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 > 2004 HQ Rulings > HQ 116312 - HQ 230242 > HQ 230119

Previous Ruling Next Ruling
HQ 230119

---

August 4, 2004

DRA-4; RR:CR:DR HQ 230119 MK

CATEGORY: DRAWBACK

Port Director
Customs and Border Protection
423 Canal Street
New Orleans, LA 70130-2341
Attn: Drawback Branch

RE: Protest 2002-03-100568; substitution unused merchandise drawback; cottonseed oil; commercial interchangeability; 19 U.S.C. 1313(j)(2).

Dear Sir:

The above-referenced protest on behalf of Archer Daniels Midland Company (“ADM”) was forwarded to this office for further review. Our decision follows.

FACTS:

According to the Customs Form (“CF”) 19, dated July 23, 2003, this protest covers four drawback entries (or claims) filed on February 4, 2002: JK5-xxxxxx7-5; JK5-xxxxxx8-3; JK5-xxxxx12-5; and JK5-xxxxx14-1. The drawback claims were liquidated without drawback on April 25, 2003.

Claim JK5-xxxxxx7-5

Import Documents

The Drawback Entry Form, CF 7551, claims drawback under 19 U.S.C. 1313(j)(2) of 499,867 kg of “Semi refined cottonseed oil,” classified under subheading 1512.29, Harmonized Tariff Schedule United States (“HTSUS”), with a value of about $.6 per kg. The oil had an import date of October 15, 1998.

The file contains an Entry Summary, CF 7501, for entry number xxx3309-5 with a handwritten note stating “Drawback entry JK5-xxxxxx7-5.” This document states the entry date is October 16, 1998, the importing carrier is the Stolt Tenacity, and a total of 17,950,000 kg of merchandise was entered, from Argentina, at a total value of $1,2xx,xxx. This form lists nine separate invoices of merchandise. The merchandise on each invoice is “Semi refined Cotton seed oil” classified under subheading 1512.29.0020, HTSUS. The Protestant also provided a telex, dated August 4, 1998, from an address at ADM_TELEX, confirming the sale of 5950 metric tons of Argentine semi-refined cottonseed oil at about $600 per metric ton and per ANEC 111 quality.

The Certificate of Analysis, on Thionville Laboratories, Inc. letterhead, dated October 16, 1998, represents 26,139,934 pounds of Argentine Cottonseed oil onboard the Stolt Tenacity. The sample was taken in accordance with AOCS Official Method C 1-47 and found:

Flash Point Above 250°F
Bleached Color 35 Yellow; 3.5 Red
Free Fatty Acids, as Olic 0.21%
Moisture and Volatile Matter 09%
Insoluble Impurities .02%

Export Documents

The CF 7551 states that 499,867 metric tons of “Semi refined cottonseed oil,” classified under subheading 1512.29, HTSUS, was exported on May 9, 2001 to El Salvador.

The Notice of Intent to Export, Destroy, or Return Merchandise for Purposes of Drawback, CF 7553, for this entry states that on May 8, 2001, 500 metric tons of semi-refined cottonseed oil, under subheading 1512.29.0020, HTSUS, was intended to be exported from the Port of Houston, Texas, on the Victor Dubrovskiy, to El Salvador. The merchandise specifications are:

FFA Max 0.25%
M&I Max .25%
Color when bleached may not exceed AOCS 2.7

The export value is about $196,xxx.

The file also contains a contract, unsigned by ADM International Oils Department, number 51153 B, on Pasternak, Baum & Co., Inc. letterhead, dated May 1, 2001, for 500 metric tons of “USA Prime Beachable Summer Yellow Cottonseed Oil (PBSY) in accordance with Rules 162 and E-6 of the National Cotton-Seed Products Association rules.” The seller is ADM International Oils Department of Decatur, Illinois, and the buyer is Pasternak, Baum & Co., Inc. of Greenwich, Connecticut. The price is about $400.00 per metric ton, and the shipment date is May 25, 2001.

The file contains an invoice on ADM letterhead, dated May 10, 2001, to Pasternak Baum & CO of Greenwich, Connecticut. This invoice states that 499,867 metric tons of semi refined cottonseed oil, at about $400.00 per metric ton, was brought from the port of Houston, Texas to Acajutla, El Salvador on the Victor Dubrovskiy. The total value of the merchandise is $196,xxx.

The Bill of Lading, dated May 9, 2001, for the M.T. Victor Dubrovshkiy, states that 499,867 metric tons of “aceite de algodon (PBSY)” were transported from the Port of Houston, Texas to Acajutla, El Salvador.

The second Certificate of Analysis on Thionville Laboratories, Inc. letterhead, dated May 9, 2001, represents 1,102,006 pounds or 499,867 metric tons Aciete de algodon (PBSY) on board the Victor Dubrovshiy. The sample taken was in accordance with AOCS Official Method C 1-47. It found:

The oil is reasonably free from visible foreign material. The oil is clear at temperatures sufficiently high to melt the stearine.

Flavor and Odor Sweet
Bleached Color 13 Yellow; 1.3 Red
Free Fatty Acids, as Oleic 0.02%
Moisture and Volatile Matter 0.010%

This oil meets specification basis rule 162 and E-6 basis ship’s tanks sample.

Claim JK5-xxxxxx8-3

Import Documents

The Drawback Entry Form, CF 7551, claims drawback under 19 U.S.C. 1313(j)(2) on 999,947 kg of “Semi refined cottonseed oil,” classified under subheading 1512.29, HTSUS, with a value of about $.6 per kg. The oil had an import date of October 15.

The import documents described for the first claim, entry number 3309-5, also apply to this drawback claim.

Export Documents

The CF 7551 states that 999.947 metric tons of “Semi refined cottonseed oil,” classified under subheading 1512.29, HTSUS, was exported on May 10, 2001, to El Salvador.

The Notice of Intent to Export, Destroy, or Return Merchandise for Purposes of Drawback, CF 7553, for this entry states that on May 10, 2001, 1000 metric tons of semi-refined cottonseed oil, under subheading 1512.29.0020, HTSUS, was intended to be exported from the Port of Houston, Texas, on the Victor Dubrovskiy, to El Salvador. The merchandise specifications are:

FFA Max 0.25%
M&I Max .25%
Color when bleached may not exceed AOCS 2.7

The export value is about $400,000.

The file also contains contract, unsigned by ADM International Oils Department, number 51164 B, on Pasternak, Baum & Co., Inc. letterhead, dated May 7, 2001, for 1,000 metric tons of “PBSY COTTONSEED OIL- specifications as per rules E6 and 162 of the NCPA.” The seller is ADM International Oils Department of Decatur, Illinois, and the buyer is Pasternak, Baum & Co., Inc. of Greenwich, Connecticut. The price is about “$400.00 per metric ton net weight, in bulk, CANDF Acajutla, El Salvador, and the shipment date is “May 5-20, 2001 – buyer’s call”.

The file contains an invoice on ADM letterhead, dated May 10, 2001, to Pasternak Baum & CO of Greenwich, Connecticut. This invoice covers 999,947 metric tons of PBSY cottonseed oil, at about $400.00 per metric ton, from the port of Houston, Texas to Acajutla, El Salvador on the Victor Dubrovskiy. The total value of the merchandise is about $400,000.

The Bill of Lading, dated May 10, 2001, for the M.T. Victor Dubrovshkiy, states that 999,947 metric tons of “PBSY Cottonseed oil” were transported from the Port of Houston, Texas to Acajutla, El Salvador.

The second Certificate of Analysis on Thionville Laboratories, Inc. letterhead, dated May 10, 2001, represents 2,204,483 pounds or 999,947 metric tons PBSY Cottonseed Oil on board the Victor Dubrovshiy. The sample taken was in accordance with AOCS Official Method C 1-47. It found:

The oil is reasonably free from visible foreign material. The oil is clear at temperatures sufficiently high to melt the stearine.

Flavor and Odor Sweet
Bleached Color 11 Yellow; 1.1 Red
Free Fatty Acids, as Oleic 0.02%
Moisture and Volatile Matter 0.06%

This oil meets specification basis rule 162 and E-6 basis ship’s tanks sample.

Claim JK5-xxxxx12-5

Import Documents

The Drawback Entry Form, CF 7551, states that 999,968 kg of “Semi refined cottonseed oil,” classified under subheading 1512.29, HTSUS, with a value of about $.6 per kg. The oil had an import date of October 15, 1998.

The import documents described for the first claim, entry number 3309-5, also apply to this drawback claim.

Export Documents

The CF 7551 states that 999.968 kg of “Semi refined cottonseed oil,” classified under subheading 1512.29, HTSUS, was exported on September 29, 2001, to El Salvador.

The Notice of Intent to Export, Destroy, or Return Merchandise for Purposes of Drawback, CF 7553, for this entry states that on September 26, 2001, 1000 metric tons of semi-refined cottonseed oil, under subheading 1512.29.0020, HTSUS, was intended to be exported from the Port of Houston, Texas, on the Panam Celeste, to El Salvador. The merchandise specifications are:

FFA Max 0.25%
M&I Max .25%
Color when bleached may not exceed AOCS 2.7

The export value is about $400,000.

The file also contains a sale confirmation, on ADM Oilseed Processing letterhead, signed by a representative of Archer Daniels Midland Co., contract number 1169, dated July 1, 2001, for 1,000 metric tons of “Semi refined cottonseed oil in bulk” within the specification of NCPA Rule E-6. The seller is Archer Daniels Midland Co. of Decatur, Illinois, and the buyer is ADM Latin America Inc. of Guatemala. The price exceeds $400 per metric ton. The purchase settlement, dated November 6, 2001, confirmed this information and states the final amount is about $400,000.

The file contains an invoice on ADM letterhead, dated September 29, 2001, to ADM Latin America Inc. This invoice covers 999,968 metric tons of Semi refined cottonseed oil, in excess of $400 per metric ton, from the port of Houston, Texas to Acajutla, El Salvador on the Panam Celeste. The total value of the merchandise is about $400,000.

The Bill of Lading, dated September 29, 2001, for the M.T. Panam Celeste, states that 999,968 metric tons of “semi refined cottonseed oil in bulk” were transported from the Port of Houston, Texas to Acajutla, El Salvador.

The second Certificate of Analysis on Thionville Laboratories, Inc. letterhead, dated September 29, 2001, represents 2,204,529 pounds or 999,968 metric tons semi- refined cottonseed oil on board the Panam Celeste. The sample taken was in accordance with AOCS Official Method C 1-47. It found:

The oil is reasonably free from visible foreign material. The oil is clear at temperatures sufficiently high to melt the stearine.

Flavor and Odor Sweet
Color 35 Yellow; 4.1 Red
Free Fatty Acids, as Oleic 0.07%
Moisture and Volatile Matter 0.10%
Flash Point Above 250F

This oil is in accordance with rules 162 and E-6 of the NCPA current rules.

The file also contains a purchase settlement, dated November 6, 2001, for 999.968 MT of US #2 O/B Cotton Oil credited to and ADM account, for oil shipped to El Salvador per the Panam Celeste.

Claim JK5-xxxxx14-1

Import Documents

This drawback claim consists of two entries. Both entries are for semi refined cottonseed oil, classified under HTSUS heading import 1512.29. The first entry, entry number xxxx309-5, has an entry date of October 15, 1998, and covers 357,034 kg at an entered value of about $.6 per kg.

The import documents described for the first drawback claim, entry number 3309-5, also apply for this drawback claim.

The second entry, entry number xxxx424-2, has an entry date of June 21, 1999, and covers 1,142,889 kg at an entered value in excess of $400 per kg.

The file also contains an Entry Summary, CF 7501, for entry number xxxx424-2 with a handwritten note stating “Drawback entry JK5-xxxxx14-1.” This document states the entry date is June 19, 1999,

The copy quality of this document is very poor, and it is therefore unclear whether this date is June 18, 1999 or June 19, 1999. the importing carrier is the Toyokaze, and a total of 5,000,000 kg of merchandise, described as “Semi refined Cotton seed oil in bulk” and classified under subheading 1512.29.0020, HTSUS, was entered, from Argentina, at a total value of about $300,000. The Protestant also provided a telex, dated February 26, 1999, from an address at corp.admworld.com, confirming the sale of 8,000 metric tons of Argentine semi-refined cottonseed oil in excess of $400 per kg. and per ANEC 111 quality.

The Certificate of Analysis, on Thionville Laboratories, Inc. letterhead, dated June 24, 1999, represents 10,913,734 pounds from the Toyokaze. The sample was taken in accordance with AOCS Official Method C 1-47 and found:

Flash Point Above 250°F
Color 35 Yellow; 7.6 Red
Free Fatty Acids, as Oleic 0.04%
Moisture and Volatile Matter .12%

There is also a second Certificate of Quality, dated May 27, 1999, from Thionville Do Brasil Ltda. of Sao Paulo, Brazil. It states the commodity is “Argentine Cottonseed Oil, In Bulk,” from San Lorenzo, Argentina on the Toyokaze destined to New Orleans, Louisiana. 2,000,000 kilos are loaded and the specifications are:

Actual
FFA Max .25 Pct 0.070 pct
Moisture and Impurities Max .25 Pct .18 pct Colour (Lovibond 5.25 inch) 12 Red Max/ basis Yellow 35 Red 8.5/ Yellow 35 Oil with Flashpoint below 250 Deg F is rejectable Above 250F

Export Documents

The CF 7551 states that 1,499,923 metric tons of “PSBY cottonseed oil,” classified under subheading 1512.29, HTSUS, was exported on September 28, 2001, to Korea.

The Notice of Intent to Export, Destroy, or Return Merchandise for Purposes of Drawback, CF 7553, for this entry states that on September 27, 2001, 1,500 metric tons of semi-refined cottonseed oil, under subheading 1512.29.0020, HTSUS, was intended to be exported from the Port of Houston, Texas, on the Golden Tomo, to South Korea. The merchandise specifications are:

FFA Max 0.25%
M&I Max .20%
Color when bleached may not exceed AOCS 2.7

The export value is about $600,000.

The file also contains an internal email message, dated September 25, 2001, both from and to addresses at “@corp.admworld.com” describing a sales contract. The message included the following information:

Seller: Archer Daniels Midland Co.
Buyer: Doobo Co., Ltd of Korea
Quantity: 1.500 Metric Tons of PBSY Cottonseed oil Commodity: PBSY Cottonseed oil as per NCPA Rule E-6 Bleached colour basis 2.5 max 2.7
F.F.A. 0.25 pct
M and V Basis 0.10 pct max 0.10 pct

Price: US dollars 4xx.- cost and frieght Pyongtaek (South Korea)

The file contains an invoice on ADM letterhead, September 28, 2001, to Doobo Co. (S) PTE Ltd. of Singapore. This invoice states that a total of 2,499,765 metric tons of PBSY cottonseed oil, at about $4xx per metric ton was brought from the port of Houston, Texas to Pyongtaek, Korea on the Golden Tomo. The total value of the merchandise is about $1,000,000.

The Bill of Lading, dated September 28, 2001, for the Golden Tomo V.6, states that 1,499.923 MT PBSY Cottonseed oil (food grade) was transported from the Port of Houston, Texas to Pyongtaek, Korea.

The second Certificate of Analysis on Thionville Laboratories, Inc. letterhead, dated September 28, 2001, represents 3,306,730 pounds or 1,499.923 metric tons PBSY Cottonseed oil on board the Golden Tomo. The sample taken was in accordance with AOCS Official Method C 1-47. It found:

The oil is reasonably free from visible foreign material. The oil is clear at temperatures sufficiently high to melt the stearine.

Flavor and Odor Sweet
Bleached Color 16 Yellow; 1.6 Red
Free Fatty Acids, as Oleic 0.09%
Moisture and Volatile Matter 0.10%

This oil is in accordance with rule 162 and E-6 of the NCPA current rules.

Also included in the file is a consolidated activity register for the ADM processing division. It is dated October 31, 2001, and includes payment for four shipments from the Golden Tomst on September 27, 2001 and September 28, 2001.

Finally, the file contains the U.S. Customs Service at the Port of New Orleans’s April 25, 2003, liquidation notice to Archer Daniels Midland Co. A similar notice was sent for each of the four claims. Drawback was denied because the merchandise was not found to be commercially interchangeable and the “internal control policies and procedures were not adequate in the area of maintaining supporting documentation for its Harmonized Tariff Schedule of the United States Chapter 98 entries.”

ISSUES:

Whether the imported and exported semi- refined cottonseed oil are commercially interchangeable for the purposes of 19 U.S.C. 1313(j)(2)?

Whether the port may deny the drawback claims based on a suspicion that the oil was not exported?

LAW & ANALYSIS:

Initially, we note that the protest was timely filed under the statutory and regulatory provisions for protests (see 19 U.S.C. §1514 and 19 CFR Part 174). The drawback entries were liquidated on April 25, 2003, and the protest was filed on July 23, 2003. We note that the refusal to pay a claim for drawback is a protestable issue (see 19 U.S.C. §1514(a)(6)).

Issue 1:

Under 19 U.S.C. §1313(j)(2), as amended, 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 three 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 either be 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 issue before us in this case is commercial interchangeability of the merchandise.

Compliance with the Customs Regulations on drawback is mandatory and a condition of payment of drawback (United States v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675; see also, Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) "We are dealing [in discussing drawback] with an exemption from duty, a statutory privilege due only when the enumerated conditions are met" (emphasis added)).

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, prior to their amendment in 1998 (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. The amended Customs Regulations, 19 CFR 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.

The best evidence 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.

Governmental and Recognizable Industrial Standards

The information in the file shows that there are two industry standards for cottonseed oil. The two standards, Associacao Nacional Dos Exportsdores de Cereais (National Association of Grain Exporters) (“ANEC”) and Rules 162 and E-6 of the National Cottonseed Products Association (“NCPA”), allow for a different maximum amount of red color in the cottonseed oil. According to the CBP Office of Laboratory Services, the color indicates to what degree the oil is refined. More refined oil, which has a lower red colorant number, is lighter in color and can be used in more products, such as baked goods and icings. The darker red oil is less refined and has more limited uses. For example, the use of very red oil is limited to frying food.

In Texport Oil Company v. United States, 185 F3d 1291 (Fed. Cir. 1999) (vacating the CIT decision in Texport Oil Company v. United States, 1 F. Supp. 2d 1393 (1998)), the CAFC stated that “a firmly objective standard—analyzed from the perspective of a hypothetical reasonable competitor” avoids the concerns of overbroad descriptions of merchandise on transaction documents, prone to manipulation, and the “analysis might also include evidence of arms-length negotiations between commercial actors, the description of the goods on bills of sale or invoices.” 185 F3d at 1295. The court stated that “’commercially interchangeable’ must be determined objectively from the perspective of a hypothetical reasonable competitor; if a reasonable competitor would accept either the imported or the exported good for its primary commercial purpose, then the goods are ‘commercially interchangeable’”. Id.

In Texport, the CAFC cautioned against reliance on overly broad or vague descriptions in commercial documents. Further, the decision in Texport, supports a decision to rely on the descriptions of the actual merchandise at issue. In this case, according to two Telex messages submitted by ADM’s counsel, the imported cottonseed was purchased in accordance with the standards of ANEC 111: F.F.A. basis max 0.25 pct., mandi max 0.25 pct. colour basis 35 yellow, max 12 red as per Lovibond Scale of 5 ¼ inches. The importer states in the CF 19 that this is the South American standard. The sales contracts state that the domestic cottonseed is sold in accordance with Rules 162 and E-6 of the National Cottonseed Products Association (“NCPA”) which allow for color no higher than AOCS (American Oil Chemists Society) 2.7 or 2.5. Both these standards rely on the amount of red color in the oil for compliance.

A summary of the lab results shows the following:

Claim number
Import Color
Export Color
JK5-xxxxxx7-5
3.5 red
1.3 red
JK5-xxxxxx8-3
3.5 red
1.1 red
JK5-xxxxx12-5
3.5 red
4.1 red
JK5-xxxxx14-1
3.5 red
8.5 red
1.6 red

The Protestant, argues that the ANEC standard, allowing a red color up to 12, and not the NCPA standard, allowing a red up to 2.5/2.7, should apply because “as much of the food grade semi-refined cottonseed oil ADM exports is shipped to the same countries to which the South American countries themselves ships such oil The ANEC standard is a recognized industrial standard around the world in the trading of food grade semi-refined cottonseed oil.” Applying the Texport holding, we believe that a reasonable competitor would not accept the imported oil in exchange for the exported oil, on claim numbers JK5-xxxxxx7-5, JK5-xxxxxx8-3, or JK5-xxxxx14-1. According to our laboratory services, for each of these three claims, the imported goods have a much more restricted use than do the exported goods. The export oil, being more refined, can be put to a variety of uses from baked goods and icings, to salad dressings, to frying foods; the imported oil, being less refined, can only be used for salad dressings, and in some cases frying oil. The laboratory services found that the higher red color in the imported oil indicates a lesser degree of refinement and would prevent the use of that oil in the making of baked goods or icings. The import oil and export oil on claim JK5-xxxxxx12-5 are similarly restricted in use, with findings of red of 3.5 and 4.1 on the import and export respectively, and; therefore, can be found to be commercially interchangeable based on this criteria.

The Protestant however, argues that in Headquarters Ruling 223885, dated September 22, 1992, this office held that the standards used for determining commercial interchangeability for crude peanut oil were the standards based on the imported duty-paid designated merchandise and not the NCPA rules. This case, which was decided when the standard was still one of fungibility, held in favor of the imported duty paid goods standard, provided by FOSA, and not the NCPA standards because:

The [FOSA] standards are based on the characteristics of the imported duty-paid designated crude peanut oil and the substituted crude peanut oil that is exported for drawback rather than on the NCPA rules based, in part, on what is made after refining the crude oils.

Therefore, the standard used with the imported oil was applied to determine fungibility not because it was the standard used with the import, but rather because it was more applicable. In this case, the issue is the degree of refinement of the oil rather than whether a particular standard, ANEC or NCPA, is more applicable than the other in determining commercial interchangeability. The amount of color indicates the degree to which the oil is refined. The degree to which an oil is refined effects the uses to which an oil can be used. A less refined oil is more limited in its uses than an oil which has been subjected to a greater degree of refining.

We find this criterion to be important in finding that the imported oil claim numbers JK5-xxxxxx7-5, JK5-xxxxxx8-3, or JK5-xxxxx14-1 not commercially interchangeable with the exported oil. We also find this criterion to be important in finding that oil in JK5-xxxxx12-5 the imported is commercially interchangeable with the exported oil.

Tariff Classification

According to Archer Daniels Midland Company’s submissions, both the imported and exported cottonseed oil is classified in subheading 1512.29.0020, HTSUS. As both the imported and exported cottonseed oil is classified under the same HTSUS subheading, a finding of commercial interchangeability is supported by this criterion.

Part Numbers

From the documents submitted, it does not appear that any part number, or similar identification of the cottonseed oil was used for either the imported or exported cottonseed. We find this criterion to be inconclusive on the issue of commercial interchangeability.

Relative Values

Customs application of this criterion has been to compare the value or cost of the imported merchandise and that of the substituted exported merchandise (as stated on import and export documents, contracts, and related documents).

In this case, the October 16, 1998, import entry, which covers 2,857,034 kg of the entered oil, cost 42% more than the second import entry, dated June 29, 1999, of 1,142,889 kg of oil. The declared value of the May 9, 2001 exported oil was 37.28% less than the declared value on import entry 3309-5. The declared value of the May 10, 2001 exported oil was 39.52% less than the declared value on import entry 3309-5. The declared value of the September 29, 2001 exported oil was 30.80% less than the declared value on import entry 3309-5. Finally, the declared value of the September 28, 2001 exported oil was 30.4% less than the declared value of oil from import entry 3309-5 and 1.4% less than the declared value of the oil from import entry 424-2 made on June 19, 1999.

The protestant asserts that “the disparity in value of the imported designated oil and the exported substituted oil at issue in ADM’s drawback entries is likewise the result of variances solely due to market conditions and not due to the specifications or a critical property of the merchandise.” (See Protest page 14). The protestant has submitted evidence retrieved from the United States Department of Agriculture Economics and Statistics System which demonstrates the market decrease in annual price of cottonseed from October of 1998 until September of 2001. This decrease in price from 1998 to 1999 is shown by the comparison of the declining price of oil on the two import entries.

We have previously held that large disparities in the relative values of the export and import are not determinative, as a criterion, when the difference appears to be due solely to the market forces of supply and demand at the time of purchase rather than attributable solely to any difference in the quality of the imported or exported merchandise. See HQ 226074, dated September 29, 1995, and HQ 225493, dated July 19, 1995. Thus, the disparity in the price appears to be the result of the market at time of the purchase and sale. Therefore, we also find this criterion to be inconclusive on the issue of commercial interchangeability.

With regard to drawback claim numbers JK5-xxxxxx7-5; JK5-xxxxxx8-3; and JK5-xxxxx14-1, the imported oil and exported oil are not commercially interchangeable since evidence of the purchase and sales agreements show that the standards criterion is important for determining the purposes to which oil can be used, and the degree to which oil is refined appears to be critical in determining commercial interchangeability. Based on the same criterion, we find the imported oil and the exported oil in drawback claim JK5-xxxxx12-5 are commercially interchangeable.

Issue 2:

The Protestant argues that ADM’s inability to produce the requested import documentation for unrelated 9801.00.80, HTSUS claims should not affect the company’s drawback claims.

According to the CF 19 the drawback claims were denied in part based on a CBP Regulatory Audit finding that ADM could not produce import documents for a number of entries. The auditor notes that she did not recommend denial based on this inadequacy and that the drawback office asked the Protestant to address the Chapter 98 documentation adequacy requirement in the protest.

Section 1313(j)(2) requires the imported or other merchandise be either exported or destroyed before the close of a three-year period. The regulation that defines exportation for drawback purposes, 19 CFR 191.2(m), states:

Exportation means the severance of goods from the mass of goods belonging to this country, with the intention of uniting them with the mass of goods belonging to some foreign country. An exportation may be deemed to have occurred when goods subject to drawback are admitted into a foreign trade zone in zone- restricted status, or are laden upon qualifying aircraft or vessels as aircraft or vessel supplies in accordance with §309(b) of the Act, as amended (19 U.S.C. 1309(b)).

Once the goods have been exported, within the definition provided above, the destination and use of the merchandise are irrelevant. Each of the four exports left the United States on a vessel. Delivery to a foreign country was held to not affect export in the case of US v. National Sugar Refining Co., 39 CCPA 96 (1951). All of the bills of lading on these exportations have been submitted with these drawback claims. Of the entries that RAD required documentation, only two, xxx45-4, entered on June 13, 2001, and xxx37-1, entered on June 12, 2001, were entered after the date of exportation of the four subject drawback claims. The other entries were made before the subject merchandise was exported, and thus making it impossible that it is the same merchandise.

We find that the merchandise, regardless of its later use and destination, was exported, within the definition provided in the regulations, and that it is improper to deny drawback claims based on a lack of 9801.00.80, HTSUS entry documents. To the extent that the Chapter 98 re-importation documentation is inadequate with respect to goods on which drawback was claimed, the proper policy would be to deny the Chapter 98 claim.

HOLDINGS:

Based on the foregoing, we conclude that only drawback claim JK5-xxxxx12-5 of semi-refined cottonseed oil is commercially interchangeable for purposes of the substitution unused merchandise drawback law under 19 U.S.C. 1313(j)(2).

It is improper to deny drawback claims based on a lack of 9801.00.80, HTSUS entry documents so long as the evidence shows that the goods were severed from the U.S. with the intent to join those goods to the commerce of another country.

This protest is DENIED in part for drawback claims JK5-xxxxxx7-5; JK5-xxxxxx8-3; and JK5-xxxxx14-1.

Relief may is GRANTED in part for drawback claim JK5-xxxxx12-5.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), 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 in accordance with the decision must be accomplished prior to mailing of the decision. 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.cpb.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director

Previous Ruling Next Ruling

See also:

• Tariff No.: 1512.29.00 - Cottonseed oil, other than crude, and its fractions, whether or not refined, but not chemically modified
• Tariff No.: 9801.00.80 - Previously exported articles except aircraft, dutiable upon return