DRA 4
OT:RR:CTF:ER H271804 KF
Mica McDonald
DHL Drawback Services
15915 Katy Freeway, Suite 602 Houston, TX 77094
RE: The Dow Chemical Company: Request for a determination of commercial interchangeability under substitution unused merchandise drawback, 19 U.S.C. § 1313(j)(2), for Tripropylene Glycol Acrylate Grade.
Dear Mr. McDonald:
This is in response to your application, dated December 10, 2015, on behalf of The Dow Chemical Company (“Dow”), for a formal ruling on the commercial interchangeability of imported and exported Tripropylene Glycol Acrylate Grade (“TPG Ac”), for purposes of substitution of unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).
FACTS:
Dow is a manufacturer, purchaser, and seller of various chemicals within the United States. Dow is engaged in the import and export of TPG Ac, a chemical intermediate and building block utilized in the production of polyurethane foams. TPG Ac is also a solvent adapted to various applications within the consumer and industrial industry, including UV-curable coatings. Dow explains that it imports TPG Ac produced by its subsidiary in Germany to maintain consistent inventory supply levels, and exports domestically produced TPG Ac to international buyers.
As a representative import, Dow submitted a Customs and Border Protection (“CBP”) Form 7501, dated May 2, 3014, demonstrating that Dow imported a tank of TPG Ac, classified under subheading 2909.49.6000, Harmonized Tariff Schedule of the United States (“HTSUS”). The corresponding commercial invoice referenced on the CBP Form 7501, dated April 1, 2014, No. XXXXXXXX80, describes the imported merchandise as a bulk quantity of TPG Ac. The commercial invoice lacks a part number for the imported TPG Ac. The accompanying Certificate of Analysis (“COA”), dated March 26, 2014, identifies the sample as TPG Ac, Batch No. 3C2450JP61, subject to the following specifications:
Minimum Assay: 96.0 percent
Maximum Acidity: 0.0030 percent
Maximum Aldehydes: 20 ppm
Maximum Chlorides: 5 ppm
Maximum Color: 20
Maximum Dipropylene Glycol: 3.00 percent
Maximum Peroxide (as H202): 15.0 ppm
Maximum Tetra PG: 1.000 percent
Maximum Water: 0.100 percent
The March 26, 2014 COA shows the imported TPG Ac batch satisfied all minimum and maximum specifications. The batch additionally passed an appearance test.
For the export transaction, Dow submitted a Bill of Landing (“BOL”), dated July 18, 2014, commercial invoice No. XXXXXX29, dated July 18, 2014, two additional COAs, and an Automated Export System (“AES”) document. The BOL identifies the export as two tanks of TPG Ac. The AES document, listing July 18, 2014 as the export date, identifies the TPG Ac as classified under subheading 2909.49.6000, HTSUS. The BOL lacks a part number for the substituted TPG Ac. The corresponding commercial invoice, dated July 18, 2014, shows that Dow exported TPG Ac in bulk quantity. The container number for the export listed in the July 18, 2014, corresponds to the container number identified in the BOL. The commercial invoice lacks a part number for the substituted TPG Ac. The accompanying COAs identifies the sample as TPG Ac, Batch Nos. 3F2401A504 and 3F2401A507, subject to the following specifications:
Minimum Assay: 96.0 percent
Maximum Acidity: 0.0030 percent
Maximum Aldehydes: 20 ppm
Maximum Chlorides: 5 ppm
Maximum Color: 20
Maximum Dipropylene Glycol: 3.00 percent
Maximum Peroxide (as H202): 15.0 ppm
Maximum Tetra PG: 1.000 percent
Maximum Water: 0.100 percent
The export COAs shows the exported TPG Ac batches satisfied all minimum and maximum specifications. The batch additionally passed an appearance test. In addition to satisfying the specifications identified in both the March 26, 2014 and export transaction COAs for Dow’s imported and substituted TPG Ac, the COAs were sent to CBP’s Laboratories and Scientific Services Directorate (“LSSD”) for analysis. It is the opinion of the LSSD that the imported and substituted TPG Ac both had very high purity levels of 99.5 percent, or greater, and this specification sufficiently describes the imported and substituted TPG Ac. The LSSD noted that any TPG Ac which failed to meet a minimum purity level of 99.5 percent would be regular grade, and not commercially interchangeable.
A comparison of the price per ton listed in the invoices for the imported and substituted TPG Ac shows a price difference of 0.01 percent.
ISSUE:
Whether the imported TPG Ac is commercially interchangeable with the substituted TPG Ac, within the meaning of the substitution unused merchandise drawback statute 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 not 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 (March 25, 2009); and HQ H122535 (February 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 the same industry accepted standard may be used to produce the same products” or used for the same purposes. See HQ H074002 (December 2, 2009). For TPG Ac, there are no published government and recognized industry standards.
When there are no applicable government or industry standards, CBP considers contractual product specifications, as a critical property, especially when governmental and industry standards are not available. See, e.g., H030097 (August 29, 2008) (determining that where the technical product specifications sufficiently describe the product, this would also support a determination of commercial interchangeability). Product specifications are used to guarantee the uniformity of merchandise. In other words, if product specifications are sufficiently detailed, then any merchandise sharing those specifications will generally be uniform in nature. The Court of International Trade has found that private contract standards may be used to determine commercial interchangeability. See Pillsbury Co. v. United States, 293 F. Supp. 2d 1351, 1356-57 (Ct. Int’l Trade 2003) (explaining that, “[e]vidence of different contract standards would indicate that the designated and substitute [product] are not commercially interchangeable”). Thus, when goods are sold or purchased pursuant to the same detailed product specifications, evidence that the imported and substitute merchandise share the same product specifications tends to support a general finding of commercial interchangeability and thus, satisfies the standards criterion.
Dow provided product specifications and industry standards identifying the physical properties of TPG Ac, and certificates of analysis of samples of the import and substituted export product. The specifications are as follows:
Minimum Assay: 96.0 percent
Maximum Acidity: 0.0030 percent
Maximum Aldehydes: 20 ppm
Maximum Chlorides: 5 ppm
Maximum Color: 20
Maximum Dipropylene Glycol: 3.00 percent
Maximum Peroxide (as H202): 15.0 ppm
Maximum Tetra PG: 1.000 percent
Maximum Water: 0.100 percent
All TPG Ac imported and substituted by Dow is required to have the minimum or maximum specifications that fall within the percentages identified above. Upon review of these ranges, LSSD confirmed that it was sufficiently narrow to describe the merchandise. Both the imported and substituted merchandise have high purities levels with low impurities that fall within these required standards. Based on these findings, we conclude that this criterion is satisfied provided that the TPG Ac falls within the specifications stated above.
Part Numbers
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 would support a finding of commercial interchangeability. See, e.g., HQ H074002; and HQ H122535. CBP has also determined, however, that the absence of part numbers on commercial import and export documentation does not preclude a finding of commercial interchangeability. See HQ 227106 (September 3, 1997) (“the fact that the part numbers and lot codes are not used on all documents, but are used only in some, supports the view that the part numbers and lot codes do not preclude a finding of commercial interchangeability”); and HQ H190457 (June 11, 2012) (holding that merchandise sold in bulk may lack part numbers altogether).
Dow’s April 1, 2014 commercial invoice for the imported TPG Ac makes no reference to a part number or product identifier. The July 18, 2014 commercial invoice for the exported TPG Ac also makes no reference to a part number or product identifier. Dow explained that it uses GMID 33370 concurrently with the nomenclature for TPG Ac to identify the merchandise within its computerized inventory. Dow relies on its computerized inventory to identify TPG Ac for both import and export transactions with the chemical. Dow’s CBP Form 7501 references 33370 as the numerical identifier associated with the imported TPG Ac. Dow’s import and export documents lack any other reference to GMID 33370. However, Dow’s April 1, 2014 import invoice and July 18, 2014 export invoice identify TPG Ac by its name, and show bulk quantities of sale. Therefore, part numbers are not applicable to this product and the lack thereof will not preclude a finding of commercial interchangeability.
Tariff Classification
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. Dow’s CBP Form 7501 shows that imported TPG Ac is classified under subheading 2909.49.6000, HTSUS. Dow’s AES document shows that exported TPG Ac is classified under subheading 2909.49.6000. Based on the fact that Dow’s imported and substituted TPG Ac are classified under the same HTSUS subheading, we conclude that this criterion is satisfied.
Relative Value
Finally, goods that are commercially interchangeable generally have similar values when sold at the same place, at the same time, to like buyers from like sellers. See, e.g., HQ H090065 (March 23, 2010) (finding a price difference of 4.5 percent to be acceptable). CBP has also 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, did not preclude a finding of commercial interchangeability); and HQ 228580 (August 20, 2002) (holding that a value difference of 27 percent did not preclude a finding of commercial interchangeability when the difference in value was attributable to processing and manufacturing costs). Conversely, see HQ 228519 (June 5, 2002) (denying commercial interchangeability when no explanation was provided to explain why exported tapes, as indicated by the invoices, were all sold at costs proportionately higher than the imported tapes).
A comparison of the invoices for the imported and substituted TPG Ac show a price difference of $0.01 per kg, or of 0.01 percent. The import transaction occurred in May of 2014, and the merchandise was exported in June of 2014. The very minimal difference in the relative value between the imported and substituted merchandise indicates that the price difference is not attributable to “chemical or physical differences between” Dow’s TPG Ac because the value of the imported and substituted merchandise was roughly equivalent at purchase and sale. See HQ 249074 (October 10, 2014). Dow assumes the price difference is attributable to market fluctuation caused by the “constantly changing” price of TPG Ac, engendering a minimal difference between relative value at distinct purchase and sale times. See HQ H106515 (March 18, 2011); and HQ 227473 (March 3, 1998) (finding “[t]he disparity in the relative values of the imports and exports in this instance does not appear to be significant enough to affect the[ir] commercial interchangeability …[because this is not] a case where an inferior product will be substituted for a higher-quality imported product. Rather, the disparity in price appears to be the result of the market at the time of purchase/sale of the paste”).
The facts of the case, the precise specifications of TPG Ac’s composition that define the product to a high degree of exactness, the fact that imported and substituted TPG Ac is classified under the same HTSUS subheading, and the fact that imported and substituted merchandise is of roughly equal relative value, allow for a finding of commercial interchangeability.
HOLDING:
Based on the above findings, we determine that imported and substituted TPG Ac, that satisfy the specifications listed above and are classified under the same subheading, with a comparable or less price difference, are commercially interchangeable for the purposes of the substitution unused merchandise drawback statute, 19 U.S.C. § 1313(j)(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 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).
Sincerely,
Monika R. Brenner, Acting Chief
Entry Process & Duty Refunds Branch