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HQ 224349



February 18, 1994

DRA-4-PRO-2-05-CO:R:C:E 224349 SR

CATEGORY: DRAWBACK

Regional Commissioner of Customs c/o Head Protest and Control Section
N.Y. Seaport
6 World Trade Center
Room 762
New York, N.Y. 10048-0945

RE: Application for Further Review of Protest No. 1001-92-105846 and 1001-92-105847; 19 U.S.C. 1313(j)(2); substitution same condition drawback; fungibility; 19 CFR 191.2(1); Guess? Inc. v. U.S.; North American Free Trade Agreement Implementation Act

Dear Sir:

The above-referenced protest was forwarded to our office on Application for Further Review of Protest No. 1001-92-105846 and 1001-92-105847, dated September 15, 1992. We have considered the facts and the issue raised; our decision follows.

FACTS:

Protest 1001-92-100846 is against the denial of drawback on a same condition drawback claim dated November 28, 1990. That drawback claim was liquidated on August 14, 1992, without drawback. The protest was filed on September 15, 1992.

Protest 1001-92-105847 is against the denial of drawback on a same condition drawback claim dated July 30, 1990. That drawback claim was liquidated on August 14, 1992, without drawback. The protest was filed on September 15, 1992.

The drawback claim of November 28, 1990, designated an import entry dated March 25, 1990, designated an import entry dated March 25, 1988, of titanium dioxide RR2. The export consisted of titanium dioxide rutile type dupont tipure R-902 of U.S. origin.

The drawback claim of July 30, 1990, designated an import entry dated November 30, 1987, of titanium dioxide Tiona 552 T 102 Rutile grade. The export consisted of titanium dioxide rutile type SCM RCL9.

The protestant filed a claim for same condition substitution drawback under 19 U.S.C. 1313(j)(2) for titanium dioxide. Upon receipt of the claim the protestant was audited by Customs. The auditors noticed a slight difference in the descriptions of the imported and exported merchandise and referred the claim to the Customs New York Laboratory. The Laboratory found that the specifications for the domestic products that were exported were not fungible with the designated imports. The laboratory reports show the following:

- R-902, export of 11/28/90, has 91% minimum requirement for titanium dioxide content and has a minimum specific resistance of 4000 ohm-centimeters (ohms-cms) for water- soluble matter. ASTM D-476 requires a minimum titanium dioxide content of 92% and a minimum specific resistance of 5000 ohm-cms for water-soluble matter.

- RCL-9, export of 8/5/90, has a minimum specific resistance of 4000 ohms-cms for water-soluble matter.

- Kemira RR-2, import of 3/25/88 has a moisture and volatile matter content ranging from 1.3-1.7% whereas ASTM D-476 specifies a maximum of 0.7%.

- Tiona 552, import of 11/27/87, conforms to ASTM specification D-476 (1089 revision) for Type II titanium dioxide pigments.

The protestant states that drawback should be allowed because the imported and substituted titanium dioxide are commercially interchangeable.

ISSUE:

Whether a claim should be allowed for same condition substitution drawback under 19 U.S.C. 1313(j)(2) when it was found by the Customs New York Laboratory that the merchandise does not meet fungibility requirements.

LAW AND ANALYSIS:

Both protests were filed within 90 days of the liquidation of the drawback claims and are timely.

For purposes of same condition drawback, fungible merchandise is defined in 19 CFR 191.2(1) 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. The Court of International Trade has 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).

Customs uses the ASTM standards to determine fungibility for certain products; however, we may go beyond the standards of quality to determine the fungibility requirement. (See C.S.D. 89-108). Fungibility must be determined on a case-by-case basis in order to ensure that the imported designated merchandise and substituted merchandise are not only within the ASTM standards but are also identical with each other for substitution same condition drawback. Fungibility is a stricter standard than same kind and quality.

The Office of Technical Services, Headquarters, U.S. Customs lab found the following:

In this case titanium dioxide pigments that are designated RCL-9 and R-902 must be fungible with the imports of titanium dioxide pigments Tiona 552 and Kemira RR-2. The claimant indicates that all the products are rutile titanium dioxide pigments used in the production of paint.

ASTM D-476 divides titanium dioxide pigments into different types, each having different chalk resistance specifications and vehicle requirements. Therefore, ASTM D- 476 alone is inadequate to show that manufacturers can freely substitute the four different types of titanium dioxide pigment.

For example, a Type II pigment can be used for low to medium percentage polyvinyl chloride enamels and lacquers. In contrast, Type III pigments are used to produce medium to high percentage polyvinyl chloride enamels and alkyd type and emulsion type wall paints. Type IV pigments are highly chalk resistant and, therefore, used to make exterior paints requiring extra durability and gloss retention. Type III pigments are medium chalk resistant and used only for the production of interior wall paints.

Review of the specifications show that the imported products, Kemira RR-2 and Tiona 552 meet the ASTM specifications for a Type II pigment. The exported pigment called RCL-9 is reported as being out of specification with

Type II pigments because it has a minimum specific resistance specification of 4000 ohms-cms for water soluble matter as compared to the Type II requirement of a minimum 5000 ohms-cms for water soluble matter. Since we are dealing with minimum specifications, the pigment would be out of specification with Type II pigments only if it had a specific resistance in the range of 4000-5000 ohms-cms for water soluble matter. If the absolute specific resistance of the exported shipment can be shown to be greater than 5000 ohms-cms for water soluble matter, it would be in specification for a Type II titanium dioxide pigment and, in our opinion, would be fungible with the Kemira RR-2 and Tiona 552. However, the claimant has not provided any further information to show fungibility requirements are met.

Similarly, the pigment designated R-902 is reported out of specification with Type II titanium dioxide in that it has a titanium dioxide content of a minimum of 91% and a minimum specific resistance of 4000 ohms-cms for water soluble matter. Since Type II pigment specifications call for a minimum titanium dioxide content of 92%, the exported product would be out of specification only if it contained 91-92% titanium dioxide. Since the claimant gave Customs a minimum specification, there is a possibility that the product contained more than 92% titanium dioxide and was within the specification for titanium dioxide content.

As in the case of the RCL-9 pigment, the specific resistance for the R-902 is given in terms of a minimum requirement and the possibility exists that the exported shipment may have been a titanium dioxide pigment having a specific resistance within specification for a Type II pigment: greater than 5000 ohms-cms for water soluble matter. However, if the claimant cannot state the actual specific resistance of the export, the original finding of non-fungibility must be applied. Therefore, to be found fungible the claimant would have to show that the actual shipment had a titanium dioxide content of greater than 92% and a specific resistance of greater than 5000 ohms-cms, the product would be within specifications for a Type II titanium dioxide pigment and would be fungible with the imported Tiona 552.

The R-902 and Kemira-RR-2 are not fungible because the rutile minimum content is too different (91% minimum versus 94% minimum). The RCL-9 and Kemira RR-2 are not fungible because the moisture content is too different (0.5 max versus 1.3% - 1.7%).

The findings of this lab report confirm that, based on the information provided, R-902 and RCL-9 are not fungible with the imported products Kemira RR-2 and Tiona 552. The protestant has not provided any further information to show that the merchandise is fungible. The protestant has the burden of showing that laboratory findings are incorrect.

As stated in the Audit Report the amount of drawback claimed in Drawback Claim C10-0019074-9 (Protest 1001-2-105847) appears to be incorrect. The drawback J form claims 40,800 pounds of titanium dioxide was imported with duty paid in the amount of $7117.83. It shows that 40,000 pounds of titanium dioxide was exported. The import entry shows that only $5813.07 was paid in duty when the merchandise was entered into the United States. Unless there was an increase in duty at liquidation the amount of duty claimed on the J form is incorrect.

The next issue is whether the result is affected by Title VI of the North American Free Trade Agreement Implementation Act (Act of December 8, 1993, 107 Stat 2057, Pub. L. 103-182). Under that Act the drawback statute was amended. As amended, under 19 U.S.C. 1313(j)(2) substitution is permitted if the merchandise is commercially interchangeable. The statute did not define commercially interchangeable. However, in H. Rept. 103-361, Part 1, 103 D Cong. 131 (1993) the House Ways and Means Committee stated that the criteria to be considered would include (but is not limited to): Governmental and recognized industrial standards, part numbers, tariff classification and relative value.

Using that criteria it is clear that the different lots of titanium dioxide do not meet the same ASTM standard, the ASTM being a recognized industrial grading system. Part numbers would not appear to be relevant to bulk materials such as lots of Titanium Dioxide. All titanium dioxide would be classifiable under the provision for all titanium oxides in subheading 2823.00.00, Harmonized Tariff Schedule of the United States. Because that subheading covers all oxides (titanium monoxide as well as titanium dioxide) of titanium that classification is not useful in determining commercial interchangeability here.

The determination of commercially interchangeable must be made based on government and industry standards and relative value. Based on the information provided the exported product RCL-9 was purchased at a price of $2330 per metric ton, the export product R-902 was purchased for $2495 per metric ton, and the imported product Tiona 552 was purchased for $2337 and $2442 per metric ton. No price was provided for the import of Kemira RR-2. Under the criteria of relative value the Tiona 552 would be
commercially interchangeable with the exports.

The ASTM standards are recognized by both the government and the industry. As stated above ASTM D-476 divides titanium dioxide pigments into different types, each having different chalk resistance specifications and vehicle requirements. Each of the different types of pigments under ASTM D-476 are used to make different types of paints (e.g. interior and exterior). As stated above, the imported products meet the standards for ASTM D-476, Type II pigments, whereas the specifications provided for the exported products do not show that the standards for ASTM D- 476 Type II pigments are met. Based on the information presented the protestant has not shown that the specifications of the merchandise are commercially interchangeable under standards recognized by the government and the industry.

HOLDING:

Based on the information submitted the R-902 and RCL-9 can not be found to be fungible or commercially interchangeable with the Kemira RR-2 or Tiona 552. The protestant has not provided any further evidence that the titanium dioxide meets fungibility requirements under 19 U.S.C. 1313(j)(2). This protest should be denied in full. A copy of this decision should be attached to the Customs Form 19 and provided to the protestant as part of the notice of action on the protest.

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 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 this decision must be accomplished prior to the mailing of the decision. Sixty days from the date of this 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 to 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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