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HQ 227080

June 4, 1997

DRA-4-RR:IT:EC 227080 IOR


Joel R. Junker, Esq.
Junker & Thompson
520 Pike Street
Suite 1510
Seattle WA 98101

RE: Reconsideration of HQ 226096 (February 14, 1996); Ferrophosphorous; Unused substitution drawback; Commercially interchangeable; 19 U.S.C. 1313(j)(2)

Dear Mr. Junker:

This office has received your request for reconsideration of the above-referenced Headquarters Ruling (HQ). You have requested that the terms of the contracts and pricing information be granted confidentiality under Customs Regulations, 177.2(b)(7) (19 CFR 177.2(b)(7). We have reviewed the request for confidentiality and grant the request.


This ruling responds to a request for reconsideration of HQ 226096, dated February 14, 1996, issued by this office. The inquirer, Continental Resources (hereinafter referred to as "CR"), has submitted additional information with respect to the relative value of the subject merchandise, as well as foreign industrial standards for the merchandise and contract requirements for the merchandise. The office of Laboratories and Scientific Services has reviewed the additional information regarding the merchandise and has provided a report dated March 3, 1997 (LSS report).

CR is an importer of ferrophosphorous. In its previous ruling request, CR sought a ruling that the ferrophosphorous imported from Kazakhstan is commercially interchangeable with domestic ferrophosphorous exported from the United States. In prior submissions on behalf of CR, we have received sample domestic purchase invoices and chemical analysis, sample consumption entries with chemical analysis, specifications on the phosphorous and silicon content of the imported and domestic merchandise, and information regarding the relative values of the imported and domestic merchandise.

According to the specifications previously provided, for the imported material the phosphorous content ranged from 23.87% to 26.83%, and the silicon content ranged from 1.12% to 2.72%. The specifications listed for the exported ferrophosphorous are 25.2% for phosphorous and 3.2% for silicon.

In HQ 226096, we ruled that the imported and domestic ferrophosphorous was not commercially interchangeable for purposes of 19 U.S.C. ?1313(j)(2). The decision was based on the factors set forth in Senate Report 103-189 explaining the change in the standard for substitution drawback under 19 U.S.C. interchangeability. Our findings on the factors were as follows:

1) Government and Recognized Industry Standards- Since there are no government or industry standards for ferrophosphorous, this criteria cannot be used to make the commercial interchangeability determination. The commercial standards contained in the technical literature, however, would not preclude the imported and exported ferrophosphorous from being considered commercially interchangeable.

2) Part Numbers- No evidence has been submitted to suggest that part numbers are applicable in this case.

3) Tariff Classification- The tariff classification would be the same for both the imported ferrophosphorous and what is stated to be the exported ferrophosphorous: subheading 7202.99.5020, Harmonized Tariff Schedule of the United States (HTSUS).

4) Relative Values- a comparison, based on the information submitted, shows the value of the imported merchandise ranging from $120/MT to $142/MT and the value of the domestic exported merchandise (excluding shipping costs) of $71/MT. This difference in value of the imported and domestic ferrophosphorous, therefore, differs from almost 70% to 100%. Clearly, this difference in value is too great to conclude that the imported and domestic ferrophosphorous is commercially interchangeable.

In your request for reconsideration you provided additional information regarding the shipping costs of the exported and imported merchandise, and you reiterated information submitted previously regarding the manufacture of ferrophosphorous. You submit that:

1) Ferro Phosphorous is a by-product of elemental Phosphorous production by the electric furnace method. In broad terms, Phosphate rock, Silica, and Coke are blended and charged in electric furnaces which are of the submerged arc type, which results in the production of Elemental Phosphorous. Slag and Ferro Phosphorous are residual by-products of this primary production process.

2) Production of Elemental Phosphorous with resulting by-products takes place in the United states, in Western Europe, in the CIS Republics, and in the People's Republic of China.

8) Continental Resources imports Ferro Phosphorous from Kazakhstan where it has a... contract with a phosphorous producer. The phosphorous producer's identity changed with the dissolution of the Soviet Union, and Continental Resources' contract for supply changed from a single contract to contracts with individual plants following Kazakhstan's independence. ***

9) Ferro Phosphorous imported from Kazakhstan travels by rail to a Baltic port, typically Ventspils, for ocean transfer to Bremen or Rotterdam for further ocean transportation to the United States. The delivery terms of sale for Kazakhstan product will either be CIF Bremen or FOB Ventspils with additional freight charges to Rotterdam or Bremen.

10) Continental Resources has a ... contract for purchase of U.S. Ferro Phosphorous from a supplier in Pocatello, Idaho. [Citation omitted] Continental Resources' substitution drawback claims are based on exports of domestic product from this supplier. These exports took place out of the Port of Vancouver, Washington.

You take the position that in HQ 226096, Customs compared the price of the imported ferrophosphorous at the point of FOB port of export, to the domestic product at the point of ex factory interior U.S., and that Customs should have compared the import at its FOB port of export cost with the domestic merchandise's FOB port of export cost. You submit, with supporting documentation, that the cost of rail freight, stevedoring and inspection/surveys raised the price of the domestic product. In addition you provided the shipping costs from Ventspils to Bremen, per metric ton, and in order to arrive at an accurate port of export price, subtracted the shipping costs from the CIF Bremen prices. The remaining prices, which are already FOB Ventspils would not need to be adjusted. Using these adjusted figures, the lower priced imports are priced 7% to 18% higher than the domestic merchandise (FOB port of export price) and the higher priced imports are 41% to 43% higher than the domestic (FOB port of export price) merchandise. You state that the differences in the price of the ferrophosphorous are a natural and expected phenomenon for competing by-products of an essentially identical character. You state that the factors affecting price include the seller's profit expectation, normal fluctuations of supply and demand, dissolution of the Soviet Union and privatization of Kazakhstan production. You state that the pricing patterns of the imported ferrophosphorous bear out the foregoing, and demonstrate increases and decreases in the price of the imports. The shipments upon which you rely are contained in your Exhibit A, which consists of a chart of the imports. The purchases do show some price fluctuation. In addition, you take the position that straight price comparisons alone are not a valid indicator of relative value in a by-product market, and that such an analysis is inconsistent with Congressional intent behind the "commercially interchangeable" standard.


Whether the imported and domestic ferrophosphorous is commercially interchangeable for purposes of 19 U.S.C.


The drawback law was substantially amended by section 632 of Title VI (Customs Modernization) of the North American Free Trade Agreement (NAFTA) Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2192 (1993). As amended, 19 U.S.C. ?1313(j)(2) provides that drawback may be granted if, among other requirements, there is, with respect to imported duty-paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise. To qualify for drawback, the other merchandise must be exported or destroyed within 3 years from the date of importation of the imported merchandise.

Consequently, the standard for substitution drawback under 19 U.S.C. ?1313(j)(2), as amended, has been changed to commercial interchangeability from fungibility. House Report 103-361 and Senate Report 103-189 contain language explaining this change. Concerning commercial interchangeability, Senate Report 103-189 states, at page 83, "[t]he Committee intends that, in determining the commercial interchangeability of two articles, the Customs Service should consider the following criteria, among other factors: governmental and recognized industry standards, part numbers, tariff classification, and relative values." The House Report language explaining this change is very similar.

C.R. cites the Senate Report in support of its position that the straight price comparison is a subjective standard which does not take into consideration the nature of the product and its market, in this case. In ruling on substitution drawback under 19 U.S.C. ?1313(j)(2) since passage of the above-described amendment to ?1313(j)(2) by the NAFTA Implementation Act, Customs has followed the legislative history quoted above, including evaluation of the critical properties of the substituted merchandise, using the criteria specifically listed by the House and Senate Reports.

The analysis of two factors, part numbers and tariff classification, is not at issue, and our findings from HQ 226096 remain as discussed in the FACTS section above. With respect to governmental and recognized industry standards, as additional information has been provided, the finding will be reconsidered.

Governmental And Recognized Industry Standards

In response to our request for information on how the merchandise is bought and sold, we were provided with copies of contracts which provided specifications for the ferrophosphorous. Several of the contracts for the imported merchandise referred to "OST 113-25-44-86." According to you OST refers to specifications that are identical with GOST 113-25-44-86, which are specifications from the Kazakhstan producer. You have not provided any information as to the use of OST standards such as the organization that developed the standards and Customs scientists were unable to determine the origin of those standards. As stated, the standards appear to be a company specification rather than a government or recognized industry standard. A company standard does not satisfy the criterion of a government or recognized industry standard. However, in absence of a government or recognized industry standard, Customs will consider a match with the company specifications as evidence of commercial interchangeability.

The OST specifications provide for four grades of ferrophosphorous, which include specifications for phosphorous, silicon, manganese and sulfur content. You have also provided a contract for the export sale of ferrophosphorous , which provides specifications with no reference to any standard. From review of the specifications, it appears that the exported merchandise, according to its test results, would not fall within the requirements of any one of the four OST grades, and based on the requirements specified, the export should have met the FF 20-6 OST Grade. The imports, based on either the requirements specified in the contract or the test results, fall within the following OST Grades:

Import Requirement Test
xxx-xxxx695-8 FF 25-1, 25-2 or 20-6 FF 25-2
xxx-xxxx825-1 FF 25-2 fits within no grade

The LSS report states with respect to the OST specifications:

In our opinion, the grades provided by the applicant are reasonable and can be used to differentiate between various ferrophosphorous products. We believe that substitution should be based on a grade for grade basis (i.e. FF25-1 for FF25-1).

The imports are purchased by reference to OST standards, and generally they appear to fit within the FF 25-2 Grade, either by requirements or test results. The export however, is required to meet the FF 20-6 Grade according to the contract, and by its test results does not fit into any of the OST Grades. Therefore, although the OST contract specifications may be sufficient as a substitute for the criterion of a match by reference to governmental and recognized industry standards, according to the documents submitted, the imports do not match the export grade for grade of ferrophosphorous.

Before HQ 226096 was issued, the evidence submitted was reviewed by our office of Laboratory and Scientific Services. A report was issued, dated October 31, 1995. In addition to the portion of the report that was cited in HQ 226096, the report also addressed the vanadium content of ferrophosphorous:

We note, that although ferrophosphorous is described in the technical literature as "an alloy of iron and phosphorous used in the steel industry for adjustments of the phosphorous content of special steels", the material is also used to recover metals such as vanadium if in sufficiently high concentration. Mr. Jerry Sproul of the FMC Corporation, a producer of ferrophosphorous, has indicated that ferrophosphorous material is also used in the recovery of metals such as vanadium. Additionally, the technical literature also states that "Valuable metals such as vanadium, can be recovered economically from the ferrophosphorous if they are present in unusually high concentrations. Vanadium is recovered together with chromium by blowing with oxygen."

Therefore, in certain instances (high vanadium and/ or chromium content) the ferrophosphorous material is used in the recovery of vanadium and chromium, instead of being used in the adjustment of the phosphorous content in special steels. The specification sheets provided by the applicant are inconsistent in that the type of elements tested vary for each shipment. Three of the four specification sheets for the imported ferrophosphorous do not list the vanadium or chromium content. One of the imported ferrophosphorous specification sheets list the vanadium and chromium content as 0.30% and 0.37% respectively. However, from the compositional breakdown listed in the specification sheets we can conclude that the vanadium and chromium concentrations of the imported ferrophosphorous are much lower than the domestic ferrophosphorous, which are listed as 4.71% vanadium and 4.04% chromium. Additionally, Mr. Sproul (FMC Corporation) has indicated that past usage of ferrophosphorous for vanadium recovery was usually in the range four to five percent vanadium.


In our opinion, the imported and domestic ferrophosphorous are not commercially interchangeable. The imported product appears to be suitable for use solely in the production of special steels (addition of phosphorous), whereas the domestic merchandise may be used for vanadium recovery or as a source of phosphorous (special steel). Therefore, the imported and exported merchandise listed by the applicant may not be commercially interchangeable in all instances for purposes of 1313(j)(2). (Emphasis supplied).

In the LSS report, of March 3, 1997, the vanadium content of the merchandise was addressed again:

The vanadium content of the imported and domestic ferrophosphorous, however, is a subject of concern. Vanadium is a metal of commercial importance. The specification (113-25-44-86) provided in the proposed contract does not include specifications for vanadium, although it is listed (when applicable) in the shipment invoices. The domestic ferrophosphorous which is mined in Idaho, contains a high vanadium content (designated export merchandise). The exported ferrophosphorous is a vanadium rich product that can be used for vanadium recovery, whereas the imported ferrophosphorous contains little or no vanadium. Therefore the imported ferrophosphorous cannot be used for vanadium recovery.

The applicant indicates that ferrophosphorous is being used for the addition of phosphorous to steel. Steel may or may not require the addition of phosphorous, depending on the grade of steel being manufactured. A researcher with U.S. Steel has indicated his opinion that the content of vanadium (4-5%) in ferrophosphorous should not really matter since the vanadium also has a strengthening effect on steel. This is especially true for certain low carbon steel grades. Therefore, it appears that the vanadium content of the exported ferrophosphorous would not preclude its use as an additive in steel.

Mr. Mark Wolff of Continental Resources states that both the domestic and imported ferrophosphorous are used domestically for the production of steel. However, since the price of vanadium has risen, there is concern as to whether the exported material (high vanadium content) will be used for vanadium recovery, instead of being added to steel for strengthening purposes.

The difference in vanadium content and the failure of the imports and exports to fall within the grade-for-grade criteria of the OST specifications you provided indicate that the criterion of a match within a government or recognized industry standard has not been met by the imports and exports. Based on the information available, we believe that an import and export that met a grade-for-grade OST specification and had less than 4% vanadium or chromium content would satisfy the criterion.

Relative Value

With regard to the relative value analysis, we disagree with CR's position that the prices upon which the relative value determination is based should be adjusted as set forth by CR. The applicable provision of the drawback statute, 19 U.S.C. designated import and the export:

...with respect to imported merchandise on which was paid any duty,...any other merchandise...that is commercially interchangeable with such imported merchandise...is...either exported or destroyed....

Nothing in the statute or legislative history compels the comparison of any values other than the import value shown on the entry documents and the export value which should also be the value reported to Census on the Shipper's Export Declaration and which is used for trade statistics. However, Customs can only make such comparisons when the facts are made available to it. Customs will make a relative value analysis based on the information provided by the drawback claimant. A ruling request must set forth all relevant facts. See, Customs Regulations, for Customs appraisement of the export article. The sales documents to the overseas customer should suffice. If insufficient information is provided, Customs may be precluded from making a finding of commercial interchangeability. Written statements made by counsel, without supporting evidence are not sufficient.

Where Congress wanted complicated appraisement to be done, it provided for that appraisement in the statute. By way of comparison, unlike the simple use of the relative value criterion without more in the committee reports, Congress provided explicit valuation comparison criteria for dumping duties. See, 19 U.S.C.

Our decision on the relative value criterion remains unchanged from that set forth in HQ 226096, supra, and that decision is incorporated herein.

In this case, without meeting the OST specification grade for grade, without a vanadium or chromium content of less than 4% and without additional evidence regarding the relative values, we cannot find that the criteria are met in order to establish commercial interchangeability of the subject merchandise.


The imported and domestic exported ferrophosphorous is not commercially interchangeable for purposes of the substitution unused merchandise drawback law under 19 U.S.C. ?1313(j)(2).


International Trade
Compliance Division

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