Commercial Interchangeability of bottle grade polyethylene terephthalate pursuant to 19 U.S.C. § 1313(j)(2).

HQ H234441 January 23, 2014 DRA 1-09 OT:RR:CTF:ER H234441 CSO Mr. Louis S. Shoichet Tompkins & Davidson, LLP 5 Hanover Square 15th Floor New York, NY 100004 Re: Commercial Interchangeability of bottle grade polyethylene terephthalate pursuant to 19 U.S.C. § 1313(j)(2). Dear Ms. Shoichet: This is in response to your request, dated October 16, 2012, on behalf of Amcor Rigid Plastics USA, Inc. for a ruling on the commercial interchangeability of bottle grade polyethylene terephthalate (PET) resin. FACTS: Amcor Rigid Plastics USA, Inc. (Amcor) is a manufacturer and supplier of plastic packaging. It imports and exports PET resins of various grades that are used in the manufacture of carbonated soda and drink bottles. Amcor provided import documentation that shows the imported PET resin is classified under subheading 3907.60.00 of the Harmonized Tariff Schedule of the United States (HTSUS). Additionally, the specification states that the PET resins have: an intrinsic viscosity of 0.85 +/- 0.03; a melting point target of 248°C, which ranges between 240°C and 254°C; and an acetaldehyde maximum content of 3ppm. Amcor also provided a copy of a Food and Drug Administration (FDA) letter setting forth the regulatory requirements for PET resin in contact with food and a vendor statement that states the imported PET resin meets FDA requirements for contact with food. The FDA regulations set standards for polyethylene phthalate polymer resin that contact foods. The entry and export documents that show the domestically-produced substituted PET resin is classified within U.S. Census Bureau – Foreign Trade Schedule B under code 3907.60.00. The purchase orders show the price difference between the imported and substituted merchandise is up to 26% and stated that the price for PET may vary over time due to market conditions and cost of production inputs, such as petroleum. Amcor also provided market data to show the changes in the price of petroleum for 2011 and 2012. 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 One of the factors CBP considers is whether the imported and exported merchandise adhere to government and recognized industry standards. Governmental and recognized industry standards assist in the determination of commercial interchangeability, because such standards "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 (Mar. 23, 2010). Amcor provided a letter from the U.S. Food and Drug Administration (FDA) setting forth requirements for PET resin that is in contact with food. In general, the FDA regulations set forth the safe use requirements and specifications for PET resins used in contact with food. Amcor also provided vendor statements for both the imported and substituted merchandise, which state the imported and substituted PET resin meets FDA requirements for contact with food. CBP’s Laboratory and Scientific Services (LSS) indicated that the FDA standard for PET resin is broad and includes many different PET resin grades including carbonated beverage, water bottle grade, food container grade, plastic bag grade, etc. The FDA standard covers such a broad spectrum of products that, by itself, the standard is not enough to support a commercial interchangeability determination hence, we also consider the specifications. We have previously held that where the technical product specifications sufficiently describe the product, this would also support a determination of commercial interchangeability. See H030097 (Aug. 29, 2008); see also, Pillsbury v. U.S., 293 F. Supp. 2d 1351, 1356-57 (Oct. 27, 2003) (explaining that “[i]nstead of relying on [government] standards, the designated and substitute [merchandise] may be traded on contract standards specific to individuals labels”). Amcor provided specifications for the PET resin products. The specification states that the PET resin’s intrinsic viscosity is 0.85, +/- 0.03 and the melting point range is between 240°C and 254°C. OLSS confirmed that both the intrinsic viscosity and the melting point are within the range for carbonated soda and drink bottles. Therefore, provided that the PET resin conforms to this specification, this supports a finding of commercial interchangeability. Part Numbers In evaluating the critical properties of the merchandise, CBP also considers the part numbers of the merchandise. 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 commercial interchangeability. See, e.g., HQ H074002 (Dec. 2, 2009). There are no part numbers assigned for the PET resin and therefore, we do not consider the part numbers criterion in our analysis. Tariff Classification Another factor CBP considers when determining commercial interchangeability is whether the imported and exported goods are classified under the same subheading of the Harmonized Tariff Schedule of the United States ("HTSUS"). See, e.g., HQ H074002 (December 2, 2009). Amcor provided import documentation that shows the imported PET resin is classified under subheading 3907.60.00 of the Harmonized Tariff Schedule of the United States (HTSUS). Amcor also provided invoice and export documents that show the domestically-produced substituted PET resin is classified within U.S. Census Bureau – Foreign Trade Schedule B under code 3907.60.00. Because the imported and substituted merchandise are classified under the same eight digit subheading, we find that the tariff classification criterion is established. Relative Value Goods that are commercially interchangeable generally have similar values when sold at the same place, at the same time, to like buyers from like sellers. See, e.g., HQ H090065 (Mar. 23, 2010) (finding a price difference of 4.5 percent to be acceptable). A comparison of the invoices for the imported and substituted merchandise shows that the largest price difference is 26% between an import from March 2011 and the substitute purchased in July 2012. CBP has held that a variance in price does not preclude a finding of commercial interchangeability when there is sufficient evidence to support the material difference in value. See HQ 228580 (August 20, 2002) (holding that a value difference of 27% did not preclude a finding of commercial interchangeability when the difference in value is attributable to processing and manufacturing costs). See also, HQ H106515 (March 18, 2011) (holding that although there was a difference in value between the sample import and export was 70%, the difference did not preclude a determination of commercial interchangeability because the value difference was the result of market forces rather than a difference in quality of the merchandise). In this case, Amcor stated that the price difference was because of changes in the price of petroleum, the primary input used to make the PET resin. Amcor provided petroleum market data from U.S. Energy Information Administration (EIA) to show the market change in the value of petroleum for 2011 and 2012. Amcor provided two sets of domestic market data: U.S. Free on Board (FOB) Costs of Crude Oil and Oklahoma Crude Oil First Purchase Price. The percent change of the market prices for imported and domestic crude petroleum for the same time period as Amcor’s purchases, ranged from 15-19%. Thus, Amcor demonstrated that the price differential is largely attributed to a change in prices of the primary input. Hence, we find that the value criterion is met. Finally, we note that your request for a ruling included sections entitled “Entitlement to Claim Drawback,” “Exported Merchandise Need Not Be the Imported Merchandise,” and “Amcor Name Change.” However, you did not request that we rule on these particular issues, instead, you simply stated your position. Therefore, this decision is limited to the issue of commercial interchangeability and you may submit another ruling request to cover those other matters and articulating what issue you would like us to rule upon. HOLDING: Based on the above findings, regarding the government standards, specifications, tariff classification and price difference, we determine that the imported PET resin and the substituted PET resin are commercially interchangeable for the purposes of substitution drawback pursuant to 19 U.S.C. § 1313(j)(2). Please note that 19 C.F.R. § 177.9(b)(1) provides that "[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based." Sincerely, Carrie Owens, Chief Entry Process and Duty Refunds Branch