United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1997 HQ Rulings > HQ 227035 - HQ 544684 > HQ 227220

Previous Ruling Next Ruling
HQ 227220




February 10, 1997

DRA-4-RR:IT:EC 227220 IOR

CATEGORY: DRAWBACK

John S. Rode, Esq.
Rode & Qualey
295 Madison Avenue
New York, NY 10017

RE: Ruling request; Drawback; 19 U.S.C. ?1313(j)(2); Commercial interchangeability; Denatured fuel ethanol; substitution unused merchandise

Dear Mr. Rode:

This is in response to your letter of August 30, 1996, requesting a ruling on behalf of Phibro Inc. ("Phibro"). You request a ruling on the commercial interchangeability of denatured fuel ethenol under 19 U.S.C. ?1313(j)(2).

FACTS:

Phibro proposes to substitute for denatured fuel ethanol, which has been imported by Phibro, other imported or domestic ethanol owned by Phibro in the United States, for purposes of obtaining drawback upon the exportation of the other imported or domestic denatured fuel ethanol. You state the following with respect to the subject denatured fuel ethanol:

Denatured fuel ethanol is composed of fuel ethanol and denaturant. The fuel ethanol component of the merchandise which is the subject of this ruling request contains not less than 98% by volume of ethanol, C2H5OH; the balance of this component consists of impurities, including not more than 0.5% by volume of methanol, or ketones, or both.

Fuel ethanol is derived principally from the fermentation of grain, sugar cane, or other agricultural wastes, but may be obtained by enzymatic hydrolysis of cellulose, or the catalytic hydration of ethylene. The fuel ethanol is denatured, i.e., made unfit for beverage use, by the addition of 2-4% unleaded gasoline; the end product contains not less than 95% by volume of fuel ethanol. Although the denatured fuel ethanol imported by Phibro may be obtained from raw materials other than those used to produce the denatured fuel ethanol which is exported by our client, both the imported and the exported ethanol are intended to be, and are in fact, used interchangeably for blending with unleaded or leaded gasolines, because both the imported and the exported materials conform to the American Society for Testing Materials Standard D 4806-92: Standard Specification for Denatured Fuel Ethanol for Blending with Gasolines for Use as Automotive Spark-Ignition Engine Fuel. (Emphasis supplied.)

With respect to "Recognized Industry Standards" you state that ASTM Standard D 4806-92, is the only standard used by Phibro, its customers, and vendors, to describe the specifications for the subject denatured fuel ethanol. You state that part numbers are inapplicable to the subject merchandise. With respect to tariff classification, you state that it would be the same for both the denatured fuel ethanol which Phibro proposes to import and the denatured fuel ethanol which will be exported by Phibro, that is subheadings 2207.20.00 and 9901.00.50, Harmonized Tariff Schedule of the United States (HTSUS). With respect to relative values, you state:

At any given time, the market price of ethanol, including denatured fuel ethanol, depends primarily on the contemporaneous relationship between the supply which is available for purchase in the marketplace, and the demand for such ethanol from potential customers. Over the course of the most recent year, our client notes, the market price of denatured fuel ethanol has fluctuated between $1.05 and $1.30 per gallon, whereas, by contrast, the price at which denatured fuel ethanol was sold in any given market on any given day during the last year generally did not vary by more than $0.02 - $0.03 per gallon.

You state that any difference between the price paid by your client for denatured fuel ethanol and the amount realized upon the sale for exportation of a like quantity of other imported or domestic denatured fuel ethanol by Phibro would be "attributable to factors which are entirely independent of any chemical or physical difference between the imported merchandise and the exported merchandise substituted therefor."

ISSUE:

Whether the imported and substituted denatured fuel ethanol is commercially interchangeable for purposes of 19 U.S.C.

LAW AND ANALYSIS:

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 three 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 either be 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 statute was substantively amended by section 632, title VI - Customs Modernization, Pub. L. No. 103-182, the North American Free Trade Agreement Implementation ("NAFTA") Act (107 Stat. 2057), enacted December 8, 1993. The foregoing summary of section 1313(j)(2) is based on the law as amended by Public Law 103-182. Before its amendment 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. According to the House Ways and Means Committee Report, the standard was intended to be made less restrictive, i.e., "the Committee intends to permit 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 C.F.R. ?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 industry standards, part numbers, tariff classification, and relative values.

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

In order to determine whether the denatured fuel ethanol is commercially interchangeable, an analysis of the following factors must be done:

1. Governmental and Recognized Industry Standards

We forwarded for technical review the ruling request and accompanying specifications to our Customs laboratory at Headquarters, the Office of Laboratories and Scientific Services ("OLSS"). The following pertinent comments were provided by OLSS, in its memorandum dated October 3, 1996:

Industry consensus standards, such as those published by the American Society for Testing and material, ensure that all products meeting a standard are used in the same manner, regardless of manufacturer. Under normal circumstances, products that meet the same industry accepted standard can be used to produce the same products or utilized for the same purposes. These uses are normally stated in the standard. Examples of such standards are Society of Automotive Engineer bolt standards (SAE) which indicate that bolts meeting certain standards can be safely used in certain products; ASTM standards ensure that gasoline blends meeting specific standards can be used in certain trucks and cars without ruining the engine; American Petroleum Institute (API) standards ensure that metering equipment used on pipelines provide accurate measurement of certain types of products.

Phibro, Inc. petitions U.S. Customs to allow drawback under 1313(j)(2) on exports of fuel ethanol, in which both the exported and imported product meet ASTM standard D-4806-92 for fuel ethanol. We note that the ASTM specifications for fuel ethanol are fairly rigid. Specifically, ASTM D-4806 requires that fuel ethanol contain by volume more than 95% ethanol (the ethanol component must have a minimum ethanol volume of 98%); contain 2% to 5% of either unleaded gasoline or rubber hydrocarbon solvent as the denaturant; and contain by volume no more than 1.25% water.

Since the ASTM standard for fuel ethanol represents normal industry practices and is highly specific, it is our opinion that U.S, Customs can use it as a guide in establishing commercial interchangeability for ethanol used in the production of motor fuel. Therefore, it is our opinion that if it can be established that both the imported and exported products meet the specifications for fuel ethanol as stated in ASTM D-4806-92 they can be considered commercially interchangeable for the purposes of drawback under 1313(j)(2). Under ASTM D-4806, no distinction is made between grain ethanol and synthetic alcohol. Therefore, either source of ethanol may be used to produce fuel ethanol.

We emphasize, however, that this opinion applies only to ethanol that meets the specifications for ASTM D4806-92. We note that in ethanols other than fuel ethanols, synthetic ethanol and grain ethanol cannot be freely interchanged, as grain ethanol is a potable product and synthetic ethanol is not. In fuel ethanol, the adulterant (gasoline or hydrocarbon solvent) dictates that the solvent be used only in the production of motor fuel. However, other types of adulterants will allow for different uses. Further, the presence of even trace amounts of water may not allow the ethanol to be used in certain chemical syntheses. Therefore, the opinion should be strictly applied.

It is significant that the subject ASTM standard is "fairly rigid" and "highly specific," represents normal industry practices, and such fuel ethanol, due to the gasoline or hydrocarbon solvent adulterant, can be used only in the production of motor fuel. In this case, the denatured fuel ethanol is intended to be used for blending with unleaded or leaded gasolines. The laboratory report also emphasizes that the opinion stated therein applies only to ethanol that meets the specifications for ASTM D-4806-92. Based on the foregoing laboratory report, and the assertion that the ASTM D-4806-92 standard is the only one used by Phibro, its customers and vendors to buy and sell the subject denatured fuel ethanol, and that the denatured fuel ethanol is to be used for blending with unleaded or leaded gasolines, we find that the subject denatured fuel ethanol meets the Governmental and Recognized Industry Standards criteria for commercial interchangeability. However, this finding is limited to denatured fuel ethanol which meets the ASTM D-4806-92 standard, that is ethanol containing gasoline or hydrocarbon denaturant, and is used for fuel. It is understood that the standard would be the relevant criterion in the import and export purchase and sales documents.

2. Tariff Classification

With respect to the tariff classification, both the imported and domestic denatured fuel ethanol are classified under subheadings 2207.20.00 and 9901.00.50, HTSUS (subheading 9901.00.50, HTSUS contains temporary duty legislation applicable to merchandise entered under subheading 2207.20.00, HTSUS), as "ethyl alcohol and other spirits, denatured, of any strength." This criterion therefore has been met.

3. Part Numbers

It is represented that part numbers are inapplicable to the subject merchandise.

4. Relative Values

According to the information provided in the ruling request, the market price of denatured fuel ethanol fluctuated between $1.05 and $1.30 per gallon over the year preceding the submission of the ruling request. The higher price was approximately 24% over the lowest price. This means that the maximum price difference between an import and export is 24%. In this case, where there are accepted industry standards, and those standards are used in trading of the subject commodity, and there is a range in the value of the merchandise, the standards are entitled to great weight as a criterion for determining commercial interchangeability. See HQ 225493 dated July 19, 1995 (at p.12).

In this case, we conclude that where the imported and exported denatured fuel ethanol meet the ASTM D-4806-92 standards and is used for fuel, the merchandise is commercially interchangeable for purposes of 19 U.S.C. ?1313(j)(2). This decision is limited to the specific facts set forth herein. If the terms of the import or export contracts vary from the facts stipulated to herein, this decision shall not be binding on the Customs Service as provided in 19 CFR 177.2(b)(1), (2) and (4) and 177.9(b)(1) and (2).

HOLDING:

Based on the facts that both the imported and exported denatured fuel ethanol meet the applicable ASTM standard and are used for fuel, and so show on the purchase and sales documents for each import and export, we conclude that the imported and domestic or other imported denatured fuel ethanol exported are commercially interchangeable for purposes of the substitution unused merchandise drawback law of 19 U.S.C. ?1313(j)(2).

Sincerely,


Previous Ruling Next Ruling

See also: