HQ 0224034 - Request for Internal Advice Regarding Fungibility of Electrolytic Copper Cathodes; 19 U.S.C. 1313(j)(2); substitution same condition drawback - United States International Trade Commision Rulings

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HQ 224034

October 8, 1992

DRA-4-CO:R:C:E 224034 CB

CATEGORY: DRAWBACK

Chief, Drawback Branch
U.S. Customs Service
New York Region
Suite 762
6 World Trade Center
New York, NY 10048

RE: Request for Internal Advice Regarding Fungibility of Electrolytic Copper Cathodes; 19 U.S.C. 1313(j)(2); substitution same condition drawback

Dear Madam:

This is in response to your request for internal advice dated June 19, 1992 (your file DRA-4-04-O:C:D BCH) regarding Cerro Sales Corporation (Cerro) and their request for a binding ruling on the fungibility of imported and domestic electrolytic copper cathodes for substitution same condition drawback.

FACTS:

Cerro imports "CCC" Brand electrolytic copper cathodes from Chile and substitutes them with exports of various brands: P*D, KUE, MAGMA, CYPRUS, and MMB electrolytic copper cathodes. According to Cerro, they import and export by ASTM number.

In its submission, Cerro states that the cathodes vary in size because each producer uses different equipment. As an example, Cerro states that a producer who has an older refinery finds it more cost-efficient to produce a larger size cathode; whereas, the U.S. producers, having modern equipment, find it convenient to produce smaller cathodes. Cerro states that all of the cathodes involved, irrespective of size, are considered good delivery against a contract inasmuch as they meet the same ASTM standards.

ISSUE:

Whether the subject electrolytic copper cathodes are fungible?

LAW AND ANALYSIS:

Section 313(j)(2) of the Tariff Act of 1930, as amended (19 U.S.C. 1313(j)(2)), provides that for substitution same condition drawback purposes, the merchandise substituted for exportation must be fungible with the duty-paid merchandise and in the same condition as was the imported merchandise at the time of its importation.

Fungibility is defined in the Customs Regulations as "merchandise which for commercial purposes is identical and interchangeable in all situations." 19 CFR 191.2(1). Customs has interpreted fungibility as not requiring that merchandise be precisely identical; identical for "commercial purposes" allows some slight differences. The key is complete commercial interchangeability. As stated in C.S.D. 85-52: "[t]he 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).

In the instant case, the importer states that they import and export by ASTM number and that the size of the cathode is irrelevant to any use for such cathodes. Statements of cathode producers were supplied in which the producers stated that size was of no consideration for use and that purchases are on a weight basis. At our request the importer provided the specifications for the merchandise. Our Office of Laboratories and Scientific Services has reviewed the information provided and determined that the CCC, KUE, MAGMA and MMB brand meet ASTM B 115-83 Grade 1 requirements for electrolytic cathode copper. Therefore, in our opinion, the MAGMA, MMB and KUE brands are fungible with the imported CCC. Regarding the P*D brand, the amount listed for bismuth for this brand is greater than the maximum level listed in ASTM B 115-83 for Grade 1. Thus, it is not fungible with the imported product. Finally, we did not receive any specifications for the CYPRUS brand and, therefore, cannot make a fungibility determination with regard to that brand.

Under substitution same condition drawback (19 U.S.C. 1313 (j)(2)), there is a requirement of possession. Possession has been defined in C.S.D. 85-52, which holds that ownership of a commodity is not necessarily possession of that commodity for purposes of the same condition substitution drawback law. "Possession ... means complete control over the articles or merchandise on premises or locations where the possessor can put the articles or merchandise to any use chosen. It does not mean that by trading commercial paper, e.g., purchase orders or bills of lading, between brokers or others in a commodity while that commodity winds its way across America by train or truck, possession is somehow created. Transactions made in order to create a climate for drawback will not support drawback."

"Possession" was incorporated into the drawback statute in order to prevent one company from using another company's drawback rights. (See HQ 222500, dated July 16, 1990). The term "possession" is defined in Black's Law Dictionary as:
the detention and control, of the manual or ideal custody, of anything which may be the subject of property, for one's use and enjoyment, either as owner or as the propietor of a qualified right in it, and either held personally or by another who exercises it in one's place and name. Actual possession exists where the thing is in the immediate occupancy of the party. . . . Black's Law Dictionary 1325 (4th ed. 1968).

In the ruling request the importer does not provide sufficient information to enable us to make a determination regarding possession. You must establish that you have a possessory interest in the merchandise (for example, provide copies of bills of lading) and that you exercise physical control over the merchandise. Possession of personal property involves the power to control and the intent to control. Such power and intent to control is established by: (1) actual or potential physical control; (2) intention to exercise dominion; and (3) external manifestations of intent and control. In your request the importer states that he purchases domestic material and has it shipped directly to the port for exportation. A more detailed explanation of this transaction must be provided, with copies of the specific documents covering the transaction.

HOLDING:

Electrolytic copper cathodes that meet the specifications set in ASTM B 115-83, Grade 1 are fungible. To the extent that the statements of producers that cathode size is irrelevant for any use to which a cathode is intended, are verified, cathode size may be disregarded.

Sincerely,

John A. Durant, Director

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