HQ 0221953 - Fungibility of Tires For Purposes of Substitution Same Condition Drawback (19 U.S.C. 1313(j)(2)) - United States International Trade Commision Rulings

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HQ 221953
December 28, 1989

CO:R:C:E 221953 TG

CATEGORY: DRAWBACK (19 U.S.C. 1313(J)(2))

Mr. C.R. Logan
Import/Export Manager
Michelin Tire Corporation
Post Office Box 19001
Greenville, South Carolina 29602-9001

RE: Fungibility of Tires For Purposes of Substitution Same Condition Drawback (19 U.S.C. 1313(j)(2))

Dear Mr. Logan:

This is in response to your letters of July 22, 1988, and December 1, 1989, in which you requested a determination of approval to claim substitution same condition drawback for Michelin tires, inner tubes, and tire flaps, as provided under 19 U.S.C. 1313(j)(2).

FACTS:

Michelin Tire Corporation is a member of a multinational group of companies. All Michelin products, regardless of country of origin, are identified by a six-digit code called the "Code Article International" ("CAI"). You state that each CAI number has a one-to-one correspondence with the tire's commercial name, product description or designation. If any element of the commercial name of the product changes, the CAI number changes.

In your December 1, 1989 letter, you further explained that the CAI number is more precise than is the commercial description because commercial descriptions for a particular tire can vary, depending upon the language of the country of manufacture or upon varying notation systems. On the other hand, CAI numbers are invariant within the Michelin Group worldwide. The letters used in a tire's product description are often abbreviations of words in the language of the country of origin. For example, the abbreviation "WW" tire stands for "white wall" but in French the translation is "flanc blanc" and it is abbreviated with the letters "FB." However, they describe the same product even though one uses the letters "WW" in the position where the other contains "FB." But the CAI numbers are identical because the products are, for commercial as well as all other purposes, identical and interchangeable in all situations. If any one of the elements of a tire description changes, a different CAI number is assigned. The elements which determine the CAI number include: tire type, section width, aspect ratio, rim size, load index, speed index, tread type, type of sidewall, color and width of sidewall stripe or letters, number of stars, ply rating, tube designation, type of compound in earthmover, motorcycle, and racing tires.

The Tire & Rim Association, Inc. (TRA) provides for the maintenance of interchangeability among rims and tires and publishes standards for tire dimensions. According to your letter, Michelin products uniformly meet the published standards.

Finally, the chemical composition of tires with the same CAI number is constant, with a manufacturing variation range of approximately 2% or less. This variation is normal and is a direct result of the manufacturing process. You provided examples of this variation and stated that the tire manufacturing industry accepts this variation in chemical composition as insignificant, because it does not affect the commercial interchangeability of the tires.

ISSUE:

The issue in this case is whether tires, without a defect or blemish, manufactured in two or more countries which meet material and design specifications, have the same CAI number, are inventoried and sold interchangeably at the same price, meet the fungibility requirements under 19 U.S.C. 1313(j)(2)(A).

LAW AND ANALYSIS:

19 U.S.C. 1313(j)(2), Tariff Act of 1930, as amended, provides that same condition substitution drawback may be claimed upon the exportation of imported merchandise or other merchandise, whether imported or domestic, that is fungible with the imported merchandise. This provision specifically authorizes the substitution of merchandise (whether imported or domestic) for other imported merchandise, as long as both are fungible. In addition, the statute requires other conditions under subsections 1313(j)(2)(B), (C) and (D), which we will presume will be met. This ruling is limited to the issue of fungibility.

Fungible merchandise for same condition drawback is defined in section 191.2(1), Customs Regulations, as "merchandise which for commercial purposes is identical and interchangeable in all situations." As stated in C.S.D. 85-52, "The 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."

Congress established same condition substitution drawback to expedite merchandise handling and inventory control. The legislative history states that the intention of the substitution drawback provision was to allow merchandise of an identical commercial nature to be substituted for the merchandise being imported, as long as the exported merchandise had not been used within the United States. (House Report No. 98-1015, reprinted 1984, U.S. Code Cong. and Ad. News, 5023)

We believe that the importer has met the requirements of fungibility under 19 U.S.C. 1313(j)(2). The merchandise is manufactured according to identical specifications. Each CAI number used by Michelin for its tires describes a particular product which is and remains the same regardless of the plant in which it is produced at the country of origin. All articles having the same CAI number are manufactured in accordance with the same specifications and from the same material and will be sold interchangeably with other articles bearing that CAI number.

HOLDING:

Therefore, an imported duty-paid designated tire and the substituted tire both of which already have the same CAI numbers, are made of the same material, same specifications, same chemical composition, and same dimensions are fungible merchandise for same condition drawback purposes under 19 U.S.C. 1313(j)(2). This ruling is not applicable to blemished or defective tires. A blemished or defective tire is not fungible with another tire regardless of the CAI number equivalency.

Sincerely,

John Durant, Director

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