DRA-4 OT: RR: CTF: ER H018069 DCC
Ms. Debby Stevens
Page International
P.O. Box 10012
Savannah, GA States, Inc.
825 Arthur Avenue 31412
REFERENCE: Prospective Ruling; unused merchandise drawback for packaging materials; 19 U.S.C. § 1313(j)(2), 1313(q)
Dear Ms. Stevens:
This is in response to your September 28, 2007 request for a prospective ruling, pursuant to 19 C.F.R. § 177, on behalf of Huber Engineered Materials of J.M. Huber Corporation (“Huber”). Specifically, you request a binding ruling regarding the applicability of manufacturing drawback for imported empty certain polypropylene bags under 19 U.S.C. § 1313(j)(2). We previously issued an information letter on April 18, 2007.
FACTS:
Huber produces various bulk products from kaolin clay that is mined in the United States. Huber imports polypropylene bags, which are filled with clay for export. The bags are described as “Supersacks” and “Flexible Intermediate Bulk Containers,” or “FIBCs.” The bags are comprised of woven polypropylene fabric with polyethylene liners and attached lifting loops.
In support of its claims for drawback, Huber submitted various commercial and internal documents related to its purchase of polypropylene bags and sale of clay contained in such bags. To exemplify Huber’s claims, we review the commercial and internal documentation of a past transaction involving bag type W-285, which is representative of the documents Huber submitted in support of its prospective drawback claims.
Huber submitted a commercial invoice describing the sale between a foreign manufacturer and an unrelated U.S. importer, which resells the bags to Huber. The invoice, which is dated July 6, 2005, indicates an order of 400 FIBCs, Manufacturer Item No. CH1377-W285, and dimensions of 112 x 112 x 147 cm. Huber also submitted a copy of the Bill of Lading, dated February 6, 2006, for an exportation to Japan of kaolin clay in 36 1000 lbs. Supersacks on 18 pallets. Huber’s invoice for that shipment, dated March 23, 2006, describes the exported merchandise as “POLYGLOSS 90D [kaolin clay] IN 1000 LB. SUPERSACKS ON 2000 LB W7 PALLET.”
Huber also provided two internal spreadsheet documents that contain information regarding the sale of clay products by various types of polypropylene bags. The first spreadsheet, entitled “Import-Export Interchangeability” describes the six Huber clay products available for sale in the W-285 polypropylene bag. Each of these six clay/bag product combinations is identified by a unique finished item number, and is associated with specific bag item number, which is described in the spreadsheet as “BAG, BULK W-285J 44” X 44” X 56.”“ This spreadsheet also includes a data field that identifies the U.S. importer of the bags, along with the bag manufacturer’s name and item description, i.e., “CH1377-W285 112 x 112 x 147 CM.” The second spreadsheet provides a breakdown of the value of the clay and polypropylene bag for each of the six clay/bag product combination available in bag number W-285. This document also describes the bag for those six products as “BAG, BULK W-285J 44” X 44” X 56.”“
ISSUE:
Whether duties, taxes, and fees paid on imported polypropylene bags are subject to drawback under 19 U.S.C. § 1313(j)(2).
LAW & ANALYSIS:
Drawback is a refund or remission, in whole or in part, of a Customs duty, internal revenue tax, or fee. There are a number of different kinds of drawback authorized under law. The statute providing for specific types of drawback is 19 U.S.C. § 1313. In addition manufactured articles, the drawback statute allows drawback on packaging materials pursuant to 19 U.S.C. § 1313(q). The implementing regulations for drawback are contained in part 191 of the CBP Regulations (19 C.F.R. part 191).
Under the statute, drawback is payable on packaging material when that material was imported and used to package or repackage merchandise or articles that are exported or destroyed under Customs supervision and that were eligible for drawback under either the manufacturing, rejected or unused merchandise drawback provisions (19 U.S.C. § 1313(a), (b), (c), or (j)).
The drawback statute for packaging material was amended by section 1563(d) of the Miscellaneous Trade and Technical Corrections Act of 2004, Public Law 108-429, 118 Stat. 2585 (Dec. 3, 2004). As amended, the statute reads as follows:
(q) Packaging material
(1) Packaging material under subsections (c) and (j)
Packaging material, whether imported and duty paid, and claimed for drawback under either subsection (c) or (j)(1) of this section, or imported and duty paid, or substituted, and claimed for drawback under subsection (j)(2) of this section, shall be eligible for drawback, upon exportation, of 99 percent of any duty, tax, or fee imposed under Federal law on such imported material.
(2) Packaging material under subsections (a) and (b)
Packaging material that is manufactured or produced under subsection (a) or (b) of this section shall be eligible for drawback, upon exportation, of 99 percent of any duty, tax, or fee imposed under Federal law on the imported or substituted merchandise used to manufacture or produce such material.
(3) Contents
Packaging material described in paragraphs (1) and (2) shall be eligible for drawback whether or not they contain articles or merchandise, and whether or not any articles or merchandise they contain are eligible for drawback.
(4) Employing packaging material for its intended purpose prior to exportation
The use of any packaging material for its intended purpose prior to exportation shall not be treated as a use of such material prior to exportation for purposes of applying subsection (a), (b), or (c) this section, or paragraph (1)(B) or (2)(C)(i) of subsection (j) this section.
19 U.S.C. § 1313(q).
As amended, section 1313(q) allows drawback for packaging regardless of whether the packaging contains merchandise that is eligible for drawback. The amended statute also stipulates that using packaging materials for packaging merchandise does not constitute a “use” for purposes of 19 U.S.C. § 1313 (a), (b), or (c), or paragraph (1)(B) or (2)(C)(i) of subsection (j). As with other forms of drawback, the drawback for packaging materials is limited to 99% of the duty paid on the imported material.
Substitution, unused merchandise drawback is provided by 19 U.S.C. § 1313(j)(2), but the statute does not define “commercially interchangeable.” The CBP Regulations reflect the legislative history that explained the change from fungibility to commercial interchangeability as the standard for substitution. Section 191.32 provides:
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.
19 C.F.R. § 191.32(c).
In Texport Oil Co. v. United States, 185 F.3d 1291 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit (CAFC) discussed the meaning of “commercially interchangeable.” The CAFC concluded that commercially interchangeable is “an objective, market-based consideration of the primary purpose of the goods in question.” Id. The CAFC explained:
Therefore, “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).
Texport, 185 F.3d at 1295.
Thus, according to Texport, commercial interchangeability is determined using an “objective standard.” Accordingly, an exported good is commercially interchangeable with an imported good if a buyer, in an arms’ length transaction, would accept either good at the specified price for the purpose intended. In order to determine if either good at the specified price for the purpose intended the relevant characteristics of the imported good with those characteristics of the specific exported good. Those pertinent characteristics include any governmental or industry standards applicable to the good, the tariff classification, part numbers if any, value, and any other important characteristics, for both the imported and exported good.
In this case, Huber states that the imported polypropylene bags are the same bags the company will use to store and export kaolin clay products produced in the Untied States. Huber does not record on its sales documents detailed information about the polypropylene bags used for particular shipments, which would allow the company to link a specific exportation to particular entries of polypropylene bags. Huber does maintain, however, internal records in the normal course of business that assign a unique “finished item number” to descriptions of specific combinations of clay products and polypropylene bags. This record includes a description of the weight capacity of the polypropylene bag.
Huber’s finished item number is assigned to a unique “bag item number” and “bag item description,” which includes the manufacturer’s model number and the expanded dimensions of the bag. Huber provided sample invoices from its suppliers. These invoices include the manufacturer’s model numbers and expanded bag dimensions of the polypropylene bags, which correspond to the data in Huber’s internal records.
Based on our review of the claimant’s records, we determine that Huber has established the commercial interchangeability of the imported and exported polypropylene bags. Although Huber’s sales documents do not describe the exported bags, we find the company’s internal records, which are maintained in the ordinary course of business, allow the company to match exported bags to identical imported bags. Consequently, imported polypropylene bags identified by a particular manufacturer model number, dimensions, and weight capacity may be substituted for other polypropylene bags that have the same manufacturer model number, dimensions, and weight capacity.
Holding:
Based on the above determinations, we conclude that the imported and exported polypropylene bags identified by the same manufacturer model number, dimensions, and weight capacity on commercial documents and internal records are commercially interchangeable for the purposes of the substitution, unused merchandise drawback law of 19 U.S.C. § 1313(j)(2).
Sincerely,
William G. Rosoff, Chief
Entry Process and Duty Refunds Branch