Substitution unused merchandise drawback; commercial interchangeability; polyethylene terephthalate; 19 U.S.C. §1313(j)(2)

HQ 227681 August 2, 1999 DRA-4-RR:CR:DR 227681 IOR CATEGORY: Drawback J.W. Brown Gulf Coast Drawback Services 20501 Katy Freeway Suite 214 Katy, TX 77450 RE: Substitution unused merchandise drawback; commercial interchangeability; polyethylene terephthalate; 19 U.S.C. §1313(j)(2) Dear Mr. Brown: This is in response to your ruling request dated August 21, 1997, on behalf of your client Sino-American Trading Corporation, Inc. (“SATCORP”), concerning whether its imported and exported polyethylene terephthalate (“PET”) is “commercially interchangeable” for purposes of substitution, unused merchandise drawback, under 19 U.S.C. §1313(j)(2). FACTS: According to your submission, PET has no part number, and is simply referred to as PET. The Harmonized Tariff Schedule of the United States (HTSUS) number for the import and export is subheading 3907.6000.10. According to your submission, the import has an intrinsic viscosity of 0.80 and the price ranges from $1550/MT in February 1995 to $2250/MT in June 1995. The export has an intrinsic viscosity of 0.645 and had a value of $1483/MT in August 1996. You state that the fluctuations in price are due to geographical supply and demand. Your submission states that there is no price differentiation due to the quality of the product. You state that there is no specific industry standard for PET as it can be used for fiber, yarn and bottle production. You have also clarified in a subsequent telephone conversation of November 24, 1998, that the PET purchased and sold by SATCORP is not bought and sold to be used for any one particular purpose. You provide the following definition of PET from the Condensed Chemical Dictionary: A thermoplastic polyester formed ethylene glycol by direct esterification or by catalyzed ester exchange between ethylene glycol and dimethyl terephthalate. Offered as oriented film or fiber. It melts at 265 deg. C; tenacity is 2.2 to 4g/denier (staple) and up to 9.0/denier as continuous filament. Sp. gr. 1.38. It has good electrical resistance and low moisture absorption. Resists combustion and is self-extinguishing. Uses: blended with cotton, for wash-and-wear fabrics; blended with wool, for worsted and suitings; packaging films; recording tapes; soft-drink bottles. You state that PET is bought and sold principally on availability (price) and the intrinsic viscosity, rather than close industry standards. In a follow-up submission dated February 26, 1998, in response to our request for additional specifications and clarification of whether the merchandise is a fiber or resin, you submitted a specification sheet for the imported PET and a certificate of analysis for the exported PET. According to the specifications, the imported PET has an intrinsic viscosity of .80 and the exported PET has an intrinsic viscosity of .6270. According to the specifications, the ship date for the export is March 27, 1997, although according to the initial submission the reference date for the export was August 7, 1996. The specifications for the import are not dated. By telephone conversations on November 24, 1998 and January 14, 1999 and a follow up letter dated May 12, 1999, we requested purchase and sales documents for the import and export (this information was requested on the dates stated above as well as by letters dated September 16, 1997 and February 3, 1998), CF 7501's for the imported merchandise, evidence of market value of the merchandise, and clarification of the date of exportation of merchandise for which the specifications were provided. As of the date of this decision, this office was never provided with any response to our requests. ISSUE: Whether the imported PET and substituted PET is commercially interchangeable for purposes of 19 U.S.C. §1313(j). LAW AND ANALYSIS: Under 19 U.S.C. §1313(j)(2), as amended, substitution unused merchandise drawback may be granted if there is, with respect to imported dutypaid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise and if the following 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 statute did not define commercially interchangeable. The drawback statute was substantively amended by section 632, title VI  Customs Modernization, Pub. L. No. 103182, the North American Free Trade Agreement Implementation (NAFTA) Act (107 Stat. 2057), enacted December 8, 1993. Before its amendment by Public Law 103182, the standard for substitution was fungibility. House Report 103361, 103d Cong., 1st Sess., 131 (1993) contains language explaining the change from fungibility to commercial interchangeability. According to the House Ways and Means Committee Report, the standard was intended to be made less restrictive, i.e., "the Committee intends to permit substitution of merchandise when it is ‘commercially interchangeable,’ rather than when it is ‘commercially identical’" (the reference to "commercially identical" derives from the definition of fungible merchandise in the Customs Regulations (19 C.F.R. §191.2(l)), prior to their amendment on March 5, 1998. The Report, at page 131, also states: The Committee further intends that in determining whether two articles were commercially interchangeable, the criteria to be considered would include, but not be limited to: Governmental and recognized industry standards, part numbers, tariff classification, and relative values. The Senate Report for the NAFTA Act (S. Rep. 103189, 103d Cong., 1st Sess., 8185 (1993)) contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability. In addition, the Senate Report states that Customs “should evaluate the critical properties of the substituted merchandise, rather than basing its determination on subjective standards.” Senate Report, at page 83. In order to determine commercial interchangeability, Customs adheres to the Customs regulations which implement the operational language of the legislative history. The best evidence whether those criteria are used in a particular transaction are the claimant’s transaction documents. 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. The purchase and sale documents also provide the best evidence with which to compare relative values. Also, if another criterion is used by the claimant to sort the merchandise, the claimant’s records would show that fact which will enable Customs to follow the Congressional directions. In order to determine whether the PET is commercially interchangeable, an analysis of the following factors must be done: 1. Governmental and Recognized Industry Standards In an Office of Laboratories and Scientific Services (OLSS) report dated June 22, 1998, it was concluded that the specifications submitted are sufficient to make a determination on commercial interchangeability, and that because there are no government or industry guidelines to distinguish PET, the lab would rely on the more complete import specifications as guidelines/criteria in comparing PET for purposes of drawback. In the June 22, 1998 report, the following conclusion was made: In our review of the imported and exported specification, we find that the values submitted for the intrinsic viscosity are different. Additionally we note from literature and also in the HTSUS Chapter 39 Statistical Note 1 that there is a PET grade described as “bottle-grade resin”. It is defined as a grade PET having an intrinsic viscosity range between 0.68 and 0.86. We note that the imported merchandise is a bottle-grade PET resin whereas the exported product is of another grade. The OLSS report included the following definition of “intrinsic viscosity” from Whittington’s Dictionary of Plastics: In measurements of dilute-solution viscosity, intrinsic viscosity is the limit of the reduced and inherent viscosities as the concentration of polymer solute approaches zero. It represents the capacity of the polymer to increase viscosity. Interactions between solvent and polymer molecules give rise to different intrinsic viscosities for a given polymer in different solvents. In the submission, the intrinsic viscosity was also stated to be one of the criteria upon which the merchandise is bought and sold. 2. Tariff Classification According to the submission of SATCORP, the import and export is classified in subheading 3907.6000.10, HTSUS. Subheading 3907.6000, HTSUS provides for Polyethylene terepththalate. The subheading is broken down into two statistical suffixes, one for bottle-grade resins and a second for “other.” The HTSUS subheading consists of the first eight digits. The remaining two digits, if any, comprise the statistical suffix. The statistical reporting number for an article consists of a ten digit number formed with the eight digit subheading number and the two digit statistical suffix. General Statistical Note 3(a), HTSUS. The legal text of the HTSUS consists of the eight digit number, and does not include the two digit statistical suffix. Therefore, for purposes of the tariff classification, we find that the import and export are both classified under subheading 3907.6000, HTSUS. General Statistical Note 2, HTSUS. 3. Part Numbers According to SATCORP, the PET does not have any part numbers. However, there is insufficient evidence on this point as we did not receive purchase and sales documentation pertaining to the imports and exports. 3. Relative Values The evidence submitted, shows that the price for the imports ranged from $1550/MT in February 1995 to $2250/MT in June 1995. It is also asserted that on August 7, 1996, the export had a value of $1483/MT. However, without the purchase and sales documents there is no evidence substantiating these figures, and in addition, from the submissions, it is not even clear when the export occurred. The evidence provided is insufficient to make any determination. In summary, we find that only the tariff classification criteria is met for commercial interchangeability, and that alone is not a sufficient basis upon which to make a determination. In addition, the governmental and recognized industry standards criteria specifically is not met. HOLDING: We find that based on the evidence submitted, the imported merchandise is not commercially interchangeable with the exported merchandise. Sincerely, John Durant, Director Commercial Rulings Division