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HQ 226392




November 8, 1996

DRA-4-RR:IT:EC 226392 LTO

CATEGORY: DRAWBACK

U.S. Customs Service
Chief, Miami Drawback Office, Room 102
P.O. Box 025280
Miami, Florida 33102-5280

RE: Request for internal advice; Drawback; 19 U.S.C. 1313(j)(2); Commercial interchangeability; Pistols; HQs 225493, 225882

Dear Madam:

This is in response to your memorandum dated August 24, 1995 [DRA-4-0:C:L JTS], which requested internal advice pursuant to 19 CFR 177.11 with respect to certain pistols imported and exported by Beretta USA Corp. ("Beretta"). Beretta has provided additional information by submissions dated June 28 and August 19, 1996.

FACTS:

Beretta manufactures and sells firearms. It also both imports and exports pistols. Beretta's request for drawback concerns the importation of model 92FS pistols and the exportation of model 98FS pistols. The model 98FS pistols are chambered for a slightly longer 9mm cartridge than the model 92FS pistols. The standard 9mm cartridge used in the United States for both commercial and military purposes is a 19mm long casing (referred to as 9 x 19 or parabellum). In Italy, the 9 x 19 cartridge is restricted to military use while non-military sales are restricted to a 21mm long casing (referred to as 9 x 21). Since the subject exports were for non-military sales in Italy they were manufactured to the approved non-military specification (i.e., the 9 x 21 cartridge). Beretta contends that the 92FS and 98FS, which are both 9mm caliber, semi-automatic, 15 round capacity pistols, are identical in all relevant respects but one:

"the 98FS can fire both 9mm x 21mm and 9mm x 19mm ammunition, while the 92FS can only fire 9mm x 19mm ammunition."

ISSUE:

Whether the exported pistols, the Beretta model 98FS, are eligible for drawback pursuant to 19 U.S.C. 1313(j)(2).

LAW AND ANALYSIS:

Under 19 U.S.C. 1313(j)(2), as amended, drawback may be granted if, among other requirements, there is, with respect to imported duty-paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise. To qualify for drawback, the other merchandise must be exported or destroyed within 3 years from the date of importation of the imported merchandise. Also, 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. Further, 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.

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. Before its enactment by Public Law 103-182, the standard for substitution was "fungibility." House Report 103-361, 103d Cong., 1st Sess., 131 (1993), contains language explaining the change from fungibility to commercial interchangeability as a standard for substitution for drawback under 19 U.S.C. 1313(j)(2). According to the House Ways and Means Committee 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 - 3 -
limited to: Governmental and recognized industrial standards, part numbers, tariff classification, and relative values.

The Senate Report for the NAFTA Act (S.Rep. 103-189, 103d Cong., 1st Sess., 81-85 (1993)) contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability.

Governmental and Recognized Industry Standards

Beretta contends that the 92FS and 98FS model pistols are treated identically within the same classification of 9mm caliber pistols in various government regulations. For example, for excise tax purposes, the U.S. Treasury's Bureau of Alcohol, Tobacco and Firearms (ATF) regulations treat the two models within the same classification of "pistols" (27 CFR 53.11), while the U.S. State Department treats the two models as identical for purposes of the U.S. Munitions Import List (27 CFR 47.21 (Category I(a)).

The ATF regulations define the term "pistols" as follows:

Small projectile firearms which have a short one-hand stock or butt at an angle to the line of bore and a short barrel or barrels, and which are designed, made, and intended to be aimed and fired from one hand. The term does not include gadget devices, guns altered or converted to resemble pistols, or small portable guns erroneously referred to as pistols, as, for example, Nazi belt buckle pistols, glove pistols, or one-hand stock guns firing fixed shotguns or fixed rifle ammunition.

Category I(a) of the U.S. Munitions Import List covers the following: "[n]onautomatic and semiautomatic firearms, to caliber .50 inclusive, combat shotguns, and shotguns with barrels less than 18 inches in length, and all components and parts for such firearms."

We do not find Beretta's argument regarding these regulations very persuasive. The above-cited regulations cover such a wide range of firearms that they are too broad to be of any value. Certainly, Beretta could not argue that all pistols falling within the ATF's "pistol" definition would be "commercially interchangeable" with the 92FS. - 4 -

Beretta also contends that recognized industry experts make no distinction between the 92FS and 98FS models. For example, with its letter of June 28, 1996, Beretta submitted excerpts from a book, Modern Beretta Firearms, wherein it provides that "[t]he current Model 98-type pistols have since 1989 been manufactured to the Model 92FS standard (i.e., with the slide retention device added as a result of U.S. military experience). Externally, they are indistinguishable (except for their caliber markings) from the more common 9mm Parabellum Model 92 pistols (emphasis added)." G. Gangarosa (Stoeger Publ. Co., 1994) at 208-212. Because the significance of the difference in caliber markings is the issue presently before this office, the value of this statement is questionable.

Moreover, in Modern Beretta Firearms, it states that, along with the lengthening of the firing chamber by 2mm, the only other changes necessary to convert the 92FS to the 98FS was "to stamp the 9 x 21 designation on the barrel to warn a shooter against loading the wrong cartridge and thus causing malfunctions." Id. at 210 (Beretta disputes this claim, arguing that one can "readily interchange" a 9mm x 19mm cartridge with a 9mm x 21mm cartridge when using the 98FS--this issue will be discussed in detail infra). Accordingly, we conclude that the governmental and recognized industry standards criterion is not supportive of Beretta's position regarding commercial interchangeability.

Relative Values

Beretta contends that the cost to the end user of a 98FS pistol is approximately the same as the cost the end-user of a 92FS pistol. Beretta's internal accounting for inter-company sales (Beretta USA Corp. sells the 98FS directly to Fabbrica D'Armi Pietro Beretta S.p.A. in Italy) shows that the cost of a 98FS pistol averaged $251.00, while the cost of the 92FS pistol "varied between $241.00 and $296.00" (the December 18, 1991, invoice lists the cost at $297.00). Based on these figures, the cost of the exported merchandise is between 4 percent less than to 15 percent greater than that of the imported merchandise.

We note that percentage differences greater than that found in the above-price comparison have not been fatal to a finding of commercial interchangeability. See HQ 225493, dated July 19, 1995 (discussing the broad range in contract-prices and values of crude peanut oil); but see HQ 225882, dated July 19, 1996. However, in the instant case, there is no explanation for the percentage differences between the imported and exported pistols.

We therefore must conclude that this criterion is not supportive, or, at best, inconclusive on the issue of commercial interchangeability.

Tariff Classification

The model 92FS and 98FS Beretta pistols are classifiable under subheading 9302.00.00, Harmonized Tariff Schedule of the United States (HTSUS), which provides for revolvers and pistols, other than those of heading 9303 or 9304, HTSUS. (They are not classifiable, as claimed by Beretta, under heading 9301, HTSUS, which provides, in pertinent part, for military weapons, other than pistols.) This criterion, therefore, supports a finding of commercial interchangeability.

Part Numbers

The model 92FS and 98FS, along with having different model numbers, also have different product codes. The materials submitted by Beretta, including price lists, invoices, sales literature, catalogs, etc., indicate that the pistols are marketed and sold on the basis of model number and cartridge designation.

For example, a 1994 Wholesale Price List provided by Beretta lists a variety of large frame pistols, including the model 92D, 92F (the predecessor to the 92FS), 96D and 96F. All have, in addition to different model numbers, different product codes.

Invoices provided by Beretta list the model number of the pistol in question (the 92FS when imported into the United States, and the 98FS when exported from the United States). Beretta does not have invoices that show sales of both the 92FS and 98FS pistols to the same customer, or invoices showing the replacement of one of those models for the other to a distributor or end-user. Beretta argues that "[t]he absence of sales should not, however, have any impact on whether from an objective standpoint the two pistols are commercially interchangeable." We disagree, as such evidence would tend to show that the merchandise is bought and sold without regard for the given model numbers.

Purchase orders submitted by Beretta show that they uniformly describe the pistols by model number and cartridge designation. For example, the sales invoice of November 17, 1994, describes the pistol invoiced by a product code, model (98FS) and cartridge designation (9 x 21 IMI). The invoice of - 6 -

December 18, 1991, identifies the pistols by model (92FS) and cartridge designation (9mm para.).

Beretta's sales literature shows that the pistols are marketed by model number and cartridge designation. The material contains a chart that lists the model number, cartridge designation and other specifications of Beretta pistols.

Beretta has also provided a statement of its counsel dated August 15, 1996, in which it was stated that the model 98FS chambered for the 9 x 21 IMI cartridge was fired with 100, 9 x 19 cartridges without mishap. However, such is not a "commercial" test. In fact, Beretta permanently marks the proper cartridge designation on each pistol. Beretta does not allege that the model 98FS chambered for the 9 x 21 IMI cartridge is so marked "9 x 21 IMI" or "9 x 19 para." See Modern Beretta Firearms, page 210 (wherein it states that with respect to the model 98, Beretta stamps the "9 x 21 designation on the barrel to warn a shooter against loading the wrong cartridge and thus causing malfunctions"). Moreover, a review of the literature supplied by Beretta, fails to demonstrate a single instance stating that the user of the model 98FS may use the 19mm and 21mm cartridges interchangeably. In fact, references in this material lead to a different conclusion.

On page 49 of Beretta's catalog, it states that "[a]ll 92 models are chambered for 9mm Parabellum ammunition . . . . 98 models use 9mm x 21 IMI caliber ammunition . . . ." On pages 22 and 26 of the operating manual, it specifies the differences in caliber between the model 92 (9mm Parabellum) and model 98 (9mm x 21 IMI), and cautions, on page 20, that "Beretta assumes no responsibility for product malfunction or for physical injury or property damage resulting . . . from . . . use of defective, improper, hand-loaded or reloaded ammunition (emphasis added)." It also provides, on page 20, that the user should "[b]e sure to use correct . . . ammunition (emphasis added)."

In Premier Graining Company, Inc., et al. v. United States, 57 Cust. Ct. 32 (1966), the Court stated that commercial paper, such as, billings, price lists, purchase orders, invoices, bills of lading, etc., like the people who use them, speak the "language of commerce." The information contained in Beretta's price lists, invoices, purchase orders, sales literature and catalogs, speaks the "language of commerce." This information corroborates the earlier information discovered by your office in the form of interviews with licensed firearms dealers that the model 98FS chambered for the 9 x 21 IMI cartridge is not - 7 -
commercially interchangeable with the model 92FS chambered for the 9 x 19 para. cartridge.

The evidence shows that firearms are marketed and sold on the basis of model number and cartridge designation. There is simply no evidence to show that commercial transactions in firearms are done solely on the basis of the nominal diameter of the barrel, as asserted by counsel. Beretta readily admits that the 92FS is not "commercially interchangeable" with the 98FS. In other words, they could not claim drawback if they imported the 98FS and exported the 92FS. We conclude that the converse is also true.

In summary, the criteria listed in the legislative history to section 632 of the NAFTA Implementation Act to be used in determining commercial interchangeability do not support a finding of commercial interchangeability in this case. That is, although the tariff classification of the imported and exported merchandise is the same, there was no persuasive evidence submitted concerning the governmental and recognized industry standards criterion, there was no evidence in the file accounting for the disparity in the relative values of the imports and exports, nor the difference in model numbers and product codes. Moreover, we are not persuaded by Beretta's argument regarding the ability of the 98FS to fire both a 19mm and 21mm cartridge. Accordingly, the exported 98FS pistols are not commercially interchangeable with the imported 92FS pistols, and are not, therefore, eligible for drawback pursuant to 19 U.S.C.

HOLDING:

The exported pistols, the Beretta model 98FS, are not commercially interchangeable with the imported 92FS pistols. Therefore, the model 98FS pistols are not eligible for drawback pursuant to 19 U.S.C. 1313(j)(2).

Sincerely,

Director, International Trade

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