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HQ 229192




DR

May 8, 2002

DRA-4-RR:CR:DR 229192 DR

CATEGORY: DRAWBACK

Joyce Mikalunas
Drawback Chief
ATTNAttn: Marilyn Rodriguez, Drawback Specialist Room 114, U.S. Customs Service
P.O. Box 02-5280
Miami, FL 33152-3215

RE: Request for internal advice; commercial interchangeability; 19 U.S.C. §1313(j)(2); tobacco strips; proof of export

Dear Ms. Mikalunas:

This is in response to your memorandum received by this office on June 13, 2001 (your file number ENT:5:PD:A:TC:D MR), requesting internal advice pursuant to 19 C.F.R. 177.11. In particular, this response pertains to the issue of the exportation of various grades of tobacco and proof thereof. You requested guidance as to how to resolve questions of commercial interchangeability when there are discrepancies in the descriptions of exported tobacco.

FACTS:

Customs Advisory Services, Inc., (“CASI”) files numerous drawback claims under 19 U.S.C. 1313(j)(2) on a claim by claim basis for several companies. You have submitted two sets of representative documents for two different such companies. The first company, Standard Tobacco Company, Inc., (“SCTC”) has nine unused drawback claims filed by CASI. The second, Hail and Cotton, has seventeen claims.

SCTC IMPORTS

SCTC has designated the following import entries on its drawback claim. See Schedule #1 (attached to drawback claim):

Entry No. 023-XXXXX-074: 16,600 kg of S-B4F tobacco (also described as “BU-Strip” and “Burley Strip Tobacco”). Entry No. 014-XXXXX-067: 151,840 kg of S-M4F-B tobacco (also described as “BU” and “Burley Strip Tobacco”) Entry No. 023-XXXXX-764: 181,175 kg of S-M4FR tobacco (also described as “BU” and “Burley Strip Tobacco”)

Note that the 16,600 kg of S-B4F tobacco in Entry No. 023-XXXXX-074 were initially assigned USDA Type 93 and Grademark B4F, by a USDA inspector. USDA Import Tobacco Inspection Certificate 43533 (August 10, 1999). Later, the same USDA inspector apparently amended the Certificate to show the import of 16,600 kg of S-B4F grade tobacco, instead of simply B4F grade tobacco. The notation “S” indicates that the tobacco was in “strip” form. See 7 C.F.R. §29.3128.

Also, note that there exists no USDA official grademark of S-M4F-B tobacco, as Entry No. 014-XXXXX-067 is alleged to have contained.

SCTC EXPORTS

SCTC claims drawback on the following exports (See Schedule #2 - Exporters Summary Report in Date Order attached to drawback claim): March 9, 2000: 109,353 kg of S-M4FR tobacco. The unique export identifier (Bill of Lading number) associated with that export is TMN/TTM-51. a. Bill of Lading No. TMN/TTM-51, laden March 9, 2000: The tobacco is described only as “American Burley Leaf Tobacco 1999 Crop.” It had a gross weight of 118,206 kg. The net weight is apparently 109,354 kg. See Blocks 21 and 25. Those amounts are equal to 260,595 lb., gross, and 241,080 lb., net. The Marks & Nos./Container Nos. section contained the notation “JIM/SB1 1999 Crop 577/1150.” Tobacco Inspection Certificate (February 28, 2000): Describes 241,080 lbs. (handwritten notation of “109,353 kg”) of tobacco as grade S-M4FR with Package Mark “JIM/SB1,” Package ID Number “577/1150,” and Crop Year “1999.” There is also a handwritten notation “JIM/SB1” on the side of the certificate completed by the USDA inspector, Note that the weight on the certificate does not match the net weight of the tobacco on Bill of Lading No. TMN /TTM-51.

March 9, 2000: 71,822 kg of S-M4FR tobacco. The unique export identifier associated with that export is TMN/TTM-50. a. Bill of Lading No. TTM/TTM-50, laden March 9, 2000: The tobacco is described only as “American Burley Leaf Tobacco 1999 Crop.” It had a gross weight of 77,705.7 kg (converted from 171,158 lbs. listed on the Bill of Lading). The net weight was 71,886.4 kg (158,340 lbs.). The Marks & Nos./Container Nos. section contained the notation “WAA/SB1 1999 Crop #481/857.” Tobacco Inspection Certificate (February 28, 2000): Describes grade S-M4FR tobacco with Package Mark “WAA/SB1,” Package ID Number “481/857,” and Crop Year “1999” There also a handwritten notation “WAA/SB1” on the side of the certificate signed by the company official, and “71,822 kg” on the side signed by the USDA inspector.

June 22, 2000: 51,840 kg of S-B4F tobacco and 51,840 kg of S-M4F-B tobacco. The Unique Export Identifier associated with those exports is 304548. a. Bill of Lading No. 304548, laden June 22, 2000: The tobacco is described only as “unmanufactured tobacco.” The gross weight of the entire shipment totaled 112,320 kg (converted from 247,620.67 lbs. on the Bill of Lading). Note that 247,620.67 lbs. actually equals 112,419.8 kg. Tobacco Inspection Certificate (May 22, 2000): Describes 114,288 lbs. (net weight) of Grade S-M4F tobacco with Package Mark “TBSC,” Package ID Number “1/288,” and Crop Year “1999.” There are also handwritten notations “TBSC” on the side of the certificate signed by the company official and “51840 kgs” on the side signed by the USDA inspector. See Tobacco Inspection Certificate (May 22, 2000). Tobacco Inspection Certificate (May 22, 2000) (i) Describes 114,288 lbs. (net weight) of the tobacco as Grade S-B4F, with Package Mark “TBSB,” Package ID Number “1/288,” and Crop Year “1999.” (ii) There are handwritten notations “TBSB” on the side of the certificate signed by the company official and “51840 kgs” on the side signed by the USDA inspector.

Hale and & Cotton’s Imports

Hail & Cotton has designated 39,600 kg of grade S-B4FR tobacco in Entry No. 015-XXXXX-249 on its drawback claim. The tobacco is also described as “BTR-H/BU” and “Burley Strip Tobacco”). See Schedule #1 (attached to drawback claim). The tobacco was inspected on August 28, 2000, by a USDA inspector and assigned USDA grade S-B4FR. The inspector noted that the lot’s invoice indicated that the tobacco was “Brazilian Burley Strip, S-B4FR (BTR-H).” See USDA Import Tobacco Inspection Certificate 43615 (August 28, 1999). The notation “S” indicates that the tobacco was in strip form. See 7 C.F.R. §29.3155.

Hail & Cotton’s export

According to its Exporter’s Summary Report, on February 16, 2001, Hail & Cotton exported 39,600 kg of grade S-B4FR tobacco. See Schedule #2 – Exporter’s Summary Report In Date Order attached to drawback claim. The Bill of Lading for that export showed each container weighed 41,664 lbs., gross (converted on the Bill of Lading to 18,899 kg), for a total export weight of 499,968 lbs., gross (converted on the Bill of lading to 226,788 kg). The tobacco inside the containers was described as “unmanufactured leaf tobacco.” See Bill of Lading No. KKLUCHS315354. Note that 41,664 lbs. actually equals 18,915.5 kg, and that 499,968 lbs. actually equals 226,985.5 kg. By comparison, the Invoice associated with the export described the tobacco as “Green Leaf.” See Hail & Cotton Invoice No. 01-341.

The tobacco was inspected and described as “1152 cases” of “Burley,” and graded as “S-B4FR,” with Package Mark “BBFR,” Package ID No. “1-1152, BBFR,” and Crop Year “2000.” See Tobacco Inspection Certificate #0000 (January 23, 2001). The batch weighed 460,800 lbs., or 209,018 kgs.

During the course of reviewing SCTC’s and Hail & Cotton’s drawback claims, Customs notified CASI of certain deficiencies in the claim, i.e., the apparently inconsistent descriptions of the imported and exported tobacco. Those inconsistencies are the subject of the following response.

ISSUE:

Whether the descriptions of the exported merchandise in the proofs of export are sufficient to establish the exportation of “commercially interchangeable” merchandise.

LAW AND ANALYSIS:

It is well established that drawback laws confer a privilege, not a right. Swan & Finch Company v. United States, 190 U.S. 143, 23 Sup. Ct. 702 (1903). When merchandise is imported and a drawback statute may potentially be applicable, an accruing or inchoate right may be said to arise. However, the right to recover drawback ripens only when all provisions of the statute and applicable regulations prescribed under its authority have been met. Romar Trading Co., Inc. v. United States, 27 Cust. Ct. 34 (1951); General Motors Corporation v. United States, 32 Cust. Ct. 94 (1954). Drawback claimants must strictly adhere to the requirements set forth in the statutes and applicable regulations. United States v. W. C. Hardesty Co, Inc., 36 CCPA 47, C.A.D. 396 (1949); Spencer, Kellogg & Sons (Inc.) v. United States, 13 CCPA 612 (1926).

Drawback under 19 U.S.C. 1313(j)(2) is conditioned upon the satisfaction of two major requirements, as well as full compliance with applicable regulations. Generally, 19 U.S.C. 1313(j)(2) allows a party to claim drawback on imported duty-paid merchandise if merchandise in its possession that is commercially interchangeable with the imported merchandise is exported or destroyed under Customs supervision, and at the time of exportation or destruction has not been used.

After the enactment of the substitution unused drawback law, the substituted merchandise exported or destroyed for drawback no longer needed to be fungible (commercially identical) with the imported merchandise. Now, the imported and substituted merchandise must be commercially interchangeable.

The regulations that implement 19 U.S.C. 1313(a) are found in 19 C.F.R. Part 191. One of the provisions relating to drawback claims is that a drawback claim "shall be subject to verification by the port director where the claim is filed. 19 C.F.R. §191.61(a). Such verification means "the examination of any and all records ... maintained by the claimant ... which are required by the appropriate Customs officer to render a meaningful recommendation concerning the drawback claimant's conformity to the law and regulations and the determination of supportability, correctness, and validity of the specific claim or groups of claims being verified." 19 C.F.R. §191.2(y). Also, the procedures for establishing exportation of articles for drawback purposes include, among other things, “[a]ctual evidence of exportation consisting of documentary evidence, such as an originally signed bill of lading, air waybill, freight waybill, Canadian Customs manifest, and/or cargo manifest, or certified copies thereof, issued by the exporting carrier.” 19 C.F.R. 191.72(a).

In order to determine commercial interchangeability of the exported merchandise with the merchandise upon which drawback is claimed, critical properties of the substituted merchandise must be evaluated by Customs and several factors must be considered, including, but not limited to, government and recognized industry standards, part numbers, tariff classification and value. See 19 C.F.R. 191.32(c). In Customs Headquarter Instructions “Substitution Unused Merchandise Drawback – 1313(j)(2) and Application for Commercial Interchangeability Determination,” Customs stated that “[i]n the interest of administrative efficiency and because commercial interchangeability is no more restrictive than fungibility, all prior unrevoked rulings finding merchandise to be fungible may continue to be relied upon to establish commercial interchangeability and reapplication is unnecessary for the same merchandise.” In Treasury Decision 80-57 and Customs Service Decision 81-131, the Customs Service had given notice that it would use the Official Standard Grades of the U.S. Department of Agriculture for Flue-cured and Burley tobaccos to determine same kind and quality determinations under substitution manufacturing drawback (19 U.S.C. 1313(b)) on a grade for grade basis. See also C.S.D. 89-126 (23 Cust. B. & Dec. 893; 23 Cust. B. & Dec. No. 49, August 1, 1989) (finding that two shipments of tobaccos that meet the Official United States Standard Grades for Flue-cured or Burley tobaccos (7 C.F.R. Part 29, Subpart C), on a grade for grade basis, and on the basis of leaf for leaf or strip for strip, are fungible for purposes of substitution same condition drawback under §1313(j)(2)). These rulings were published prior to the enactment of the substitution unused drawback law, but have not been revoked and are still in effect. Therefore, the USDA standards clearly define the manner in which tobacco is to be graded and Customs has unequivocally adopted those standards for Flue-cured and Burley tobaccos to determine commercial interchangeability determinations under substitution unused merchandise drawback. Here, SCTC and Hail & Cotton, through CASI, has asserted that the exported merchandise described in their various export documents is commercially interchangeable with the imported merchandise designated for drawback.

Note that this response is predicated upon two important assumptions. First, in its claim, SCTC has described its designated tobacco imports and exports as S-M4FR, S-M4F-B, and S-B4F. See Schedules #1, #2. M4FR and S-B4F are official USDA grademarks. S-M4F-B is not. A search of USDA standards for tobacco reveals no such grademark exists. If the description is actually stated as intended, then that portion of the drawback claim should be rejected (notwithstanding the analysis below) because there is no grade “S-M4F-B” tobacco, and there are no documents included in the claim which actually show the import or export of any tobacco of that grade. Because there is no such grade, there is an insufficient description of the designated merchandise and the exported merchandise needed to determine whether the designated merchandise was commercially interchangeable with the exported merchandise.

Along those same lines, note that the Import Tobacco Inspection Certificate for SCTC’s import of allegedly S-B4F tobacco originally did not contain the special factor mark “S” to denote the tobacco was in strip form. The USDA regulations require that Type 93 tobacco that is in strip form be treated as a subgrade by placing the special factor “S” preceding the grade. 7 C.F.R. §§29.3128 (“Tobacco in strip form which otherwise meets the specifications of a grade shall be treated as a subgrade by placing the special factor “S” preceding the grademark.”) (emphasis added). It appears that the certificate was amended at a later date, perhaps in late 2000, to show the tobacco was in strip form by placing a special factor “S” preceding the grademark B4F. See Import Tobacco Inspection Certificate 43533; see also George Keller letter of November 20, 2000. The time between the initial submission of the certificate and its amendment, and the fact that there is no clear evidence that Inspector Robert Smith actually re-inspected the merchandise and assigned the special factor “S” suggests that the amendment may not be valid (note that he failed to initial the “S” designation as he did his notation “and flue cured” that appears elsewhere on the certificate). If the Tobacco Inspection Certificate 43533 was actually amended by a USDA inspector to denote strips of tobacco (S-B4F), then it would follow that Claimant SCTC has proven that it has substituted strips of grade S-B4F tobacco for designated strips of S-B4F tobacco. If not, it would appear that SCTC has attempted to substitute S-B4F tobacco strips for imported non-strip B4F tobacco.

In its proofs of export, SCTC has described its tobacco exports as “American Burley Leaf Tobacco,” or simply as “unmanufactured tobacco.” See Bills of Lading and Shippers’ Export Declarations. Hail & Cotton has also described its exported tobacco as “unmanufactured leaf tobacco,” and “green leaf.” See Bill of Lading KKLUCHS315354 and Invoice No. 01-341. Although the above documents use such terms as “leaf” or “unmanufactured tobacco” in their descriptions of the exported merchandise, a study of the USDA tobacco grading regulations, which Customs have recognized as determinative, reveals that those terms are not necessarily exclusive of tobacco strips. Indeed, 7 C.F.R. §§29.1028, 29.3033, while defining “leaf” as “whole, unstemmed leaf,” also state that the term “[l]eaf, when applied to tobacco in strip form, shall describe the divided unit of the whole leaf” (emphasis added). This indicates that the term “leaf” can be applied to and, thus, describe tobacco in strip form. Also, according to Section IV, Chapter 24, General Headnote 24.01, heading 24.01 – Unmanufactured Tobacco; Tobacco Refuse” covers “unmanufactured tobacco in the form of whole plants or leaves in the natural state or as cured or fermented leaves, whole or stemmed/stripped” Again, it appears that the use of the term “unmanufactured tobacco” does not exclude tobacco strips because the definition of the phrase clearly contemplates stemmed or stripped leaves. Finally, the company-issued Tobacco Inspection Certificates for the exported batches assigned USDA grademarks that corresponded to strip tobacco, e.g., S-M4FR, S-M4F-B (see above), S-B4F, and S-B4FR. Based upon the above analysis, we believe that terms used in the claimants’ export documentation adequately describe exported strips of tobacco, and claimants’ drawback claims should not be denied on the basis of lack of proof of commercial interchangeability.

HOLDING:

The drawback claims of SCTC and Hail & Cotton should NOT be denied on the basis of a lack of a showing of commercial interchangeability because the descriptions of the tobacco contained in the proofs of export, i.e., “unmanufactured leaf,” “American Burley Leaf,” “unmanufactured tobacco, and “green leaf,” are not necessarily exclusive of tobacco strips, per the USDA tobacco grading regulations and HTSUS definitions.

You are directed to mail this decision to the drawback applicant no later than 60 days from the date of this letter. On that date 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.gov by means of the Freedom of Information Act, and other public methods of distribution.

Sincerely,

John Durant
Director, Commercial Rulings Division


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