HQ 229116 - 19 U.S.C. 1313(j)(2); 19 CFR 191.32(a); 19 CFR 191.2(q) - United States International Trade Commision Rulings

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HQ 229116

June 24, 2002

DRA-4
RR:CR:DR 229116 IDL

CATEGORY: DRAWBACK

Port Director of Customs
Attn: Robyn Dessaure, Assistant Port Director 610 S. Canal St.
Chicago, IL 60607

RE: 19 U.S.C. 1313(j)(2); 19 CFR 191.32(a); 19 CFR 191.2(q)

Dear Ms. Dessaure:

This is in response to your Internal Advice request, dated March 22, 2001, concerning Fargo Electronics, Inc.

FACTS:

According to information furnished by counsel, Fargo Electronics, Inc. (“Fargo”) imports printer ribbons, 3702.44 HTSUS, from Japan. Upon receipt, Fargo opens the ribbon package, and sonically welds a magnetic core, pin and magnetic core sensor (collectively, the “Sensor Core”) onto the ribbon spool. Fargo then repackages the ribbons for shipment. The process allows the ribbons to work with the newer versions of Fargo’s printers. The cost to add the Sensor Core to the ribbon is approximately 2.3% of the total cost of the ribbon. The ribbons with the Sensor Core added are sold at the same price as the ribbons without the Sensor Core.

ISSUE:

Whether the sonic welding imparts a new character to the printer ribbons, thereby, precluding “commercially interchangeable” drawback under 19 U.S.C. 1313(j)(2)?

LAW AND ANALYSIS:

Counsel argues that the United States Supreme Court has held that in order for there to be a “manufacture” there must be a transformation resulting in a new and different article having a distinctive name, character, or use. Anheuser-Busch Brewing Assoc. v. United States, 207 U.S. 556, 560 (1908); see also 19 CFR 191.2(q).

Counsel claims that the ribbons are not in any way transformed into an article with a different name, character or use; that the film is used for the exact same purpose for which it was used prior to the Sensor Core being inserted as a printer ribbon; that the work on the ribbon spool simply allows the ribbon to be used in newer-model printers. In support of its arguments, Counsel also cites the decision in Precision Specialty Metals, Inc. v. United States, 116 F. Supp. 2d 1350, 1365 (C.I.T. September 20, 2000), arguing that the courts are focused primarily on changes in use or character of an item.

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 did not define commercially interchangeable.

Upon examination, the cored and uncored ribbons appear identical, except that the cored ribbon (part number 081733) has a circular part, which Fargo refers to as a “magnetic core,” firmly adhered to one end of the supply roll. This core has 18 holes bored around its periphery and three of the bores are fitted with metal pins. In addition, the core is stamped “PATENT 5,755,519”.

Fargo states that the core and pins are sonically welded onto the spool. Technical literature indicates that this sonic welding procedure involves heating, via internal friction, the polymers so the materials pass into a plastic state. Then they are joined under pressure forming a permanent rigid bond. Thus, in the instant case, sonically welding the core and pins onto the spool would form a permanent bond between the parts.

With regard to the function of the magnetic core assembly, review of patent 5,755,519 indicates that the core is an integral component of a printer ribbon identification sensor. Basically, one end of the supply roll is provided with a core insert that has a number of annularly spaced identifier indicia (pins), which move past a stationary sensor to provide a signal from the sensor when one of the pins moves past the sensor. The pins are positioned in one or more bore locations that are at known positions relative to a reference point. The ribbon identification apparatus provides signals so that for a particular program for a print job, the code for a desired ribbon is encoded into the controller to make sure that the inserted ribbon is the appropriate ribbon for the task.

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 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. In addition, the Senate Report states that Customs “should evaluate the critical properties of the substituted merchandise, rather than basing its determination on subjective standards.” Senate Report, at page 83. HQ 227106.

Industry Standards

Fargo claims that the film is used for the exact same purpose for which it was used prior to the Sensor Core being inserted as a printer ribbon, and that the work on the ribbon spool simply allows the ribbon to be used in newer-model printers. However, the two ribbons are not used interchangeably in production processes. Fargo describes the procedure in producing the cored ribbon. It states that the uncored ribbon, imported from Japan, undergoes a welding process, whereby a magnetic core and dowel pins are sonically welded onto the spool of the ribbon. That indicates that production of the cored ribbon requires an additional step in the production process of the uncored ribbon.

Part Numbers

Fargo assigns the uncored ribbon part number 081703. It assigns the magnetic core part number 079099-0100. After welding these two items, Fargo repackages the finished item, and exports the cored ribbon as part number 081733. That suggests that the company maintains a segregation between the two forms of ribbon.

Tariff Classification

According to the port, classification of the merchandise is maintained to the sixth digit, 3702.44 HTSUS, from import to export.

Relative Values

The cost to add the Sensor Core to the ribbon is approximately 2.3% of the total cost of the ribbon. Although the ribbons with the Sensor Core added are sold at the same price as the ribbons without the Sensor Core, the relative value of the ribbon increases upon completion of the welding process.

Having reviewed the documentation Fargo submitted, we find that the subject materials are not commercially interchangeable. On a technical basis, the cored and uncored dye-sublimation ribbons are not commercially interchangeable, since the cored ribbon is clearly more advanced in function, as it has been fitted with the appropriate parts that are needed for the ribbon identification sensor.

We disagree with counsel’s argument concerning usage of the ribbons (i.e., the film is used for the exact same purpose for which it was used prior to the Sensor Core being inserted as a printer ribbon; the work on the ribbon spool simply allows the ribbon to be used in newer-model printers). Based on the “common purpose” interpretation of usage, all printer ribbons would be deemed commercially interchangeable, since they share the common purpose of facilitating printing. A more accurate interpretation of usage would reflect suitability of the ribbon to serve a specific function.

We held in HQ 225882 that “different forms are not commercially interchangeable in certain processes., [commercial interchangeability is] not mainly based on the customer preference of one form over the other but [suitability]., material form is a basic recognized industry requirement which is used in the selection of raw materials in certain commercial processes .” HQ 225882 (July 19, 1996).

Further, we are hesitant to accept the applicant’s statement that the imported merchandise is usable in printers without being subjected to the coring procedure. This opinion is based on the language of Patent 5,755,519, Abstract, which states that “[s]uitable circuitry is used to disable the printer if the print ribbon is not properly correlated to the requirements of the printer.” Thus, since the uncored ribbon is not capable of providing a signal and the printer cannot sense if the ribbon is properly correlated, it logically follows that the printer could be disabled if an uncored ribbon were used.

In sum, the differences between the uncored and cored ribbons in usage, manufacturing process, and segregation in inventory (uncored ribbon: 081703; cored ribbon: 081733) precludes a finding of commercial interchangeability, as defined in Section 632(j)(2)(A) of Public Law 103-182 dated December 8, 1993.

HOLDING:

The sonic welding imparts a new character to the printer ribbons, thereby, precluding “commercially interchangeable” drawback under 19 U.S.C. 1313(j)(2).

Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

John Durant
Director,

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