Unused merchandise drawback; Commercially interchangeable;Underwear; Different colors; 19 U.S.C.  1313(j)(2)

HQ 226625 July 3, 1996 DRA-4-RR:IT:EC 226625 GEV CATEGORY: Drawback Tammie L. Goldstein Manager Customs & International Trade Deloitte & Touche LLP Two Prudential Plaza 180 North Stetson Avenue Chicago, Illinois 60601-6779 RE: Unused merchandise drawback; Commercially interchangeable; Underwear; Different colors; 19 U.S.C.  1313(j)(2) Dear Ms. Goldstein: This is in response to your letter dated December 11, 1995, on behalf of your client, Jockey International, Inc. ("Jockey"), requesting a ruling regarding the unused merchandise drawback provisions of 19 U.S.C.  1313(j)(2). Our ruling on this matter is set forth below. FACTS: Jockey imports and exports underwear. It claims duty drawback under the unused merchandise drawback provisions of 19 U.S.C.  1313(j)(2). Jockey substitutes underwear which is the same stock keeping unit ("SKU") number. The SKU basis means the garments are the same size, style, color and specification. In claiming drawback, Jockey would like to substitute underwear which is the same size, style and specification but different in color (e.g., substitute light blue underwear for dark blue underwear). In response to a request from Customs, by letter dated April 30, 1996, Jockey submitted copies of the following commercial documentation illustrating the actual transaction processes of importation to exportation, including Jockey's current transactions substituting same color for same color of the same size (Example A) and Jockey's proposal to substitute multiple colors for one color for drawback purposes (Example B): invoices evidencing the sale of underwear from Jockey Jamaica, Ltd. (Lucea, Jamaica, W.I.) to Jockey International, Inc. (Kenosha, Wisconsin) - 2 - (Attachments A); Customs entry documentation (CF 7501) covering importations of the aforementioned underwear classified under subheading 6108.21.0010, HTSUSA (Attachments B); Jockey Shipping/Receiving Tally sheets showing plant receipt of underwear shipments (Attachments C); Jockey sales breakdown sheets (Attachments D); Jockey warehouse withdrawal sheets (Attachments E); Jockey Summaries of Exported Merchandise (Attachments F); and Jockey style cross-reference sheets (Attachments G). Included with this documentation are certifications from Jockey's Assistant Controller as to its accuracy and that differences in color of the same style of underwear have no impact on its value. In addition, Jockey has submitted four sample retail packages of ladies cotton panties (Import Style Nos. 1500 and 1503 (corresponding to Export Style Nos. 7500 and 7503, respectively)) of the same size (42/44), three of which have the same suggested retail price ($5.50) but are of differing colors (Nos. 001, 100 and 101), covered by the aforementioned commercial documentation. ISSUE: Whether the Jockey underwear under consideration meets the requisite criteria for commercially interchangeable merchandise for purposes of the unused drawback provisions set forth in 19 U.S.C.  1313(j)(2). LAW AND ANALYSIS: Generally, under 19 U.S.C.  1313(j)(2), as amended, drawback may be granted if there is, with respect to imported, duty-paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise provided certain requirements are met. The other merchandise must be exported or destroyed within 3 years from the date of importation of the imported merchandise. Before the exportation or destruction, the other merchandise may not have been used in the United States and must have been in the possession of the drawback claimant. The party claiming drawback must be either the importer of the imported merchandise or have received from the person who imported and paid any duty due on the imported merchandise a certificate of delivery transferring to that party the imported merchandise, commercially interchangeable merchandise, or any combination thereof. The issue under consideration is whether the imported merchandise is "commercially interchangeable" with the exported merchandise, for purposes of 19 U.S.C.  1313(j)(2). The drawback law was substantively amended by  632, title VI - Customs Modernization Act, Public Law 103-182, The North American Free Trade Agreement ("NAFTA") Implementation Act (107 Stat. 2057), enacted December 8, 1993. Before its amendment by Public Law 103-182, the standard for substitution under  1313(j)(2) was "fungibility". House Report No. 103-361, 103d Cong., 1st Sess. (1993) contains language explaining the change from fungibility to commercial interchangeability, the latter not having been defined in the statute. According to the Report (at p. 131), the standard was intended to be made less restrictive (i.e., "the [House Ways and Means] Committee intends to permit the substitution of merchandise when it is commercially interchangeable,' rather than when it is commercially identical'") (the reference to "commercially - 3 - identical" derives from the definition of fungible merchandise in the Customs Regulations (19 CFR  191.2(l)). The Report (at p. 131) also states that in determining whether two articles are commercially interchangeable, the criteria to be considered would include, but not be limited to: Governmental and recognized industrial standards; part numbers; tariff classification; and relative values. The Senate Report for the NAFTA Act (S. Rep. No. 103-189, 103d Cong., 1st Sess. (1993), pp. 81-85) contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability. Our review of the aforementioned commercial documentation and samples with respect to the above-referenced criteria yields the following analysis. On page 3 of your letter you state, in pertinent part, that "...there are no government and recognized industrial standards existing for the subject apparel, underwear,..." Based on your representation, and in the absence of evidence to the contrary, it is therefore apparent that the first of the above-listed criteria to be considered is inapplicable in this case. In regard to the second criterion listed above (part numbers), it is your contention that the subject underwear meets this standard based on the fact that although it may be of differing colors, it nonetheless has the same style number (e.g., 1500/7500 and 1503/7503). This position, however, necessitates a total disregard/separation of the attendant color codes (e.g., 001, 100, 101) from the aforementioned style numbers, a practice not reflected in Jockey's commercial documentation (see Attachments C, E and F wherein separate columns designating various colors within the same style number are delineated), nor is it reflected in the four sample retail packages submitted (each of which is marked with the respective style/color numbers 1500/100, 1503/100, 1503/101 and 1503/001). Consequently, both Jockey's internal record keeping and retail marketing practices demonstrate that color is an imperative element in a commercial transaction involving the purchase of this particular wearing apparel by the public with the latter particularly evidencing that the color number is inseparable from the specific style number involved. Accordingly, we find the subject merchandise to be distinguishable with respect to this second criterion. With respect to the third criterion under consideration (tariff classification), the Customs entry documentation submitted (Attachments B) indicates that the subject merchandise is classified under the same tariff provision (subheading 6108.21.0010, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), which provides for "Briefs and panties: Of cotton...Women's). It is therefore apparent that this third criterion has been met. The fourth criterion concerns the relative values of the merchandise in question which are certified by Jockey's Assistant Controller to be the same for each style regardless of any differences in color. In support of this position, reference is made to internal worksheets from Jockey breaking down sales prices of the subject underwear to Jockey Canada solely by style number (see Attachments D). These documents, certified to be representative of all such Jockey  - 4 - transactions, show the cost per dozen of women's cotton briefs to be broken down by style without regard to color. Based on this certification we deem the fourth of the requisite criteria has been met. Accordingly, upon a thorough review of the evidence submitted, and notwithstanding the lack of an applicable government and recognized industrial standard, it is our position that although two of the three remaining requisite criteria have been met, discrepancies with respect to the second criterion (part numbers) discussed above leads us to conclude that the subject underwear is not "commercially interchangeable" for purposes of 19 U.S.C.  1313(j)(2) and therefore any claim by Jockey for drawback thereunder is barred. HOLDING: The Jockey underwear under consideration is not commercially interchangeable for purposes of the unused drawback provisions set forth in 19 U.S.C.  1313(j)(2). Sincerely, William G. Rosoff Chief Entry and Carrier Rulings Branch