The Dow Chemical Company Request for a determination of commercial interchangeability under substitution unused merchandise drawback, 19 U.S.C. § 1313(j)(2), for Dowtherm A.

HQ H284372 April 11, 2017 DRA 4 OT:RR:CTF:ERH284372 KF J.W. Brown DHL Drawback Services 15915 Katy Freeway, Suite 602 Houston, TX 77094 RE: The Dow Chemical Company: Request for a determination of commercial interchangeability under substitution unused merchandise drawback, 19 U.S.C. § 1313(j)(2), for Dowtherm A. Dear Mr. Brown, This is in response to your application, dated March 7, 2017, on behalf of The Dow Chemical Company (“Dow”), for a formal ruling on the commercial interchangeability of imported and exported Dowtherm A, for purposes of substitution of unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2). FACTS: Dow is a manufacturer of various chemical compounds within the United States. Dow is engaged in the manufacture, import, purchase, resale and export of Dowtherm A, a heat transfer fluid utilized to heat and/or cool large chemical or industrial systems. Dow explains that it imports Dowtherm A to maintain consistent inventory supply levels, and exports domestically produced Dowtherm A to various international customers. As a representative import, Dow submitted a Customs and Border Protection (“CBP”) Form 7501, dated December 1, 2015, demonstrating that Dow imported a tank of Dowtherm A, classified under subheading 3824.90.28, Harmonized Tariff Schedule of the United States (“HTSUS”). The corresponding commercial invoice referenced on the CBP Form 7501, dated October 13, 2015, No. XXXXXXX63, describes the imported merchandise as a bulk quantity of Dowtherm A. The commercial invoice includes No. 000000012452 in reference to the imported Dowtherm A. The accompanying Certificate of Analysis (“COA”), dated October 13, 2015, identifies the sample as Dowtherm A, Product No. 00000012452, Batch No. F143F6QBL5, subject to the following specifications: Minimum Assay: 99.9 percent Maximum Water: 250 ppm pH: 6 – 8 Solidification Point: 11.5 – 13 °C Distillation Range: 255 – 258 °C Specific Gravity: 1.05 – 1.075 The October 13, 2015, COA shows the imported Dowtherm A batch satisfied all required and typical specifications. For the export transaction, Dow submitted a Bill of Landing (“BOL”), dated October 6, 2016, commercial invoice No. XXXXXXX71, dated October 6, 2016, commercial invoice No. XXXXXXX72, dated October 6, 2016, five additional COAs, and an Automated Export System (“AES”) document. The BOL identifies the export as five tanks of Dowtherm A. The AES document lists October 6, 2016 as the export date, and identifies the substituted Dowtherm A as classified under subheading 3824.90.28, HTSUS. The BOL lacks a part number for the substituted Dowtherm A. Both corresponding commercial invoices dated October 6, 2015, show that Dow exported Dowtherm A in bulk quantity, identified by No. 00000012452. The customer order number for the export transaction listed on both commercial invoices dated October 5, 2015, corresponds to the export reference number listed in the BOL. The accompanying COAs identifies the sample as Dowtherm A, Product No. 00000012452, Batch No. D407G9RM01, subject to the following specifications: Minimum Assay: 99.9 percent Maximum Water: 250 ppm pH: 6 – 8 Solidification Point: 11.5 – 13 °C Distillation Range: 255 – 258 °C Specific Gravity: 1.05 – 1.075 The export COAs show the exported Dowtherm A batch satisfied all required and typical specifications. In addition to satisfying the specifications identified in the import and export COAs, all the COAs were sent to CBP’s Laboratories and Scientific Services Directorate (“LSSD”) for analysis. It is the opinion of the LSSD that the specifications for imported and substituted Dowtherm A sufficiently describe the imported and substituted Dowtherm A. The specifications establish that Dowtherm A has a high minimum purity level of 99.9 percent. A comparison of the price per ton listed in the invoices for the imported and substituted Dowtherm A shows a price difference of 12.77 percent. Dow attributes the price difference to the fluctuating overall cost of obtaining the raw material inputs used to produce Dowtherm A, particularly the high added cost of shipping the raw material inputs to Europe within a short timeframe to satisfy contractual production deadlines. ISSUE: Whether the imported Dowtherm A is commercially interchangeable with the substituted Dowthern A, within the meaning of the substitution unused merchandise drawback statute 19 U.S.C. § 1313(j)(2). LAW AND ANALYSIS: Under 19 U.S.C. § 1313(j)(2), as amended, drawback may be granted on merchandise which is commercially interchangeable with imported merchandise if the commercially interchangeable merchandise is exported, or destroyed within three years from the date of importation of the imported merchandise, and before the exportation or destruction, the commercially interchangeable merchandise is not used in the United States and is 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 duties on the imported merchandise, a certificate of delivery transferring to that party, the imported merchandise, commercially interchangeable merchandise, or any combination thereof. The CBP regulation, 19 C.F.R. § 191.32(c), provides 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 of whether the above quoted criteria are used in a particular transaction are the claimant’s transaction documents. See, e.g., HQ H048135 (March 25, 2009); and HQ H122535 (February 9, 2011). 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. 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, the United States Court of Appeals for the Federal Circuit determined that: “[c]ommercial interchangeability 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’ according to 19 U.S.C. § 1313(j)(2)).” Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999). Thus, the Federal Circuit sets forth an “objective standard—analyzed from the perspective of a hypothetical reasonable competitor.” Id. Therefore, we analyze commercial interchangeability pursuant to 19 C.F.R. § 191.32(c), for a hypothetical reasonable competitor. Government and Recognized Industry Standards One of the factors that CBP considers is whether the imported and exported merchandise adhere to governmental and recognized industry standards. Governmental and recognized industry standards assist in the determination of commercial interchangeability, because those 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 accepted standard may be used to produce the same products” or used for the same purposes. See HQ H074002 (December 2, 2009). For Dowtherm A, there are no published government and recognized industry standards. When there are no applicable government or industry standards, CBP considers contractual product specifications, as a critical property, especially when governmental and industry standards are not available. See, e.g., H030097 (August 29, 2008) (determining that where the technical product specifications sufficiently describe the product, this would also support a determination of commercial interchangeability). Product specifications are used to guarantee the uniformity of merchandise. In other words, if product specifications are sufficiently detailed, then any merchandise sharing those specifications will generally be uniform in nature. The Court of International Trade has found that private contract standards may be used to determine commercial interchangeability. See Pillsbury Co. v. United States, 293 F. Supp. 2d 1351, 1356-57 (Ct. Int’l Trade 2003) (explaining that, “[e]vidence of different contract standards would indicate that the designated and substitute [product] are not commercially interchangeable”). Thus, when goods are sold or purchased pursuant to the same detailed product specifications, evidence that the imported and substitute merchandise share the same product specifications tends to support a general finding of commercial interchangeability and thus, satisfies the standards criterion. Dow provided product specifications identifying the properties of Dowtherm A, and certificates of analysis for samples of the import and substituted export product. The specifications are as follows: Minimum Assay: 99.9 percent Maximum Water: 250 ppm pH: 6 – 8 Solidification Point: 11.5 – 13 °C Distillation Range: 255 – 258 °C Specific Gravity: 1.05 – 1.075 All Dowtherm A imported and substituted by Dow is required to have the minimum or maximum specifications that fall within the percentages identified above. Upon review of these ranges, CBP’s LSSD confirmed that it was sufficiently narrow to describe the merchandise. Both the imported and substituted merchandise have high purities levels that fell within these required standards. Based on these findings, we conclude that this criterion is satisfied provided that Dowtherm A falls within the specifications stated above. 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 catalogs, and in the import and export documents, this would support a finding of commercial interchangeability. See, e.g., HQ H074002; and HQ H122535. Dow’s October 13, 2015, commercial invoice for the imported Dowtherm A identifies Product No. 00000012452 as its part number or product identifier. The October 6, 2016, commercial invoice for the exported Dowtherm A also identifies Product No. 00000012452 as its part number or product identifier. The COAs corresponding to the import and export transaction both identify Product No. 00000012452 as the part number or product identifier for the tested batches of Dowtherm A. Dow states that it utilizes Global Market Information Database (“GMID”) Code 12452 to identify Dowtherm A within its globalized computer inventory. The GMID Code identifying Dowtherm A in Dow’s inventory is contained within the part number or product identifier used by Dow to identify Dowtherm A in its commercial invoices for the import and export transaction. Therefore, we conclude that this criterion is satisfied and supports a finding of commercial interchangeability. 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 HTSUS. See, e.g., HQ H074002. Dow’s CBP Form 7501 shows that imported Dowtherm A is classified under subheading 3824.90.28, HTSUS. Dow’s AES document shows that exported Dowtherm A is classified under subheading 3824.90.28, HTSUS. Based on the fact that Dow’s imported and substituted Dowtherm A is classified under the same HTSUS subheading, we conclude that this criterion is satisfied. Relative Value Finally, 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 (March 23, 2010) (finding a price difference of 4.5 percent to be acceptable). CBP has also 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 H174276 (July 3, 2012) (finding that a 34 percent price difference was the result of external market factors and, thus, did not preclude a finding that the imported and substituted merchandise were commercially interchangeable); HQ 229838 (May 30, 2003) (holding that a value difference of 8.32 percent, explained by profit mark up and costs, did not preclude a finding of commercial interchangeability); HQ 228580 (August 20, 2002) (holding that a value difference of 27 percent did not preclude a finding of commercial interchangeability when the difference in value was attributable to processing and manufacturing costs); compare with HQ 228519 (June 5, 2002) (denying commercial interchangeability when no explanation was provided to explain the cause for a 7.6% price difference between imported and substituted tapes). A comparison of the invoices for the imported and substituted Dowtherm A show a price difference of $0.4368 per kg, or of 12.77 percent. The import transaction occurred in October of 2015, and the merchandise was exported in October of 2016. Dow states that the price difference in the relative value between the imported and substituted merchandise is attributable to fluctuations in the overall cost of obtaining the raw materials used to manufacture Dowtherm A, specifically the base cost of the materials and shipping charges. Dow’s explanation indicates that the price difference is not attributable to “chemical or physical differences between” Dow’s imported and substituted Dowtherm A. See HQ 249074 (October 10, 2014); HQ 227473 (March 3, 1998) (finding “[t]he disparity in the relative values of the imports and exports in this instance does not appear to be significant enough to affect the[ir] commercial interchangeability …[because this is not] a case where an inferior product will be substituted for a higher-quality imported product. Rather, the disparity in price appears to be the result of the market at the time of purchase/sale of the paste”); but see HQ 227080 (June 4, 1997) (finding that a 70-100 percent price difference could not be attributed to changes in shipping costs alone and was too great to permit a finding of commercial interchangeability). Therefore, we conclude that despite the price difference between the relative value of the imported and substituted merchandise, this criterion does not preclude a finding of commercial interchangeability. The facts of the case, the precise specifications of Dowtherm A’s composition that define the product to a high degree of exactness, the unvarying part number or product identifier used to identify Dowtherm A, and the classification of Dowtherm A under the same HTSUS subheading, allow for a finding of commercial interchangeability. HOLDING: Based on the above findings, we determine that imported and substituted Dowtherm A, that satisfy the specifications listed above and are classified under the same subheading, with a comparable or less price difference, are commercially interchangeable for the purposes of the substitution unused merchandise drawback statute, 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 ruing 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.” If the activities vary from the facts stipulated to herein, this decision shall not be binding on CBP, as provided for in 19 C.F.R. § 177.9(b). Sincerely, Monika R. Brenner, Acting Chief Entry Process & Duty Refunds Branch