Unused Merchandise Drawback; Ruling Request for Commercial Interchangeability of PMIDA and Glyphosate Intermediate Cake

HQ H207396 August 17, 2012 DRA-4 OT:RR:CTF:ER HQ H207396 JLG Mr. Richard Belanger Sidley Austin, LLP 1501 K Street, N.W. Washington, D.C. 20005 RE: Unused Merchandise Drawback; Ruling Request for Commercial Interchangeability of PMIDA and Glyphosate Intermediate Cake Dear Mr. Belanger: This is in response to your request, dated February 27, 2012, submitted on behalf of Monsanto Company (Monsanto) for a ruling on the commercial interchangeability of imported PMIDA and substituted Glyphosate Intermediate Cake. Our response follows FACTS: According to the information provided, Monsanto imports PMIDA, chemical name N- (phosphonomethyl) iminodiacetic acid, and intends to substitute PMIDA for Glyphosate Intermediate Cake (GI Cake), chemical name N-(carboxymethyl)-N-(phosphonomethyl) glycine. Monsanto states that PMIDA and GI Cake are intermediates used in the manufacture of agricultural herbicides. These products are used to produce Glyphosate Technical products. In support of its claim for commercial interchangeability Monsanto provided product and packaging specifications for the imported product, Material Safety Data Sheets (MSDS) identifying the critical properties of the imported and substituted product, Certificates of Analysis, and sample import and export documentation. The MSDS for the imported material shows that PMIDA contains 98 percent active ingredient by dry weight. The MSDS for the substituted product shows that GI Cake contains 87 percent active ingredient by dry weight, with 12 percent being water. Monsanto explains that the percentage difference between the import and substitute product is because the imported merchandise is dried prior to shipment to the United States, whereas the substituted product is not dried prior to export. Monsanto further states that the difference in water content in the imported and substituted product is not commercially significant because users of both products will have to dilute it with large quantities of water before use. The MSDSs further show that both products have the same Chemical Abstracts Service (CAS) Registry number, 5994-61-6, and the same end use as an intermediate in the manufacture of agricultural herbicides. In addition, Monsanto assigns a material number (10594643) to the substituted product (the GI Cake). Monsanto states that it has no knowledge of the material or part numbers (if any) used by its suppliers for the imported material (PMIDA). Monsanto observes that in the sample documentation provided, a material number is neither used in connection with PMIDA, nor used consistently, because the product and packaging specifications, MSDS for the imported product, and import documentation do not identify any material numbers. As evidence of the import transaction, Monsanto provided an Entry Summary (CBP Form 7501) for Entry No. 279-XXXXX75-9, a commercial invoice, and bill of lading, and Certificate of Analysis. The Entry Summary has an entry date of January 6, 2012, and describes the imported product as “ORGANO-PHOSPHORUS COMPOUND.” The commercial invoice, invoice number HXU1117A-1, is dated December 6, 2011, and reflects the sale of N-(Phosphonomethyl) iminodiacetic acid (PMIDA). Both the CBP Form 7501 and the commercial invoice classify the merchandise under subheading 2931.00.9043 of the Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for: “Other organo-inorganic compounds: Other : Other.” The bill of lading, number NKG11110205, identifies the product as PMIDA and indicates the same batch numbers identified on the commercial invoice. It should also be noted that the commercial invoice and bill of lading number are both referenced on the CBP Form 7501. For the export transaction, Monsanto submitted a commercial export invoice and packing list with the corresponding Certificates of Analysis. The invoice and packing list show the exportation of domestically produced “glyphosate intermediate” from the United States and indicate that the Schedule B number is 2931.00.9160. The invoice number identified on the export invoice and packing list corresponds to the main shipment number shown on the Certificates of Analysis for the exported product. ISSUE: Whether imported PMIDA is commercially interchangeable with substituted Glyphosate Intermediate Cake (GI Cake) 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. 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. Generally, products that meet the same industry accepted standard may be used to produce the same products” or used for the same purposes. See, e.g., HQ H090065 (March 23, 2010); and HQ H074002 (December 2, 2009). Where no government or recognized industry standards govern, however, CBP has relied on product specifications. See HQ H103577 (October 12, 2010) (noting that contractual standards and product specifications can be used as evidence of commercial interchangeability rather than governmental or recognized industry standards) (citing Pillsbury v. United States, 27 C.I.T. 1628, 1634 -35 (Ct. Int’l Trade 2003)); see also, HQ H064679 (December 18, 2009) (relying on specifications provided by the applicant, as well as certificates of analysis for representative samples of the imported and exported product since no government or industry standard criteria was available). We are aware of no government or industry standards for PMIDA or GI Cake; however, Monsanto provided the CAS Registry number, 5994-61-6, for both the imported and substituted products. The CAS Registry number is assigned by the Chemical Abstract Service, a division of the American Chemical Society. CAS Registry numbers are universally used unique numerical identifiers for chemical substances. Although a CAS Registry number itself has no inherent chemical significance, it provides an unambiguous way to identify a chemical substance or molecular structure when there are many possible systematic, generic, proprietary or trivial names. See CAS, A Division of the American Chemical Society, http://www.cas.org/about-cas/faqs (last visited August 15, 2012). Furthermore, a CAS number is unique and specific to only one substance regardless of how many ways the chemical is described. See http://www.cas.org/content/chemical-substances/faqs (last visited August 16, 2012). CBP has also held that the CAS Registry number, although not conclusive, supports a finding of commercial interchangeability. See, e.g., HQ H095404 (June 29, 2011). The MSDSs for the imported and substituted product reflect that the CAS Registry number for PMIDA and GI Cake is 5994-61-6. CAS number 5994-61- 6 requires 98 percent active ingredient by dry weight of PMIDA, and the Certificate of Analysis for the imported material shows that the content of PMIDA is 98 percent by dry weight. The MSDS for the substituted product also indicates CAS number 5994-61-6. However, the MSDS and Certificates of Analysis show that the active ingredient in the exported product, GI Cake, is only approximately 87 percent. This is attributed, however, to the difference in water content. Monsanto maintains that the imported product is dried before entering the United States, whereas the substituted product that is manufactured in the U.S. is not dried. Consequently, Monsanto requests “drawback allowance . . . exclusively on a pound for pound basis, meaning that drawback eligibility for the export would be in its dry condition only.” (emphasis added). We concur that drawback should only be claimed for the actual amount of active ingredient and substituted on a dry weight basis. Furthermore, the imported and substituted products have the same chemical name. The MSDS for the imported merchandise indicates that the product is PMIDA, with chemical name (N- (Phosphonomethyl)iminodiacetic acid), and the MSDS for the substituted product identifies the chemical name of the product as N-(carboxymethyl)-N-(phosphonomethyl)glycine, but indicates that it is synonymous with the chemical name N-phosphonomethyl iminodiacetic acid, or GI, or PMIDA. Therefore, since the CAS Registry number of the imported and substituted products is the same and the Certificates of Analysis show that the active ingredient in the imported and substituted product comport to the percentages shown on the MSDSs, we determine this 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 a finding of commercially interchangeability. See, e.g., HQ H074002 (December 2, 2009). CBP has also determined, however, that the absence of part numbers on commercial import and export documentation does not preclude a finding of commercial interchangeability. See HQ 227106 (September 3, 1997). In HQ 227106, bulk aspartame could be ordered in different types of packaging, thus, there was no reference to part numbers. CBP concluded that the imported and substituted aspartame was commercially interchangeable although the part number criterion was not satisfied stating that “the fact that the part numbers and lot codes are not used on all documents, but are used only in some, supports the view that the part numbers and lot codes do not preclude a finding of commercial interchangeability.” Monsanto states that while it assigns a material number to the substituted merchandise, its suppliers either do not assign part numbers or material numbers to the imported products, or do so inconsistently. Because part numbers are not used on the commercial documents for both the imported and substituted products, and this is sold in bulk, this criterion will not factor into the commercial interchangeability determination. See, e.g., HQ190457 (determining that a lack of part numbers did not preclude a finding of commercial interchangeability given that the product was a bulk commodity); see also, HQ H095404 (June 29, 2011) (finding that because part numbers were not used to identify the product, part numbers were not a valid criterion and were therefore not applicable and do not factor into the commercial interchangeability determination). 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. In this instance, the imported and substituted products are classified under similar tariff headings. The entry summary, commercial import invoice, and bill of lading classify PMIDA under subheading 2931.00.9043, HTSUS, which provides for “other organo-inorganic compounds: Other: Other.” The export commercial invoice and packing list classify the substitute product, GI Cake, under Schedule B number 2931.00.9160, which also provides for “Other organo-inorganic compounds,” and mirrors the language in HTSUS subheading 2931.00.9043. Because both the imported and substituted products are classified similarly, the tariff classification criterion is satisfied. Relative Values CBP also considers the relative value of the imported merchandise to the substituted merchandise since 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) (concluding 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 commercial documentation provided by Monsanto reflects that the price of the imported merchandise is approximately 9.2% higher than the price of the substituted merchandise. The representative import and substitute products have the same CAS number, and the import and substitute products have HTSUS and Schedule B numbers with similar descriptions. Therefore, we find that for the purposes of commercial interchangeability, the 9.2% difference in price in the imported and substituted merchandise does not preclude a finding of commercial interchangeability. HOLDING: The representative import and substitute products satisfy the government and industry standards and tariff classification criteria. Accordingly, we conclude that the imported PMIDA and the substituted GI Cake described above are commercially interchangeable for purposes of substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2). We note, however, that drawback may be claimed exclusively on a pound for pound basis for the active ingredient, meaning that drawback eligibility is only for the export in its dry condition. 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