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HQ 230044




October 10, 2003

DRA-4--RR:CR:DR 230017 IOR

William Kogen
Executive Vice President
J.M. Rodgers Co. Inc.
245 Woodport Road
Sparta, NJ 07871

Dear Mr. Kogen:

This is in response to your letter on behalf of General Electric Corporation (“GE”), dated June 9, 2003. Your letter contained two requests, one of which concerned substitution manufacturing drawback under 19 U.S.C. §1313(b), and another concerning the substitution of unused merchandise drawback under 19 U.S.C. §1313(j)(2). The substitution manufacturing drawback question was addressed in an information letter, 230017, issued on July 10 2003. On the basis of the June 9, 2003 letter and information submitted by letter dated August 21, 2003, this is a response to the unused merchandise substitution drawback question raised.

FACTS:

According to your submission, GE Aircraft Engines (GEAE), an unincorporated division of GE, uses parts which are identical in part-numbers and all physical aspects, that is having identical specifications and material content. The parts are used to manufacture both aircraft engines and engines for non-aircraft applications.

The parts imported for use on civil aircraft engines are classified as parts of aircraft turbines under subheading 8411.91.9080, Harmonized Tariff Schedule of the U.S. (HTSUS)/ duty free. The parts imported for use on non-aircraft engines are classified as parts of non-aircraft gas turbines under subheading 8411.99.9060, HTSUS/dutiable. Based on information provided by GE you have stated in telephone conversations with Ieva O’Rourke, an attorney in this branch, that the aircraft and non-aircraft parts are not commingled in inventory, but are used interchangeably. In your submission it is stated that the value of one part may differ depending on whether it is imported as an aircraft part or a non-aircraft part. According to GE, the difference in value is due to the terms of revenue sharing agreements between GEAE and its supplier.

GE Engine Services, LLC (GEES), located in Kentucky, is a distributor of spare parts for the engines manufactured by GEAE. Parts common to aircraft turbines and non-aircraft aero-derivative engines are ordered and received, GEES, from foreign revenue sharing sources. When a revenue share participant ships material, it does so against a specific administrative order. The administrative order references a specific engine program. When the material is received at GEES, the system assigns a material keeper record (MKR) that correlates to the engine line referenced on the administrative order. The material is stored by MKR in such a way that material that is received under one MKR is not commingled with that of another. Therefore the part inventories are segregated. When a shipping order is received, a specific MKR is referenced. GEES cannot ship against an export order unless there is sufficient quantity on hand for the referenced MKR.

The evidence submitted for the imported merchandise consists of the entry summary, invoice for the imported merchandise, and the purchase order. The purchase order, dated August 20, 2003 is from GEAE to a foreign company for the purchase of a “comb chamber”, identified as part no. 9373M89G35, and includes the import value for the part number. The document appears to be the third amendment of purchase order no. 200-18-1FB06620. The purchase order includes a reference to a “revenue share agreement” dated December, 1998. The invoice to GE, dated September 29, 2000 includes two “combustion chambers” with the part no. 9373M89G35, and each references the purchase order 1FB06620. Each part also has a serial number. You have informed Ms. O’Rourke that the serial numbers are for the purpose of identifying the source of the parts. The unit value for each combustion chamber is the same as that on the purchase order. Handwritten annotations on the invoice indicate that one part is sold as a production part, and one part is sold as a spare part. The entry summary is for entry number 885-xxxxx73-3, dated October 3, 2000, and includes the two combustion chambers, under subheading 8411.99.9060, Harmonized Tariff Schedule of the United States (HTSUS). The importer of record is GEAE. The documentation also includes a “RECEIVER/SUBLOCATION HISTORY INQUIRY” which indicates that GE is able to track its inventory of part no. 9373M89G35 by the part number. The “RECEIVER/SUBLOCATION HISTORY INQUIRY” shows what appears to be the receipt date with respect to the part, the location of the part, and the purchase order pursuant to which the part was received.

The evidence submitted for the exported merchandise is an invoice from GEAE for part no. 9373M89G35, described as a “combustr”, sold to a German customer but to be “marked” for a plant in Thailand. The reference number on the invoice is G77440, and the ship date is December 21, 2001. The invoice includes a price for part no. 9373M89G35, which is 27% greater than the import price. There is a handwritten note on the invoice indicating that the export merchandise is classified under subheading 8411.99, HTSUS. In a telephone conversation on September 29, 2003, you informed our office that the exported merchandise is classified under subheading 8411.99.9060, HTSUS. A straight bill of lading has been submitted which references the invoice. The invoice also references the straight bill of lading. An air waybill, indicating shipment of the merchandise to Bangkok, Thailand, dated December 27, 2001 has been submitted. The air waybill references invoice number G77441, which according to you is the invoice for other merchandise included in the shipment. A copy of that invoice was provided. The straight bill of lading does not indicate a foreign destination, but does reference both invoices, G77440 and G77441. The weight on the Air Waybill does not appear to correspond to the combined weight indicated on invoices G77440 and G77441. On both the straight bill of lading and the air waybill, the shipper is identified as GE. The documentation also includes a “COMMERCIAL PART INQUIRY OF SHIPMENTS” which shows the shipment of part no. 9373M89G35, indicating the invoice number, shipment date, price, order number pursuant to which it was shipped, and the straight bill of lading number.

ISSUE:

Whether the imported and exported parts 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, drawback may be granted if, among other requirements, there is, with respect to imported duty-paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise.

Congress has stated that in determining whether two articles are 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. See House Report 103-361, 103d Cong., 1st Sess., 131 (1993). The Senate Report for the NAFTA Act contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability. See S. Rep. No. 103-189, 103d Cong., 1st Sess., 81-85 (1993); see also Texport Oil Co. v. United States, 185 F.3d 1291, 1295. 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.

In order to determine commercial interchangeability, Customs adheres to the Customs regulations, which implement the operational language of the legislative history. The best evidence whether those criteria are used in a particular transaction is 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. Customs has promulgated 19 C.F.R. 191.2(e) and 191.32(c), which identified the above criteria. We have reviewed the submitted information and our analysis follows.

Part numbers

Based upon our review of the documents, part numbers are consistently used for the purchase and sale of the merchandise. The inventory of the merchandise can also be tracked by the part number. The fact that all parts with the same part number are not commingled, under these facts does not preclude a finding of commercial interchangeability, as they are bought and sold by part number. Each part also has a unique serial number. The serial number is identified on the import invoice but is not included on the export invoice. It does not appear that the parts are purchased and sold on the basis of the serial numbers. Based upon the above information, we conclude that the part number criterion has been met, and that the unique serial numbers do not preclude a finding of commercial interchangeability.

Tariff classification

Both the imported and exported merchandise is classified under subheading 8411.99.9060, HTSUS. Based upon the above information, we conclude that the tariff classification criterion has been met under the facts presented.

GE has indicated in its submission that the same part may be imported under either subheading 8411.99.9060, HTSUS, or 8411.91.9080, HTSUS. Subheading 8411.91.9080, HTSUS provides for “other”“parts of aircraft turbines” and has a duty free rate. Subheading 8411.99.9060, HTSUS provides for “other” “parts of nonaircraft gas turbines” and has a duty rate of 2.4%. Both subheadings are for parts of turbines, the difference being aircraft or nonaircraft. Provided that the part number and description are the same, the difference in tariff classification under these facts has to do with special tariff treatment as opposed to a difference in the nature or quality of the merchandise, and would not preclude the merchandise from meeting this criterion.

Relative Values

The value of the exported merchandise is 27% greater than the value of the imported merchandise. We have held that a variance in price does not necessarily preclude a finding of commercial interchangeability, when other criteria of commercial interchangeability have been met or when sufficient evidence is provided to support the material difference in value. See HQ 227220 (February 10, 1997) (holding that although the price difference of the imported and exported merchandise was in excess of 24%, the imported and exported merchandise qualified under the applicable industry standards and thus, relative value did not have as much weight when determining commercial interchangeability); HQ 226995 (June 4, 1997) (holding that the 35% difference in value was a result of market conditions at the time of import and export). Regarding the difference in value, GE explains that the same part may have a different value, depending on whether the part will be used in an aircraft engine or a nonaircraft engine. In the case of spare parts, the difference in value is even greater, and GE attributes the difference to revenue sharing agreements between it and its supplier. The purchase order for the imported part makes a reference to a revenue sharing agreement. We conclude that the difference in relative value of the imported and exported merchandise does not preclude a finding of commercial interchangeability. Based on the information provided to us, the difference in value is due to factors other than the quality of the merchandise.

Government and Recognized Industry Standards

In this case, there is no indication that the merchandise is subject to government or industry standards, or is bought or sold in accordance with such standards. This criterion is inconclusive for the purposes of a commercial interchangeability determination.

In conclusion, based on the above criterion, we find that the imported part is commercially interchangeable with the exported part.

We note that in GE’s submission it is stated that the parts are ordered and received by GEES, although GEAE or GE is the party named on the import and export documents. In the event the exporter is a different party other than the importer, the exporter would be required to obtain a certificate of delivery for the imported merchandise.

This decision finds the parts to be commercially interchangeable. However this decision does not modify or waive any requirements for the duty free admission of civil aircraft parts, components and subassemblies as set forth under Customs Regulations 10.183 (19 CFR 10.183).

HOLDING:

The imported part and exported part are commercially interchangeable for purposes of 19 U.S.C. §1313(j)(2).

Sincerely,

Myles Harmon
Director

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