HQ H258550
DRA-4
OT:RR:CTF:ER
H258550 SMS
David Simcox, President
Comstock & Theakston, Inc.
466 Kindercamack Road
Oradell, NJ 07649
RE: BASF Corporation: Request for a determination of process of manufacturing under, 19 U.S.C. § 1313(b), for diluted Formic Acid
Dear Mr. Simcox:
This is in response to your application, dated October 6, 2014, on behalf of BASF Corp., (“BASF”), requesting a ruling regarding the commercial interchangeability of formic acid with differing levels of concentration due to deionized water dilution. Previously on July 23, 2012, BASF submitted an application for a specific manufacturing drawback ruling, intended to cover the use of formic acid under title 19 U.S.C. § 1313(b) in the manufacture of formic acid, Headquarters Ruling (“HQ”) H231619. HQ H231619 was administratively closed on July 31, 2014, for lack of information to determine whether there was a use or manufacture of the formic acid, when diluted. Recently, on June 4, 2018, BASF updated their ruling request removing the commercial interchangeability determination request; specifically inquiring if the dilution of formic acid with deionized water constitutes an allowable operation under 19 U.S.C. § 1313(j)(3), or if the process is considered a manufacturing operation, under 19 U.S.C. § 1313(b). We regret the delay in our response.
FACTS:
BASF imports formic acid with a purity of 99% and exports formic acid formulated with various lesser degrees of concentration, effectuated by the introduction of deionized water. BASF submitted technical data sheets for formic acid at concentration levels of 85%, 90%, 94%, 95%, and 99% - 100%. Each technical data sheet provides information on a number of categories, including product specifications, the physical properties (i.e., melting temperature, boiling temperature, density, flash point, and ignition temperature), as well as notes on safety, packaging, applications, and storage and handling instructions. The technical date sheet for the imported and substituted formic acid state the following provided the following information:
Formic Acid (99-100%)
CAS Registry Number 64-18-6
Purity% (99 – 100)
PBG 10002247
The technical date sheets for the exported formic acid provide the following information
Formic Acid (85%)
CAS Registry Number 64-18-6
Assay, wt% (84 – 86)
PBG 10001972
Formic Acid (90%)
CAS Registry Number 64-18-6
Assay, wt% (89 – 91)
PBG 10243845
Formic Acid (94%)
CAS Registry Number 64-18-6
Assay, wt% (94)
PBG 10544278 & 10013689
Formic Acid (95%)
CAS Registry Number 64-18-6
Assay, wt% (94 – 96)
PBG 10249592
The specifications and technical data sheets for the imported and substituted formic acid were sent to U.S. Customs and Border Protection’s (“CBP”) Laboratories and Scientific Services Directorate (“LSSD”) for an opinion on whether the dilution constituted a manufacture and whether or not imported and substituted products could be used interchangeably. On September 12, 2017, LLSD indicated that it is of the opinion that the different percentages of formic acid would not be interchangeable in commerce. LSSD stated:
Depending on the application, there are processes which require the lower purity formic acid since 99-100% pure formic acid is highly corrosive and cannot be used in all situations where formic acid is required hence the need for lower concentrations. 99-100% formic acid is usually the starting material from which the lower concentrations are manufactured via dilution with water. The different purities could all be considered as different grades of the product.
Furthermore, the same specifications and information was previously sent to the LSSD, to determine whether the domestic and imported merchandise was of the same kind and quality, and if a process of manufacture occurred, pursuant to 19 U.S.C. § 1313(b). On December 21, 2012, the LSSD provided the opinion that the 99-100% Formic Acid, was of the same kind and quality, and that a manufacture had occurred, on a technical basis, for drawback purposes, which was essentially the dilution of the formic acid, to make other grades/concentrations of formic acid.
ISSUE:
Whether the addition of deionized water to the formic acid constitutes a prohibited use under 19 U.S.C. § 1313(j)(2)(C)(i) and (3).
LAW AND ANALYSIS:
Prior to the enactment of the Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”) Pub. L. 114–125, 130 Stat. 122), Section 313 of the Tariff Act of 1930, as amended (19 U.S.C. § 1313(j)(2)), provided that drawback may be claimed on imported duty-paid merchandise, that is substituted for commercially interchangeable merchandise. The commercially interchangeable merchandise must be exported or destroyed within three years from the date of importation, unused in the United States, and in the possession of the drawback claimant.
The unused merchandise drawback statute specifies that any operations not amounting to manufacture or production shall not be treated as a use. See 19 U.S.C. § 1313(j)(3). CBP regulation, 19 C.F.R. § 191.2(q) further defines “manufacture or production” within the drawback context as follows:
(q) Manufacture or production. Manufacture or production means: (1) A process, including, but not limited to, an assembly, by which merchandise is made into a new and different article having a distinctive “name, character or use”; or (2) A process, including, but not limited to, an assembly, by which merchandise is made fit for a particular use even though it does not meet the requirements of paragraph (q)(1) of this section.
The definition in 19 C.F.R. § 191.2(q) reflects the holding in Customs Service Decision (“C.S.D.”) 82-67, dated December 22, 1981. In that decision, legacy Customs considered whether certain operations performed on imported cotton towels constituted a manufacture or production for purposes of manufacturing drawback. In the analysis, the decision discusses the judicial test established by the Supreme Court in Anheuser-Busch v. U.S., 207 U.S. 556, 562 (1907). In that case, the Court held:
Manufacture implies change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor and manipulation. But something more is necessary . . . . There must be a transformation; a new and different article must emerge, having a different name, character, or use.
Id. In addition, C.S.D. 82-67 adopts the “fit for a particular use” standard established by the former Court of Customs and Patent Appeals in United States v. International Paint Co., Inc., 35 CCPA 87 (1948). C.S.D. 82-67 states that the decision in International Paint:
appears to support Customs more recent interpretation of “manufacture” as a process brought about by significant investment of capital and labor to produce articles or commodities which, despite the fact they are in some cases much the same as their conditions prior to processing, have been made suitable for a particular intended use. In determining what constitutes a manufacture, we have held in our administrative rulings that if an operation involves special treatment of merchandise to obtain certain properties required for a specific use by the entity performing the operation or his customers and the operation involves significant capital and labor expenditure, then that operation is a manufacture or production.
Thus, in order to determine whether an article is one that is manufactured, it is necessary to compare the imported merchandise with the finished article. If the finished article has been rendered fit for a particular use, or is a new and different article having a distinctive name, character or use, vis-a-vis the imported merchandise, a manufacture or production has taken place.
CBP has addressed whether dilution constitutes a manufacture or production in prior rulings. In HQ W230538, dated November 8, 2006, we held that the addition of water to phenol to prevent the phenol from crystalizing into solid ice did not change the quality or character and therefore did not constitute a manufacture or production. In that case, we found that the products were commercially interchangeable, the operation involved loading the phenol into the ship’s cargo hold, adding the appropriate amount of hot condensate water through the bottom loading valve of the cargo hold, and then bubbling nitrogen through the valve to thoroughly mix the water and phenol by agitation. In HQ H128998, dated May 28, 2013, we held that rehydrating prunes did not reach the level of manufacture or production for drawback purposes. In that case, CBP determined that imported prunes with a moisture level of 18 percent, which were pitted and hydrated to 25 percent moisture, were not transformed into a different product. We stated that the procedure was “intended to make the [product] more desirable to the consumer and not to make it fit for a particular use.” Id. Therefore, CBP has held that products that have been diluted, e.g., had water added, without changing the use, even if done to satisfy differing customer preferences, did not amount to a manufacture or production.
BASF has explained that while the formic acid, in its various concentrations, all exhibit the same formula, molecular weight and Chemical Abstract Service (“CAS”) registry number, each concentration is marketed as a separate and distinct product due to the physical properties of the various concentrations. BASF explained that Formic Acid (99-100%) is used by pharma and food companies, where higher concentrations, with little impurities are required to meet regulatory approval, to control quality and composition of their production process. BASF explained that the higher concentrations of formic acid freezes at higher temperatures, and lower concentrations are needed to prevent blockages in pipes, tanks, and other equipment for customers located in colder climates. Also lower concentrations can be less corrosive and are used so that equipment does not need to use special grade metal or alloys to store, transport, and process the formic acid, which provides lower installations costs for customers. “Customers purchase only the concentration of FA that matches the corrosive resistance of their equipment.” Lower concentrations are less reactive, allowing for slower processing time in situations where a slower reaction is easier to control. Also lower concentrations can be used in pH control or adjustment applications easier, since they are less reactive, allowing pH adjustments to occur more gradually or to be controlled. BASF asserts that these differences can have a significant impact on cost of and effectiveness of equipment’s and processes, creating “separate and distinct products” and making each concentration “fit for a particular use.” As such, BASF contends that the process of dilution resulting in the concentration differences, should be considered a “manufacture of production.”
BASF provided technical data sheets for formic acid at purity levels of 85%, 90%, 94%, 95%, and 99% - 100%. The various concentrations of formic acid all share the same CAS number. The CAS number is a unique number used to identify compound products for both the imported and substituted merchandise. See HQ H237492 (May 23, 2014). Each technical data sheet provides information on a number of categories, including product specifications, the physical properties, as well as notes on safety, packaging, applications/uses, and storage and handling instructions. Despite the slight differences relative to melting temperature, boiling temperature, density, flashpoint, and ignition temperature, the safety, storage, and handling sections were almost identical. Further, despite the differences in level of concentration, the application sections were also almost identical. Amongst the provided technical data sheets, only one (from 1997) was not entirely identical to the others (all from 2013) in regards to the safety and handling and, most tellingly, the applications sections. However, even the 1997 technical data sheet provided the same information generally, albeit in a different, older format. Additionally, after analyzing BASF’s specifications, the LSSD provided their opinion indicating that there are processes which require lower purity formic acid since 99-100% pure formic acid is highly corrosive and cannot be used in all situations. The LSSD explained that the 99-100% formic acid is usually the starting material from which the lower concentrations are “manufactured via dilution with water.” The different purities could all be considered as different grades of the product.
BASF notes that certain concentration levels may be required for certain customers based on the customer’s specific needs because of the corrosive character of higher concentrated formic acid. While in H128998, the personal preference of customers dictated which product was purchased and used, and the dilution did not materially alter the product; here the concentration level of the formic acid, at the levels indicated, does affect the product’s use and character, as the corrosive levels creates different grades that are fit for a particular purpose. Additionally, unlike in W230538, the changes in corrosive character and grades, prevents the formic acid from being considered commercially interchangeable, as discussed in more detail below. Accordingly, the addition of deionized water to the formic acid, at the levels noted in the ruling request, amount to more than mere dilution, but effect a character change of the material, allowing it to be fit for different purposes. Based on the foregoing, we find that the dilution of the formic acid constitutes a manufacture or production pursuant to 19 C.F.R. § 191.2(q), and the dilution of the formic acid at the levels indicated a use within the meaning of 19 U.S.C. § 1313(j)(3). Consequently, drawback per 19 U.S.C. § 1313(j)(2) may not be claimed on the imported or substituted formic acid.
HOLDING:
For the reasons discussed above, BASF’s proposed operations of adding deionized water to formic acid at the levels described, constitutes a prohibited use under 19 U.S.C. § 1313(j)(2)(C)(i) and (3).
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 CBP 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).
Sincerely,
Gail G. Kan, Chief
Entry Process and Duty Refunds Branch