Request for ruling on fungibility of cigarette paper;substitution same condition drawback; 19 U.S.C. 1313(j)(1)

HQ 224468 June 24, 1993 DRA-4 CO:R:C:E 224468 TLS CATEGORY: Entry Mr. Wesley F. O'Brien R.J. Reynolds Tobacco Company Winston-Salem, North Carolina 27102 RE: Request for ruling on fungibility of cigarette paper; substitution same condition drawback; 19 U.S.C. 1313(j)(1) Dear Mr. O'Brien: This office has received the above-referenced request for a fungibility determination on cigarette paper. We have considered the request and made the following decision. FACTS: Ten different grades of cigarette paper and two different grades of cigarette plug wrap are manufactured according to R.J. Reynolds' (RJR) specifications. The grading system has been established using RJR's internal standards. The importer imports these products through Miami Customs and proposes to claim drawback on a grade-by-grade basis. ISSUE: Whether these different grades of cigarette paper and cigarette plug wrap are fungible on a grade-by-grade basis. LAW AND ANALYSIS: The substitution same condition drawback law, 19 U.S.C. 1313(j)(2), requires that 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. Section 191.2(m) of the Customs Regulations defines the term "same kind and quality" as merchandise which may be substituted under substitution [manufacturing] drawback. Fungible merchandise is always same kind and quality merchandise; same kind and quality merchandise is not always fungible, however. Section 191.2(l) defines the term "fungible merchandise" as "merchandise which for commercial purposes is identical and interchangeable in all situations." Substituted merchandise used in a manufacturing process under 19 U.S.C. 1313(b) does not necessarily have to be identical with the imported designated merchandise. Merchandise substituted under substitution same condition drawback, however, must be commercially identical with the imported designated merchandise in all situations. Specifications for each grade of paper and plug wrap have been submitted for consideration. The importer assures that claims for substitution same condition drawback will be made only on a grade-for-grade basis. The imported paper and plug wrap are manufactured according to RJR's specifications as determined for each grade. It is well settled that industry-wide standards may be taken into account when determining fungibility for drawback purposes. In this case, however, the standards are set by the importer for its own purposes. The exported goods in this case are shipped to the importer's foreign subsidiaries. The importer has assured this office that the subject merchandise is traded and used only between RJR and its subsidiaries, foreign and domestic. Obviously, the various grades of paper and plug wrap are identical and interchangeable on a grade-for-grade basis in all commercial situations that they are involved in. Given these facts, we find that the subject merchandise is fungible with the imported merchandise on a grade-for-grade basis only. Without having the facts to determine fungibility outside of the commercial context described above, this ruling is contingent upon the merchandise being traded and used within the RJR conglomerate only. HOLDING: The RJR cigarette paper and RJR cigarette plug wrap is fungible when substituted on a grade-for-grade basis and therefore is eligible for drawback under 19 U.S.C. 1313(j)(2). The finding of fungibility is valid only between RJR and its subsidiaries. This ruling is limited to the facts of this case. Sincerely, John Durant, Director Commercial Rulings Division