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HQ 224881


March 16, 1994

DRA-4-CO:R:C:E 224881 PH

CATEGORY: DRAWBACK

Regional Director
Commercial Operations
New Orleans, Louisiana 70130

RE: Protest 1901 93 100027; Substitution Unused Merchandise Drawback; Substitution Finished Petroleum Derivatives Drawback; Commercial Interchangeability of Jet Fuel; 19 U.S.C. 1313(j)(2); 19 U.S.C. 1313(p); Public Law 103-182, Section 632

Dear Sir:

The above-referenced protest was forwarded to this office for further review. Our decision follows.

FACTS:

The protest is of the liquidation of a drawback entry (or claim) filed on November 2, 1992 (this is the third amendment of the claim). The claim was the subject of HQ ruling 224368 (August 3, 1993; published as Customs Service Decision (C.S.D.) 93-23), in which the protested claim was identified as claim 19. According to the file, the imported merchandise designated as the basis of drawback for the claim was imported on July 26, 1987 (43,793 barrels of merchandise designated), and October 14, 1989 (9,374 barrels of merchandise designated), and the exportation upon which the claim is based was on December 15, 1989.

According to documents in the file and Customs records, the protestant was the importer of the designated imported merchandise (the entry summary for the July 26, 1987, importation is for 68,994 barrels of jet fuel, kerosene-type, classifiable under item 475.1550, Tariff Schedules of the United States (TSUS) (sic, the correct TSUS item is 475.2550, TSUS, and the entry was liquidated in accordance with the correct item), valued at $1,521,309, with $36,221.65 in duty; and the entry summary for the October 14, 1989, importation is for 9,374 barrels of jet fuel, kerosene type, classifiable under subheading 2710.00.15304, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), valued at $233,503, with $4,926.60 in duty). The protestant in an affidavit dated December 8, 1989, stated, among other things, that "[the protestant] has not issued a Certificate of Delivery covering the designated merchandise nor a Certificate of Manufacture and Delivery covering articles manufactured or produced therefrom." The affiant stated that records were maintained to verify this and other statements in the affidavit.

According to the Customs Form 7511 (Notice of Exportation of Articles with Benefit of Drawback) for this claim, the exported merchandise upon which drawback was claimed was 222,536 barrels of "jet fuel (DERD 2494, no ASA) (jet fuel, kerosene type)", classifiable under subheading 2710.00.1530, HTSUSA, with a value of $5,374,245, exported from the Chevron refinery at Pascagoula, Mississippi, on the CROWN BRIDGE, ultimately destined for Japan.

In the file there is, for the July 26, 1987, importation, a copy of a July 22/24, 1987, Certificate of Quantity for the July 26, 1987, importation showing 84,246.57 barrels (3,538,355.94 U.S. gallons) of "Kerosene (Low WSIM Jet A)" in tanks 201 (83,960.98 barrels) and D.1. (285.59 barrels) at Westridge Terminal, Burnaby, British Columbia. There is a copy of a July 24, 1987, Vessels Ullage/Sounding & Capacity report for the CHEVRON COLORADO showing 84,537.08 barrels (Gross Standard Volume at 60 degrees F.) (3,550,557.36 U.S. gallons at 60 degrees F.) of Kerosene (Low WSIM Jet A). There is a Report of Analysis dated July 13, 1987, for a sample "[d]rawn by [a British Columbia office of a laboratory service] ... [r]epresenting Westridge Terminal Shoretank 201", according to which the specifications reported for the sample meet the standard specifications for aviation turbine fuels (ASTM D 1655), with the possible exception of the aromatics content (20.7% by volume) and the electrical conductivity (53 pS/m).

For the October 14, 1989, importation, in the file for C.S.D. 93-23 (referred to above) there is a Certificate of Quality dated October 5, 1989, for a sample the source of which was Shore Tanks 1111TA and 1111TC, taken on September 23, 1989, before loading the importing vessel (CHEVRON PACIFIC). According to the specifications reported for this sample, the sample met the standard specifications for aviation turbine fuels (ASTM D 1655), including aromatics content (16.9% by volume), with the possible exception of net heat of combustion (aniline gravity product (6723, 6771) is reported). Otherwise, there are no documents such as those described above for the October 14, 1989, importation.

There is a copy of a "Bill of Lading" dated December 16, 1989, which states that 222,536 barrels of "jet fuel (DERD 2494, no ASA)" were loaded on board the CROWN BRIDGE by the protestant. The party unto whom the merchandise was to be delivered was Mitsubishi Corporation, at one or more safe ports in Japan. There is a Shipper's Export Declaration reflecting the same information for a like quantity of "jet fuel (DERD 2494, no ASA) (jet fuel, kerosene type)", loaded at the Chevron refinery at Pascagoula, Mississippi. There are reports of inspection in the file, including a "Quantity Certificate" for 222,536 barrels in the CROWN BRIDGE at the port of [the protestant], Pascagoula, Mississippi, (dated December 15-16, 1989). There is also a "Statement of Facts" reporting that the loading of the CROWN BRIDGE was attended and approximately 222,500 barrels of jet fuel were loaded with loading commencing at 0842 hours on December 15, 1989, and completed at 1518 hours on December 16, 1989. There is a report of analysis for a sample identified as "M/V 'CROWN BRIDGE' Composite at Chevron USA, Inc., Pascagoula, MS. on 12/18/89", according to which the specifications reported for the sample meet the standard specifications for aviation turbine fuels (ASTM D 1655), with the possible exception of the aromatics content (23% by volume).

As stated above, on November 2, 1992, the protestant filed a claim for drawback on the 53,167 barrels of jet fuel. Customs Regional Laboratory was requested to review the merchandise in the claim for fungibility. As indicated above, this claim was amended three times and, therefore, there is some confusion with regard to the Laboratory's opinions on fungibility. In a memorandum dated October 12, 1990, the Laboratory gave its opinion that the exported merchandise and the October 14, 1989, importation met the ASTM D 1655 specifications for "Jet A" fuel and were, therefore, fungible, but that the July 26, 1987, importation did not meet those specifications and, therefore, was not fungible with the exported merchandise.

According to your November 30, 1992, memorandum, the protestant then amended its claim and accelerated payment ($4,877.33) was granted on the basis of the fungibility determination for the October 14, 1989, importation. Later, the protestant again amended the claim, adding the July 26, 1987, importation which, as stated above, the Laboratory stated was not fungible. According to your memorandum, the protestant contended that the July 26, 1987, importation met the fungibility requirements on the basis of ruling 223769 (October 20, 1992).

In your November 30, 1992, memorandum, you requested an opinion on fungibility for the amended claim. You referred to a February 24, 1992, memorandum on fungibility from the National Petroleum Chemist in Customs San Francisco, California, office (C.S.D. 93-23 referred to this opinion, which concluded that neither of the importations in the protested claim were fungible with the exported merchandise). In response to your November 30, 1992, memorandum, the Laboratory requested additional information, i.e., "[a]n analytical report from a domestic (USA) Customs approved laboratory for the imported product on the vessel [CHEVRON COLORADO]." You forwarded the request for additional information to the protestant.

The protestant responded to your request by letter of January 22, 1993. In this letter, the protestant stated that "because [the protestant] imported the fuel aboard its own vessel, it accepted as a definitive statement of the fuel's specifications the lab report based on the sample drawn at the Canadian terminal several days prior to vessel loading." The protestant noted that although the sample was drawn in Canada, it was analyzed by an approved Customs laboratory in the United States. According to the protestant, "[it, (i.e., the protestant)] did not further analyze the subject imported merchandise [after the July 13, 1987, certificate of analysis described above]."

This information was forwarded to your Regional Customs Laboratory with a request for a determination on fungibility and clarification of the earlier opinion, in which the Laboratory had advised that the exported merchandise and the October 14, 1989, importation were fungible. The Laboratory advised that the October 14, 1989, importation and the exported merchandise were not fungible since the imported merchandise met the unrestricted specifications in ASTM D 1655 and the exported merchandise did not (because of its aromatics content of over 20%). As for the July 26, 1987, importation, the Laboratory stated that the importer had not furnished the necessary information to properly determine the condition of the merchandise as imported (i.e., "[a] laboratory report on a sample of product from a shore tank in Canada taken at least nine days prior to loading of vessel is unacceptable to this office in making a determination of fungibility").

In a letter dated February 24, 1993, Customs advised the protestant that drawback was being denied because the imported merchandise and the exported merchandise were not fungible, on the basis of the Laboratory opinion described in the immediately preceding paragraph. The protested drawback claim was liquidated, without drawback allowed, on March 19, 1993. The protestant filed the protest under consideration on June 11, 1993.

ISSUE:

Is there authority to grant the protest of denial of drawback in this case?

LAW AND ANALYSIS:

Initially, we note that the protest was timely filed under the statutory and regulatory provisions for protests (see 19 U.S.C. 1514 and 19 CFR Part 174). We note that the refusal to pay a claim for drawback is a protestable issue (see 19 U.S.C. 1514(a)(6)). In regard to the amendments made to this drawback claim, we note that the amendments were timely made (i.e., within 3 years of the exportations; see 19 U.S.C. 1313(r) and 19 CFR 191.61 and 191.64).

Generally, under 19 U.S.C. 1313(j)(2), as amended, drawback may be granted if there is, with respect to imported duty-paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise and if the following requirements are met. The other merchandise must be exported or destroyed within 3 years from the date of importation of the imported merchandise. Before the exportation or destruction, the other merchandise may not have been used in the United States and must have been in the possession of the drawback claimant. The party claiming drawback must be either the importer of the imported merchandise or have received from the person who imported and paid any duty due on the imported merchandise a certificate of delivery transferring to that party the imported merchandise, commercially interchangeable merchandise, or any combination thereof.

Under 19 U.S.C. 1313(p) (the following describes the provision as it is pertinent to this case and not as it is applicable in all instances), if an article of the same kind and quality as a qualified article is exported, certain requirements are met, and a drawback claim is filed regarding the exported article, drawback may be granted. "Qualified article", for purposes of this subsection, means an article described in heading 2710, HTSUSA (among other headings), which is imported duty-paid. An exported article is of the "same kind and quality" as the qualified article for which it is substituted under this subsection if it is a product that is commercially interchangeable with or referred to under the same eight-digit classification of the HTSUS as the qualified article. The "requirements" required to be met for purposes of this subsection are that the exporter of the exported article imported the qualified article in a quantity equal to or greater than the quantity of the exported article; that the exported article is exported within 180 days after the date of entry of the imported qualified article; that the drawback claimant complies with all requirements of section 1313, including providing certificates which establish the drawback eligibility of articles for which drawback is claimed; and that the manufacturer, producer, importer, exporter, and drawback claimant of the qualified article and the exported article maintain all records required by regulation.

The drawback law was substantively amended by section 632, title VI - Customs Modernization, Public Law 103-182, the North American Free Trade Agreement Implementation Act (107 Stat. 2057), enacted December 8, 1993. The foregoing summaries of sections 1313(j)(2) and 1313(p) are based on the law as amended by Public Law 103-182. Title VI of Public Law 103-182 took effect on the date of enactment of the Act (section 692 of the Act). Except for subsection (p), according to the applicable legislative history the amendments to the drawback law (19 U.S.C. 1313) are applicable to any drawback entry made on or after the date of enactment as well as to any drawback entry made before the date of enactment if the liquidation of the entry is not final on the date of enactment (H. Report 103-361, 103d Cong., 1st Sess., 132 (1993); see also provisions in the predecessors to title VI of the Act; H.R. 700, 103d Cong., 1st Sess., section 202(b); S. 106, 103d Cong., 1st Sess., section 202(b); and H.R. 5100, 102d Cong., 2d Sess., section 232(b)). The amendments to section 1313(p) apply to claims filed or liquidated on or after January 1, 1988, and claims that are unliquidated, under protest, or in litigation on the date of enactment of Public Law 103-182.

Compliance with the Customs Regulations on drawback is mandatory and a condition of payment of drawback (United States v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675; see also, Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) "We are dealing [in discussing drawback] with an exemption from duty, a statutory privilege due only when the enumerated conditions are met" (emphasis added)).

JULY 26, 1987, IMPORTATION

The issue raised for this importation is whether the imported merchandise is commercially interchangeable with the exported merchandise, for purposes of 19 U.S.C. 1313(j)(2). Before its amendment by Public Law 103-182, the standard for substitution under section 1313(j)(2) was fungibility. House Report 103-361, supra, contains language explaining the change from fungibility to commercial interchangeability. According to the Report (at page 131), the standard was intended to be made less restrictive (i.e., "the Committee intends to permit the substitution of merchandise when it is 'commercially interchangeable,' rather than when it is 'commercially identical'") (the reference to "commercially identical" derives from the definition of fungible merchandise in the Customs Regulations (19 CFR 191.2(l))). The Report (at page 131) also states:

The Committee further intends that in determining whether two articles were commercially interchangeable, the criteria to be considered would include, but not be limited to: Governmental and recognized industrial standards, part numbers, tariff classification, and relative values.

Before enactment of the above-described changes to 19 U.S.C. 1313(j)(2) by Public Law 103-182, we ruled on whether this imported merchandise and the exported merchandise in this claim were fungible, under the then applicable law (see C.S.D. 93-23, referred to above). We stated that a finding of fungibility was not precluded on the basis of the aromatics content (i.e., both the imported merchandise and the exported merchandise contain between 20% and 25% aromatics) or the description of the merchandise("jet A-1" for the imported merchandise and "jet fuel (DERD-2494)" for the exported merchandise), if certain conditions were met. (Note: The protestant cites ruling 223769, October 20, 1992, for this proposition; i.e., that if imported merchandise and exported merchandise both contain between 20% and 25% aromatics and they otherwise meet the ASTM D 1655 standards, they are fungible.) However, in C.S.D. 93-23 we went on to hold that the imported merchandise and the exported merchandise were not fungible because the imported merchandise had an electrical conductivity additive and the exported merchandise did not (i.e., this specification for the imported merchandise was 53 and that for the exported merchandise was 1). In this regard, we noted the protestant's statement (in regard to another claim) that the claimant does not supply jet fuel containing the antistatic ASA 3 except on special request and that the claimant is aware of no jet fuel producer that routinely manufactures jet fuel containing that antistatic.

As stated above, the standard for substitution under 19 U.S.C. 1313(j)(2) is now commercial interchangeability, not fungibility, and the new standard is less restrictive than fungibility. According to House Report 103-361, the criteria Customs should consider in determining whether two articles are commercially interchangeable should include, but not be limited to, Governmental and recognized industrial standards, part numbers, tariff classification, and relative values. In this case, the tariff classification was the same (i.e., the corrected classification for the importation, item 475.2550, TSUS, is the predecessor to subheading 2710.00.15, HTSUSA (USITC Publication 2051, January 1988, Annex 1, Cross-Reference Between the TSUSA and the HTS, page 195)). The value of the imported merchandise is $22.05 per barrel (68,004 barrels valued at $1,521,309), as compared to $24.15 for the exported merchandise (222,532 barrels valued at $5,374,245). Part numbers as a criteria are clearly inapplicable. There is a recognized industrial standard (i.e., ASTM D 1655).

As stated above, the imported merchandise and the exported merchandise meet the standard in ASTM D 1655 for jet fuel (A-1) (restricted as to aromatics; i.e., containing between 20% and 25% aromatics) except that the specification for electrical conductivity for the imported merchandise is 53 pS/m and that for the exported merchandise is 1 pS/m. According to footnote J to the specifications in ASTM D 1655, "[a] limit of 50 to 450 conductivity units (pS/m) applies only when an electrical conductivity additive is used and under the condition at point of use." We note the protestant's statement (in the request for advice upon which we ruled in C.S.D. 89-23) that it (the protestant/claimant) does not supply jet fuel containing an antistatic except on special request and that it is aware of no jet fuel producer that routinely manufactures jet fuel containing the antistatic. In regard to this point, we note that all of the documentation in the file for the exported merchandise describes it as being without "ASA", which, according to the protestant's submission upon which we ruled in C.S.D. 93-23, indicates that the contract of sale provided that fuel with an antistatic additive was unacceptable. Since the imported merchandise does have an antistatic additive, the protestant's own submission provides evidence that the July 26, 1987, importation and the exported merchandise are not commercially interchangeable. Based on the foregoing, we conclude that the imported merchandise and exported merchandise are not commercially interchangeable. The protest is DENIED in regard to the July 26, 1987, importation.

In view of the above conclusion, we are not addressing the question of whether the laboratory report for the imported merchandise, in which the sample was taken at the port of export 13 days before the date of importation, is acceptable for establishing commercial interchangeability for drawback purposes. However, we note that what is required to be established under the law is that the imported merchandise is commercially interchangeable with the exported merchandise (i.e., the laboratory report should describe the specifications of the imported merchandise at the time of importation and, at the very least, if a sample is taken before the time of importation, there should be documentary evidence showing that the specifications could not have been affected by the treatment of the merchandise between the time the sample was taken and the time of importation). Documentary evidence referred to in the foregoing parenthetical statement could include accounting records to show that nothing was removed from or added to the shore tanks sampled between the time of sampling and the time of loading the vessel (not provided in this case), reports on the condition of the vessel tanks into which the merchandise was loaded (provided in this case), reports identifying the tanks into which the merchandise was loaded (provided in this case), and a vessel log or other evidence showing that no action was taken from the time of loading the vessel to the time of importation which could have affected the merchandise in the vessel tanks (not provided in this case). We also note that the sample in this case was taken from shore tank 201, from which most of the imported merchandise was withdrawn, but that no specifications are provided for shore tank D.1., from which a small amount of the imported merchandise was withdrawn. Finally, in regard to the protestant's statement in its January 22, 1993, letter (quoted above) that it did not analyze the imported merchandise after the July 13, 1987, analysis, we note that in the file there is a bill to the protestant from the British Columbia office of the laboratory service which obtained the sample for that analysis for "[s]ampling tank 201, three gallon samples and hand delivery to Chevron Lab, Vancouver" on July 15, 1987.

OCTOBER 14, 1989, IMPORTATION

In the case of this importation, the imported merchandise is a "qualified article" for purposes of 19 U.S.C. 1313(p) (i.e., it is classified under heading 2710, HTSUSA, and it was imported duty-paid). The exported merchandise is of the same kind and quality as the imported qualified article (i.e., both are classified under subheading 2710.00.15, HTSUSA). The exporter of the exported article imported the qualified article in a quantity equal to the exported article (i.e., 9,374 barrels). The exported article was exported within 180 days after the date of entry of the imported qualified article (i.e., date of entry of imported article: October 31, 1989; date of export of exported article: December 15, 1989). Based on the information available to us, there are no requirements under the drawback law which would be applicable to a claim for drawback under section 1313(p) for this importation which have not been complied with.

We note that under 19 U.S.C. 1313(r)(2), a drawback entry filed pursuant to any subsection of section 1313 shall be deemed filed pursuant to any other subsection of section 1313 if it is determined that drawback is not allowable under the entry as originally filed but is allowable under such other subsection. (House Report 103-361, supra, makes it clear that this provision is not intended to require Customs "to investigate all alternatives in addition to the claimed basis before liquidating [a] drawback claim as presented.") Accordingly, the protest is GRANTED in regard to the October 14, 1989, importation. Because of our decision in this regard, we are not addressing the issue of whether the October 14, 1989, importation and the exported merchandise are commercially interchangeable. (Note, that section 1313(p) is inapplicable to the July 26, 1987, importation because more than 180 days elapsed between the entry of the imported merchandise and the exportation.)

HOLDING:

There is no authority to grant the protest of the denial of drawback in regard to the July 26, 1987, importation (because the exported merchandise is not commercially interchangeable with the imported merchandise) but there is authority (under the amended 19 U.S.C. 1313(p)) to grant the protest of the denial of drawback in regard to the October 14, 1989, importation.

The protest is GRANTED in part and DENIED in part. In accordance with Section 3A(11)(b) of Customs Directive 099 3550- 065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed, with the Customs Form 19, by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act, and other public access channels.

Sincerely,

John Durant, Director

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