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HQ 227553




December 22, 1997

DRA-4-RR:IT:EC 227553 LTO

CATEGORY: DRAWBACK

Ms. Brenda L. Sweetman
Comstock & Theakston, Inc.
466 Kinderkamack Road
Oradell, New Jersey 07649

RE: Substitution unused merchandise drawback; 19 U.S.C. 1313(j)(2); commercial interchangeability; part numbers; catalog numbers; chemicals; chemical grades

Dear Ms. Sweetman:

This is in reference to your letter dated May 15, 1997, on behalf of Aldrich Chemical Company, Inc., regarding the commercial interchangeability of certain imported and substituted chemicals under 19 U.S.C. 1313(j)(2).

FACTS:

Aldrich imports a vast number of laboratory chemicals manufactured by and purchased from companies around the world. Everything purchased by Aldrich, whether imported or sourced domestically, is identified by catalog number, as found in the Aldrich Catalog Handbook of Fine Chemicals 1996-1997 (United States), which you submitted with your request. Each catalog number is unique to a certain chemical, regardless of its origin. Thus, you propose to substitute, for drawback purposes, catalog number for catalog number (i.e., D10,220-2 for D10,220-2; "D10,200-2" refers to "l,4-Difluorobenzene").

Each catalog reference includes the name of the chemical and a detailed description. The description for D10,200-2 includes the chemical purity (99+%); Chemical Abstracts Service Registry Number (CAS number), which is described in detail below (540-36-3); molecular weight based on the combined weights of the atoms within the molecules (114.09); melting point (-13 degrees C; C refers to crystalline/liquid phase line of the product); boiling point (88-89 degrees, in degrees C at 760mm pressure); index of
refraction (1.4410 for the sodium D line at 20 degrees C); density of liquid (1.110); flash point (36 degrees Fahrenheit/2 degrees C); reference to Beilsteins Handbuch der Organischen Chemie (5,199); reference to the Merck Index (11,3132); references to various Aldrich Library publications (i.e., "FT-IR l(1),988A" refers to the page location of the spectrum in The Aldrich Library of FT-IR Spectra, while "SI 180,B,7" refers to the location of the product's structure in the Aldrich Structure Index); reference to the Registry of Toxic Effects of Chemical Substances (RTECS# CZ5658000); and the chemical's hazardous properties (FLAMMABLE LIQUID). Each catalog reference also includes a unit price (25 grams at $49.15, 100 grams at $135.55--these prices reflect the cost of 25 and 100 grams of D10,220-2 when sold domestically; Aldrich has approximately 15 catalogs which list different prices, which reflect factors such as the cost of export, depending on where the chemicals are sold). You state that because Aldrich prices by catalog number, "the imported and domestic merchandise sell for the same price."

Regarding the CAS numbers, you state that they provide a "precise means of substance identification used worldwide." They are described in the catalog as follows:

[CAS numbers] are unique numerical code numbers assigned to chemical substances indexed by [the] Chemical Abstracts [Service]. These numbers are a precise means of substance identification used worldwide.

Based on atoms [contained in the compound], valence bonds, and stereochemistry each number [generally] designates only one substance (calculated from its description in the original literature) and is an efficient means of structure identification which is independent of nomenclature.

All the chemical substances which have been reported in the chemical literature, and which have been indexed in Chemical Abstracts since January 1965, have been assigned a Registry Number. The Registry Number appears in CA volume indexes, regular issues, and in CAS computer-readable files. They may also be found in various chemical journals, handbooks, and catalogs, in the CAS on-line chemical structure display system, and in a large number of non-CAS commercial databases and handbooks. Substances new to the system are now being registered at the rate of about 700,000 per year.

While there may be variances in purity within a given CAS number, you state that there are several examples in the catalog where a chemical with the same name and CAS number has more than one catalog number, denoting a difference in purity. For example, "Acetic acid, sodium salt trihydrate" has two catalog references (43,143-5 and 23,650-0) indicating a difference in purity (99.99+% and 99+%, respectively), but only one CAS number

You have provided sample import invoices, export invoices, and purchase and/or sales orders, for five chemicals. You claim that these five examples are representative of commercial transactions involving the Aldrich catalog, which lists approximately 37,000 products. As the representative documentation only relates to transactions involving chemicals, this ruling will not discuss the commercial interchangeability of any other products listed in the catalog (i.e., balances, books, batteries).

ISSUE:

Whether the substituted chemicals are commercially interchangeable with the imported chemicals, where each has the same catalog number.

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 the 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(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 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.

You propose to substitute "catalog number for catalog number." To do so, you must satisfy the above-listed criteria. The catalog numbers, which provide a detailed description of the referenced chemical (as listed in the FACTS section of this ruling regarding "l,4-Difluorobenzene"), may be used to satisfy the part numbers criterion if use of these numbers is reflected in a commercial transaction involving the import and export of the chemical in question. We note, however, that the use of the same part numbers for the imported and substituted product does not necessarily lead to a finding that the products are commercially interchangeable--part numbers are only a factor in that determination.

You have provided sample documentation reflecting commercial transactions involving the following chemicals (catalog number in parentheses): 1,4-Difluorobenzene (D10,220-2); (S)-(+)-à-Methoxyphenylacetic acid (24,898-3); 1-Isoquinolinecarboxylic acid (15013-4); 2,5-Dimethoxytetrahydrofuran (D13,710-3); and m-Terphenyl (T300-9). We will describe the documentation provided for the 1,4-Difluorobenzene, which is similar to that provided for the other chemicals.

The import documents include a purchase order (879932), dated January 9, 1997, an invoice (650875), dated February 5, 1997, CF 7501 (entry summary), CF 3461 (entry/immediate delivery) and ABI entry screen. The purchase order indicates that ten kilograms of "l,4-Difluorobenzene, 99+%" were ordered by Aldrich from Sigma-Aldrich Company Ltd. (England). The purchase order references the catalog number (D10,220-2) and unit price. The invoice from Sigma-Aldrich lists the sale of 9,970 grams [9.970 kilograms] of 1,4-Difluorobenzene, 99+% (D10,220-2) to Aldrich. The invoice references the January 9 purchase order (879932) and lists the total price of the transaction. A Customs entry status report, which also references the purchase order indicates that 9.970 kilograms of 1,4-Difluorobenzene, 99+% (D10,220-2), was entered on February 19, 1997. The classification of this chemical is listed on the CF 7501, CF 3461 and ABI entry screen as subheading 2903.69.70, Harmonized Tariff Schedule of the United States (HTSUS), which provides for other halogenated derivatives of aromatic hydro-carbons.

We note that the CF 7501 lists the net weight of the merchandise classified under this subheading as 13 kilograms. This differs from the above-listed weight of the 1,4-Difluorobenzene, 99+% (D10,220-2), because two other chemicals were imported at the same time and were classified upon entry under the same subheading.

Aldrich also keeps internal records that track purchases by vendor, lot and purchase order. Each report lists the chemical by catalog number. An "accounts payable" record, which lists the transaction by invoice and purchase order, does not mention the chemical by name or catalog number.

The export documents include a purchase order (43630), dated May 19, 1997, a shipping order (122007), dated May 20, 1997, an invoice (122007), dated May 22, 1997, an air waybill (10327569) and a product sales history. The purchase order indicates that 25 grams of catalog number D10,220-2, along with many other chemicals listed by catalog number, were ordered by Kokusai Kinzoku Yakuhin Co. (Japan) from Aldrich. The shipping order and invoice list the sale of 25 grams of D10,220-2 to Kokusai. The shipping order, invoice and air waybill list Kokusai's account number. The product sales history references the sale by account number, invoice number, date, quantity, unit size, unit price and sales price.

As the catalog numbers are, in fact, used in commercial transactions involving the purchase and sale of the chemicals in question, we find that the catalog can be used to satisfy the
part numbers criterion for the five chemicals in question.

With regard to the Governmental and recognized industrial standards criterion, you state that "[a]ny such standards necessarily would be determined on the basis of the chemical's purity, but the chemical industry has not promulgated recognized standards for chemicals, as the degree of the chemical's purity will depend upon the purchaser's particular requirements." You further state that you "are not aware of any additional Governmental standards."

However, chemicals generally must be of the same commercial or industrial chemical grade (i.e., technical grade, high purity grade, research grade) to be considered commercially interchangeable. While the five chemicals under consideration are not associated with chemical grades, several catalog numbers list chemicals that encompass more than one chemical grade. For instance, the catalog lists four separate grades of benzyl alcohol (see 27,801-7, 36,299-9, 38,647-2, 30,519-7, 40,283-4, B1,620-8 and 10,800-6), while industry recognizes seven different grades, including a chlorine free grade. The catalog listing of 99+% benzyl alcohol (B1,620-8), for instance, crosses three different chemical grades. Thus, a catalog number for catalog number substitution of B1,620-8 would be outside the criterion of Published industrial standards, which Customs is required to consider.

Where chemicals are not associated with chemical grades (like the five under consideration), it is necessary to determine whether the Provided specifications are sufficient to establish commercial interchangeability. Regarding the specifications for the imported and substituted D10,220-2, the only possible (significant) differences between the two is in purity--one could be 99 percent pure, while the other could be greater than 99 percent pure (one may also have a boiling point of 88 degrees, while the other may have a boiling point of 89 degrees). Because of minimum purity tolerances and melting and/or boiling points, similar differences can be found in the specifications listed in the catalog for the (S)-(+)-à-Methoxyphenylacetic acid, 1- Isoquinolinecarboxylic acid 2,5-Dimethoxytetrahydrofuran and m- Terphenyl.

As indicated by the submitted commercial documentation, the chemicals listed in the catalog are bought and sold on the basis of the given purity tolerances. Where industry does differentiate within a particular chemical class regarding purity, Aldrich contends that it has separated the chemical name into two or more catalog numbers (i.e., as stated above, "Acetic
acid, sodium salt trihydrate" has two catalog references (43,143-5 and 23,650-0) indicating a difference in purity (99.99+% and 99+%, respectively)). After reviewing the specifications for the five chemicals under consideration, the Office of Laboratories & Scientific Services, U.S. Customs Service, determined that the differences in purity, melting and/or boiling point for these chemicals were not significant.

With regard to the tariff classification criterion, the classifications of the imported and substituted 1,4-Difluorobenzene, (S)-(+)-à-Methoxyphenylacetic acid, 1-Isoquinolinecarboxylic acid, 2,5-Dimethoxytetrahydrofuran and m-Terphenyl, are the same: as stated above, 1,4-Difluorobenzene is classifiable under subheading 2903.69.70, HTSUS; (S)-(+)-o-Methoxyphenylacetic acid is classifiable under subheading 2918.90.43, HTSUS (other aromatic carboxylic acids); 1-Isoquinolinecarboxylic acid is classifiable under subheading 2933.40.60, HTSUS (heterocyclic compounds with nitrogen hetero-atom(s) only, containing a quinoline or isoquinoline ring-system, not further fused); 2,5-Dimethoxytetrahydrofuran is classifiable under subheading 2932.19.50, HTSUS (other heterocyclic compounds with oxygen hetero-atom(s) only, containing an unfused furan ring in the structure); and m-Terphenyl is classifiable under subheading 2902.90.90, HTSUS (other cyclic hydrocarbons). The differences in purity will not affect the classification of the five imported or substituted chemicals.

However, in certain instances, differences in a chemical's purity may result in a different classification in the tariff schedule. For example, luminescent zinc sulfide must have a purity of 99.99 percent to be classified under subheading 2830.20.10, HTSUS, unsaturated isoprene must have a minimum purity of 95 percent to be classified under subheading 2901.24.20, HTSUS, tert-Butyl alcohol must have a minimum purity of 99 percent to be classified under subheading 2905.14.10, HTSUS, and Di-pentaerythritol must have a minimum purity of 94 percent to be classified under subheading 2909.49.30, HTSUS. Thus, where differences in purity affect the classification of the imported and domestic chemicals, the chemicals will not be considered "commercially interchangeable" unless the classification differences can be overcome by the presence of other factors (i.e., Governmental and recognized industrial standards).

Finally, with regard to the relative values criterion, Aldrich purchases imported and domestic chemicals and then sells them using the catalog. The price for each chemical purchased from the catalog remains the same regardless of its source. In
other words, the imported and substituted chemicals are sold at the same, catalog, price.

The catalog price (domestic sales) for 25 grams of D10,220-2 is $49.15 ($1.97/GM), while the price for 100 grams is $135.55 ($1.36/GM). Commercial documentation indicates that the relative value for the imported D10,220-2 is substantially less than that of the exported chemical. A purchase order (879932) for the imported D10,220-2 lists a unit price of 120.00œ (pounds) per kilogram. According to Aldrich, the exchange rate at this time was $1.687 per pound. Thus, 120.00 pounds per kilogram translates to $202.44 per kilogram, which translates to $0.20244/GM. The Sigma-Aldrich invoice lists the total price for 9,970 grams of imported D10,220-2 as 1196.40 pounds (this, plus a 10% buying commission, equals the total listed on the invoice, 1316.00 pounds). This translates to $2,018.33 for the 9,970 grams, or $0.20244/GM, of D10,220-2 (the same figure per gram as found on the purchase order).

Internal records relating to the purchase of D10,220-2 from Sigma-Aldrich references purchase order 879932 and lists the gross amount paid on the sale of the chemical to Sigma-Aldrich as $211.61 (because the purchase order is simply a guide, particularly when the sale is from an Aldrich affiliate like Sigma-Aldrich, there will be a difference between the price on the purchase order and internal records; when Sigma-Aldrich receives this order, it will send the chemical, if in stock, or will purchase the chemical from a vendor, which may result in a price difference, such as the one indicated above).

The purchase order (43630) for the exported D10,220-2 lists a unit price of $54.10 per 25 grams (this figure differs from that listed in the catalog provided to this office which lists the price for domestic sales). The shipping order for the sale of the chemical to Kokusai lists the unit price as $54.10, while both the shipping order and invoice for the transaction list a net amount of $43.28 (a discount price for this particular buyer). The latter figure translates to $1.7312 per gram, or approximately $1.53 more per gram than the imported chemical.

In your September 3, 1997 letter, you explain that you "have different pricing for Foreign and Domestic customers, as well as, special pricing for specific customers or Affiliates." You further state that the difference in value between the import and export represents profit, duty, buying cormmission and additional costs, such as, packaging, general administration and inventory carrying costs.

As stated above, the source of the chemical does not influence its market value. Both imported and domestic chemicals are grouped under the same catalog number and carry the same catalog price (although different catalogs may list a different price, each catalog will have only one price for each chemical). You state that "[i]f there were a preference in the market for a domestic or foreign sourced material it would be handled by either constraining the possible vendors for a product or creating a new catalog number." However, you state that you are "not aware of any situation like this in our product line . . . . "Based on these statements, we find that the differences in relative value are not due to a difference in quality, preference, etc., for either the imported or domestic chemical. Accordingly, the differences in relative value do not prevent a finding of "commercial interchangeability."

In conclusion, we accept the catalog numbers to establish compliance with the part numbers criterion. Thus, imported and substituted chemicals are "commercial interchangeable" when they have the same tariff classification, satisfy the relative values criterion and fall under the same catalog number, but only if the catalog number encompasses only one commercial or industrial chemical grade of that particular chemical. When a chemical is not associated with a chemical grade, it is necessary for Customs to review the chemical's specifications to determine whether they are sufficient to establish commercial interchangeability. Regarding the five chemicals for which we have tariff classification and relative value information, and which are not associated with chemical grades, we find that the specifications for the imported and substituted 1,4-Difluorobenzene, (S)-(+)-à-Methoxyphenylacetic acid, 1-Isoquinolinecarboxylic acid, 2,5-Dimethoxytetrahydrofuran and m-Terphenyl, are sufficient to establish "commercial interchangeability."

Finally, you have not provided any information regarding the method you will use to designate entries of the imported chemicals, which are apparently commingled in inventory with fungible, domestic chemicals. 19 CFR 191.22(c) provides that "[m]anufacturers, producers, or claimants may identify for drawback purposes commingled lots of fungible merchandise and commingled lots of fungible products by applying first-in-first-out (FIFO) accounting principles or any other accounting procedures approved by Customs." Enclosed for your information are copies of C.S.D. 88-1, dated June 29, 1987, and Schedule X to the Appendix for 19 CFR Part 181, Customs Regulations, which provide examples of the application of the FIFO method.

HOLDING:

The imported and substituted 1,4-Difluorobenzene, (S)-(+)-à-Methoxyphenylacetic acid, 1-Isoquinolinecarboxylic acid, 2,5-Dimethoxytetrahydrofuran and m-Terphenyl, are "commercially interchangeable," and are therefore, eligible for drawback under 19 U.S.C. 1313(j)(2).

Sincerely,

John Durant, Director
Commercial Rulings Division

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