Senate's Customs Reauthorization Bill Would Streamline Drawback Process

According to Senator Baucus, S. 1631 would direct Customs and Border Protection and Immigration and Customs Enforcement to make customs facilitation and trade enforcement a priority again. Among other things, the bill would emphasize CBP's commercial responsibilities, provide for additional Customs-Trade Partnership Against Terrorism benefits, establish a new entry facilitation trade partnership, create an interagency import safety working group, strengthen IPR enforcement, and strengthen and expand the forced/child labor law.

S. 1631 would also streamline CBP's duty drawback process by:

• reorganizing the drawback statute
• requiring drawback claims to be filed electronically
• reducing the number of product-specific drawback provisions
• including a new section with drawback-related definitions
• eliminating provisions on packaging material and drawback certificates

These drawback changes would not take effect until the Automated Commercial Environment (ACE) is the exclusive system for filing entry summaries. A one-year transition period for the new drawback requirements would also be provided.

Highlights of the revisions S. 1631 would make to 19 USC 1313 on drawback include (partial list):

Drawback

If merchandise is imported into the U.S. and eligible merchandise is then exported, duties, fees, and taxes paid upon entry or importation of the merchandise may be refunded as drawback in an amount determined by the formula below.

Drawback amount. In general, the amount of drawback paid would be equal to 99% of the number of units of merchandise exported to claim drawback with respect to imported merchandise, multiplied by the lesser of the average of duties, taxes, and fees (i) paid for each unit of the imported merchandise with respect to which drawback is claimed, or(ii) that would apply to the exported merchandise if the exported merchandise were imported. The monies refunded would be reduced by any monies previously refunded to a person with respect to such merchandise.

Eligible merchandise. Merchandise eligible for drawback would be:

• imported merchandise;
• merchandise substituted for the imported merchandise;
• merchandise into which the imported merchandise or substitute merchandise is incorporated; or
• merchandise that is substituted, for merchandise into which the imported merchandise or substitute merchandise is incorporated.

S. 1631 would require a person claiming drawback to demonstrate that the merchandise being exported is eligible based on information contained in the line item on the entry summary form and information contained in the line item in the Automated Export System.

Substitution rules. Except as provided below, merchandise may be substituted for other merchandise if it can be demonstrated that the merchandise was classifiable under the same 8-digit HTS subheading number as the other merchandise at some point during the 5-year period beginning on the date on which the merchandise was imported.

Exception. Merchandise subject to one excise tax rate would not be permitted to be substituted for merchandise subject to another excise tax rate.

Product-specific rules. S. 1631 would provide special substitution rules for certain petroleum oils, plastics, and wine.

Use of Schedule B for classification. S. 1631 would allow the Schedule B number to be used for purposes of determining, under the substitution rules, if the merchandise is or has been classifiable under the same 8-digit HTS subheading number as other merchandise.

Incorporated merchandise rules. Imported merchandise that is incorporated into other merchandise would be eligible for drawback regardless of the number of times the merchandise is incorporated into other merchandise or such other merchandise is incorporated into other merchandise if the merchandise is otherwise eligible for drawback.

Destruction of merchandise rules. S. 1631 would provide a special eligibility rule for the destruction of merchandise which states that drawback would be allowed to be claimed with respect to imported merchandise if:

• the imported merchandise or merchandise into which the imported merchandise is incorporated (i) is not exported because of its destruction; and (ii) was not used in the U.S. before its destruction; and
• the person claiming the drawback uses direct identification to identify the imported merchandise that is destroyed or incorporated into other merchandise that is destroyed.

Subject to certain limitations, the amount of drawback paid pursuant to the special eligibility rules for destruction would be the same amount of drawback as determined under drawback amount provisions (see above). The amount to be refunded would be reduced by the amount of any duties, taxes, and fees previously refunded to an importer of record or the person claiming drawback with respect to such merchandise.

The value of the imported merchandise with respect to which drawback is claimed would be reduced by the value of any materials recovered during the destruction of the merchandise (including the value of any tax benefit or royalty payment with respect to such materials).

Ethyl alcohol rules. In the case of any duty paid under HTS 9901.00.50 on imports of ethyl alcohol or a mixture of ethyl alcohol, such duty would not be allowed to be refunded if the exported merchandise upon which a drawback claim is based does not contain ethyl alcohol or a mixture of ethyl alcohol. (See S. 1631 for additional details on the special rules for ethyl alcohol.)

Vessel, agricultural product, extract/flavoring, etc. rules. Special eligibility rules would be established for (i) vessels built for residents of a foreign country; (ii) agriculture products with respect to which an over-quota duty rate has been paid; (iii) imported merchandise not regularly entered, or withdrawn from warehouse for consumption; and (iv) exportation of flavoring extracts, flavors, medicines, medicinal preparations, or perfumes manufactured or produced in the U.S. in part from domestic alcohol on which an internal revenue tax has been paid.

Refunds, waivers, or reductions under NAFTA and Chile FTA. S. 1631 contains rules for calculating drawback where such refunds are governed by the North American Free Trade Agreement (NAFTA) or the U.S.-Chile FTA. This includes a special rule that would apply if Canada ceases to be a NAFTA country.

Also included are provisions for fungible merchandise exported to NAFTA countries or Chile.

Eligibility to Claim Drawback

A person would be permitted to claim drawback if the person (i) imports the merchandise on which a claim is based or obtains the importer's permission to claim the drawback; and (ii) exports the merchandise on which the claim is based; or obtains the exporter's permission to claim drawback.

Additional requirements. If drawback is claimed for imported merchandise or substitute merchandise incorporated into other merchandise, the person making the claim would have to submit a bill of materials or formula identifying the imported merchandise or substitute merchandise and the merchandise into which it is incorporated by the 8-digit HTS subheading number and the quantity of the imported/substitute merchandise and the merchandise into which it is incorporated.

Imported merchandise or substitute merchandise would be deemed incorporated into other merchandise if the bill of materials or formula for such other merchandise includes the imported merchandise or substitute merchandise.

Electronic drawback claim filing would be required. A claim for drawback would have to be filed electronically.

Five year time limit to file drawback claim. Drawback would be allowed to be paid only if the claim for drawback is filed within five years of the date on which the merchandise is imported. (If such merchandise is imported on more than one date, the earliest date of importation would be used.)

Proof of exportation. A person claiming drawback would have to submit, as proof of exportation, one of the following:

• The record of exportation entered in the AES or, if the exporter is unable to use that system, evidence of information similar to the information contained in such a record.
• In the case of a drawback claim filed pursuant to the revised provisions for refunds, waivers, or reductions under NAFTA (see above), the entry records from Canada or Mexico.
• In the case of a deemed export, any record that establishes the deemed export.

Prohibition on other claims for drawback. Merchandise that is exported or destroyed to satisfy a claim for drawback would not be the basis of any other claim for drawback, except that appropriate credit and deductions for claims covering components or ingredients of such merchandise shall be made in computing drawback payments.

Liability for a drawback claim. Any person making a claim for drawback with respect to imported merchandise would be liable for the full amount of the drawback on the imported merchandise.

An importer would be liable for any drawback claim made by another person with respect to imported merchandise in an amount equal to the amount of duties, taxes, and fees that the importer authorizes the other person to claim with respect to the imported merchandise.

(See S. 1631 for details on joint and several liability and the order of recovery.)

Drawback Definitions

Definitions would be added for numerous drawback-related terms, including destruction, direct identification, fungible, incorporated, substitute merchandise, etc.

Effective Date for Drawback Revisions

S. 1631's amendments would:

• take effect on the date on which the CBP Commissioner publishes in the Federal Register a finding that the ACE computer system is the exclusive system of record in the U.S. for filing entry summaries; and
• apply to drawback claims filed with respect to merchandise that enters the U.S. on or after such date (except as provided in the following transition provision).

One Year Transition Period

During the one-year period beginning on the effective date described above, a person may elect to file a claim for drawback under (i) 19 USC 1313, as amended by S. 1631; or (ii) 19 USC 1313, prior to its amendment by S. 1631.

GAO Report on Cost and Benefits

The Government Accountability Office would be required to submit to the Senate Finance and House Ways and Means Committees a report that contains (i) an evaluation of the costs and benefits to the government, and the benefits to the private sector, resulting from the implementation of the revised drawback statute; and (ii) an assessment of the extent to which the implementation of such section 313 may permit a person claiming drawback with respect to imported merchandise to receive drawback in excess of the duties, taxes, or fees paid on the imported merchandise.

Technical and Conforming Amendments on Refunds, Protests, Etc.

S. 1631 would make technical and conforming amendments regarding:

• refunds - 19 USC 1505(b) would be amended by adding a new sentence which states that "refunds of excess monies deposited, as determined on a liquidation or reliquidation, shall be reduced by any amount paid, on an accelerated basis or otherwise, to a person claiming drawback pursuant to section 313" (19 USC 1313).
• review of protests - 19 USC 1515(a) would be amended by adding the phrase "in accordance with section 505."
• refunds, waivers, and reductions of duty under NAFTA - 19 USC 1508(b)(2)(B) would be amended by revising a reference to section 313 (19 USC 1313).

(See ITT's Online Archives or 08/07/09, 08/13/09, 08/14/09, 08/19/09, 08/20/09, and 08/26/09 news, 09080715, 09081305, 09081405, 09081920, 09082015, and 09082610, for previous BP summaries on S. 1631.)

Senate Finance Committee press release (dated 08/06/09) available at http://finance.senate.gov/press/Bpress/2009press/prb080609.pdf.

Senate Finance Committees section-by-section summary available at http://finance.senate.gov/sitepages/leg/LEG%202009/080609%20Customs%20Section%20by%20Section.pdf.

S. 1631 available at http://finance.senate.gov/sitepages/leg/LEG%202009/080609%20Customs%20Reauthorization%20Bill.pdf.

Senator Baucus' floor statement on S. 1631 (dated 08/07/09) available at http://finance.senate.gov/press/Bpress/2009press/prb080709.pdf.