HQ 0221377 - Your ruling request concerning same condition substitution drawback; fungibility of auto parts by part number; 19 USC 1313(j); 19 CFR 191.2(l); CSD 85-52; CSD 90-36; parts; part code numbers - United States International Trade Commision Rulings

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HQ 221377

December 19, 1990

DRA-4 CO:R:C:E 221377 C

CATEGORY: DRAWBACK

Bob Grattan
Customs Advisory Services, Inc.
1001 Virginia Avenue
Suite 211
Atlanta, GA 30354

RE: Your ruling request concerning same condition substitution drawback; fungibility of auto parts by part number; 19 USC 1313(j); 19 CFR 191.2(l); CSD 85-52; CSD 90-36; parts; part code numbers

Dear Mr. Grattan:

This responds to your letter of April 17, 1989, wherein you ask for a ruling on the fungibility of automobile parts manufactured in various countries, imported into the United States, commingled with domestic parts according to part number, and distributed both domestically and to foreign firms. Your client desires to file for drawback under 19 U.S.C. 1313(j)(2), the same condition substitution drawback provision.

In view of the fact that the issue presented has been considered previously by Customs, we will not issue a ruling in response to your inquiry. Instead, this is an information letter, as provided under 19 CFR 177.1(d)(2), intended to call attention to an established interpretation of Customs law.

Same condition substitution drawback requires that the imported designated merchandise and the substituted merchandise be commercially fungible. Fungibility is defined in the Customs regulations as "merchandise which for commercial purposes is identical and interchangeable in all situations." 19 CFR 191.2(l). Customs has interpreted fungibility not to require that merchandise be precisely identical; identical for "commercial purposes" allows some slight differences. The key is complete commercial interchangeability, as stated in Customs Service Decision 85-52 (CSD 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." 19 Cust. Bull., 605, 607 (1985).

The issue has been considered recently in CSD 90-36. There, Customs found that tires manufactured in various countries according to the same specifications and categorized according to the same international code number are fungible merchandise. In addition to having the same specifications and code number, the tires were made of the same material with the same chemical composition, and shared the same dimensions. Importantly, Customs found that each tire having the same code number was the same regardless of the plant or country of origin. Even more importantly, all tires with the same code number (and thus specifications, dimensions, etc.) were used and sold interchangeably in the industry worldwide. 24 Cust. Bull., No. 14, p. 12 (April 4, 1990).

Based on the information you have provided, it appears that your client's operation is similar to that addressed in CSD 90- 36. A finding of fungibility may be appropriate if the principle announced in the CSD applies to your client's operation.

You stated that your client imports and purchases domestically for further distribution nearly 40,000 automobile parts annually. These parts are used as replacement parts for nearly all automobile makes and models. The parts are commingled in inventory according to part number, and sold domestically and abroad. You state that all parts are completely identical and interchangeable with parts of the same number. It has been submitted that parts with the same part number are produced according to the same specifications and composed of the same materials.

You have not submitted a description of the numerous parts in question, nor their specifications. For purposes of this information letter, such information is not necessary. Your client will have to establish that a given part, identified by part number, was manufactured according to the same relevant specifications, and that, despite any slight differences, the part is commercially interchangeable with other parts of the same part number.

In other words, if, for example, part A102-12, a rod bearing, is produced according to the same specifications regardless of where produced - Japan, England, or Venezuela - and if the part with its characteristic specifications is used interchangeably in the industry, regardless of where produced or of any slight differences, then all the rod bearings identified by that unique part number would be fungible for drawback purposes. If, on the other hand, foreign or domestic firms would discriminate in their purchase and use of a given part, for any reason related to the part itself, including its origin, then fungibility would be defeated. For example, if firms would choose for use in their operations a rod bearing, part A102-12, produced in Germany, rather than the same part produced in another country, because the German part is, for example, manufactured from a harder, more heat resistant material, fungibility would be defeated.

Likewise, if domestic or foreign firms preferred, for example, German manufactured parts for use in their operations, because throughout the industry German parts had a reputation for higher quality, and thus there was a clearly recognized customer preference, whether or not the parts in fact evidenced superior specifications or materials, this preference would evidence a commercially recognized difference between German parts and those produced elsewhere. This would defeat fungibility, as well. See Guess? Incorporated v. United States, No. 88-09-00707, slip op. 90-121 (CIT, Nov. 26, 1990).

A copy of CSD 90-36 is attached for your reference. Again, on the basis of the limited information you supplied, we believe that your client's operation may qualify for drawback under the principle of CSD 90-36. It is your client's burden to establish that the CSD is applicable to its operation. If it is, recovery of drawback will be a matter of submitting the pertinent documentation to the appropriate Customs office. We suggest that you contact the district or regional office where your client will file its claims for further guidance on pursuing drawback. We suggest that you submit a copy of this letter when you make your request.

If you have any further questions regarding this matter, feel free to contact this office (202/566-5856).

Sincerely,

William G. Rosoff

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