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HQ 228806




June 14, 2000

DRA-4-RR:CT:DR 228806 RND

CATEGORY: DRAWBACK

AEI Drawback Services, Inc.
Attn: Jim Stanka
20501 Katy Freeway, Suite 214
Katy, TX 77450

RE: Unused merchandise drawback; Commercial interchangeability; K-Resin; Styrene-Butadiene Copolymers; (SBC); KR01; §191.32(c) C.R.; 19 U.S.C. §1313(j)(2)

Dear Mr. Stanka:

This is in response to your ruling request dated April 19, 2000, on behalf of your client, Phillips Chemical Company ("Phillips"), concerning whether imported and domestic K-Resin styrene-butadiene copolymer (SBC) KR01 is "commercially interchangeable" for purposes of substitution, unused merchandise drawback under 19 U.S.C. §1313(j)(2).

FACTS:

You requested this prospective ruling from Headquarters under 19 C.F.R. §191.32(c)(1) on the commercial interchangeability of domestic grade KR01 K-Resin®, produced in Texas and the imported grade KR01 K-Resin®, produced in Korea. See 19 C.F.R. §191.32. The following facts are based on your submission.

The imported and domestic merchandise in this case consists of styrene-butadiene copolymer (SBC), grade KR01, with the Phillips tradename "K-Resin®." The Applicant, Phillips Chemical Company purchases and resells K-Resin styrene-butadiene copolymer (“SBC”) KRO1. Phillips imports K-Resin KR01 manufactured by Daelim Industrial Co., Ltd. (Daelim) in Korea, a joint venture facility in which Phillips has 60 per cent ownership. Daelim operates under licenses from Phillips Petroleum Company to make SBC KR01 and to use Phillips’ trademark, K-Resin®. The domestic K-Resin® KR01 is produced at Phillips’ plant in Texas. Phillips will be both the importer and exporter of record.

According to your submission, the specifications of the imported and domestic K-Resin KR01 will be identical. Attached to your submission as Exhibit 1 is a bill of lading, number HOU18828, evidencing an export of K-Resin KR01. This shipment of goods (from Houston to Antwerp) is described as “butadiene styrene type KR01.” The shipper on that bill of lading is Phillips Chemical Company of Houston, Texas; the consignee is Phillips Petroleum International of Antwerp, Belgium. Attached to Exhibit 1 is invoice number 83338862 from Phillips Chemical Company in Houston documenting the sale of goods described as “butadiene styrene type KR01” to Phillips Petroleum International, Antwerp, Belgium.

Evidencing an import of K-Resin is Exhibit 2 of your submission, a CF 7501 number xxx3449-6 and an attached invoice. The importer of record on the CF 7501 is Phillips Petroleum of Bartlesville, Oklahoma. The merchandise is therein described as plastics, polymers of styrene, subheading 3903.90.50, HTSUS (Harmonized Tariff Schedule of the United States (“HTSUS”)). Invoice number 2879-99 attached to Exhibit 2 identifies the seller as Phillips Petroleum International, Ltd. of Tokyo, Japan and the buyer as Phillips Chemical Company of Houston, Texas. The merchandise is described as styrene butadiene copolymer KR01 and was shipped from Busan, Korea to Houston, Texas.

The document labeled exhibit 3 is a Phillips Chemical Company internal letter from Carl E Stouffer, Ph.D., P.E., K-Resin SBC Technical Specialist, to Stan South, the Phillips employee who signed the ruling request. We note that Dr. Stouffer’s letter addresses the classification of various grades of K-Resin but only that portion pertaining to K-Resin, grade KR01 is discussed here. Dr. Stouffer states that K-Resin KR01 is classified under heading 3903, polymers of styrene and is ultimately classified under subheading 3903.90.50, HTSUS. In his letter Dr. Stouffer also states that the composition of KR01 grade K-Resin is “nominally 75 per cent styrene and 25 per cent butadiene by weight.”

Exhibit 4 is Phillips’ K-Resin KR01 data sheet, ostensibly marketing material, describing the benefits, applications, processing recommendations, specifications and nominal physical properties of K-Resin styrene-butadiene copolymers (SBC) KR01. The nominal physical properties of grade KR01 are identified in the data sheet as measured by the American Society of Testing and Materials’ (ASTM) testing methods and are shown below.

Property
ASTM testing method
Value
Unit
Density
D792
1.01 g/cc
Flow Rate, 200C/5kg.
D1238
8.0 g/10 min
Tensile Yield Strength
D638
4400 psi
Elongation
D638
20
Flexural Modulus
D790
215,000 psi
Flexural Yield Strength
D790
6400 psi
Heat Deflection Temperature 264psi (1.8Mpa) Fiber Stress D648
170
Instrumented Impact Energy
D1525
6.1 in-lbs
Hardness, Shore D
D2240
75
Vicat Softening Point
D1525
200
Light Transmission
D1003
90-95

Finally, Exhibit 5 is a letter from Phillips’ K-Resin Manager, David E. Morgan to K-Resin purchasers detailing the equivalency of the K-Resin manufactured by Daelim in Korea with the K-Resin manufactured at the Houston Chemical Complex (“HCC”). In his letter Mr. Morgan states,

The K-Resin SBC from Daelim’s plant is manufactured using the Phillips process, and is of the same chemical composition as that manufactured at HCC. The additives and additive levels are the same for product from both plants, and the product specifications for similar grades are the same for all plant sites. Data sheets and literature are applicable to K-Resin SBC grades made at both the Korea and HCC locations. K-Resin SBC grades manufactured at the Daelim plant, meets applicable U.S. regulatory requirements, for the intended application.

Mr. Morgan also advises K-Resin SBC purchasers that their orders for that product may be filled from the Korean plant.

ISSUE:

Whether the imported and domestic K-Resin® styrene-butadiene copolymer grade KR01 are commercially interchangeable for purposes of 19 U.S.C. §1313(j)(2)?

LAW AND ANALYSIS:

Under 19 U.S.C. §1313(j)(2), as amended, substitution unused merchandise 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 3 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 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 statute does not define commercially interchangeable.

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. 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 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.

Therefore, to determine whether the domestic K-Resin® KR01 and Korean K-Resin KR01 are commercially interchangeable, an analysis of the following factors is required:

Governmental and Recognized Industry Standards

Industry consensus standards ensure that all products meeting a standard are used in the same manner, regardless of manufacturer. Under normal circumstances, materials 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. However, there is no evidence of governmental or industry standards for K-Resin KR01 included in the submission. From this we conclude that there are no applicable governmental or industry standards for K-Resin KR01. Therefore, the Governmental and Recognized Industry Standards criterion is irrelevant for the instant analysis.

2. Tariff Classification

With respect to the tariff classification, according to both the CF 7501 for import of K-Resin® KR01 and the internal letter from Dr. Stoufffer, both the imported and domestic K-Resin KR01 are classified under subheading 3903.90.50, HTSUS, as Styrene-butadiene rubber. The tariff classification criterion, therefore, has been met.

3. Part Numbers

Based on the evidence presented in the submission, K-Resin® is a bulk commodity sold in pounds and is not assigned a part number. As such, part numbers are not a relevant criterion in this analysis of commercial interchangeability. However, in Exhibit 3, the internal letter from Dr. Stouffer, he states that K-Resin® is classified into grades according to the composition, i.e. the percentage of the resin that is styrene and the percentage of the resin that is butadiene by weight, respectively. In all documents in this submission which state a grade both the imported and domestic K-Resin are identified as being grade KR01. As grades are a unique identifier we are persuaded that the imported and domestic K-Resin® is the same compound.

4. Relative Values

Invoice number 83338862 dated January 2, 2000 (attachment to Exhibit 1) documents a sale of K-Resin® KR01 from Phillips Chemical, Texas to Phillips Petroleum, Belgium; it states the quantity and price per pound. Invoice number 2879-99, dated August 31, 1999 (attachment to Exhibit 2) shows a sale of K-Resin® KR01 from Phillips Petroleum, Japan to Phillips Chemical, Texas and also states the quantity and price per pound. The difference in the price per pound, at the stated quantities and with eight months between transactions, is negligible at .083 cents. Therefore the imported and domestic K-Resin® KR01 are determined to have the same relative value.

5. Additional Relevant Factors

Based on the letters from Dr. Stouffer and Mr. Morgan, both the imported and domestic K-Resin® KR01 are produced using the same process in Korea as in the United States. Further, Mr. Morgan’s letter states that “product specifications for similar grades are the same for all plant sites.” We note that this application considers only grade KR01 of K-Resin.® We are persuaded that the imported and domestic K-Resin KR01 is the same product since the chemical and physical properties are identical, and they are both produced according to the same licensed process of Phillips.

In addition, the instant submission includes a data sheet for K-Resin® KR01 containing ASTM testing method results for various physical properties of K-Resin® KR01. The ASTM listed testing methods are used to identify the properties of K-Resin® KR01. Mr. Morgan states in his letter that “data sheets and literature are applicable to K-Resin® SBC grades made at both the Korea and HCC locations.”

After evaluating all the relevant criteria suggested by the legislative history and the additional relevant factors, we find that commercial interchangeability of the resins has been established because both the imported and domestic resins (1) are classifiable as plastics, polymers of styrene under the same HTSUS subheading; (2) have the same relative value; (3) have the same internal corporate specifications for physical properties and are of the same chemical composition; (4) are manufactured using the same Phillips process and (5) the company’s willingness to substitute the imported K-Resin KR01 for the domestic when filling customers’ orders.

HOLDING:

Based on the above determinations, we conclude that the imported and domestic K-Resin® styrene-butadiene copolymers KR01 are commercially interchangeable for purposes of the substitution unused merchandise drawback law 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 C.F.R. §177.2(b)(1), (2) and (4) and 177.9(b)(1) and (2).

Sincerely,

John Durant, Director

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