Unused Merchandise Drawback; Ruling Request for Commercial Interchangeability of Methyldiethanolamine

HQ H120135 May 11, 2012 DRA-4-OT: RR: CTF: ER HQ H120135 JLG Mr. William A. Hagedorn Vice President C.J. Holt & Co., Inc. 466 Kinderkamack Road Oradell, NJ 07649-1529 RE: Unused Merchandise Drawback; Ruling Request for Commercial Interchangeability of Methyldiethanolamine Dear Mr. Hagedorn: This is in response to your request, dated August 19, 2010, and supplemental information submitted on behalf of BASF Corporation (BASF) for a ruling on the commercial interchangeability of imported and substituted Methyldiethanolamine. Our determination follows. FACTS: BASF is a German-based chemical company that operates in a variety of markets including chemicals, plastics, oil and gas, performance solutions, functional solutions, and agricultural solutions. You maintain that BASF produces, sells, imports, and exports Methyldiethanolamine (MDEOA), a versatile intermediate that is used mainly in the construction industry and as an additive in lubricants and coatings. According to the record, BASF intends on importing duty-paid MDEOA from Germany, and exporting substitute MDEOA that is domestically produced in Louisiana. In support of its claim for commercial interchangeability BASF provided documentation identifying the critical properties of the imported and substituted product, as well as CBP forms and other documentation related to representative import and export transactions involving MDEOA. For the import transaction you provided a Certificate of Analysis, commercial invoice, and Entry Summary (CBP Form 7501) for Entry No. 564-XXXXX98-2. The Entry Summary indicates that the product was entered into the United States on April 17, 2006, and describes the imported product as “AMINO-ALCOHOL:OTH:N,N-DIME.” The commercial import invoice and the Entry Summary further show that the product was classified under subheading 2922.19.9510, Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for: “[O]xygen-function amino-compounds: Amino-alcohols, other than those containing more than one kind of oxygen function, their ethers and esters; salts thereof (con.): Other: Other: N, N-Dialkyl (methyl, ethyl, n-propyl or isopropyl)-2-aminoethanols and their protonated salts: N, N-Dimethyl-2-aminoethanol, N, N-diethyl-2-aminoethanol and their protonated salts.” The commercial import invoice describes the product as “N- Methyldiethanolamine.” Furthermore, screen prints of the internal product tracking system BASF uses to identify its merchandise describes the product as Methyldiethanolamine, article (material) # 50089033, with a sales product (PRD) number 30036978. We note that BASF states the following: “The ‘PRD’ number identifies the merchandise by its trade name. The ‘material’ number identifies the merchandise with its packaging. The commercial interchangeability of the merchandise is based on the PRD number.” As concerns the export transaction, you provided a screen print labeled “US International Trade – Display Product Tariff,” that identifies the representative samples of the substituted product. You also submitted a commercial export invoice illustrating the exportation of domestically produced “Methyldiethanolamine” from BASF in Florham Park, New Jersey to Germany. While there is no classification number on the commercial export invoice, the screen print from BASF’s product tracking system indicates that the representative export was classified under subheading 2922.19.95.  We further note that the internal article (material) and sales product (PRD) numbers on BASF’s screen prints for the substituted MDEOA correspond to the product number shown on the commercial export invoice. The ruling request also included a National Institute of Standards and Technology (“NIST”) data sheet describing the chemical formula, molecular weight, and chemical structure of Methyldiethanolamine, as well as, a BASF technical data sheet. According to BASF’s data sheet, the product must conform to the following specifications: Methyldiethanolamine (MDEOA) (PRD No. 30036978)  PRODUCT SPECIFICATIONS VALUE TEST METHOD  Purity/Assay % 99.0 minimum GC  Water % .50 maximum DIN 51 777  Color, APHA maximum 60 maximum DIN EN 1557   The Certificate of Analysis BASF provided demonstrates that the imported and substituted MDEOA fell within these specifications. ISSUE: Whether the imported Methyldiethanolamine is commercially interchangeable with domestically produced Methyldiethanolamine within the meaning of the substitution unused merchandise drawback statute, 19 U.S.C. § 1313(j)(2). LAW AND ANALYSIS: Section 1313(j)(2) of the Tariff Act of 1930, as amended (19 U.S.C. § 1313(j)(2)), provides that drawback may be claimed on imported duty-paid merchandise that is substituted for commercially interchangeable and unused imported merchandise if certain requirements are satisfied. Specifically, the substituted or unused merchandise must be exported or destroyed within three years from the date of importation of the imported merchandise. Prior to the exportation or destruction, the substituted or unused merchandise must 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 must have received from the party that imported and paid owed duties on the imported merchandise, a certificate of delivery transferring to that party, the imported merchandise, commercially interchangeable merchandise, or any combination thereof. The U.S. Customs and Border Protection (CBP) regulation, 19 C.F.R. § 191.32(c), concerning substitution drawback, provides as follows: 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 of whether the above quoted criteria are used in a particular transaction is the claimant’s transaction documents. See, e.g., HQ H048135 (March 25, 2009). 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 at issue. Id. The purchase and sales documents also provide the best evidence with which to compare relative values. Id. In Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999), the U.S. Court of Appeals for the Federal Circuit (“CAFC”) defined commercially interchangeable, stating the following: We are convinced that Congress intended “commercially interchangeable” to be an objective, market-based consideration of the primary purpose of the goods in question. Therefore, “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 purpose, then the goods are “commercially interchangeable” according to 19 U.S.C. § 1313(j)(2). Thus, in accordance with Texport, commercial interchangeability is determined using an “objective standard -- analyzed from the perspective of a hypothetical reasonable competitor.” Id. That is, if a reasonable hypothetical competitor or buyer would accept the imported and substituted merchandise at the specified price for the primary purpose intended, the goods will be considered commercially interchangeable. To determine if either good at the specified price would be acceptable for the purpose intended, the relevant characteristics of the imported good are compared with those characteristics of the substituted good. As previously discussed, the pertinent characteristics CBP uses to determine commercial interchangeability include any governmental or industry standards relevant to the product at issue, the tariff classification, value, part numbers, if any, and any other characteristics relevant to the product. See 19 C.F.R. § 191.32(c). Government and Recognized Industry Standards Governmental and recognized industry standards assist in the determination of commercial interchangeability in that they “establish markers by which the product is commoditized and measured against like products for use in the same manner, regardless of manufacturer…products that meet the same industry standard may be used to produce the same products” or used for the same purposes. HQ H090065 (March 23, 2010); and HQ H074002 (December 2, 2009). We are aware of no government or industry standards for MDEOA. However, BASF provided Certificates of Analysis of representative samples of the imported and substituted product, and a BASF technical data sheet listing the physical properties and specifications of MDEOA. The import Certificate of Analysis provided lab results for the purity, water content, and APHA value contained in the MDEOA product. In particular, the import Certificate of Analysis indicated that the purity of the imported MDEOA exceeded the minimum value of 99.0%, the percentage of water content of the imported MDEOA was below the maximum standard, and the value of the APHA color was less than the maximum standard of 60 APHA. The export Certificate of Analysis shows that the color and water content of the representative substituted product was also within acceptable ranges noted on the technical data sheet. Because the imported and substituted MDEOA comport to the product specifications described in the BASF technical data sheet, the industry standards criterion is satisfied. Part Numbers In evaluating the critical properties of the merchandise, CBP also considers whether the imported and substituted product share the same part numbers. If the same part numbers or product identifiers are used in catalogues, and in the import and export documents, it would support finding them to be commercially interchangeable. See, e.g., HQ H074002 (December 2, 2009). As previously discussed, BASF has an inventory management tracking system that identifies its merchandise by unique product numbers. BASF provided screen prints from its tracking system that classifies MDEOA by article/material number 50089033 and sales product (PRD) number 30036978. The article number associated with MDEOA is the same number used to identify the product on the import and export commercial invoices. Given that both products use the same article/material number and PRD number to identify MDEOA, we find that the parts number criterion for commercial interchangeability is satisfied. Tariff Classification Another factor CBP considers when determining commercial interchangeability is whether the imported and substituted goods are classified under the same subheading of the HTSUS. As previously stated, the commercial import invoice and the Entry Summary classified imported MDEOA under subheading 2922.19.95, HTSUS. In addition, screen prints of BASF’s internal product tracking system, which has the same product number and article number for both the imported and substituted product, classifies the product under subheading, 2922.19.95, HTSUS. Accordingly, since the imported and substituted MDEOA are classified under the same eight digit subheading, the tariff classification criterion is satisfied. Relative Values CBP also considers the relative value of the imported merchandise to the substituted merchandise because goods that are commercially interchangeable generally have similar values. See HQ 228519 (June 5, 2002) (holding no commercial interchangeability when no explanation was provided to show why “[e]xport invoices indicate that similar tapes were all sold at costs proportionately higher than at the imported costs.”). CBP has also held, however, that if other critical properties have been met, or there is an explanation for the material difference in value, then a variance in price may not necessarily preclude a finding of commercial interchangeability. See, e.g., HQ 228580 (August 20, 2002) (holding that a value difference of 27% attributed to processing and manufacturing costs did not preclude a finding of commercial interchangeability when the critical properties criterion had been met). The representative import and substitute MDEOA satisfy BASF product specifications. Both products are classified under subheading 2922.19.95, HTSUS, and BASF’s internal transaction documents identify MDEOA with the same article and PRD numbers. Moreover, both the imported and substituted MDEOA are obtained from a single source – BASF. Based on these factors we determine the imported and substituted MDEOA are commercially interchangeable. Consequently, the 18.8% difference in value in the imported and substituted MDEOA does not preclude a finding of commercial interchangeability. See, e.g., HQ 230898 (June 24, 2005) (holding that a 16% difference between the imported and exported merchandise was not high enough to preclude a finding of commercially interchangeability given that other factors were satisfied); and HQ227220 (February 10, 1997) (concluding that imported and substituted denatured fuel is commercially interchangeable for purposes of 19 U.S.C. § 1313(j)(2) because the merchandise satisfies accepted industry standards; therefore, relative value did not have as much weight when determining commercial interchangeability). HOLDING: In light of the foregoing, we conclude that the imported MDEOA and the substituted MDEOA described above are commercially interchangeable for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2). This decision is limited to the specific facts set forth herein. If the terms of the import or export contracts vary from the facts stipulated to herein, this decision shall not be binding on CBP as provided for in 19 C.F.R. § 177(b)(1), (2) and (4), and §177.9(b)(1) and (2). Sincerely, Carrie L. Owens, Chief Entry Process & Duty Refunds Branch