Trade Court Says Product 'Imported' When Admitted to FTZ for Drawback Purposes
A product is "imported" for duty drawback purposes when it's admitted into a foreign-trade zone and not when entered for domestic consumption, the Court of International Trade held on May 15. Judge Timothy Reif said the definition of "importation" found in both the dictionary and Supreme Court precedent distinguishes importation from entry.
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The judge added that when Congress passed the current drawback statute, it specifically decided that the five-year period in which to make a drawback claim runs from the date of importation and not the date of entry. As a result, the court dismissed importer King Maker Marketing's case challenging CBP's rejection of its substitution unused merchandise drawback claims for being untimely.
King Maker admitted 21 shipments of paper-wrapped cigarettes into an FTZ from September 2012 to February 2014. The shipments were withdrawn from the FTZ for domestic consumption from May 2013 to September 2018 under Harmonized Tariff Schedule subheading 2404.20.80. After the goods were entered, the importer exported other cigarettes classified under the same subheading, leading the company to file claims for substitution unused merchandise drawback.
CBP denied the claims for being untimely, since they came more five years after the goods were admitted into the FTZ -- though they were filed within five years of the goods being entered into the U.S. Reif said the only issue before the court was whether the phrase "date of importation" in the drawback statute, 19 U.S.C. § 1313(r), refers to the date the goods were imported into the FTZ or entered for consumption.
The judge first turned to the Black's Law Dictionary definition of "importation," which defines the term as the "act of bringing goods and merchandise into a country from a foreign country.” In addition, Reif noted that the Supreme Court in Cunard S.S. Co. v. Mellon said importation means "bringing an article into a country from the outside" regardless "of the mode in which it is effected." The high court drew a distinction between "importation" and "entry," the judge said, adding that the trade court has defined "entry" as occurring when a product leaves an FTZ.
While the trade court has previously said there's no question that under the Foreign Trade Zone Act an FTZ is not within the customs territory of the U.S., Reif held that the "legislative history of the FTZ Act indicates that Congress considered FTZs to be 'within or adjacent to a port of entry.'" The judge said an FTZ "within or adjacent to a port of entry" is "thereby 'within the limits of a port in the United States,'" making CBP's interpretation of the statute in line with the legislative history.
Reviewing the drawback statute itself, Reif held that "long-standing precedent" shows that the "date of importation" isn't the same as the date of "entry," adding that "any reference to this perennial conceptual distinction is absent from the plain language of § 1313." The judge said that, when Congress drafted the substitution unused drawback statute, it "decided specifically that the five-year period would begin with the date of importation." The language is unambiguous and Congress used a "centuries-old" term that "has maintained a consistent meaning since the early nineteenth century at the latest," he said.
Reif added that Congress passed the drawback statute nearly five decades after passing the FTZ Act and also "explicitly distinguished 'entry' and 'importation' in the statute." If the legislature wanted to align the five-year period for making a drawback claim with the date of entry, it "would have done so."
King Maker argued it would be both "absurd and anomalous" to interpret a time limit on the recovery of duties and taxes paid as beginning to run before those duties and taxes are paid. Reif said while he acknowledges the "potential for friction" in the plain readings of the FTZ Act and drawback statute, he said "any inconsistency would be for Congress to resolve.”
The importer also claimed that CBP, in denying the company's protest, applied a customs law to the cigarettes during the time they were in the FTZ, which is specifically prohibited by the FTZ. However, Reif said this claim "is not persuasive," since a "number of U.S. customs requirements" apply to imports admitted to an FTZ.
The judge added that according to the U.S. Court of Appeals for the Federal Circuit, there's no conflict between 19 U.S.C. Section 81c, the law that exempts duties from applying to goods entering an FTZ, and the the drawback statute, since this exemption is "targeted at duties and taxes that attach upon formal entry" into the U.S.
John Peterson, counsel for King Maker, said in an email: "I can't think of an act more involved with tariffs than the Tariff Act, of which the drawback statute is a part."
(King Maker Marketing v. United States, Slip Op. 25-58, CIT # 24-00134, dated 05/15/25; Judge Timothy Reif; Attorneys: John Peterson of Neville Peterson for plaintiff King Maker Marketing; Beverly Farrell for defendant U.S. government)