HQ 0223136 - Protest #200291000118; TRADECOM, INC.; 19 U.S.C. 1313(j)(2); Fungibility of crude degummed soybean oil - United States International Trade Commision Rulings

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HQ 223136
August 15, 1991

DRA-4 CO:R:C:E 223136 DHS

CATEGORY: DRAWBACK

District Director
U.S. Customs Service
Suite 337
423 Canal Street
New Orleans, Louisiana 70130-2341

RE: Protest #200291000118; TRADECOM, INC.; 19 U.S.C. 1313(j)(2); Fungibility of crude degummed soybean oil

Dear Sir:

The above-referenced protest has been forwarded to this office for further review. We have considered the points raised by the protestant and your office. Our decision follows.

FACTS:

A claim by the protestant regarding the crude degummed soybean oil (CDSBO) in question was considered by headquarters, in the form of an internal advice. In response to this claim, our office issued HRL 222500, dated July 16, 1990, wherein we held that merchandise held in bailment would not defeat the physical and legal possession requirements of 19 U.S.C. 1313(j)(2) same condition drawback law, provided several criteria were met. The ruling did not address the issue of the fungibility of the CDSBO other than to state that if fungibility was not found, then the requirements of 19 U.S.C. 1313(j)(2)(A) would not be met.

The following series of events occurred regarding the entries in question.

The initial entry was filed on July 7, 1989. On July 31, 1989, amended entries were filed and the initial designation was made. A redesignation of import entries was made on December 6, 1990. The drawback entries were liquidated and fungibility was denied on February 1, 1991. The original protest was filed on February 5, 1991. On February 27, 1991, the amended protest was filed.

Several Certificates of Analysis have been submitted for the imported and the exported merchandise. A synopsis of the dates and test results of each vessel follow.

Petrobulk Panther - This is the export vessel which was loaded in New Orleans, Louisiana.
July 22, 1989 - Certificate of Analysis from Inspectorate Worldwide Quality Services.
FFA = .45%

July 22, 1989 - Certificate of Analysis from Inspectorate Worldwide Quality Services.
FFA = .80%
(This document was submitted as a substitute for the previous document. Customs contends that this document is an altered copy of the previous July 22, 1989 Certificate of Analysis.)

Iver Hawk - import vessel

July 30, 1988 - Certificate of Analysis from Charles V. Bacon, Inc.. Tested in Port Newark, New Jersey.
FFA = .36%

Team Progress - An import vessel with the final destination of New Orleans, Louisiana.

October 20, 1988 - Certificate of Analysis from Thionville Inspectorate de Cargas E Analises, Ltda.. Tested in Rio Grande, Brazil.
FFA = .85%

November 9, 1988 - Certificate of Analysis from Thionville Laboratories, Inc.. Tested at the time of discharge at Savannah, Georgia.
FFA = .58%

November 17, 1988 - Certificate of Analysis from Calebb Brett U.S.A., Inc.. Tested as it was loaded into storage tanks from the Team Progress, at Pan Ocean Terminal, Garden City, Georgia, on November 13-15, 1988. FFA = .58%

September 19, 1990 - Certificate of Analysis from Thionville Laboratories, Inc.. The sample represents oil loaded into barges with the cargo discharged from the M/T Iverhawk and the M/T Team Progress in 1988. FFA = .62%

The New Orleans Customs Laboratory, in a report to the Liquidation Branch, dated August 29, 1990, determined that the imported and exported shipments (vessel Petrobulk Panther) did not meet the fungibility requirements. It based its decision upon certificates of analysis, revealing independent surveyors' tests for certain physical properties such as free fatty acids (FFA), phosphorus, etc..

Protestant was advised of the findings on October 10, 1990. They responded by submitting a substituted and "corrected" certificate of analysis for the export shipment on October 30, 1990. Protestant stated in this submission that the first analysis providing an FFA of .45% was in error. The corrected certificate on the export shipment indicated a FFA of .80% when rechecked. Both documents are dated July 22, 1989.

On November 14, 1990, the corrected certificates were submitted to the Customs Laboratory to be evaluated. On November 27, 1990, a second report was issued by the Customs Laboratory stating that the merchandise was not fungible.

Before the broker received this report, it submitted another certificate of analysis and possession documents for a new import entry from another vessel, the Team Progress, arriving in Savannah, Georgia. The liquidation branch denied this claim on the basis of nonfungibility by letter, dated December 19, 1990, without submitting it to the Customs Laboratory.

The application for drawback was submitted on July 7, 1989 and denied on February 1, 1991.

The protest was filed on February 5, 1991, contesting the denial of the claim of same condition drawback on the basis that the imported and exported material are fungible within the standards of C.S.D. 87-6. In this submission the protestant submitted the certificates of analysis discussed above, several warehouse receipts and documents describing the inventory procedures reflecting upon the possession issue, bills of lading, a copy of the import consumption entry filed in Savannah, Georgia, a copy of the liquidation notice, shippers export declaration, Customs Form 7511, and the calculation of duty.

An amended protest was filed on February 27, 1991, contesting the denial of the claim of same condition substitution on the basis that the imported and exported material are not fungible. In support of this amendment the protestant put forth three alternative arguments which have been addressed below.

On April 16, 1991, an examiner was appointed by the United States Trustee pursuant to an order of the United States Bankruptcy Court in order to receive and maintain all drawback payments upon reimbursement to Tradecom, Inc..

ISSUE:

Whether crude degummed soybean oils that are subject to deviations as indicated in Section 3A, Rule 103, of the rules published by the National Soybean Processors Association (NSPA) satisfies the fungibility requirements of the substitution same condition drawback law.
LAW AND ANALYSIS:

The protest and amendment have been properly filed within the provisions of 19 CFR 174.12 and 174.14(a), since both the original and the amended protest have been filed within 90 days after the date of notice of liquidation or reliquidation.

Under section 313(j)(2), Tariff Act of 1930, as amended (19 U.S.C. 1313(j)(2)), upon the exportation or destruction under Customs supervision of merchandise (whether imported or domestic) which is fungible with imported merchandise, assuming compliance with other requirements in the statute and applicable regulations (19 CFR Part 191), same condition substitution drawback may be claimed. This provision specifically permits the substitution of merchandise (whether imported or domestic) for imported merchandise, provided that they are fungible.

The term "fungible merchandise" is defined in the Customs Regulations as "merchandise which for commercial purposes is identical and interchangeable in all situations." (Emphasis added) 19 CFR 191.2(b)(1). This definition is consistent with the clearly expressed intent of the Congress when it enacted 19 U.S.C. 1313(j)(2). See, House Report (Ways and Means Committee) No. 98-1015, September 12, 1984, reprinted at 1984 U.S.C.C.A.N. 4960, 5023; see also 129 Cong. Rec. E 5339 (daily ed. November 4, 1983).

The Court of International Trade gave support to Customs interpretation of the term "fungible merchandise" in the case of Guess? Inc. v. United States, Slip Op. 90-121 (CIT November 26, 1990), Vol. 24 Cust. Bull. & Dec. No. 51, p. 26. The Court stated that "...the choice of the word 'fungible' indicates an intention by Congress to identify merchandise which stands in the place of the imported merchandise in all respects." (emphasis added) In this case, the court concluded that the existence of a customer preference destroyed the fungibility between the imported and exported merchandise.

In order to meet the fungibility requirements the specifications submitted must meet the maximum and minimum analytical requirements of Section 3A, Rule 103, of the Trading Rules for the Purchase and Sale of Soybean Oil published by the NSPA.

The NSPA is recognized by traders and users throughout the world. The NSPA rules for soybean oil are the most widely used rules in domestic and international trade under which soybean oil is traded. It thereby, represents the industry's treatment of the merchandise as commercially identical and fungible.

In C.S.D. 87-6, we held that crude degummed soybean oils that meet the specifications outlined in Section 3A, Rule 103, NSPA, and which are not subject to contract adjustments for deviations in the specifications as provided for in the Rule, are fungible for drawback purposes.

Section 3A, Rule 103, provides the allowable discounts for deviations from the standard for certain properties such as free fatty acids (FFA) and phosphorus. Under Section 3A, Rule 103, the maximum standard for FFA is .75%. Discounts in the contract price are allowable for deviations in the quality of the properties. This section provides:
a. Free fatty acids .76% - .85% - 0.2% of contact price .86% - .95% - 0.4% of contract price
.96% - 1.05% - 0.6% of contract price
1.06% - 1.15% - 0.9% of contract price
1.16% - 1.25% - 1.2% of contract price

Protestant contends that certain ranges of physical properties (FFA content) of CDSBO are identical (interchangeable) in all situations. In support of this contention protestant has submitted letters from two industry sources (Colfax, Inc. and Riceland Foods, Inc.). Both of these companies advocate that the CDSBO containing FFA content below .75% is, for commercial purposes, identical and interchangeable in all situations with CDSBO containing FFA content between .76% and 1.25%.

The NSPA has not indicated any minimum standard for the FFA. The amounts above the .75% however, fall within the deviations listed above in Section 3A, Rule 103. The discounts in the contract price allowable for the deviations are synonymous with different ranges in the quality of the physical properties. It is therefore, our position that the different ranges indicated in Section 3A, Rule 103, are purposeful and may not be interchangeable for fungibility purposes.

The protestant contends that the original certificate of analysis on the Petrobulk Panther which indicated the FFA to be .45% is the proper document to utilize in the determination of fungibility. Additionally, the protestant contends that the certificate of analysis which provides the results of sampling the contents of the import vessel, the Team Progress, in Brazil is the proper document to utilize in the determination of the imported merchandise. The FFA provided on this certificate is .85%.

In the alternative, the protestant contends that the certificates of analysis showing the resulting FFA of .58% after sampling the oil from the import vessel, the Team Progress, at the time of discharge in Savannah, should be utilized to determine fungibility.

The proper certificate of analysis regarding the export vessel, the Petrobulk Panther, is the resubmitted certificate. The protestant has substituted a "corrected" certificate because the original was "in error." The FFA of .80% in this certificate is above the maximum standard of .75% and falls within the deviations described above in Section 3A, Rule 103.

In order to use a certificate of analysis to determine fungibility of the imported merchandise, sampling must occur at the time the vessel enters the port. Therefore, the samples taken at the port in Rio Grande, RS, Brazil, on the import vessel Team Progress, would not be sufficient to determine fungibility. Additionally, the certificate, dated September 19, 1990, representing the samples of soybean oil loaded into barges from the cargo discharged from the Iverhawk and the Team Progress would not be sufficient for this same reason. In the alternative, the protestant suggests the utilization of the certificate procured at the time of discharge in Savannah. We are in agreement that this would be the proper certificate for purposes of determining fungibility. Based upon the discussion above however, regarding the deviations in standards, the FFA of .58% from this import vessel would not be fungible with an FFA of .80% as provided from the export vessel.

Finally, it is the position of the Customs Service, with respect to CDSBO, to apply the industry standard in the determination of the fungibility of merchandise. We cannot find the operations of two companies alone indicative of an industry standard, where the published standards of that industry conflict with the standards used by those two companies.

HOLDING:

The subject protest should be DENIED in full.

A copy of this decision should be attached to the CF 19, Notice of Action, sent to the protestant to satisfy the notice requirement of section 174.30(a), Customs Regulations.

Sincerely,

John A. Durant, Director

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