HQ 224091: Request for reconsideration of HQ 223352 concerning fungibility of dehydrated onion products; 19 U.S.C. 1313(j)(2); 19 CFR 191.2(1); substitution same condition drawback

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 224091

                        October 25, 1993

DRA-4-CO:R:C:E 224091 CB

CATEGORY:  Drawback

Joel R. Junker, Esq.
Graham & Dunn
33rd Floor
1420 Fifth Avenue
Seattle, WA 98101-2390

RE:  Request for reconsideration of HQ 223352 concerning 
     fungibility of dehydrated onion products; 19 U.S.C.
      1313(j)(2); 19 CFR 191.2(1); substitution same
     condition drawback

Dear Mr. Junker:

     This is in response to the above-referenced request for
reconsideration of HQ 223352, dated March 12, 1992 (the Ruling). 
The points you have raised have been considered and our decision
follows.

FACTS:

     Briefly, the facts are that eleven different product forms
of dehydrated onion (e.g. powdered, granulated and chopped) fall
into three basic categories:  Standard Product; Low Bacteria
Grade; and Extra-Low Bacteria Grade.  The Ruling refers to these
as level 1, level 2 and level 3, respectively.  Standard Product
requirements are established by industry standards adopted and
published by the American Dehydrated Onion and Garlic Association
(ADOGA).  Low Bacteria Grade product and Extra-Low Bacteria Grade
product meet first the ADOGA requirements for standard product
forms and secondly certain maximum bacteria content levels
established by general industry recognition and usage in the
trade.

     You state that if a customer orders Standard Product at a
time when the inventory of that product is low or depleted, your
client is able to substitute Low Bacteria Grade or Extra-Low
Bacteria Grade products since they meet ADOGA standards and do
not exceed the maximum bacteria content levels for Standard
Product.  Similarly, Extra-Low Bacteria Grade product can be
substituted for Low Bacteria Grade product when that inventory is
low or depleted.  When such substitution is made, the goods are
identified and shipped to the customer as the product that was
ordered to confirm that product requirements of the order have
been met.  During a conference, held on November 23, 1992,
representatives of your client stated that when substitution does - 2 -

occur there is no difference in the price charged to the
customer.  If your client fills an order for Standard Product
with Low Bacteria Grade product, the customer will only be billed
at the Standard Product price.  Thus, there is nothing on the
invoice to indicate to the customer that the substitution has
occurred.

     HQ 223352 held that substituted domestic product is fungible
with designated import product to the extent that "they are of
the same quality level (Standard Product for Standard Product,
Extra-Low Bacteria for Extra-Low Bacteria) and of the same form
(powdered for powdered, sliced for sliced, chopped for chopped,
etc.).  Onion products of different quality levels are not
fungible, likewise onion products of different forms."

ISSUE:

     Whether the suggested method of substitution is permissible
under 19 U.S.C.  1313(j)(2)?

LAW AND ANALYSIS:

     As stated in the original ruling, same condition
substitution drawback hinges upon whether the domestic
merchandise is fungible with the imported product.  Fungible
merchandise must be commercially identical and interchangeable in
all respects.  Guess? Inc. v. United States, 752 F. Supp. 463
(Ct. Int'l Trade 1990), vacated, 944  F.2d 855 (Fed. Cir. 1991).
Also as noted in the ruling, we recognize the standards set by
the American Dehydrated Onion and Garlic Association (ADOGA) as
being directly relevant to the determination of fungibility
between the subject different products.

     Regarding the question of the fungibility of produce, the
Customs Service has generally held that substitution must be on a
grade for grade basis.  However, it is also true that in the
past, substitution of products falling within permissible
variances and minimal requirements has been allowed.  The Customs
Service has previously determined that it may go beyond the
standards of quality to determine the "fungible" (identical)
requirement.  See HQ 219181 dated June 6, 1989.  In your original
ruling request you state that grades of bacteria level are an
essential element of each upgraded product which determines its
quality and its price.  The lower the bacteria content, the
higher the grade and price of the product.  The standards set by
ADOGA for dehydrated onion product establish a minimum, rather
than maximum, bacteria level.  In the original ruling request it
is also stated that higher bacteria-count grades are not
substitutable for lower bacteria-count grades.  Indeed, such
substitution does not meet industry standards.  
                             - 3 - 


     Variations in pricing which result from customer preference
affect fungibility.  As stated by the Court of International
Trade in Guess?, supra, if a commercial preference is
demonstrated, such preference destroys fungibility.  In the
request for reconsideration, and during the conference
subsequently held, your client confirmed that when a lower
bacteria-count grade product is substituted for a higher
bacteria-count grade product, the products are identified and
shipped to the customer as the product that was ordered.  In
every such case, the product requirements of the order have been
met.  There is no change in the purchase price paid by the
customer.  The customer is totally unaware of the substitution.
Therefore, because the customer is unaware that it is receiving a
better quality product the price paid by the customer is the
lower selling price.  It is our understanding that in the event
of an audit, the company's invoices and payment records will
support this assertion.  

     Given the nature of the product, the standards established
by the industry and the fact that the selling price does not
reflect the substitution, the Customs Service agrees that
substitution of a lower bacteria-count grade dehydrated onion
product for a higher bacteria-count grade onion product is
permissible under the circumstances set forth in your submission. 
The requirements of commercial interchangeability and the absence
of customer preference have been satisfied.

HOLDING:

     HQ 223352 is modified as follows.

     The export of a lower bacteria-count dehydrated onion
product may be used to support a drawback claim, under 19 U.S.C.
 1313(j)(2), against a designated import of a higher bacteria-
count dehydrated onion product only if the drawback claimant
shows by competent evidence that the export customer: 1) ordered
the higher bacteria-count dehydrated onion product, 2) was
unaware that the higher quality product was being sent, and 3)
paid only for the lower quality product.

                              Sincerely,




                              John A. Durant, Director
                              Commercial Rulings Division