungibility when the distinction is recognized and
acted upon in the commercial context. C.S.D. 85-52 (August 16,
1985); Customs ruling HQ 222104 (March 5, 1990). Simply put, the
different products are not interchangeable. One does not stand
in the place of the other without a significant difference in
quality. The fact that the industry finds reason to set quality
levels at all further illustrates the distinctions. Thus, we do
not find these products to be fungible at all between the
different quality levels, whether the lower quality is
substituted for the higher quality merchandise or vice-versa.
Therefore, we find that same condition substitution drawback
applies only to dehydrated onion products of the same form (i.e.,
powdered, sliced, chopped) within the same quality standard level
(Standard Product, Low Bacteria, Extra-Low). To this extent, the
importer's dehydrated onion products from Mexico appear to be
fungible with its dehydrated onion products produced
domestically. Evidence has been presented which shows no
customer preference between onion products of Mexican harvest and
domestically harvested products.
With regards to the packaging issue, we must look at
subsection 313(j)(4) for instruction. That statute allows for
the performing of "incidental operations" such as repacking
without treating such as a use for drawback purposes. In this
case, the onion products will be shipped into this country in 55
gallon drum containers, 25 gallon cardboard box containers, or 10
gallon cardboard box containers. The domestic products will also
be placed in 55 gallon drums for storage. The substituted
domestic product is sometimes repackaged into smaller containers
prior to export. These containers include a 25 gallon box, a 10
gallon box, a handle box, and a bag pack. Evidence has been
presented which sufficiently shows that these containers are
standard within the industry. The importer has stated that the
product is not changed in any way during the repacking process.
Customs has ruled before in a similar case that incidental
operations such as repacking that do not change the name,
character, or use of the merchandise will not be considered a
"use" of the merchandise as that term is applied under section
313(j). C.S.D. 83-2 (1983). We find the facts and evidence
presented here to warrant a finding consistent with that ruling.
Therefore, the repacking as it has been described here is not
considered a use of the product for drawback purposes.
HOLDING:
The Mexican harvested onion products are fungible with the
domestically produced onion products to the extent that they are
of the same quality level (Standard Product for Standard Product,
Extra-Low Bacteria for Extra-Low Bacteria) and of the same form
(powdered for powdered, sliced for sliced, chopped for chopped,
etc.). Onion products of different quality levels are not
fungible, likewise onion products of different forms. The
repacking that is described herein is an incidental operation
that is not a use of the product for the purposes of obtaining
drawback under 19 U.S.C. 1313(j)(2).
Sincerely,
John Durant, Director