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HQ 224003


February 17, 1993

DRA-4 CO:R:C:E 224003 AJS

CATEGORY: DRAWBACK

Regional Director
Commercial Operations
U.S. Customs Service
423 Canal Street
New Orleans, LA 70130

RE: Request for internal advice; premium gasoline; unleaded gasoline; jet fuel; substitution same condition drawback; 19 U.S.C. 1313(j)(2); fungibility; 19 CFR 191.2(l); C.S.D. 85-52; Guess? Inc. V. U.S.; C.S.D. 91-21; ASTM D 4814; 19 CFR 151.13(i)(5)(vi); ASTM D 1322; ASTM 1655.

Dear Regional Director:

This is in reply to your Internal Advice request of June 2, 1992, regarding the fungibility of certain petroleum products for substitution same condition drawback claims filed under 19 U.S.C. 1313(j)(2) by the Citgo Petroleum Corporation.

FACTS:

Claim number C20-xxxxxxx-x concerns premium gasoline. Customs denied fungibility of the imported and substituted exported gasoline because they failed to satisfy the same American Society for Testing Materials (ASTM) D 4814 volatility requirements. Customs laboratory findings indicate that the volatility of the imported gasoline is class B and the volatility of the exported gasoline is class C.

Claim number E88-xxxxxxx-x deals with unleaded gasoline. Customs denied fungibility of the imported and substituted exported gasoline due to insufficient information provided in the laboratory report for the imported gasoline. The information presented in the report for the vessel "M/T Wind Spirit" was in facsimile form, difficult to understand and unsigned.

Claim number E88-xxxxxxx-x involves jet fuel. Customs denied fungibility of the imported and substituted exported fuel because the laboratory reports for both fuels did not
contain sufficient information or were otherwise inadequate for use in Customs laboratory analysis.

Claim number C20-xxxxxxx-x also concerns jet fuel. Customs denied fungibility of the imported and substituted exported fuel based on the failure of the exported fuel to meet the "smoke point" specifications for ASTM aviation turbine fuel listed within designation D 1655-90. The "smoke point" specification for D 1655-90 is a minimum of 25 mm. The imported fuel has a "smoke point" of 25 mm on test method D 1322 of the ASTM standard, while the substituted exported fuel possesses only a 24 mm "smoke point".

ISSUE:

Whether the subject petroleum products are fungible and qualify for substitution same condition drawback treatment under 19 U.S.C. 1313(j)(2).

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 importation.

Fungibility is defined in section 191.2(l), Customs Regulations, (19 CFR 191.2(l)), as "merchandise which for commercial purposes is identical and interchangeable in all situations." 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). Interchangeability means that the article, merchandise, or good is treated as identical for commercial purposes, or in a commercial context, by those entities that commonly deal in such articles, merchandise, or goods.

The courts have recently addressed the question of fungibility in Guess? Inc. v. United States, 752 F. Supp. 463 (Ct. Int'l Trade (CIT) 1990), 24 Cust. Bull. No. 51, 26

(December 19, 1990), vacated and remanded, No. 1145 (Court of Appeals for the Federal Circuit (CAFC) September 11, 1991), 26 Cust. Bull. No. 10, 30 (March 4, 1992); See also Tandom Corp. v United States, Slip Op. 92-197 (CIT, October 29, 1992). The CAFC essentially agreed with the interpretation of the term "fungible" as expressed by the CIT, but remanded for procedural reasons. In Guess?, the plaintiff argued that the fungibility of goods in a general or contractual sense should suffice to bring them within the coverage of 19 U.S.C. 1313(j)(2). However, the CIT stated that "[w]e are not dealing here [i.e., fungibility] with a question of whether a party has satisfied a commercial contract." Guess? p. 29, See also CAFC p. 39. The CAFC added that "[w]e are dealing instead with an exemption from duty, a statutory privilege due only when enumerated conditions are met." Guess? p. 33. Further, the CAFC stated that "[s]uch a claim is within the general principle that exemptions must be strictly construed, and that doubt must be resolved against the one asserting the exemption." Guess? p. 34.

In Customs Service Decisions (C.S.D.) 91-21, we ruled that ASTM standard specifications for aviation turbine fuels are useful guidelines in determining the fungibility of such fuels for purposes of substitution same condition drawback. 25 Cust. Bull. No. 32, p. 37 (August 7, 1991). We find no reason not to also use ASTM specifications as guidelines in determining the fungibility of gasoline as well.

Claim C20-xxxxxxx-x deals with the fungibility of premium gasoline. Customs denied fungibility based on the laboratory finding that the two types of gasoline are of different ASTM D 4814 volatility classes. Counsel claims that the Customs laboratory did not compare volatility based on geographic location and month of the year as required by Table 2 of ASTM Standard Specifications for Automotive Gasoline. The imported gasoline was tested in New Jersey in July and found to be class B, while the substituted gasoline was tested in Louisiana in September and found to be class C. Customs headquarters laboratory analysis states that the ASTM appendixes to D 4814 indicate that the two different class gasolines would not be suitable for use under the same climatic conditions. Therefore, gasoline distributors in different parts of the U.S. could not buy the gasoline without verifying that the volatility class of the gasoline would be suitable for that part of the U.S. at that time of the year. Consequently, the two products could not be bought and sold interchangeably throughout the U.S. As stated previously, fungibility requires complete commercial interchangeability. Thus, the two fuels are not fungible within the meaning of 19 U.S.C. 1313(j)(2).

Claim E88-xxxxxxx-x involves unleaded gasoline. Fungibility was denied due to insufficient information provided in the laboratory report for the imported gasoline. Counsel asserts that the report was verified by its actual use as the basis for acceptability of the product by the buyer. However, as stated in both Guess? cases, "[w]e are not dealing here [i.e., fungibility] with a question of whether a party has satisfied a commercial contract." We are instead dealing with a statutory privilege administered by Customs which must meet certain enumerated conditions. 19 CFR 151.13(i)(5)(vi) states that Customs accredited laboratory reports must have "the initials or signature of the person accepting technical responsibility for the gauging or analysis report (i.e., an approved signatory)." The subject report was neither signed nor initialed. Customs is not required to accept reports which have not complied with the above regulation. 19 CFR 151.13(a). Therefore, Customs is not required to accept the subject laboratory report. Without a properly prepared laboratory report, we are unable to make a determination regarding the fungibility of the unleaded gasoline.

Claim E88-xxxxxxx-x deals with jet fuel. Fungibility was denied because the laboratory reports for both the imported and exported fuel did not contain sufficient information or were otherwise inadequate for use in Customs analysis. Customs headquarters laboratory review of the reports supports this conclusion. This review indicates that the specifications relating to aromatic content, sulfur content and viscosity were not provided in the subject reports. In the absence of these specifications, it is not possible to determine if the products meet the industry standard for jet fuel. Consequently, we are of the view that fungibility cannot be determined in this instance until the appropriate information is provided.

Counsel asserts that inasmuch as the laboratory reports were sufficient to verify to the seller and buyer that the imported and substituted exported fuel were both commercially acceptable jet fuel that fungibility is established. While this acceptance may establish that a contract was satisfied, it does not in and of itself establish fungibility. As discussed beforehand, "[w]e are not dealing here [i.e., fungibility] with a question of whether a party has satisfied a commercial contract." We are dealing with a statutory privilege administered by Customs which is due only when enumerated conditions are met. One of these conditions is that the substituted merchandise must be fungible with the imported merchandise. If sufficient information is not provided to enable the Customs laboratory to determine fungibility, this privilege should not be granted until the information is provided.

Claim C20-xxxxxxx-x also deals with jet fuel. Customs denied fungibility due to the failure of the exported fuel to meet the ASTM "smoke point" specifications for D 1655. ASTM test method D 1322 was used to determine this specification. Counsel argues that Customs did not apply "reproducibility" when calculating the "smoke point" specification. Reproduci-bility states that the difference between two single and independent results obtained by different operators working in different laboratories would, in the long run, exceed the value of 3 only in one case in twenty. In this case, however, counsel is mixing test methods with specifications. The requirements for D 1655 are absolute and are not subject to correction for tolerance of the test methods. ASTM D 1655, Standard Specification for Aviation Turbine Fuels, Table 1, Note A. Therefore, the issue of reproducibility is not applicable in this case.

Counsel claims that the buyer and seller used reproduci- bility to determine that the fuel was acceptable for their commercial transaction. As stated earlier, we are not dealing here with the question of whether a party has satisfied a commercial contract. Rather, we are concerned with a statutory privilege administered by Customs which requires that the merchandise be fungible. Substituted jet fuel which does not satisfy the required ASTM "smoke point" specification is not fungible with an imported fuel which does satisfy the required specification.

HOLDING:

Claims number C20-xxxxxxx-x and C20-xxxxxxx-x do not consist of fungible merchandise and are not entitled to substitution same condition drawback under 19 U.S.C. 1313(j)(2).

Claims number E88-xxxxxxx-x and E88-xxxxxxx-x do not contain sufficient information to enable Customs to determine whether the merchandise at issue is fungible. Therefore, we cannot rule on the applicability of 19 U.S.C. 1313(j)(2) in these cases.

Sincerely,

John Durant, Director
Commercial Rulings Division


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