United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 2002 HQ Rulings > HQ 228898 - HQ 229413 > HQ 229017

Previous Ruling Next Ruling
HQ 229017




January 9, 2002

DRA-4 RR:CR:DR 229017 RDC

CATEGORY: DRAWBACK

U.S. Customs
Port Director
ATT: Jane McKelvey
2350 North Sam Houston Parkway East
Suite 1000
Houston, Texas 77032-3126

RE: Application for Further Review of Protest number 5301-00-100241; Phillips Petroleum Company; Commercial Interchangeability; Drawback; Laboratory determination; 19 U.S.C. § 1313(j)(2); Cyclohexane; 19 C.F.R. § 174.24; 19 C.F.R. § 174.25.

Dear Sir or Madam:

The above-referenced protest, dated September 21, 2000, was forwarded to our office as an Application for Further Review of Protest No. 5301-00-100241. We also received your transmittal memorandum dated November 22, 2000, regarding this AFR. We have considered the facts and the issue raised; our decision follows.

FACTS:

The Protestant requests Further Review based on the assertion that the decision of the Port Director regarding the liquidation of the protested drawback entry is inconsistent with a ruling of the Commissioner of Customs or his designee per 19 C.F.R. § 174.24(a). The Protestant contends that the decision of the Port of Houston is inconsistent with the Court’s decision in Texport Oil Co. v. United States, 185 F.3d 1291 (U.S. App. 1999). It is the opinion of your office that the Protestant’s Request for Further Review meets the requirements of 19 C.F.R. § 174.24 and is therefore entitled to review by this office. This office does not disagree.

In the instant Protest, Phillips Petroleum Company (“Phillips”) protests the liquidation of drawback entry AA6-xxxx001-3 - without drawback - on which its drawback claim under 19 U.S.C. § 1313(j)(2) was denied. Phillips’ drawback claim, for unused merchandise drawback, designated the petrochemical cyclohexane. Accelerated payment on this drawback claim was
received by Phillips. This drawback entry, AA6-xxxx001-3 was liquidated on July 28, 2000. The protest was filed on September 21, 2000. The Protestant states that drawback should be allowed because the imported and substituted cyclohexane are commercially interchangeable.

The Customs Laboratory, New Orleans reviewed the commercial documentation supplied with the drawback claim and concluded on April 6, 2000, that “the incident exportation of cyclohexane (5/15/96), is not commercially interchangeable with the incident importation (5/53/95). The drawback claim should be denied.” The New Orleans lab did not elaborate on the reasons underpinning its determination. Customs Laboratory, Washington, D.C. determined that the imported and exported cyclohexane both have a minimum purity of 99.9 percent and that the analytical data indicates that both the imported and exported cyclohexane are within ASTM specification.

According to the CF 7501, the imported cyclohexane was imported on June 10, 1995, under subheading 2902.11.00 (HTSUSA). Phillips purchased this imported cyclohexane from Tolson USA, Inc. (“Tolson”), of Houston, Texas. A letter dated May 15, 1995, from Phillips to Tolson memorializes the agreement of sale between Phillips and Tolson and includes the purchase price for the cyclohexane. In this letter the quality of the cyclohexane is described as “Phillips Specifications (Attached as Exhibit 1).” Exhibit 1 to this letter is labeled “Product Specification Sheet.” On this spec sheet the minimum purity for the cyclohexane is specified as 99.8 percent. The Protestant supplied Analysis Report number 21681/95 prepared by Saybolt-Nederland. This report analyzes a sample of the imported cyclohexane on May 23, 1995. The report shows the imported cyclohexane to be 99.9 percent pure which exceeds the spec sheet minimum purity of 99.8 percent.

According to the CF 7539, the exported cyclohexane was exported on May 16, 1996. A Report of Survey on the exported cyclohexane prepared by Chem Coast, Inc. on May 15, 1996, shows that the exported cyclohexane was 99.96 percent pure. Included among the export documents is an invoice from Phillips to its buyer, International Petroleum Sales, Inc, of Panama which shows the price paid for the exported cyclohexane.

ISSUE:

Is the imported and exported cyclohexane commercially interchangeable?

LAW AND ANALYSIS:

Under 19 U.S.C. § 1514(a) and 19 CFR § 174.11 decisions of the Customs Service, are final unless specifically named as subject to protest (19 U.S.C. § 1514(a)). The liquidation or reliquidation of an entry is protestable under 19 U.S.C. § 1514(a). Therefore, the issues raised in the instant Protest are protestable per 19 USC § 1415(a). The procedures for filing a protest are provided in 19 USC § 1514(c) and 19 CFR § 174.12. Section 1514(c)(3) provides that a protest of an action described in § 1514(a) “shall be filed with Customs within 90 days after but not before the notice of liquidation.” The protested entries liquidated on July 28, 2000. The instant Protest was filed September 21, 2000, therefore this Protest was filed within 90 days after liquidation as required by 19 USC § 1514(c) and 19 CFR § 174.12(e) and the subject Protest is timely.

Per 19 USC § 1313(j)(2), unused merchandise drawback is permitted on unused merchandise (whether imported or domestic), that, inter alia, is commercially interchangeable with imported merchandise, and on which was “paid any duty, tax, or fee imposed under Federal law because of its importation.” 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 amendment by Public Law 103-182, the standard for substitution under section 1313(j)(2) was "fungibility". House Report 103-361, 103d Cong., 1st Sess. (1993), contains language explaining the change from fungibility to commercial interchangeability. According to the 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 C.F.R. § 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.

Moreover, the amended Customs Regulations, 19 C.F.R. § 191.32(c), provide that in determining commercial interchangeability:

Customs shall evaluate the critical properties of the substituted merchandise and in that evaluation factors to be considered include, but are not limited to, Governmental and recognized industrial standards, part numbers, tariff classification and value.

Therefore, in order to determine commercial interchangeability, Customs adheres to the Customs regulations which implement the operational language of the legislative history. The best evidence of whether those criteria are used in a particular transaction are the claimant’s transaction documents. Underlying purchase and sales contracts, purchase invoices, purchase orders, and inventory records show whether a claimant has followed a particular recognized industry standard, or a governmental standard, or any combination of the two, and whether a claimant uses part numbers to buy, sell, and inventory the merchandise in issue. The purchase and sale documents also provide the best evidence with which to compare relative values. Also, if another criterion is used by the claimant to sort the merchandise, the claimant’s records would show that fact which will enable Customs to follow the Congressional directions.

Cyclohexane is a colorless liquid with a mild, sweet odor resembling that of chloroform or benzene. Cyclohexane use is tied almost exclusively to nylon. Over 90% of cyclohexane is used in the manufacture of nylon fiber and nylon molding resin. The remaining 10% of cyclohexane ends up as solvents for paint, resins, varnish and oils, or in plasticisers. It is also used as an intermediate in the manufacture of other industrial chemicals.

Governmental and recognized industrial standards With respect to governmental and recognized industrial standards, if a standard is published and the good is traded in conformance with that standard, it is probable that the imported and exported goods are commercially interchangeable. ASTM (American Society for Testing and Materials) D 5309-97 (Standard Specification for Cyclohexane 999) is a recognized industry standard for cyclohexane having a minimum purity of 99.9 wt percent. This ASTM specification seems applicable to the imported and exported product since the submitted analytical data indicates that both have a minimum purity of 99.9 percent.

Part numbers:
Cyclohexane is a liquid. As such no part numbers are relevant to the commercial interchangeability analysis.

Tariff classification:
According to the CF 7501, the cyclohexane was imported under subheading 2902.11.00 (HTSUSA). Further the Protestant asserts that the imported and exported material “have the same tariff classification,” i.e., 2902.11.00 (HTSUSA). According to the 1995 HTSUSA, subheading 2902.11.00 is for “Cyclohexane.”

Value
According the purchase agreement between Phillips as importer and buyer and its seller on May 15, 1995, and the invoice detailing Phillips sale and export of cyclohexane on May 16, 1996, there is a significant difference between the purchase price paid by Phillips and sale price received by it for the cyclohexane. These documents evidence that Phillips sold cyclohexane in May of 1996 for 48 percent of the price paid for it in May of 1995. However the terms of the sales explain some of the discrepancy in price.

The export transaction is documented as “F.O.B. Deerpark, Texas.” FOB (Free On Board) means that the buyer, in this case International Petroleum of Panama, pays all transportation and insurance cost once Phillips delivered the cyclohexane on board the ship in Texas. Presumably, in an arm’s length business transaction the purchase price is decreased to account for this expense borne by the buyer, International Petroleum.

The import sale’s terms were CFR Savannah, Georgia. CFR (Cost and Freight) means that the seller, Tolson, paid the transportation cost to the destination port in Savannah, Georgia. Presumably, the sale price of the cyclohexane was increased to reflect the transportation cost paid by the seller, Tolson.

Finally, there is no evidence that the sale and purchase of the cyclohexane in this transaction was anything other than arms’ length transactions. Further, there is no requirement that a profit must be made on a transaction for the goods to be commercially interchangeable. Therefore, it seems likely that the difference in buying and selling price at issue is a function of the marketplace and other factors and not evidence that the cyclohexane is not commercially interchangeable.

HOLDING:

The imported and exported cyclohexane are commercially interchangeable. The protest should be GRANTED.

In accordance with Section 3A (11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with this decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make this decision available to Customs personnel, and to the public via the Customs Home Page on the World Wide Web, the Freedom of Information Act, and other public distribution channels.

Sincerely,

John Durant, Director

Previous Ruling Next Ruling

See also: