HQ 229278

September 27, 2002

PRO-2-07 RR:CR:DR

229278 RDC

Port Director of Customs

Houston Service Port

2350 North Sam Houston Parkway East Suite 1000

Houston, Texas, 77032-3126

ATT: Celia Ride, Assistant Port Director

Re: Compaq; Protest number 5301-01-100097; 19 USC § 1313(j)(1); NAFTA;
inventory methods; high-to-low; fungibility; proof of export.

Dear Sir or Madam:

The above-referenced Protest was forwarded to this office for further
review on August 24, 2001. We have considered the points raised by your
office and the Protestant. Our decision follows.

FACTS:

Compaq Computer Corporation ("Compaq") protests the denial of 29
drawback entries. The protested drawback entries claimed drawback per 19
USC § 1313(j)(1), direct identification unused merchandise drawback. The
goods are described as "portable (laptop) computers, CRT monitors; power
supplies; batteries; and various other ADP parts and accessories" and
were exported to Canada and Mexico. The drawback claims were liquidated
on April 13, 2001, with zero drawback granted.

According to the Houston drawback office, "after reviewing the ROIs
\[reports of investigation\] the claims were disallowed in full . . . ."
Hence, the protested drawback entries were denied based on the
conclusions of the Special Agent in Charge ("SAC"), Houston office,
which determined the following regarding the drawback claims. First, an
inventory accounting method was not established. Second, acceptable
sample export documents were not furnished for five of the claims.
Third, fungibility of the imported and substituted products was not
demonstrated. And finally, "requested sample inventory documents to show
receipt of the imported merchandise at the Houston Facility were not
provided." Though it appears other issues with the drawback claims were
identified in the investigation and addressed by Compaq, the Houston
drawback office in its transmittal to this office limited its request
for further review to the 4 issues noted above. We therefore limit this
response to addressing these 4 issues.

According to the Report of Investigation ("ROI") dated November 1, 2000,
and labeled report number 004, in October of 1998, Compaq filed 19
drawback claims. These entries were prepared for Compaq by AEI Drawback
Services, Inc. ("AEI"). In a letter dated November 5, 1998, AEI advised
Customs to liquidate 17 of these claims with zero drawback because there
were errors in the claims. In this letter AEI stated, "It came to our
attention that a few of the parts included in \[these 17 claims\] were,
in fact, multiple sourced items. In these cases the parts in question
were sourced from non-originating countries as well as from Mexico. They
have been set aside from the non-originating pool for the re-filing of
\[these 17 claim numbers\] . . . ."

Subsequently, in November 1998, the two remaining claims were amended,
17 new drawback entries were filed to replace the incorrect claims and
10 new drawback claims were then filed.

On July 13, 1999, Compaq filed a Prior Disclosure pursuant to 19 USC §
1593a(a)(3) and 19 CFR § 162.74 "to disclose errors which occurred in
connection with certain Compaq drawback claims." These certain drawback
claims are the same 29 drawback entries amended and herein protested.
According to Compaq's Prior Disclosure, it had inadvertently claimed
drawback on goods that were shipped in bond through the US; therefore
the goods were not entered, no duties were paid and no exportation took
place so these goods were not entitled to drawback. On November 23,
1999, Compaq filed a document labeled "Prior Disclosure Perfection" with
which it intended to perfect the Prior Disclosure of July 13, 1999.
Along with the Prior Disclosure Perfection Compaq re-submitted the 29
drawback claims which it had amended for the second time. As a result of
this Prior Disclosure Compaq returned \$1,978,502.59 in accelerated
drawback to Customs.

The 29 drawback claims that were the subject of the Prior Disclosure
also were the subject of an investigation by the office of the Special
Agent in Charge, ("SAC"), Houston. The SAC office determined that the 29
drawback claims should be denied for the reasons stated above. The
claims were liquidated with zero drawback and \$4,913,187.85 in
accelerated drawback paid to the claimant, Compaq, was returned to
Customs.

Compaq filed four documents with the drawback office in Houston in
response to the disallowance of the drawback claims: 1) "Responses to
Issues Requiring Clarification" dated April 13, 2001, which is
substantively identical to 2) Compaq's April 16, 2001, "Request for
Voluntary Reliquidation"; 3) "Amended Protest and Application for
Further Review" dated June 22, 2001; and 4) "Second Amended Protest and
Application for Further Review" dated July 13, 2001. In its submissions
the Protestant responded to the issues stated as the cause for denial of
the drawback claims, including issues raised by the Reports of
Investigation which are not addressed here because these issues were not
included for review by the Houston drawback office. The following
information regarding Compaq's responses to the denial of the drawback
claims is taken from its April 16, 2001, "Request for Voluntary
Reliquidation."

Compaq states that the protested drawback claims were filed using the
low-to-high accounting method with established average inventory
turn-over period to identify the merchandise. On September 4, 2002, at
the request of this office, AEI sent documents as evidence to
substantiate Compaq's use of the low-to-high inventory accounting
method. Subsequently, AEI submitted additional evidence as requested on
several occasions. Drawback claim XXX-XXX4500-3 and its supporting
documentation were included. This amended drawback claim was filed on
November 11, 1999, and claimed drawback of \$51,115.04. Accelerated
drawback of \$183, 949.14 was paid on the original drawback claim and
Compaq repaid \$132, 834.10. Compaq submitted inventory records for
three part numbers that are part of this amended claim: part number
XXX506-001, described as "Presario 1725 Mon US" and sourced in Japan;
part number XXX529-001, described as "BATTNiMH-Aer/CT4/AR1 ALL" and
sourced in Japan, and XXX514-001, described as "AC Adapt Univ-LTESK
NA/CAN" and sourced in Taiwan. These descriptions are taken from the
"Supplier List: Houston (0280).

Attached to the CF 7551 for Compaq's amended claim number XXX-XXX4500-3
is a computer-generated report labeled "CF --7539 continuation sheet by
part #/product code." Though undated this report appears to be the same
as the one included with the original claim but includes the deletions
that must have been made for the amended claim. Some of the "quantity
claimed" and "total drawback" figures have been struck through by hand
and new figures entered. The following information regarding part
numbers 529-001, was taken from this report.

  --------------- ------------ ------------------ ------------------------
  part number                                     
  529-001                                         

  entry number    entry date   quantity claimed   drawback claimed

  XXX6056-7       7/28/96      60                 \$x
  --------------- ------------ ------------------ ------------------------

Also attached to amended claim 4500-3 is another CF 7593 continuation
sheet dated November 15, 1999. This sheet lists exports. The exports on
which drawback was claimed for part number XXX529-001 are represented by
the following table.

  ------------ --------------- ----------------- --------------------------
  Part number                                    
  XXX529-001                                     

  Date         180 days        Quantity shipped  Destination
               preceding                         

  8/02/1996    2/5/1996        20                CANADA

  8/12/1996    2/15/1996       20                

  8/19/1996    8/22/96         20                
  ------------ --------------- ----------------- --------------------------

A copy of the CF 7501 for entry number XXX6056-7, dated July 28, 1996,
provides the following information. The goods on the entry summary for
entry XXX6056-7 are described as "battery 2831A option kit" and "battery
\[illegible\] cell NiMH coin." Hence, it is impossible from these
descriptions to determine if the goods imported with these entries are
in fact part number 529-001. However, accompanying the entry summaries
are invoices from Motorola, Malaysia. The goods on invoice number 12554,
dated July 25, 1996, are described as "product number 529-001" and "OEM
battery 2831A option kit." The invoice further states "product of
Malaysia." But, included with the inventory records for part number
529-001 is a "Manufacturer's Affidavit," executed by Motorola,
Lawrenceville, Georgia, dated August 27, 2001, which certifies that part
numbers 529-001 and 258508-001 originate in Japan. Therefore we note
this discrepancy as to whether part number 190529-00, for purposes of
this drawback claim, originates in Japan or Malaysia.

The CF 7501, for entry number XXX6860-4 showing an entry date of July
14, 1996, shows that 1824 pieces of goods described as "monitors" and
"display units, with color crt" were entered. Attached to this CF 7501
are invoices for ADI Corporation of Taiwan for 1824 units of part number
506-001.

The CF 7501 for entry number XXX3833-6, shows that 834 units described
as "ad adaptor" and "pwr splies \<=50w, rectifiers" were entered on
March 7, 1996. The attached invoice number \[illegible\] shows that
Inventec Corporation, per purchase order P585008671 shipped from Taiwan
834 units. We note a discrepancy in unit price: the invoice and the CF
7501 show the unit price in US dollars as \$1.14 less than the cost show
on Compaq's "part receipt history." However, the lower cost found on the
invoice and entry summary is used to calculate drawback for the claim.

Compaq also provides the following for each of the part numbers: a
computer-generated supplier list for each of the three illustrative part
numbers labeled "EDB 5.1.4 Supplier List Houston (0280);" a summary of
import activity by part number for 1996 labeled "1996 CPQ Import
Activity;" and a computer-generated "part's receipt history." According
to Compaq the supplier list is a list of all vendors, but only parts
from those "foreign vendors" not located in Mexico were used for the
drawback claim. The supplier for part number XXX529-001 was Motorola,
Inc. of Lawrenceville, Georgia. for part number XXX506-001, ADI
Corporation of Taiwan; and for part number XXX514-001 Inventec
Corporation of Taiwan was the supplier.

The "Summary of Import Activity by part number for 1996 is labeled "1996
CPQ Import Activity." This sheet contains the entry number, entry date,
product number, product description, unit value, quantity imported,
HTSUS subheading and duty rate. On each import activity summary Compaq
has highlighted or boxed entries, indicating these entries were used for
drawback claim XXX-XXX4500-6. In a conference call between the
representatives of this office and Compaq and its broker, on September
9, 2002, Compaq stated that the "CPQ Import Activity" sheet was the
entire universe of Compaq's receipts of that part for the period listed.
In pertinent part, the import activity summary provided the following
information for part XXX529-001 which is in the table below. However,
the entry date provided was only the month and year; therefore the entry
date stated in the table was taken from the "Part's Receipt History."
Where "month - year" is used instead of a full date we indicate those
entries that could not be matched to receipts into inventory on the
Part's Receipt History.

1996 CPQ Import Activity for part number 529-001

  ------------ ----------------- ----------------------------- -----------
  Entry number Entry date        Product description           Quantity
               (received into                                  imported
               inventory)                                      

  7101-2       Feb - 96          KIT, OPT BTRYPK, NMH, 9 4/3E  2

  7373-7       Feb - 96          KIT, OPT BTRYPK, NMH, 9 4/3E  1

  3014-3       5/6/96            KIT, OPT BTRYPK, NMH, 9 4/3E  1500

  8340-5       May -- 96         KIT, OPT BTRYPK, NMH, 9 4/3E  2

  8467-6       May - 96          KIT, OPT BTRYPK, NMH, 9 4/3E  2

  9111-1       Jun -- 96         KIT, OPT BTRYPK, NMH, 9 4/3E  1

  9359-4       Jun - 96          KIT, OPT BTRYPK, NMH, 9 4/3E  3

  6804-2       Jun - 96          KIT, OPT BTRYPK, NMH, 9 4/3E  6500

  8557-4       7/9/96 \[4560\]   KIT, OPT BTRYPK, NMH, 9 4/3E  4550

  0387-2       7/10/96           KIT, OPT BTRYPK, NMH, 9 4/3E  1830

  2093-4       718/96            KIT, OPT BTRYPK, NMH, 9 4/3E  550

  6056-7       7/31/96           KIT, OPT BTRYPK, NMH, 9 4/3E  2925

  9686-8       8/17/96           OEM BATTERY 2831A OPTION KI   2600

  1489-3       8/23/96           OEM BATTERY 2831A OPTION KI   2240

  3533-9       8/29/96           OEM BATTERY 2831A OPTION KI   2240

  3353-9       8/29/96           OEM BATTERY 2831A OPTION KI   1598

  Total units                                                  
  imported                                                     
  between                                                      
  February                                                     
  1996 and                                                     
  August 1996:                                                 
  26,544                                                       

  0856-6       Sep - 96          KIT, OPT BTRYPK, NMH, 9 44/3  2

  2027-2       Oct - 96          KIT, OPT BTRYPK, NMH, 9 44/3  1

  5603-3       10/11/96          OEM BATTERY 2831A OPTION KI   2902

  2087-0       11/6/96           OEM BATTERY 2831A OPTION KI   2000

  2896-0       Nov - 96          KIT, OPT BTRYPK, NMH, 9 44/3  2

  8228-4       11/30/96          OEM BATTERY 2831A OPTION      1981

                                 Total                         33432
  ------------ ----------------- ----------------------------- -----------

The unit value provided is between \$56.00 and \$41.60 for all imports
represented above.

Behind the 1996 summary of import activity Compaq also includes a
computer-generated "part's receipt history" for each part. This history
is a detailed version of the summary. Since the CPQ Import Activity
shows imports from February 1996 to November 1996, we reproduce in
pertinent part below the Parts Receipt History for the same period. We
have supplied the corresponding entry number -- it is not on the History
-- where we could determine it from quantity. (We note that the History
includes other information including vendor code and name, quoted price,
quantity ordered.)

PARTS RECEIPT HISTORY PART NUMBER XXX592-001

  -------------------- ------------------------- -------------------------
  Date received        Quantity received         entry number

  5/6/96               1500                      XXX3014-3

  6/3/96               2000                      not provided

  6/28/96              500                       not provided

  6/28/96              0                         

  7/9/96               4560                      XXX8557-4

  7/10/96              1830                      XXX0387-2

  7/18/96              550                       XXX2093-4

  7/22/96              6000                      not provided

  7/31/96              2925                      XXX6056-7

  7/31/96              0                         

  8/17/96              2600                      XXX9686-8

  8/23/96              2240                      XXX1489-3

  8/29/96              2240                      XXX3353-9

  8/29/96              1598                      XXX3353-9

  10/11/96             2902                      XXX5603-3

  11/6/96              2000                      XXX2087-0

  11/30/96             1981                      XXX8228-4

  total                35426                     
  -------------------- ------------------------- -------------------------

In the same September 9, 2002, conference call Compaq and its broker
were asked to provide the records of removal from inventory.
Subsequently, the Protestant provided documents labeled "Parts Ship
History" for all three parts. The Protestant's broker was then asked to
show which withdrawals were for export. The list was provided again with
the removals for export highlighted. That listing, in pertinent part,
provided the following information for the period 180 days before the
export dates of August 2,1996 (20 exported), August 12, 1996 (20
exported), and August 19,1996 (20 exported) set forth on drawback claim
XXX-XXX4500-3. From August 2, 1996, the 180-day period would begin
February 5, 1996 since in 1996, February had 29 days. The 180-day period
from August 19, 1996, would end February 22, 1996.

PARTS SHIP HISTORY (EXPORTS ONLY)

  ------------------------------------- ---------------------------------
  Date Shipped                          Qty

  19960216                              3

  19960217                              18

  19960217                              25

  19960217                              26

  19960217                              30

  19960219                              52

  19960220                              3

  19960220                              4

  19960221                              56

  19960222                              29

  199602221                             151

  199602235                             125

  19960223                              7

  19960224                              6

  19960226                              100

  19960226                              1

  19960226                              74

  19960226                              5

  19960226                              30

  19960226                              23

  19960228                              129

  19960228                              50

  19960228                              6

  19960305                              50

  19960305                              14

  19960305                              60

  19960305                              582

  19960305                              36

  19960305                              425

  19960305                              26

  19960305                              6

  19960305                              10

  19960305                              20

  19960305                              68

  19960305                              3

  19960305                              582

  19960305                              425

  19960305                              20

  19960305                              425

  19960305                              15

  19960305                              582

  19960305                              51

  19960311                              3

  19960313                              150

  19960313                              100

  19960314                              3

  19960315                              143

  19960315                              4

  19960318                              4

  19960319                              20

  19960320                              10

  19960326                              70

  19960326                              30

  19960327                              1

  19960327                              4

  19960330                              1

  19960402                              17

  19960402                              1

  19960409                              30

  19960412                              90

  subtotal                              5034

  19960507                              3

  19960507                              16

  19960507                              8

  19960507                              13

  19960507                              2

  19960507                              3

  19960507                              13

  19960508                              5

  19960508                              6

  19960510                              10

  19960510                              5

  19960510                              5

  19960510                              2

  19960510                              20

  19960510                              5

  19960510                              5

  19960513                              5

  19960522                              7

  19960603                              4

  19960603                              18

  19960603                              28

  19960603                              10

  19960605                              15

  19960606                              38

  19960606                              55

  19960606                              5

  19960611                              12

  19960611                              1

  19960611                              5

  19960611                              2

  19960623                              19

  19960705                              35

  19960705                              3

  19960705                              30

  19960705                              30

  19960705                              35

  19960706                              22

  19960706                              109

  19960706                              19

  19960706                              2

  19960706                              311

  19960708                              2

  19960708                              16

  19960708                              1

  19960708                              35

  19960709                              16

  19960709                              786

  19960710                              7

  19960710                              20

  19960710                              142

  19960710                              25

  19960710                              10

  19960710                              34

  19960710                              12

  19960710                              100

  19960710                              20

  19960710                              30

  19960710                              912

  19960710                              1209

  19960711                              109

  19960711                              139

  19960711                              73

  19960711                              72

  19960711                              20

  19960711                              52

  19960711                              10

  19960711                              72

  19960711                              113

  19960712                              5

  19960712                              4

  19960713                              296

  19960716                              5

  19960716                              11

  19960716                              7

  19960716                              20

  19960716                              137

  19960716                              60

  19960716                              30

  19960719                              12

  19960719                              4

  19960720                              50

  19960722                              2

  19960730                              9

  19960802                              20

  19960803                              29

  19960803                              29

  19960803                              6

  19960803                              1

  19960803                              73

  19960803                              4

  19960804                              7

  19960804                              5

  19960804                              6

  19960808                              112

  19960808                              111

  19960808                              31

  19960808                              2

  19960808                              10

  19960809                              80

  19960809                              30

  19960812                              20

  19960814                              30

  19960817                              1

  19960819                              20

  subtotal                              6,102

  total                                 11,136
  ------------------------------------- ---------------------------------

As evidence of exportation Compaq submits 11 photocopies designated both
"Packing List" and "Original Bill of Lading." The first documents
identifies shipment numbers: F096029527; F096029530; F096029532;
F096029521; F 096029523; F096029525; F096029522. This first documents
also contains the signature of the carrier's representative, "JED." All
11 copies are signed under a rubber-stamped certification that states:
"I certify that this document is a true and correct copy." Underneath
the unidentified signature is "Danzas AEI Drawback Services." All the
packing lists are dated August 19, 1996, and bear the same ship to
address: Compaq Canada in Richmond Hill, Ontario. All these copies state
SHIP VIA: BMLG, date shipped is states as August 19, 1996 and all bear
bill of lading number 0801906. Two pages of this bill of lading contain
the following information:

  --------------- -------------- ------------------ -------------- ----------
  Sales order     customer order shipment ID number product number quantity
  number          number                                           

  SO-0326400      4500001877     F096029525         514-001        20

  SO-0332181      4500002046     F096029527                        30
  --------------- -------------- ------------------ -------------- ----------

Also included as evidence of exportation is a photocopy labeled "Caliber
Logistics" and "Outbound Load Sheet." This sheet contains the same
certification by AEI and contains the following information: Loader --
Jed; Date: 08/19/96; page 1 of 1; Carrier -- BLMG; Ship ID -- 9530; PCS
-- 232; BOL Numbers -- 0801096. Seven Compaq "Commercial Invoices"
numbers F096029527; F096029530; F096029532; F096029521; F 096029523;
F096029525; F096029522 are also included. These invoices all have the
"same ship to" and "bill to" addresses, namely Compaq Canada in Ontario.
They also all have the same date, August 19, 1996, the same "date of
shipment" August 19, 1996, and the same bill of lading number, 08019096.
The invoices totals add to \$357, 444.00.

Finally, Compaq includes an unidentified photocopy of what is probably a
Canadian Customs entry document; the document resembles a Customs Form
7501, entry summary, and the statements as to what information is
required are in English and French. This document contains the same
certification by AEI as the above documents. The vendor is Compaq
Computer in Houston, Texas. The consignee and purchaser are Compaq
Canada in Ontario. This document says that "102 cases computers" and
"258 cases options" were shipped via BLMG. Currency of settlement is "US
Funds" and invoice total is 357,444.00. The date of direct shipment to
Canada is noted as "see attached invoices."

As evidence that Compaq's 9-digit part numbers establish fungibility
Compaq includes a copy of its "Engineering Data Base 5.0.10" with its
Amended Protest dated June 22, 2001. This document is dated April 10,
2001, and is titled "Material Search Results: Houston (0280). A very
small portion of this document only the information pertinent to this
inquiry is represented by the table below.

  ------------ ---------------------------- ---------- ------- ------ ---------
  Material     description                  revision   Mat'l   STD    Project
  number                                               Group          

  210508-001   ASSY,MON,LC14,AM,POL,NH      X          X       X      X

  210508-002   ASSY,MON,LC14,AMPOL,NH       X          X       X      X

  210508-003   ASSY,MON,LC14,AM,MPR,NH      X          X       X      X
  ------------ ---------------------------- ---------- ------- ------ ---------

Also included as evidence that Compaq's 9-digit part numbers establish
fungibility is an attachment from Compaq's request for a ruling
regarding commercial interchangeability. This attachment lists the
Compaq part number, a general description, an engineering description
and the part number's classification subheading per the Harmonized
Tariff System of the United States (HTSUS). A small part of this
document is represented by the table below

  ------------- --------------- ------------------------ -----------------
  Compaq Part   Description     Engineering Description  HTS
  \#                                                     Classification

  201580-162    portable        ARMADA 1571DM LTNA       8471.30.00
                computer                                 

  201580-202    portable        ARMADA 1571DM BRZL       8471.30.00
                computer                                 

  201700-002    portable        LEIAM P166 2160 CTFT     8471.30.00
                computer                                 

  201700-002    portable        M-\*195 KINGSMILL DMT    8471.30.00
                computer                                 

  201700-162    portable        ARMADA 1598DMT LTN       8471.30.00
                computer                                 

  201820-002    portable        ARMADA 1573DM US         8471.30.00
                computer                                 
  ------------- --------------- ------------------------ -----------------

ISSUES:

1\. Did Compaq establish that it used the low-to-high with an
established average inventory turn-over period accounting method to
identify the goods?

2\. Whether exportation of the merchandise on which drawback is claimed
has been established in accordance with Customs Regulations?

3\. Are the goods identified by the inventory accounting method
fungible?

4\. Did Compaq provide sample inventory documents to show receipt of the
imported merchandise at the Houston facility?

LAW AND ANALYSIS:

We note initially that the initial Protest was timely filed, i.e.,
within 90 days of the liquidation of the drawback entries (19 USC §
1514(c)(3)(B)). Under 19 USC § 1514(a) "decisions of the Customs
Service, including the legality of all orders and findings entering into
the same, as to . . . the liquidation or reliquidation of an entry . . .
are final unless a protest of that decision is filed within 90 days of
the decision (19 USC §1514(c)(3)(B)). The subject entries were
liquidated on April 13, 2001, and this Protest was filed on April 13,
2001. Per 19 CFR § 174.14(a) amendments to protest may be made at any
time within the 90-day from decision protest period. Therefore, the
Amended Protest filed June 22, 2001, and the Second Amended Protest
filed on July 13, 2001, were also timely filed.

Under 19 USC § 1514(a) and 19 CFR § 174.11 decisions of the Customs
Service are final unless specifically named as subject to protest (19
USC § 1514(a)). The "refusal to pay a claim for drawback" is protestable
under 19 USC § 1514(a)(6). Therefore, the issue raised in the instant
Protest is protestable per 19 USC § 1415(a)(6).

It is the opinion of your office that the Protestant's Request for
Further Review meets the requirements of 19 CFR §1 74.24 and is
therefore entitled to review by this office. However, the Protestant
makes no argument to support its position that the protest is entitled
to further review as required by Customs Regulations. The criteria for
granting a request for further review are set forth in 19 CFR §174.24
which states,

> Further review of a protest which would otherwise be denied by the
> port director shall be accorded a party filing an application for
> further review which meets the requirements of §174.25 when the
> decision against which the protest was filed:
>
> a\) Is alleged to be inconsistent with a ruling of the Commissioner of
> Customs or his designee, or with a decision made at any port with
> respect to the same or substantially similar merchandise;
>
> \(b\) Is alleged to involve questions of law or fact which have not
> been ruled upon by the Commissioner of Customs or his designee or by
> the Customs courts;
>
> \(c\) Involves matters previously ruled upon by the Commissioner of
> Customs or his designee or by the Customs courts but facts are alleged
> or legal arguments presented which were not considered at the time of
> the original ruling; or
>
> \(d\) Is alleged to involve questions which the Headquarters Office,
> United States Customs Service, refused to consider in the form of a
> request for internal advice pursuant to §177.11(b)(5) of this chapter.

Therefore, further review will be accorded to the party filing an
application for further review which meets the requirements of §174.25
and at least one of the criterion in § 174.24. In the subject protest,
the Protestant alleges none of the conditions required in § 174.24 of
the decision protested. Consequently, we note at the outset that the
criteria for further review as set out in 19 CFR § 174.24 have not been
met by the subject Application, and will treat this application as a
request for internal advice per 19 CFR §177.11.

1\. Did Compaq establish that it used the low-to-high with an
established average inventory turn-over period accounting method to
identify the goods?

The drawback claims were disallowed because "the inventory accounting
methodology for exports to Canada and Mexico was not established; . . .
. In addition, . . . merchandise arriving at the Houston facility has
identifying bar codes attached that are removed after importation,
replaced with new bar codes, and the merchandise loses its identity
because the bar code labels are not cross-referenced. This would make a
difference if claims were based on an inventory of all non-originating
goods or an inventory of other than all originating goods."

Compaq's disputed drawback entries claimed drawback pursuant to 19 USC §
1313(j)(1) on computer components which were exported to Canada and
Mexico. Under 19 USC § 1313(j)(1), drawback is authorized if imported
merchandise on which was paid any duty, tax, or fee imposed under
federal law because of its importation is, within three years of the
date of importation, exported or destroyed under Customs supervision and
was not used in the United States before such exportation or
destruction. Under 19 CFR § 181.45(b), an imported good subsequently
exported to Canada or Mexico, in the same condition is eligible for
drawback under 19 USC § 1313(j)(1), and is not subject to NAFTA
drawback, that is, is not subject to the limitation on drawback set
forth in 19 CFR § 181.44. Per 19 CFR § 181.45(b)(2)(i)(B), if all of the
goods in a particular inventory are non-originating, identification of
entries for designation for same condition drawback shall be on the
basis of one of the accounting methods in 19 CFR § 191.14.

The Protestant states that "Compaq claims are (and have always been)
filed based on low-to-high accounting methodology" which is an approved
inventory accounting method for identifying merchandise "if all of the
goods in a particular inventory are non-originating" (19 CFR §
181.45(b)(2)(i)(B)). Though it is unclear what is meant by Houston's
statement about the bar codes, we assume that they mean to indicate that
the origin of the goods is somehow linked to these bar codes and that
the determination of origin is somehow disrupted by Compaq's removal of
the bar codes.

In response, the Protestant states that "Compaq does not remove barcode
labels from our units; we're unclear where contrary information was
derived. Any barcode 'removal' at Compaq would be exclusive to
components and incident to the manufacturing process as components are
removed from shipping boxes, which are discarded. This has no
applicability in the context of the subject claims." Further, in its
July 13, 2001, "Second Amended Protest," the Protestant states that
Compaq uses its 9-digit part numbers to "segregate originating from
non-originating products . . . . We look at manufacturing data and build
plans to determine which products (by part number) may be
NAFTA-originating, place these products into a non-originating lot by
part number, and exclude them based on their potential to be
NAFTA-originating by part number, . . . ." Therefore, since the Houston
drawback office does not contend that Compaq relies on bar codes on its
goods to determine country of origin, and offers no explanation for its
"concern" about removal of bar codes, we do not address the issue of
removal of bar codes or country of origin determination.

Section 191.14(b) provides the conditions and criteria for identifying
merchandise by accounting method, as Compaq does. Among those
requirements and conditions,

> \(2\) The person using the identification method must be able to
> establish that inventory records (for example, material control
> records), prepared and used in the ordinary course of business,
> account for the lots of merchandise or articles to be identified as
> being received into and withdrawn from the same inventory. Even if
> merchandise or articles are received or withdrawn at different
> geographical locations, if such inventory records treat receipts or
> withdrawals as being from the same inventory, those inventory records
> may be used to identify the merchandise or articles under this
> section, subject to the conditions of this section . . .

(19 CFR § 191.14(b)(2)). 19 CFR § 191.14(b)(3) and (4) further provide,

> \(3\) Unless otherwise provided in this section or specifically
> approved by Customs (by a binding ruling under part 177 of this
> chapter), all receipts (or inputs) into and all withdrawals from the
> inventory must be recorded in the accounting record;
>
> \(4\) The records which support any identification method under this
> section are subject to verification by Customs (see § 191.61 of this
> part). If Customs requests such verification, the person using the
> identification method must be able to demonstrate how, under generally
> accepted accounting procedures, the records which support the
> identification method used account for all merchandise or articles in,
> and all receipts into and withdrawals from, the inventory, and the
> drawback per unit for each receipt and withdrawal; . . .

19 CFR § 191.14(b)(3), (4)). Therefore, Compaq must be able to establish
that its inventory records show all receipts into inventory and all
withdrawals (unless not required, as in the low-to-high method with
established average inventory turn-over period which requires only
withdrawals for export to be accounted for). Compaq must be able also
prove with its records how it applies the specified identification
method.

Compaq states that it used the low-to-high method of identification for
these protested claims. With the low-to-high method fungible merchandise
is "identified by recordkeeping on the basis of the lowest drawback
amount per unit of the merchandise or articles in inventory" (19 CFR §
191.14(c)(3)(i)). Further,

> If the same amount of drawback is attributable to more than one lot of
> merchandise or articles, withdrawals are from the [oldest
> (first-in)]{.underline} merchandise or articles among those lots with
> the same amount of drawback attributable."

(19 CFR § 191.14(c)(3)(i))

Compaq also states that is used the low-to-high method with established
average inventory turn-over period as provided by 19 CFR §
191.14(c)(3)(iii). Under this method,

> [all receipts into and all withdrawals for export are recorded in the
> accounting record and accounted for]{.underline} so that each
> withdrawal is identified by recordkeeping on the basis of the lowest
> drawback amount per available unit of the merchandise or articles
> received into the inventory in the established average inventory
> turn-over period preceding the withdrawal

19 CFR § 191.14(c)(3)(iii)(A). In addition, per 19 CFR §
191.14(c)(3)(iii)(C) Compaq must establish its inventory turn-over
period which

> is based on the rate of withdrawal from inventory and represents the
> time in which all of the merchandise or articles in the inventory at a
> given time must have been withdrawn. To establish an average of this
> time, at least 1 year, or three (3) turn-over periods (if inventory
> turns over less than 3 times per year), must be averaged. The
> inventory turn-over period must be that for the merchandise or
> articles to be identified, except that if the person using the method
> has more than one kind of merchandise or articles with different
> inventory turn-over periods, the longest average turn-over period
> established under this section may be used (instead of using a
> different inventory turn-over period for each kind of merchandise or
> article)

(19 CFR § 191.14(c)(3)(iii)(C)).

With regard to the protested entries, AEI submitted a statement dated
September 19, 2002, which stated that Compaq utilized a 180 day
inventory turn-over when filing the protested claims. However, in its
"Amended Protest" of June 22, 2001, the Protestant states, "in
attempting to provide information \[regarding identification of the
goods by inventory accounting method\], we have attached a summary of
Compaq's inventory activity for the past 4 years . . . . As demonstrated
in this summary, Compaq's average inventory turn period for 1997-2000
was 14.22 days, well within the turn window assumed for our drawback
claims." The information supplied consists of inventory represented by a
dollar amount, cost of sales and a statement as to average inventory
turn-over in days for each of the years 1997 through 2000. Since the
claim at issue, AA6-XXX4500-3, is based on exports in 1996, information
regarding 1997-2000 is irrelevant. Further, on September 20, 2002,
Compaq's broker represented that the turn-over period for 1996 is 8.24
days. However, no evidence as to how this figure was arrived at was
included although such evidence was requested.

The method for calculating the inventory turn over period is set forth
in 19 CFR § 191.14(c)(3)(iii)(C). The use of this method, as provided is
mandatory. In order to demonstrate how the inventory turn over period
was calculated one must know 1) the rate of withdrawal from inventory;
2) the time in which all of the merchandise or articles in the inventory
at a given time must have been withdrawn. Further, in Compaq's situation
where more than one kind of goods with different inventory turn over
periods are involved, one must also know whether the inventory turn-over
applies to the individual article being identified or if it is the
longest average turn-over period. Compaq has failed to supply any of
this information and thus has not established its application of the
average inventory turn over period. Since Compaq chose the low-to-high
method with an established average inventory turn-over period, without
demonstrating adequately its calculation of this period, its drawback
claims based on this method cannot be proved here.

Compaq's broker described the evidence it submitted and how it applied
the low-to-high method: "these documents illustrate how we developed
\[the protested\] claims and should serve as evidence on how we employed
the low-to-high method. . . . . The import listing is provided with each
part and the document is labeled '1996 CPQ Import Activity.' This data
provides by part number the duty per unit, which is used to identify the
lowest duty per unit import entry for designation purposes. Finally, we
have attached documentation for receipts into inventory. This document
is labeled, "A Parts Receipt History.'" This explanation of Compaq's use
of the low-to-high method is inadequate to demonstrate that the
Protestant correctly applied this method -- it does not explain how
withdrawals for export are accounted for. Further, Compaq states that it
relies on the "CPQ Import Activity" to identify the lowest duty per
unit. Since "CPQ Import Activity" sheets provided only have months and
years as dates it is not adequate to determine lowest drawback per
available unit when the turn-over period is calculated in days. Further,
this CPQ Import Activity does not account for withdrawals.

In addition, the provided supporting documentation is inadequate, both
because information has not been provided and because of
inconsistencies, to demonstrate proper use of the low-to-high method to
identify merchandise. There are discrepancies in the inventory records
which would prevent the demonstration of a proper use of the low-to-high
method. For part number XXX529-001 there are differences between Import
Activity summary and the Parts History. There are apparent matches
between the detailed inventory receipt records of 1500 (May 6, 1996),
4560 \[4550\] (July 9, 1996), 1830 (July 10, 1996), 550 (July 18, 1996),
2925 (July 31, 1996), and 2600 (August 17, 1996). There are
discrepancies between the 6500 units said to have been imported on entry
5088557-4 in June 1996, that are not recorded in the detailed part
receipt records for that month.

Further, the History shows receipts into inventory from May 1996 to
November 1996 for a total units received of 35,426. However the Import
Activity summary shows imports from February to November, for a total of
33,432 -- a difference of 1994 units shown on these records. Per 19 CFR
§ 191.14(c)(3)(iii)(A) the low to high method requires that [all
receipts into and all withdrawals for export are recorded in the
accounting record and accounted for]{.underline}." Compaq's records do
not show that all imported merchandise was received into inventory. In
addition, the parts receipt history shows no receipts into inventory
between November 2, 1995, and May 1996, but the import summary shows two
imports in February 1996.

Further, when using the low to high method "each withdrawal is
identified by recordkeeping on the basis of the lowest drawback amount
[per available unit of the merchandise]{.underline} or articles
[received into the inventory]{.underline} in the established average
inventory turn-over period preceding the withdrawal." Therefore, unless
all receipts into inventory are recorded "the lowest drawback amount"
cannot be determined. Also, key to the low to high method of identifying
the goods is that the lowest drawback amount [per available
unit]{.underline} of the merchandise is used. Compaq did not provide us
with either a starting inventory balance or a running inventory balance,
i.e., receipts into and withdrawals from inventory on the same report.
Therefore, it is impossible to determine which units are "available."
Also, the Protestant had to be asked to go back and identify the
withdrawals from inventory for export. We therefore cannot understand
how Compaq determines what units are "available" or how it avoids
designating the same goods more than once without identifying for its
own use the withdrawals from export.

The above notwithstanding, using drawback claim XXX-XXX4500-3 as an
example of the protested claims and the evidence for part number
XXX529-001, as a sample, we applied the low-to-high method with an
average inventory turn-over of 180 days to the evidence supplied by the
Protestant. We note that the Protestant has failed to demonstrate that
it properly used the low-to-high method with either a 180-day turn-over
or an 8-day turn over, therefore, we chose to a 180-day turn-over
period. When using the low-to-high method with a 180 day inventory turn
over, each withdrawal must be identified by the lowest drawback amount
(99% of duty paid) per available unit, accounting for all receipts into
inventory but only for withdrawals for export (disregard domestic
withdrawals) received into the inventory in the 180 day period preceding
the withdrawal.

First, from the amended drawback claim we determined the withdrawals
from inventory on which the drawback was claimed. On drawback claim
XXX-XXX4500-3, for part number XXX529-001 Compaq identified three
withdrawals from inventory for export on which drawback was claimed:
August 2, 1991; August 12, 1996; and August 19, 1996. Twenty units were
exported each time. Second, we calculated that 180 days preceding the
dates of these withdrawals from inventory.

Part number 529-001

  ---------------------- -------------- ---------------------------------
  Date shipped           Quantity       180 days preceding
                         shipped        

  8/2/1996               20             2/5/1996

  8/12/1996              20             2/15/1996

  8/19/1996              20             2/22/1996
  ---------------------- -------------- ---------------------------------

Third we examined the receipts into inventory for the preceding 180 days
to verify if the withdrawal was identified using the lowest drawback
amount per [available]{.underline} unit. Compaq identifies entry numbers
XXX2093-4, July 18, 1996, and XXX6056-7, July 31, 1996, for these
entries

1996 CPQ Import Activity for part number 529-001

  ------------ ----------------- ----------------------------- -----------
  Entry number Entry date        Product description           Quantity
               (received into                                  imported
               inventory)                                      

  XXX7101-2    Feb - 96          KIT, OPT BTRYPK, NMH, 9 4/3E  2

  XXX7373-7    Feb - 96          KIT, OPT BTRYPK, NMH, 9 4/3E  1

  XXX3014-3    5/6/96            KIT, OPT BTRYPK, NMH, 9 4/3E  1500

  XXX8340-5    May -- 96         KIT, OPT BTRYPK, NMH, 9 4/3E  2

  XXX8467-6    May - 96          KIT, OPT BTRYPK, NMH, 9 4/3E  2

  XXX9111-1    Jun -- 96         KIT, OPT BTRYPK, NMH, 9 4/3E  1

  XXX9359-4    Jun - 96          KIT, OPT BTRYPK, NMH, 9 4/3E  3

  XXX6804-2    Jun - 96          KIT, OPT BTRYPK, NMH, 9 4/3E  6500

  XXX8557-4    7/9/96 \[4560\]   KIT, OPT BTRYPK, NMH, 9 4/3E  4550

  XXX0387-2    7/10/96           KIT, OPT BTRYPK, NMH, 9 4/3E  1830

  XXX2093-4    718/96            KIT, OPT BTRYPK, NMH, 9 4/3E  550

  XXX6056-7    7/31/96           KIT, OPT BTRYPK, NMH, 9 4/3E  2925

  XXX9686-8    8/17/96           OEM BATTERY 2831A OPTION KI   2600

  XXX1489-3    8/23/96           OEM BATTERY 2831A OPTION KI   2240

  XXX3333-9    8/29/96           OEM BATTERY 2831A OPTION KI   2240

  XXX3353-9    8/29/96           OEM BATTERY 2831A OPTION KI   1598

  Total units                                                  
  imported                                                     
  between                                                      
  February                                                     
  1996 and                                                     
  August 1996:                                                 
  26,544                                                       
  ------------ ----------------- ----------------------------- -----------

PARTS RECEIPT HISTORY PART NUMBER XXX592-001

  -------------------- ------------------------- -------------------------
  Date received        Quantity received         entry number

  5/6/96               1500                      XXX3014-3

  6/3/96               2000                      not provided

  6/28/96              500                       not provided

  6/28/96              0                         

  7/9/96               4560                      XXX8557-4

  7/10/96              1830                      XXX0387-2

  7/18/96              550                       XXX2093-4

  7/22/96              6000                      not provided

  7/31/96              2925                      XXX6056-7

  7/31/96              0                         

  8/17/96              2600                      XXX9686-8

  Total 22465                                    
  -------------------- ------------------------- -------------------------

Therefore, using an established average inventory turn-over period of
180-days, accounting for all receipts into inventory and withdrawals for
export (without accounting for domestic withdrawals), the drawback
attributable to the August 2, 1996, August 12, 1996, and August 19, 1996
withdrawals for export must be the oldest (first-in) of the lowest
drawback amount per available unit which has been received into
inventory in the preceding 180 days, i.e., February 2, 1996, February
15, 1996 and .February 22, 1996, respectively.

Compaq represents that the July 19, 1996 and July 31, 1996, receipts
into inventory account for these three withdrawals for export on which
drawback was claimed. And in fact these receipts into inventory are
among those with the same lowest drawback amount. However, without
following the conventions described above, including accounting for all
receipts into inventory and all withdrawals for export, providing a
starting balance of the inventory, it is impossible to determine if
either of these imports in fact represent the oldest and "lowest
drawback amount per available unit." For these reasons, Compaq has
failed to prove it correctly applied the low-to-high method of inventory
accounting to identify the goods.

2\. Whether exportation of the merchandise on which drawback is claimed
has been established in accordance with Customs Regulations?

The protested drawback claims were denied, according to the Houston
drawback office, because "acceptable sample export documents were not
furnished for\" 5 of the claims, including the sample claim,
AA6-03045003. In response Compaq states, "according to AEI, these
documents were previously provided to Customs and they were never
advised that the documents were unacceptable or given an opportunity to
cure form defects, if any." AEI supplied to this office evidence of
exportation for the sample drawback claim 4500-3 which is described
below.

Pursuant to 19 CFR § 191.51(a), a complete drawback claim consists of,
inter alia, evidence of exportation. To establish exportation,
regardless of whether the export summary procedure is used, the evidence
should consist of \"documentary evidence, such as an originally signed
bill of lading, air way bill, freight waybill, Canadian Customs
manifest, or certified copies thereof, issued by the exporting carrier .
. . \" (see 19 CFR § 191.72(a); see also, Export Summary Procedure, §
191.73(c)(1) (\" . . .Actual evidence of exportation, as described in §
191.72(a) of this subpart, is the primary evidence of export for
drawback purposes). To establish exportation for NAFTA same-condition
drawback:

> Acceptable documentary evidence of exportation to Canada or Mexico
> shall include a to bill of lading, air way bill, freight waybill,
> Canadian Customs manifest, cargo manifest, or certified copies
> thereof, issued by the exporting carrier. Supporting documentary
> evidence shall establish fully the time and fact of exportation, the
> identity of the exporter, and the identity and location of the
> ultimate consignee of the exported goods . . .

19 CFR § 181.47(b)(ii)(G)(emphasis added).

Proof of exportation requires evidence of an intent for the merchandise
at issue to unite with the mass of things belonging to that of another
country, and evidence that the merchandise left the U.S. (see 19 CFR §
101.1). Such intent is shown by the invoices, packing lists and payment
records (provided there are no discrepancies among the documents).
Evidence that the merchandise left the U.S. could consist of, for
example, a bill of lading indicating that the goods are on an outbound
vessel or aircraft, or that the goods were entered into a foreign
government\'s Customs (see HRL 228272, (November 8, 1999)).
Documentation showing the date of export from the U.S. must carry some
certification of authenticity, either in the form of a signature on an
original document or certification of a copy of the signed document (see
HRL 226929 (June 4, 1997).

As evidence of exportation Compaq's broker submitted to this office
certified copes of packing lists/bills of lading, an outbound load
sheet, commercial invoices, and a Canadian entry summary which are
described in the FACTS section of this ruling. As a representative
sample of documents submitted to prove export these documents are
acceptable to prove export. They are the kind of document that evidences
that merchandise was in fact exported.

3\. Are the goods identified by the inventory accounting method
fungible?

The Houston drawback office also denied the drawback claims because
"fungibility of the imported and substituted products was not
demonstrated." We do not understand this statement. Substitution
drawback was eliminated to NAFTA countries. Substitution of goods is not
applicable to the protested drawback claims because Compaq filed the
instant claims under 19 USC § 1313(j)(1), direct identification unused
merchandise drawback. Since fungibility of the merchandise is required
to identify the goods under an accounting method we will address the
fungibility of the goods that are the subject of the drawback claims.

Section 191.14(b) provides the conditions and criteria for identifying
merchandise by accounting method,

> Manufacturers, producers, claimants, or other appropriate persons may
> identify for drawback purposes lots of merchandise or articles under
> this section, subject to each of the following conditions and
> criteria:
>
> \(1\) The lots of merchandise or articles to be so identified must be
> fungible (see § 191.2(o) of this part);

Fungible merchandise is defined, for drawback purposes, as \"merchandise
or articles which for commercial purposes are identical and
interchangeable in all situations\" (19 CFR § 191.2(o)); see also
[Guess? Inc. v. United States]{.underline}, 14 CIT 770, 752 F. Supp. 463
(1990), vacated and remanded, 944 F. 2d 855 (Fed. Cir. 1991), which
approved Customs definition of fungibility (14 CIT at 773, 944 F. 2d at
858)).

With regard to fungibility Compaq states "Compaq's position on this
issue has been communicated on numerous occasions, including the 1999
letters. Compaq lot fungibility is established by Compaq part numbers,
which identify all products under a particular part number as being
'identical and interchangeable in all situations'". Compaq further
states "that all of Compaq's systems (from Engineering/BOM development,
to Forecasting, to Sales/Marketing, to Order Administration, to
Logistics/Customs Clearance to Finance/Accounting and so on) use Compaq
part numbers as their basis for product identification."

As evidence that its part numbers establish fungibility, the Protestant
submitted a copy of an Engineering Data Base ("EDB"), i.e., "a basic EDB
search by monitor product group---each iteration with a unique BOM is
identified by a different part number)." Each product listed on this
data base had a material number unique to that description. On Compaq's
list of part numbers and engineering descriptions, with one exception
the part numbers are unique to the descriptions. The one exception is
part number 201700-002, which is assigned to two portable computers with
different engineering descriptions. One is described as "LEIAM P166 2160
CTFT; the second is described as M-\*195 Kingsmill DMT. We then looked
at Compaq's website at http://athome.compaq.com to see whether part
numbers were unique to individual products. It was apparent that
products with the distinguishing characteristics carried a different
part number for order placement. For example four versions of the Compaq
Presario notebook portable computer model number series 1500, which were
identical except for slightly different processors and hard drives were
assigned different part numbers.

However, not all of the documents submitted to substantiate the
low-to-high accounting method corroborate that part numbers are unique
to particular products. "Part number XXX529-001 is described as "OEM
BATTERY 2831A OPTION KIT" on the CF 7501 for entry number XXX6056-7, but
described as "KIT, OPT BTRYPK, NMH, 9 44/3" on the "CPQ Import Activity"
and "OEM BATTERY 2831A OPTION KIT" on the Motorola invoice. This part is
also described as "BATTNiMH-Aer/CT4/AR1 ALL" on the "Supplier List:
Houston (0280)" and the parts receipt history. The reason for the
different descriptions for the supposed identical part in Compaq's own
records is unexplained.

Fungibility is a high standard, the goods must be "identical and
interchangeable in all situations.\" We note that this is a two prong
standard and that parts which are merely interchangeable in all
situations without being identical are not fungible for purposes of
identifying goods with an inventory accounting method. Compaq's use of
different descriptions for the same part number raises doubts as to
whether goods represented by different part numbers are identical.
Therefore, with the evidence submitted Compaq has not established that
the goods identified by the inventory accounting method are fungible.

4\. Did Compaq provide sample inventory documents to show receipt of the
imported merchandise at the Houston facility?

We do not understand this statement. However, insofar as is evident by
the documents described in the FACTS portion of this ruling, Compaq has
provided inventory documents to show receipt of some of the imported
merchandise.

HOLDING:

1\. With the documents submitted Compaq did not establish that it
identified the goods using the low to high inventory accounting method;
nor was the inventory turn-over period established.

2\. The representative sample documents submitted to prove export are
the kind of document that evidence that merchandise was in fact
exported.

3\. Compaq has not established that the goods identified by the
inventory accounting method are fungible.

4\. Compaq did provide inventory documents to show receipt of some of
the imported merchandise.

Consistent with the decision set forth above, you are hereby directed to
deny the subject protest. In accordance with Section 3A(11)(b) of
Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised
Protest Directive, this decision should be mailed by your office to the
protestant no later than 60 days from the date of this letter. Any
reliquidation of the entry in accordance with the decision must be
accomplished prior to mailing of the decision. Sixty days from the date
of the decision the Office of Regulations and Rulings will take steps to
make the decision available to customs personnel via the Customs Rulings
Module in ACS and the public via the Diskette Subscription Service,
Freedom of Information Act and other public access channels.

Sincerely,

Myles Harmon, Acting Director

Commercial Rulings Division