HQ 227633 - Unused merchandise drawback; 19 U.S.C. 1313(j)(1); 19 U.S.C. Public Law 103-182 the North American Free Trade Implementation - United States International Trade Commision Rulings

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HQ 227633

February 9, 1998

DRA-4-RR:CR:DR 227633 SMC

CATEGORY: DRAWBACK

Mr. David N. Miller
Customs Regulatory Specialist
BDP International Inc.
1017 4th Avenue
Lester, PA 19029-1813

RE: Unused merchandise drawback; 19 U.S.C. 1313(j)(1); 19 U.S.C. Public Law 103-182 the North American Free Trade Implementation
Act (107 Stat 2057), Section 632; Purification; Distillation; Use; Incidental
Operations; Manufacture or Production;

Dear Mr. Miller:

This is in reference to your letter dated July 21, 1997, requesting a binding ruling on behalf of your client Schenectady International, Incorporated (SSI) concerning the applicability of "same condition" drawback to a proposed processing.

FACTS:

SSI manufactures 2,6-ditertiary butyl phenol in its Freeport, Texas plant. This chemical is used to make antioxidants for clear plastics and must have a high purity level otherwise it would alter the plastic. Because its domestic plant does not have the capacity to meet current demands for this chemical, SSI will also be importing 2,6-ditertiary butyl phenol from an affiliate located in Switzerland. During its transportation, the chemical becomes discolored. SII is required to "rework the chemical for further purification (redistilled) in order to meet the customer's needs." (emphasis added) It is further stated that the purification or redistillation process will not change the chemical properties of the imported material. After this processing, SSI will export the chemical to its customers and claim "same condition" drawback.

ISSUE:

Whether the purification or redistillation of 2,6-ditertiary butyl phenol is a "use" under 19 U.S.C. 1313(j)(1) or a permissible incidental operation under 19 U.S.C. 1313(j)(3). LAW AND ANALYSIS:

The drawback laws were substantively amended by section 632, title VI - Customs Modernization, Public Law 103-182 the North American Free Trade Implementation Act (107 Stat 2057) enacted December 8, 1993. Title VI of that Act amended 19 U.S.C. 1313(j). Section 692 of the Act provides that Title VI provisions take effect on the date of enactment.

Section 632 of the Act changes same condition direct identification drawback by providing that imported merchandise for which duty was paid and is, before the close of the 3-year period beginning on the date of importation, exported or destroyed under customs supervision and is not used within the United States before such exportation or destruction is eligible for "unused merchandise drawback". The law no longer requires that the merchandise be in the same condition as when imported.

A Senate Joint Report, Senate Report 103-189, (1993) at p. 82, discusses unused merchandise drawback as follows:

Section 632 renames the same condition drawback provision "Unused Merchandise
Drawback," and amends the provision in several ways. The provision will allow exporters to claim drawback on imported merchandise, or other domestic or imported merchandise that is substituted for the imported merchandise, that is not used within the United States before exportation or destruction, while removing the requirement that the merchandise be in the same condition. This allows for the possibility that drawback may be claimed on exported or destroyed unused merchandise that has physically deteriorated.

A definition of the term "used merchandise" was not provided in the language of the new Act. However, in C.S.D. 81-222 and C.S.D. 82-135 it was found that an article is used when it is employed for the purpose for which it was manufactured and intended. An article is also considered used when it is used in the manufacture or production of another article. C.S.D. 81-179. A manufacture or production has been defined as a processing which transforms an article into a new and different article, with a distinctive name, character or use. Anheuser Busch v. United States, 207 U.S. 556 (1907).

Under 19 U.S.C. 1313(j)(3), the performance of any "incidental operation" or combination of operations (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking) on the imported item, not amounting to a manufacture or production, is not treated as a use of the merchandise.

Neither distillation nor purification is one of the exemplars listed in 19 U.S.C. 1313(j)(3). Reworking of merchandise, however, is an acceptable incidental operation not amounting to the use of that merchandise. The term "rework" was used in the description of the process in this case. The term was not defined in the statute or relevant legislative history. It is permissible to resort to lexicographic aids to determine the meaning of tariff terms. In Webster's New World Dictionary of the American Language, 2nd College Edition, the term "rework" is defined as "to process (something used) for use again". It would appear that the distillation or purification of a chemical could be considered a "reworking" since it is being processed for the purpose of being able to be used again. However, the exemplars in 19 U.S.C. 1313(j)(3) are considered incidental operations not amounting to a "use" under 19 U.S.C. 1313(j)(B) provided they do not amount to a manufacture of production.

In this case, the imported 2,6-ditertiary butyl phenol has become discolored during transportation. The discoloration is a result of a degradation of the pure product. Essentially, the butyl phenol breaks down into smaller chemical constituents which either remain in the broken down form or combine with either the butyl phenol or other breakdown products. Consequently, the discolored product is a mixture of the 2,6-ditertiary butyl phenol and any number of fragments and/or recombination products. In other words, it is no longer of the high purity required for use in the manufacture of antioxidants for clear plastics. Therefore, it cannot be used for its intended purpose. To return the chemical to its original highly pure form, the discolored product is distilled to separate the ditertiary butyl phenol from the degradation products. This distillation takes a product that either is not fit for commercial usage or of a low commercial grade which may not be used for certain applications and produces a higher quality, higher grade product. Therefore, this distillation converts a low grade chemical into a high grade chemical.

Courts have held that if an operation renders a commodity or articles fit for a use which it was otherwise unfit, the operation falls within the "letter and spirit" of "manufacture." See United States v. International Paint Co., Inc., 35 CCPA 87, C.A.D. 376 (1948). In International Paint, imported paint contained impurities which rendered it unfit for use as an anti-fouling paint. It was subjected to certain processes which removed the impurities and made it capable of use as an anti-fouling paint. The character of the paint was changed with the removal of the impurities conferring upon it "a use, as a merchantable and usable anti-fouling paint, which it did not possess upon arrival in this country.... [p]roof that there was a change in character was found in the fact that the exported product was fitted for a distinctive use for which the imported product was wholly unfit -- the painting of the steel bottoms of ships." See International Paint, supra.

In a Customs Decision dated June 3, 1966 (DB731.1 H), a processing involving waste ethylene glycol, which was in a commercially unusable form, was discussed. It was determined that the distillation and filtration of the waste ethylene glycol, for the purpose of removing impurities, resulting in anti-freeze grade ethylene glycol, constituted a manufacture or production within the meaning of 19 U.S.C. 1313. In another case decided April 29, 1975 (202783), it was held that the removal of impurities from ethylene dichloride through a purification process resulted in its upgrading, thereby enabling it to be used in the manufacture of vinyl chloride monomer. The use of the lower quality ethylene dichloride would have been detrimental to the cracking process in the vinyl chloride monomer plant. In each of these cases, the processing of the merchandise changed its character, thereby making it fit for a use it otherwise would have been totally unfit for.

The purification or redistillation of the 2,6-ditertiary butyl phenol changes the character of the merchandise making it fit for a commercial use it otherwise would be unfit for. The processing therefore constitutes a manufacture or production under 19 U.S.C. 1313.

HOLDING:

The purification or redistillation of 2,6-ditertiary butyl phenol is a "use" and not a permissible incidental operation under 19 U.S.C. 1313(j)(1) and (j)(3). The processing would constitute a manufacture or production under 19 U.S.C. 1313(a).

Sincerely,

William G. Rosoff
Chief
Duty & Refund Determination Branch

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