Request for Internal Advice; 19 U.S.C. 1313(j)(2); Ethofumesate; emulsifiable concentrate; your file AUD-1-CO:RA:C MAM

HQ 224232 February 26, 1992 DRA-4-CO:R:C:E 224232 CB CATEGORY: Drawback Director Office of Regulatory Audit U.S. Customs Service 1301 Constitution Avenue, N.W. Washington, D.C. 20229 RE: Request for Internal Advice; 19 U.S.C. 1313(j)(2); Ethofumesate; emulsifiable concentrate; your file AUD-1-CO:RA:C MAM Dear Sir: The above-referenced internal advice request from the Northeast Region (their file AUD-1-O:RA JMC) was forwarded to this office for a response. We have considered the points raised and our decision follows. FACTS: Nor-Am Chemical Company (Nor-Am) is the importer and exporter of Ethofumesate; Schering Agrochemicals Ltd. (Schering) of Cambridge, England, is a related company of Nor-Am and the manufacturer of the imported product. Scherin is also the foreign purchaser of the domestic Ethofumesate. Kodak-Eastman entered into a contractual relationship with Nor-Am and Schering to manufacture the domestic Ethofumesate which was exported and claimed for drawback. The imported Ethofumesate was a crushed tan colored product that was mainly powder-like with some irregular lumps. After importation, the Ethofumesate was sent by Nor-Am to a licensed processing plant where it was used to make Nortron EC, a product sold in the United States. Nortron EC is used to control weeds growing around grass and sugar beets. The exported Ethofumesate was light tan color of fairly large, flat-sided, irregularly shaped pieces with a little crushed material. The reason that Nor-Am and Schering contracted with Kodak-Eastman was that Schering experienced a plant shutdown in order to renovate for increased production capacity. Kodak-Eastman produced and delivered 1,000,000 pounds of Ethofumesate to make up for Schering's lack of production during the renovation. In relation to a request from a Drawback Liquidator, Boston, and the initiation of the drawback audit, Nor-Am submitted two samples of the import from Schering and two samples of the export from Kodak-Eastman. The samples were forwarded to the New York Laboratory for a determination of fungibility. Additional information was requested from Nor-Am which provided the information. On August 10, 1992, the New York Laboratory (the Lab) wrote to Regulatory Audit that in their opinion the material forms of the import and the export, specifically, crushed-import, uncrushed-export, were not fungible since for commercial purposes they are not identical and interchangeable in all situations. Based on the above, the subject internal advice request was submitted to this office. Through its counsel, Nor-Am has submitted its comments regarding the Lab's findings. ISSUE: Whether the subject import and export product are fungible for same condition substitution drawback purposes? LAW AND ANALYSIS: Section 313(j)(2) of the Tariff Act of 1930, as amended (19 U.S.C. 1313(j)(2)), provides that for substitution same condition drawback purposes, the merchandise substituted for exportation must be fungible with the duty-paid merchandise and in the same condition as was the imported merchandise at the time of its importation. Fungibility is defined in the Customs Regulations as "merchandise which for commercial purposes is identical and interchangeable in all situations." 19 CFR 191.2(1). Customs has interpreted fungibility as not requiring that merchandise be precisely identical; identical for "commercial purposes" allows some slight differences. The key is complete commercial interchangeability. As stated in C.S.D. 85-52: "[t]he commercial world consists of buyers, sellers, comminglers, government agencies and others. If these groups treat articles or merchandise as fungible or commercially identical, the articles or merchandise are fungible. . . . When two or more units of apparently identical properties are treated differently by the commercial world for any reason, they are not fungible." 19 Cust. Bul. 605, 607 (1985). In the instant case, the Laboratory stated that the ethofumesate can be used in two main formulations: "emulsifiable concentrate" (EC) or "suspension concentrate" (SC). The Lab determined that the crushed and uncrushed product could be used interchangeably in the EC. However, that particle size was important for suspension manufacture. Thus, the Lab concluded that the crushed and uncrushed product were not fungible because they were not interchangeable in all situations. In reading the claimant's submission it was noted that the subject claims pertain only to the emulsifiable concentrate (EC). At page 4 of claimant's submission it states: ". . . [t]he ethofumesate which was imported and exported was then utilized to produce the product Nortron Emulsifiable Concentrate ("Nortron EC" or "EC") which is the end product sold in the United States. . . .This correction further is important as it clarifies that the imported ethofumesate was exclusively utilized to produce Nortron EC (as was the exported ethofumesate)." This statement was again confirmed by claimant's attorney during a telephone conversation. Therefore, any fungibility determination should be limited to the Nortron EC. The Lab concluded, and this office agrees, that the crushed and uncrushed ethofumesate could be used interchangeably in the EC. Thus, the imported crushed ethofumesate and the exported uncrushed ethofumesate are fungible for drawback purposes. HOLDING: The imported crushed ethofumesate and the exported uncrushed ethofumesate are fungible for 19 U.S.C. 1313(j)(2) drawback purposes. This ruling is limited to the ethofumesate which is used in the production of Nortron EC. In the future, if the claimant desires to submit drawback claims on the Nortron SC, a fungibility determination will have to be made regarding said product. Sincerely, John A. Durant, Director Commercial Rulings Division