HQ 0223860 - Internal Advice; Substitution Same Condition Drawback; 19 U.S.C. 1313(j)(2); Domestic and Imported Substituted Used Like Components; "Used"; "Fungibility" - United States International Trade Commision Rulings

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HQ 223860

October 16, 1992

DRA-4-CO:R:C:E 223860 SLR

CATEGORY: DRAWBACK

Deputy Regional Director of Customs
Commercial Operations, Pacific Region
One World Trade Center
Long Beach, CA 90831-0700

RE: Internal Advice; Substitution Same Condition Drawback; 19 U.S.C. 1313(j)(2); Domestic and Imported Substituted Used Like Components; "Used"; "Fungibility"

Dear Sir:

This is in response to your memorandum dated March 31, 1992, forwarding for our decision an internal advice request, dated February 14, 1992, made by Enterprise Computer Services (ECS). ECS writes to ask whether used like IBM mainframe computer components qualify for substitution same condition drawback under 19 U.S.C. 1313(j)(2).

FACTS:

The merchandise in question consists of central processing units (CPUs), power supplies, and CCE/SCE boards. All of these articles are used and are either obtained domestically or imported into the United States. In all cases, the merchandise is placed in inventory at the company's King of Prussia facility. Some of these components could then be exported to various international locations.

ECS contends that the imported used components and exported used components are fungible, since they are manufactured to the same specifications by the same manufacturer, are solid-state and have no moving parts, do not degrade in function or speed, and are totally indistinguishable (except for the serial numbers of those components which are so marked for tracing purposes). ECS indicates that the imported and exported components bear corresponding part numbers and are made of the same materials. We assume that the facts set out by ECS are true and our response is based upon them.

Your office doubts whether the subject components meet the fungibility requirement of 19 U.S.C. 1313(j)(2).

ISSUE:

Whether the used like components obtained domestically or imported qualify for substitution same condition drawback under 19 U.S.C. 1313(j)(2).

LAW AND ANALYSIS:

Section 313(j)(2) of the Tariff Act, an amended (19 U.S.C. 1313(j)(2)), allows for substitution same condition drawback on imported merchandise provided that the substituted merchandise (either domestic or imported) is fungible with the imported merchandise; is exported before the conclusion of the three-year period beginning with the date of the importation of the imported merchandise; is in the possession of the drawback claimant prior to exportation; and is in the same condition as the imported merchandise when exported. The law indicates that the substituted merchandise can be subject to incidental operations, such as cleaning and repacking (19 U.S.C. 1313(j)(4)), but cannot be used while in the United States prior to exportation 19 U.S.C. 1313(j)(2)(C)(i). "Used" means "to employ . . . to put into operation, to cause to function . . . to employ for the use which they were manufactured and intended." Swalley v. Addressograph Multigraph Corp., 158 F.2d 51, 54 (7th Cir. 1946), cert. denied, 330 U.S. 429 (1947); see also C.S.D. 81-222 and C.S.D. 82-135.

The substituted domestic components cannot qualify for substitution same condition drawback as, concededly, they have been used in the United States in IBM mainframe computers prior to exportation. Consequently, we will focus our attention on the substituted imported merchandise and the fungibility issue.

In your memorandum, you acknowledge that the substituted imported used components and the imported used components are manufactured to the same specifications and on that basis may be interchangeable. However, you believe that each component is characteristically unique in terms of its depreciated value, physical appearance and condition, and that these variations could substantially affect the fungibilty determination.

As you know, fungible merchandise for same condition drawback is defined in section 191.2(l) of the Customs Regulations (19 CFR 191.2(l)) as "merchandise which for commercial purposes is identical and interchangeable in all situations." This definition is consistent with the clearly expressed intent of the Congress when it enacted 19 U.S.C. 1313(j)(2). (See H.R. Rep. No. 98-1015, 98th Cong., 2nd Sess., reprinted in 1984 U.S. Code Cong. & Admin. News 4960, 5023; see also 129 Cong. Rec. E5339 (daily ed. November 4, 1983) (statement of Rep. Frenzel).)

Recently, the Court of International Trade, in applying the section 191.2(l) definition for substitution same condition drawback purposes, indicated that substituted merchandise is "commercially identical" when it stands in the place of the imported merchandise, but is not more desirable than, the imported merchandise. Guess? Inc. v. United States, 752 F. Supp 463 (Ct. Int'l Trade 1990), vacated and remanded on other grounds, 994 F.2d 855 (Fed. Cir. 1991).

We have learned that the purchasers of the subject used components consider each component equally desirable and, aside from specifying a particular part for a particular model, do not discriminate in their purchases for any reason.

In C.S.D. 90-36, Customs found that tires manufactured in various countries according to the same specifications, categorized according to the same international code number, made of the same material composition, and used and sold interchangeably by the industry world wide are fungible. 24 Cust. B. & Dec. 14 (1990). Here, the substituted imported used computer components and the imported used computer components are solid-state (over time, they do not degrade in function or speed), bear corresponding part numbers, are made of the same materials, and are treated equally by the industry (IBM does not discriminate among used computer components when meeting replacement orders) as well as the consumer. ECS indicates that the substituted and imported components are manufactured to the same specifications by the same manufacturer. The descriptive information submitted by ECS, however, is insufficient to ensure substitution same condition drawback; descriptions such as "SCE," "CCE," "J Engine" do not adequately identify the goods. ECS needs to provide Customs with a physical description of the merchandise. A photograph or engineering drawing/sketch will do. If your office is satified with that documentation, then fungibility will have been met.

It is unclear whether the substituted imported used computer components have been used in the United States prior to exportation. Since drawback is a privilege, not a right, ECS must satisfy Customs that none of the substituted imported components has undergone a prohibited use while in the United States.

HOLDING:

The substituted domestic used components do not qualify for drawback under 19 U.S.C. 1313(j)(2) as they will have been used in the United States prior to exportation. The substituted imported used components, however, may qualify for substitution
same condition drawback provided Customs is given detailed descriptions of the claimed component parts, and your office is satisfied with that documentation. Likewise, your office must be satisfied that none of the substituted imported components has undergone a prohibited use in the United States prior to exportation.

Sincerely,

John Durant, Director
Commercial Rulings Division

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