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HQ 227491




October 9, 1998

DRA-4 RR:CR:DR 227491 CB

CATEGORY: DRAWBACK

Port Director
U.S. Customs Service
610 South Canal Street, Room 602
Trade Compliance- Protest Section
Chicago, ILL 60607
Attn: Patricia D. Moore

RE: Application for further review of Protest No. 3901-97-100320; 19 U.S.C. ?1313(j)(2); Unused Merchandise Drawback; Commercial Interchangeability; Fresh Asparagus

Dear Sir:

The above-referenced protest was forwarded to this office for further review. In addition to the Memorandum of Law (hereinafter "Memorandum") submitted with the protest, protestant has made two written submissions, dated October 30, 1997 ("the October submission"), and May 21, 1998 ("the May submission"). Additionally, at protestant's request, a meeting was held on February 27, 1998. We have considered the evidence provided, and the points raised, by your office and the protestant. Our decision follows.

FACTS:

According to protestant, it imported into the United States certain fresh asparagus grown in Mexico. Protestant claims that, in its imported condition, the Mexican asparagus conforms to United States Department of Agriculture Grade U.S. No. 2 or better. According to protestant, the asparagus is imported in the form of stalks which are fresh, well-trimmed, relatively straight and not badly misshapen. The asparagus stalks are free from decay, and free from serious damage caused by spreading or broken tips, dirt, disease, insects or other means. Protestant further states that the imported asparagus stalks were entered in lengths of approximately 5 1/2, 7 1/2, or 9 1/2 inches, and were green in color along at least one-half of the stalk length. The imported designated asparagus is machine-trimmed using a bandsaw (with the cut generally perpendicular to the length of the stalk), and packaged in wooden "diamond-shaped" crates. Furthermore, the asparagus has been hydrocooled prior to packing to help preserve its freshness during transport. During the February 27, 1998, meeting protestant's representatives stated that after it is imported the asparagus is sorted according to label. According to protestant, the labels are used to identify who the asparagus was sold to and its destination. Per protestant, the different labels do not designate quality.

According to protestant, the exported, substituted asparagus was grown in the State of Washington. After harvesting, it is also hydrocooled to preserve its freshness during transport. The exported asparagus is packed in open-topped plastic bins, and loaded on refrigerated trucks for immediate transportation to Canada. The substituted asparagus is trimmed in the field twice. According to protestant, this asparagus is initially harvested with a field implement, which cuts the asparagus spears at the base by a pushing action at a downward angle. This initial cutting yields an asparagus spear which is sometimes referred to as "field run" asparagus. At protestant's instructions, the harvester then uses the sharp knife side of the harvesting implement to cut the butt of the asparagus spear a second time, at an angle perpendicular to the length of the spear. This produces a cut which is usually as straight as that accomplished with the bandsaw. Furthermore, protestant asserts that all of the exported substituted asparagus is USDA Grade 2 or better. The asparagus is fresh, well trimmed, and free from defects such as decay, broken or missing tips, spreading or flowered tips, dirt, sand, and the like. The exported asparagus is cut in varying lengths, but most stalks generally measure about 9 1/2 inches in length.

Protestant states that the asparagus was exported to Canada in fresh condition. In Canada, the asparagus was generally processed by canning or vacuum-packing jars. Protestant asserts that, in its condition as exported, the asparagus would have been suitable for use in fresh asparagus markets as well. Protestant further asserts that part of each year's Washington State fresh asparagus harvest is so used. Per protestant, the decision to preserve the asparagus spears is a function of seasonal supply and demand in the marketplace, and not the result of any differences in quality between the designated and substituted asparagus. According to protestant, asparagus grown in Mexico is generally harvested earlier in the year (January or February) and it is generally used for the fresh asparagus market because there is generally a shortage of fresh merchandise in that market when the Mexican harvest takes place. United States asparagus is generally harvested later in the year. Protestant states that because there is generally an abundance of fresh asparagus in the marketplace at this time, a substantial percentage of the domestic asparagus crop is generally canned, vacuum-packed in jars, or otherwise processed into forms having a long shelf life. Finally, protestant asserts that there is only one single type or variety of asparagus. Both the imported and exported asparagus are of the same genus, species and variety.

We note that none of protestant's assertions are substantiated by documentary evidence. More specifically, grading certificates were not provided for the imported asparagus or the exported asparagus. The question of whether the imported and substituted asparagus was fungible was the subject of an internal advice (HQ 224068, dated July 31, 1992). It was determined that the imported fresh asparagus and "field run" asparagus was not fungible for substitution same condition drawback purposes. This determination was based on the fact that substitution had not been based on a grade for grade basis, and that the imported and exported merchandise had to be subjected to the same processing and packaging procedures. The drawback was denied on the entries which are the subject of this protest for failure to supply the information requested by Customs in order to determine commercial interchangeability. Specifically, by way of a letter dated February 22, 1996, protestant was requested to provide copies of the following:

Import Shipments: Exports to Canada:
Import Entries and invoices Canada Entry Documents Purchase contracts Grading Certificates
Grading certificates for imports Sales Documents to the Canada Buyers

Furthermore, drawback was also denied because examination of the exported merchandise was required. Protestant exported the subject merchandise prior to its being examined by Customs.

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). The claims were liquidated on December 20, 1996, without drawback and the subject protest was filed on January 27, 1997.
We also note that the refusal to pay a claim for drawback is a protestable issue (see 19 U.S.C. ?1514(a)(6)).

The drawback law was substantively amended by section 632, title VI- Customs Modernization, Pub. L. 103-182, the North American Free Trade Agreement (NAFTA) Implementation Act (107 Stat. 2057), enacted December 8, 1993. Title VI of Public Law 103-182 took effect on the date of enactment of the Act (section 692 of the Act). Except for 19 U.S.C. ?1313(p), according to the applicable legislative history, these 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. Rep. 103-361, 103d Cong., 1st Sess., part I, page 132 (1993)); S. Rept. 103-189, 103d Cong., 1st Sess., page 84-85 (1993)). The amendment to the drawback law precluding the applicability of section 1313(j)(2) for the exportation to a NAFTA country (section 203(c)(2), title II, Pub. L. 103-182 (107 Stat. 2057, 2092)) is effective upon the entry into force of the NAFTA (January 1, 1994) (i.e., effective for exportations to a NAFTA country after January 1, 1994). The exports covered by this protest were all prior to January 1, 1994. Thus, the limitation on substitution same condition drawback is not applicable to these claims.

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: (1) the other merchandise must be exported or destroyed within 3 years from the date of importation; (2) the substituted merchandise may not have been used in the United States; and (3) it must have been in the possession of the drawback claimant. Before its amendment by Pub. L. 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 CFR 191.2(1)). 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 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.

The decisive issue in this protest is whether the exported merchandise was commercially interchangeable with the imported merchandise. In order to determine whether the asparagus is commercially interchangeable, an analysis of the following factors must be done:

Part Numbers

Protestant asserts that "[i]n commercial practice, there are no part numbers assigned to either the imported or exported products. Accordingly, this commercial interchangeability' factor does not, strictly speaking, apply." Memorandum at page 25. However, protestant goes on to note that the same product code is assigned to both the domestic and Mexican asparagus. By way of a letter dated August 25, 1997, we requested representative samples of protestant's inventory records which illustrate how and for what purpose the product code is used. In its October submission, protestant replied that it does not maintain inventory records. An explanation as to how the product code is used was not provided.

Additionally, during the February conference, protestant's counsel indicated that the asparagus is sorted according to labels (i.e., blue label or red label). The label is used to identify to whom the imported asparagus is sold. This sorting is done after importation. We requested documentary evidence to substantiate this assertion. In response, protestant's counsel submitted a copy of an unsigned letter (dated July 16, 1992) from counsel to protestant which contains legal conclusions that the "red" and "blue" label asparagus are fungible. However, there is no documentary evidence showing the use of the different labels. The courts have held that counsel's bald assertions, without supporting documentary evidence, is not sufficient to overturn a Customs official's decision. See Bar Bea Truck Leasing Co. Inc. v. United States, 5 CIT 124, 126 (1983).

Thus, in the absence of any documentary evidence, we are unable to make a determination regarding this criterion.

Tariff Classification

Protestant asserts, in the memorandum of law attached to the CF 19, that both the imported and exported asparagus are classifiable under subheading 0709.20.90, of the Harmonized Tariff Schedule of the United States (HTSUS). Further, that the HTSUS does not differentiate fresh asparagus on the basis of size, grade, or any other criterion. This assertion is incorrect. There is a difference between asparagus which is not reduced in size and entered between September 15 and November 15 (classifiable under subheading 0709.20.10, HTSUS), and other asparagus (classifiable under subheading 0709.20.90, HTSUS).

During the conference held on February 27, 1998, protestant asserted that it does not enter asparagus between September 15 and November 15. This assertion is correct only with respect to the entries covered by this protest. We note that there is evidence contained in the protest file with respect to entries covered by other protests indicating that protestant did enter asparagus between September 15 and November 15.

Thus, with respect to this protest, the tariff classification does not appear to be a determinative criterion because all of the merchandise has the same tariff classification.

Relative Values

Customs application of this criterion has been to compare the value or cost of the imported merchandise and that of the substituted exported merchandise (as stated on import and export documents, contracts, and related documents).

Protestant asserts that the price of asparagus is determined by factors such as the size of the crop, the point in season when the asparagus was harvested, and, the exchange rate between the dollar and the foreign currency. Moreover, prices can vary on a monthly, weekly, daily and even hourly basis. Protestant goes on to assert that prices for asparagus are often based upon pricing formulas. For example, some contracts call to purchase asparagus on a "7 inch" or "5 inch" basis. However, according to protestant, this does not mean that the asparagus will be cut to length prior to delivery to the customer. This only means that the price is based on a per-inch price for the first 5 or 7 inches of the spear. The seller may in fact deliver a longer stalk to the buyer. The processing is subsequently performed by the buyer.

At this office's request, protestant has submitted copies of four representative contracts, both for imports and exports. The first sample contract covering the imported asparagus is with Empacadora GAB and covers the period June 1, 1988 through May 31, 1993. The imports covered by this protest fall within this time frame. The contract includes a "base price per crate" for the 1988 growing season and provides for adjustments for subsequent years. Additionally, the contract also includes a net profit sharing agreement. There is no indication on the face of the document that prices are tied to supply and demand. The second contract, between protestant and Lee Brands, appears to cover imported canned asparagus. Thus, it is not relevant to this protest. One of the sample contracts covering the substitute asparagus is entitled "1992 Fresh Asparagus Contract." While this contract covers most of the exports subject to this protest, twelve (12) of the claims are for exports in 1993. Thus, the sample contract is not applicable to those 12 claims. Nonetheless, this contract was provided as evidence of protestant's price structure. Upon review of the document we note the following: (1) the protestant's name does not appear anywhere on the face of the contract and there is no explanation as to whether the named company is related to protestant or as to why this contract is relevant to this protest; (2) the document is unsigned and undated; and (3) the contractor is not identified. Therefore, this document has no evidentiary value. Nonetheless, we note that compensation is on the basis of daily fresh posted prices. The fourth contract (the "Mojonnier" contract) also appears to pertain to the substitute asparagus. This contract provides for the payment of a flat percentage of the gross margins. Thus, this contract does not provide any guidance on the issue of relative values.

Other documentary evidence submitted by protestant, attached to the protest, includes one sample drawback entry. We note that this drawback claim is not one of the claims covered by this protest. Attached to that entry is a copy of invoice no. 2201A, dated September 20, 1992. Said invoice includes a charge of $7.50 per unit for 560 crates of green asparagus and $6.50 per unit for 880 crates of asparagus. There is no reference in the invoice to a "per-inch" price. Nor is there any explanation for the difference in pricing. Additional documentation was included in the May submission. However, the additional invoices are deficient. In the transmittal letter counsel includes a narrative explaining that the exports are priced per pound whereas the imports are on a per kilo basis. We are unable to confirm these assertions. The invoices (3) provided in the May submission are partially covered. Thus, we are unable to determine what is covered by these invoices. We also note that the sample drawback claim submitted is not one of the claims covered by this protest.

We have previously held that large disparities in the relative values of the export and import are not determinative, as a criterion, when the difference appears to be due solely to the market forces of supply and demand at the time of purchase rather than attributable solely to any difference in the quality of the imported or exported merchandise. See HQ 226074, dated September 29, 1995, and HQ 225493, dated July 19, 1995. However, in the instant case, we conclude that a definitive assessment of the relative values of the asparagus cannot be made due to a lack documentary evidence. During the February 27, 1998, meeting, this office requested that protestant provide copies of industry newsletters or reports which supported protestant's assertion that the difference in relative values were the result of supply and demand. Protestant has failed to provide such evidence. We also note that, in the May submission, counsel refers to statistics prepared by the United States Department of Agriculture, Natural Agricultural Statistical Service. However, copies of these statistics were not provided. Counsel merely summarizes the information.

Thus, in regard to this criterion, we do not have the necessary evidence (e.g., entry and export documents, contracts, and similar documents). The evidence necessary for a comparison of relative values should be in your office. If you are satisfied that the range in values of the imported and exported merchandise results solely from market forces, the fact that there is a wide range would not be fatal to commercial interchangeability. If you have doubt as to this matter (i.e., if you believe the relative values differ so greatly as to preclude commercial interchangeability), you may use random sampling methods for verification of this issue.

Governmental and Recognized Industry Standards

The Customs Service has consistently applied the standards of quality grades of the U.S.D.A. as guidelines when determining fungibility of graded agricultural products. These standards are considered as the applicable governmental standards to determine commercial interchangeability of agricultural products when the claimant's transaction evidence shows that those standards are, in fact, used by the claimant.

Protestant asserts that its contract specifications for both the imported and exported asparagus require that it be of "USDA Grade 2 or better". However, the vast majority of its imported and exported asparagus qualified as USDA Grade 1, while the remainder (about 10% of total) qualified as USDA Grade 2. To date, protestant has not provided copies of the grading certificates which were requested by Customs in February, 1996. Nonetheless, protestant continues to assert that its imports and exports met the same USDA standards. Protestant contends that HQ 224068 should be disregarded because, among other reasons, it concluded that there was no evidence to show that the designated and substituted asparagus was fungible on a grade-for-grade basis. Protestant asserts that the only reason there was no evidence is that the investigating agent elected not to look for any. See Protestant's Memorandum at page 36, dated January 15, 1997. However, as noted above, that evidence is still missing even though protestant has been provided ample opportunity to produce the certificates.

As stated above, Customs has consistently held that substitution of agricultural products must be on a grade-for-grade basis for purposes of 19 U.S.C. ?1313(j)(2). See HQ 224659, dated October 19, 1993; HQ 222812, dated May 10, 1991; and HQ 224223, dated July 26, 1993. There is no documentary evidence in this protest record, other than protestant's self serving assertions, that the imported designated and substitute exported asparagus were substituted on a grade-for-grade basis.

The record does not contain any evidence that protestant purchased or sold fresh asparagus according to a USDA grade. In its Memorandum of Law Protestant included, as one of its exhibits, a copy of its contract specifications for fresh asparagus. The specifications for its No. 1 Fresh Asparagus are as follows:

Asparagus will consist of stalks which are fresh and free from significant levels of decay, disease, etc.; stalks shall be a minimum of 5«" long and not less than 3/16 inch in diameter; at least 66% of the stalk shall be green; the stalks should not be badly misshapen and may have open heads if they are not too serious; and branches should not be spread nor larger than « inch.

However, the sample contracts and invoices submitted by protestant do not reflect the use of these specifications. More specifically:

1. Empacadora GAB contract: provides that all fresh asparagus sold to protestant shall be in accordance with the Quality Assurance Agreement incorporated into the contract. It further provides that protestant shall be supplied "fresh asparagus, trimmed and processed, and fit for sale in wholesale and retail markets." The agreement attached to the contract includes a section titled "Specifications" and within this subsection the specifications that are listed are: ingredient specification, packaging material specifications, testing procedures, and product specifications. The only information included under "product specifications" is "Fresh Asparagus: bulk, banded bunched."

2. Lee Brands contract: as stated above, this contract pertains to canned asparagus. Nonetheless, we note that this contract provides that all canned asparagus must meet the quality specifications set forth in an attachment. However, protestant may, at its option, accept asparagus not meeting such specifications for sale under a different label. We also note that the attached finished product specifications are incomplete. The pages are labelled 2 of 3, and 3 of 3. Page 1 of 3 appears to be missing.

3. 1992 Fresh Asparagus Contract: as stated above, protestant has not provided any explanation as to the relevance of this contract to the subject protest. We do note that this contract has its own specifications attached to it which are different than those provided by protestant. We also note that this contract provides for the purchase of "culls and trim" if there is a market available.

4. The Mojonnier contract: this contract does not set forth or incorporate by reference any specifications.

Thus, there is no evidence in the record to show that protestant followed either its own product specifications or the USDA grading standards. In the absence of the grading certificates referred to by protestant, we are unable to conclude that substitution of the fresh asparagus was on a grade-for-grade basis under the USDA grading standards.

To summarize, after evaluating all the relevant criteria suggested by the legislative history, we find that commercial interchangeability of the asparagus has not been established because protestant has failed to provide the necessary documentary evidence required to make a commercial interchangeability determination.

Issue #2: Failure to Give Notice

Previously, protestant had been granted a waiver of prior notice of intent to export. This privilege was revoked and later reinstated for all products other than fresh asparagus. By way of a court order, issued by the Court of International Trade, dated May 4, 1993, protestant was required to make any export shipment available for examination by Customs prior to exportation.

After reviewing the documentary evidence in the file, we note that the protest work sheets prepared by your office indicate that ninety-nine (99) claims are covered by this protest. Of those 99 claims, eighty-four (84) are based on exportations which occurred prior to suspension (the notice is dated November 3, 1992) of protestant's use of ESP and waiver of prior notice of intent to export. The other (fifteen) 15 claims were based on exportations subsequent to suspension of the waiver of prior notice. Of those 15 claims, seven (7) were exported subsequent to the CIT's order requiring that export shipments be made available to Customs for examination. Thus, those 7 claims were properly denied for failure to comply with the Court's order.

HOLDING:

There is insufficient evidence to find that the imported asparagus, and the substitute exported asparagus were "commercially interchangeable". Accordingly, the subject protest should be DENIED.

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,

Stuart P. Seidel
Assistant Commissioner
Office of Regulations & Rulings

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