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HQ 226996




October 24, 1997
DRA-4 CO:RR:IC 226996 CB

CATEGORY: DRAWBACK

Port Director
U.S. Customs Service
P.O. Box 52-3215
Miami, FL 33052-3215
Attn.: Joyce Stark

RE: Request for Internal Advice; Commercial Interchangeability; Substitution Same Condition Drawback; 19 U.S.C. ?1313(j)(2); Substitution Unused Merchandise Drawback; Woven Fabric

Dear Sir/Madame:

This is in reply to your request for internal advice dated May `3, `996 (your file no. DRA-1 PD:A:TC:D JTS) regarding Swift Textiles, Inc.'s request to file drawback substituting domestic woven fabric for imported woven fabric.

FACTS:

The claimant, Swift Textiles Inc., has requested approval to file for drawback under 19 U.S.C. ?1313(j)(2), unused merchandise, substituting domestic woven fabric styles Swift S/27690 and S/37603 for imported woven fabric Dominion Tunisian style 01486. Fabric specifications and samples have been provided.

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.

Section 632, title VI - Customs Modernization, Pub. L. No. 103-182, the North American Free Trade Agreement Implementation Act (107 Stat. 2057), enacted December 8, 1993, changed the standard for substitution unused merchandise drawback from "fungibility" to "commercial interchangeability". According to the applicable legislative history, 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))). See H.R. Rep. No. 103-361, 103d Cong., 1st Sess., 132 (1993). 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.

The Senate Report for the NAFTA Act (S. Rep. No. 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.

In order to determine whether the woven fabrics are commercially interchangeable, an analysis of the following factors must be done:

Part Numbers:

No sales or purchase contracts were provided. Copies of Swift's inventory records which might show the use of style numbers were likewise not provided. However, from the information contained in the March 26, 1996, letter from Customs Advisory Services, Inc., it is apparent that Swift distinguishes the two types of fabrics through the use of part or style numbers (e.g., S/37603 vs. Tunisian 01486). That evidence does not support a conclusion that Swift treats the imported and substituted fabric as being interchangeable.

Although Swift asserts that its customers will accept either merchandise to fill an order, it has provided absolutely no evidence in support of that assertion. Part or style numbers are a relevant criterion in the analysis of commercial interchangeability. We would expect to see representative contracts of purchase and sale in order to evaluate the basis of this assertion.

Tariff Classification:

With respect to tariff classification, the claimant asserts that both the imported and substituted fabric are classified under subheading 5209.32.0020, Harmonized Tariff Schedule of the United States (HTSUS). We have not received any information which would rebut this assertion. The Shipper's Export Declaration which would have provided the tariff classification was not included. We assume, for the purpose of this letter, that the importer's assertion can be supported.

Relative Values:

With respect to the relative values of the imported and substituted merchandise, the importer asserts that it "... sells both items for the same amount to any customer." However, we note that, according to information you have provided, the import price is $3.34 per yard. The export price is $4.05 per yard. The difference in value is 21% which could well be considered a material difference and there is no explanation to account for the difference in value. We also note that the import invoice specifies the goods are grade "A" and the export invoice is silent as to grade.

Governmental and Recognized Industry Standards:

These standards are generally considered the most important of the four criteria with respect to the issue of commercial interchangeability. We referred the matter at issue to our Customs laboratory at Headquarters, the Office of Laboratories & Scientific Services ("OLSS"). In a memorandum dated October 1, 1997, that office stated in pertinent part:

... the only industry standard specification related to fabrics with a similar end use is ASTM D3780 - Standard Performance
Specification for Men's and Boys' Woven Dress Suite Fabrics and Woven Sportswear Jacket, Slack, and Trouser Fabrics.... Critical properties related to drawback for textile fibers, yarns and fabrics have traditionally included applicable basic physical and/or chemical tests which can be determined using standardized test methods from standards writing organizations that are widely used throughout the industry. The applicant has provided such specifications for fiber content, width, weight, weave, number of warp and filling yarns per inch, and yarn count. The specifications show that the fabrics are essentially identical, which our laboratory testing has confirmed....

The Lab also reviewed the specifications given for the woven fabrics. In the advice we received from them it was noted that specifications were provided for width, weight, number of warp and filling yarns per inch, yarn count, and fiber count. The Lab determined that all of the specifications are within a +/- 3% or less range.

To summarize, OLSS has determined that the ASTM standard is not necessary to determine commercial interchangeability with regard to this particular woven fabric. Part numbers are a relevant criterion but no information has been provided to enable us to make a determination. No explanation has been provided regarding the difference in price between the imported and substituted fabric. There does not seem to be any difference in tariff classification and, thus, it does not affect commercial interchangeability. After evaluating all the relevant criteria suggested by the legislative history, we find that commercial interchangeability of the woven fabrics has not been established.

HOLDING:

We are unable to conclude that the imported and substituted woven fabric are commercially interchangeable for purposes of 19 U.S.C. ?1313(j)(2). However, you may be able to make a determination regarding commercial interchangeability if information is provided addressing the issues of the difference in pricing, style/part numbers and grading difference.

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, with the Customs Form 19, 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, Freedom of Information Act, and other public access channels.

Sincerely,

John A Durant, Director
Commercial Rulings Division

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