HQ 219181: Request For Internal Advice dated October 22, 1986, and Protest No. 3501-6-000034, dated November 18, 1986

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                                      HQ 219181

                                    June 6, 1989


          PRO-1-CO:R:C:E 219181K

          CATEGORY: Drawback (19 U.S.C.1313(j)(2))

          Deputy Assistant Regional Commissioner of Customs
          Classification and Value
          North Central Region
          55 East Monroe Street
          Chicago, Illinois 60603-5790

          RE: Request For Internal Advice dated October 22, 1986, and
              Protest No. 3501-6-000034, dated November 18, 1986

          Dear Sir:

              The request for Internal Advice from your office dated
          October 22, 1986, concerned the fungibility of wheat under 19
          U.S.C. 1313(j)(2).  In the meantime, four drawback entries were
          denied and a protest was filed on November 18, 1986, Protest
          Numbered 3501-6-000034.  Two of the four drawback entries were
          submitted for our review.  Our reply to your request for Internal
          Advice for pending claims is also applicable to pending protests
          involving the same issue.

          FACTS:

              The protestant imported ten shipments of duty-paid Canadian
          wheat which were presumedly consumed in the production of flour
          and the consumption entries were designated as the basis for
          drawback covered by Drawback Entry No. 86-900317-0.  The imported
          shipments of wheat were certified by the standards of the
          Canadian Grain Commission as Number (1) One Canada Western Red
          Spring wheat.  Nine of the shipments contained a protein content
          of 14.5 percent and the tenth contained 13.5 percent.  Five
          shipments of wheat purchased domestically by the protestant were
          substituted for the imported designated wheat and exported for
          drawback.  The protestant arranged for the shipment of the
          domestic wheat directly from the seller's grain elevators to
          South America.  The protestant did not physically take possession
          of the wheat.  All five shipments of the substituted wheat were
          certified by the Federal Grain Inspection Service (FGIS), United

















                                         -2-

          States Department of Agriculture (U.S.D.A.) as U.S.D.A. quality
          Grade No. 2, Northern Spring Wheat or better.  Documentation
          indicates that two of the five shipments of wheat contained a
          protein content of 14 percent and the protein content of the
          other three was not indicated.

              Also, the protestant imported six shipments of duty-paid
          Canadian wheat which were presumedly consumed domestically and
          the consumption entries were designated as the basis for drawback
          covered by Drawback Entry No. 86-900319-6.  These shipments of
          wheat were certified by the standards of the Canadian Grain
          Commission as Number (3) Three Canada Western Red Spring Wheat.
          The protein content was not indicated.  Three shipments of wheat
          purchased domestically by the protestant were substituted for the
          imported designated wheat and exported for drawback.  The
          protestant arranged for the shipments of the domestic wheat
          directly from the seller's grain elevators to South America.  The
          protestant did not physically take possession of the wheat.  All
          three export shipments were certified by the FGIS as U.S.D.A.
          Grade No. 2 or better Northern Spring Wheat.  The protein content
          of the shipments was 14 and 14.5 percent.

              It is the position of the protestant that Canadian Western
          Red Spring Wheat and U.S. Northern Spring Wheat are fungible for
          purposes of the fungibility requirement of the substitution same
          condition drawback law (19 U.S.C. 1313(j)(2)) not withstanding
          the standards of grades of the U.S.D.A. or the protein contents
          of the shipments of wheat.  We do not agree.

          ISSUE:

              The issue is whether the Official United States Standards for
          Grain and the protein content are determinative for fungibility
          issues concerning wheat.

          LAW AND ANALYSIS:

              The substitution same condition drawback law, 19 U.S.C.
          1313(j)(2), requires that the merchandise substituted for
          exportation must be fungible with the duty-paid merchandise and
          in the same condition as was the imported merchandise at the time
          of its importation.  The term "fungible merchandise" is defined
          in the Customs Regulations (19 C.F.R.191.2(1)) as "merchandise
          which for commercial purposes is identical and interchangeable in
          all situations."

















                                         -3-

              The United States standards of quality grades for wheat were
          adopted after public comment procedures as required by The United
          States Grain Standards Act, as amended (7 U.S.C. 71 et seq.) and
          are found in the regulations of the United States Department of
          Agriculture, 7 CFR 810.2201-810.2205.  The regulations define
          seven classes of wheat.  Northern Spring Wheat is defined as
          "Hard Red Spring Wheat with 25 percent or more but less that 75
          percent of dark, hard, and vitreous kernels (810.2202(a)(2)(ii))
          and there are five grades for this wheat in 810.2204.

              The Act states the Congressional findings and declaration of
          policy in 7 U.S.C. 74(a) and (b) as follows;

              (a) Grain is an essential source of the world's total supply
              of human food and animal feed and is merchandised in
              interstate and foreign commerce. It is declared to be the
              policy of the Congress, for the promotion and protection of
              such commerce in the interests of producers, merchandisers,
              warehousemen, processors, and consumers of grain, and the
              general welfare of the people of the United States, to
              provide for the establishment of official United States
              standards for grain, to promote the uniform application
              thereof by official inspection personnel, to provide for an
              official inspection system for grain, and to regulate the
              weighing and the certification of the weight of grain shipped
              in interstate or foreign commerce in the manner hereinafter
              provided; with the objectives that grain may be marketed in
              an orderly and timely manner and that trading in grain may be
              facilitated.  It is hereby found that all grain and other
              articles and transactions in grain regulated under this Act
              are either in interstate or foreign commerce or substantially
              affect such commerce and that regulation thereof as provided
              in this Act is necessary to prevent or eliminate burdens on
              such commerce and to regulate effectively such commerce.

              (b) It is also declared to be the policy of Congress--

              (1) to promote the marketing of grain of high quality to
              both domestic and foreign buyers;
              (2) that the primary objective of the official United
              States standards for grain is to certify the quality of grain
              as accurately as practicable; and
              (3) that official United States Standards for grain shall--

                  (A) define uniform and accepted descriptive terms to
                  facilitate trade in grain;
                  (B) provide information to aid in determining grain















                                         -4-

                  storability;
                  (C) offer users of such standards the best possible
                  information from which to determine end-product yield and
                  quality of grain; and
                  (D) provide the framework necessary for markets to
                  establish grain quality improvement incentives.

              We are satisfied that the U.S.D.A. standards for grain
          carries out the declared policy of the Congress and that the
          grain market relies on the U.S.D.A. standards for wheat and
          offers users of the standards the best possible information to
          determine quality, price and end-product yield.

              The Customs Service has consistently applied the standards of
          quality grades of the U.S.D.A. as guidelines to determine the
          "same kind and quality" requirements of substitution
          manufacturing drawback under 19 U.S.C. 1313(b).  In Treasury
          Decision 80-153, the Customs Service affirmed its use of the
          U.S.D.A. standards of quality grades for orange juice as
          guidelines in determining same kind and quality questions for
          orange juice products.  Customs Service Decision 81-131 and
          Treasury Decision 80-57 set forth the position of the Customs
          Service to use the U.S.D.A. standards of quality grades for
          tobaccos as guidelines in determining same kind and quality
          questions for tobaccos.  The substitutions were on a grade for
          grade basis.

              Section 191.2(m) of the Customs Regulations defines the term
          "same kind and quality" as "merchandise which may be substituted
          under substitution [manufacturing] drawback.  Fungible
          merchandise is always same kind and quality merchandise;
          however, same kind and quality merchandise is not always fungible
          merchandise."  Section 191.2(l) defines the term "fungible
          merchandise" as "merchandise which for commercial purposes is
          identical and interchangeable in all situations."  Substituted
          merchandise used in a manufacturing process under 19 U.S.C.
          1313(b) does not necessarily have to be identical with the
          imported designated merchandise.  However, merchandise
          substituted under the substitution same condition drawback, 19
          U.S.C. 1313(j)(2), must be commercially identical with the
          imported designated merchandise in all situations.  The use of
          the U.S.D.A. quality standards noted above, are satisfactory for
          our use as guidelines in determining same kind and quality
          requirements for manufacturing drawback.  We believe that they
          are equally satisfactory for our use as "guidelines" for
          determining whether imported designated merchandise and
          substituted merchandise are identical for substitution same















                                         -5-

          condition drawback.  However, we may go beyond the standards of
          quality to determine the "fungible" (identical) requirement.

              In addition to the U.S.D.A. standards of quality for wheat,
          we are of the opinion that the protein content of the wheat is
          another essential element to be considered in determining
          fungibility for this merchandise.  Generally, wheat containing
          high protein content is used for products that must rise
          considerably such as hard rolls and water biscuits. Conversely,
          wheat containing low protein content is used in products which
          need little leavening such as crackers or sugar cones.
          Accordingly, the protein content affects the quality and the
          price of the wheat and the question is what variances, if any,
          are permissible.

              The protein content is such an important element in
          determining the quality and marketability of wheat that the FGIS,
          under the authority of 7 U.S.C. 79(b), issued a handbook to
          establish procedures for determining and certifying official
          protein content in wheat, monitoring the accuracy of protein
          results, and maintaining protein equipment accuracy.  The
          official protein determinations in wheat are limited to five
          classes that includes Hard Red Spring Wheat of which Northern
          Spring Wheat is a subclass thereof.  The FGIS reports protein
          contents to the nearest one-tenth percent (0.1%) by weight.  The
          Handbook of Analytical Chemistry, pages 12-41, indicates that the
          Kjildahl method, one of the approved methods for protein
          determinations, has an inherent error of + 0.2%.  Accordingly, as
          far as the protein element is concerned, we would consider a
          variance of + 0.3% as satisfying the fungibility requirement.
          For example, a shipment of wheat having a stated protein content
          of 11.5% would be considered as fungible with a shipment of wheat
          having a minimum protein content of 11.2% and a maximum protein
          content of 11.8% provided that the imported designated shipment
          and the substituted shipment both meet the same quality grade and
          class of the U.S.D.A. standards for wheat.

              There is a further issue in the facts presented concerning
          the "possession" requirement of 19 U.S.C. 1313(j)(2).  In
          C.S.D.s 87-18 and 85-52, the term "possession" for purposes of
          the substitution same condition drawback law was defined as
          meaning the

              complete control over the articles or merchandise on premises
              or locations where the possessor can put the articles or
              merchandise to any use chosen.















                                         -6-

          The term possession means both legal and physical possession.  We
          are not satisfied that the physical possession has been complied
          with under the facts presented.

          HOLDING:

              Two shipments of wheat that meet the same quality grade and
          class of the standards of quality for wheat of the United States
          Department of Agriculture and have a variance in protein content
          of + 0.3 percent are fungible and satisfies the fungibility
          requirement of the substitution same condition drawback law, 19
          U.S.C. 1313(j)(2).

              You are directed to resolve all pending drawback claims and
          protests concerning this issue in accordance with this ruling.



                                         Sincerely,



                                         John A. Durant
                                         Director
                                         Commercial Rulings Division





          cc:  All Regional Commissioners of Customs
                   Attention of Drawback Liquidation