DRA-4-RR:CR:DR
229268 CK
Mr. Kenneth G. Weigel
Alston & Bird LLP
601 Pennsylvania, N.W.
North Building, Tenth Floor
Washington, DC 20004-2601
RE: Bayer Corp.; drawback; 19 U.S.C. 1313(p); 19 U.S.C. 1313(n); 19 U.S.C. 1625(c)(2); “treatment”
Dear Mr. Weigel:
This is in reply to your ruling request dated July 25, 2001, on behalf of your client, Bayer Corporation.
FACTS:
Bayer has filed drawback claims under 19 U.S.C. 1313(p), the substitution petroleum drawback provision. The substitution petroleum drawback claims concern “qualified articles” imported and exported by Bayer. A majority of the exports were to NAFTA countries: Mexico and Canada. The claims were filed without regard to the NAFTA “lesser of” formula found in 19 U.S.C. 1313(n).
This office requested additional information that supports Bayer’s claims that its previous drawback claims under 19 U.S.C. 1313(p) were liquidated without reference to 19 U.S.C. 1313(n). In response Bayer supplied a list of all its outstanding drawback claims under 19 U.S.C. 1313(p), on which accelerated payments had been made. Bayer also submitted two drawback entries, with supporting documentation for exports to Canada and Mexico that it claims had been liquidated under 19 U.S.C. 1313(p) without reference to the NAFTA limitation set forth in 19 U.S.C. 1313(n).
The first 1313(p) drawback entry with supporting documentation is number 521-7, dated April 18, 1996. The claim is against four entries of petroleum classified under 3909.30.0000, HTSUS, imported between May 1994 and July 1994. The export summary lists exports to Canada and Mexico between October 1995 and January 1996. Attached was a check from the U.S. Treasury to Bayer. However, the Customs Automated Commercial System (ACS) does not show that entry 521-7 has been liquidated.
The second 1313(p) drawback entry with supporting documentation is number 705-6, dated May 16,1996. The claim is against three entries of petroleum classified under 3909.30.0000, HTSUS, imported between July 1995 and October 1995. The export summary lists exports to Canada and Mexico, with one to Japan, between January 1996 to March 1996. Attached was a check from the U.S. Treasury to Bayer. The Customs Automated Commercial System (ACS) shows a liquidation date of December 13, 1996.
Also attached was an additional check from the U.S. Treasury to Bayer, the check referenced entry 520-9. The Customs Automated Commercial System (ACS) shows a liquidation date of June 6, 1997, however, the documents for this drawback entry were not supplied.
The supplied list of drawback claims includes 64 drawback entries under 19 U.S.C. 1313(p). Two of the 64 entries have been liquidated with drawback, one of which has already been discussed above, number 705-6. The second liquidated entry was number 465-4, but there was no supporting documentation for that claim supplied. There are no records for two of the 64 claimed entries in ACS. The remaining 60 entries are unliquidated, one of which is entry number 521-7, discussed above. We note that accelerated payments were made for the drawback claimed.
ISSUES:
Is drawback under 19 U.S.C. 1313(p) limited to the NAFTA “lesser of”
formula found in 19 U.S.C. 1313(n)?
2. Has a “treatment” been established under 19 U.S.C. 1625, by the liquidation of drawback claims without regard to the NAFTA limitation?
LAW AND ANALYSIS:
Bayer submits that the lesser of rule, embodied in 19 U.S.C. 1313(n) does not apply to 1313(p) claims for the same reason that Congress determined not to apply NAFTA Article 303.2(d) (prohibiting same condition substitution drawback) to 1313(p), but only to drawback claims filed under 1313(j)(2). Bayer cites to Headquarters’ ruling number 225463, dated February 10, 1995, which held that NAFTA Article 303.2(d) did not apply to 1313(p) claims because section 201 of the NAFTA Implementation Act was “specifically implemented only in regard to 19 U.S.C. 1313(j)(2).”
19 U.S.C. 1313(p) states in pertinent part:
(1) In general
Notwithstanding any other provision of this section, if -
(A) an article (hereafter referred to in this subsection as
the ''exported article'') of the same kind and quality as a
qualified article is exported;
(B) the requirements set forth in paragraph (2) are met; and
(C) a drawback claim is filed regarding the exported article;
the amount of the duties paid on, or attributable to, such
qualified article shall be refunded as drawback to the drawback
claimant.
"Qualified article", for purposes of this subsection, means an article described in heading 3909, HTSUSA (among other headings), which is imported
duty-paid. An exported article is of the "same kind and quality" as the qualified article for which it is substituted under this subsection if it is a product that is commercially interchangeable with or referred to under the same eight-digit
classification of the HTSUSA as the qualified article.
As stated earlier, HQ 225463, supra, held that although Article 303.2(d) of the NAFTA provides that drawback may not be granted on a good imported into a NAFTA country when a substituted article is exported to another NAFTA country, this provision was specifically implemented only in regard to 19 U.S.C. 1313(j)(2), and not in regard to 19 U.S.C. 1313(p)(2)(A)(iii). Section 102 of the NAFTA Implementation Act specifically provides that no provision of NAFTA which is inconsistent with any United States law shall have effect and that nothing in the NAFTA shall be construed to amend or modify any law of the United States unless specifically provided for in the NAFTA Implementation Act.
HQ 225463 concluded that the limitation in Article 303.2(d), implemented in United States law by the addition of paragraph (4) to 19 U.S.C. 1313(j), does not apply to drawback claimed under 19 U.S.C. 1313(p)(2)(A)(iii). This conclusion is consistent with the "clear and unambiguous" text of the applicable statutory
provisions.
19 U.S.C. 1313(n) states in pertinent part:
(2) For purposes of subsections (a), (b), (f), (h), (p), and (q)
of this section, if an article that is exported to a NAFTA country
is a good subject to NAFTA drawback, no customs duties on the good may be refunded, waived, or reduced in an amount that exceeds the lesser of -
(A) the total amount of customs duties paid or owed on the good
on importation into the United States, or
(B) the total amount of customs duties paid on the good to the
NAFTA country.
The term “good subject to NAFTA drawback means any imported good other than the eight exemptions found in 19 U.S.C. 3333. The section that Bayer argues that applies to petroleum drawback in 19 U.S.C. 1313(p) is subsection 2, which states:
A good exported to a NAFTA county in the same condition as when imported into the United States. For purposes of this paragraph-
processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good, and
except for a good referred to in paragraph 12 of section A of
Annex 703.2 of the Agreement that is exported to Mexico, if a good described in the first sentence of this paragraph is commingled with fungible goods and exported in the same condition, the origin of the good may be determined on the basis of the inventory methods provided for in the regulations implementing this title.
The key language in section 3333(a)(2) is that a good exported to a NAFTA country that is in the same condition as when it was imported into the United States. This language requires that the exported good be the good that was imported and duty paid. In order to qualify for the exemption to the NAFTA limitation on drawback, the exported merchandise must have been the merchandise imported in an identified entry, so that it is possible to prove that the merchandise in the designated entry is the actual exported merchandise.
Bayer in its own submission states that its claims are substitution petroleum drawback claims. Therefore by definition, the substituted exported merchandise is not the imported merchandise upon which duty was paid, and therefore, cannot be the basis for the drawback claim for purposes of the exemption in 19 U.S.C. 3333.
Customs construction is consistent with paragraph 2 of Article 303 of the NAFTA, which specifically provides:
No Party may, on condition of export, refund, waive or reduce:
(d) customs duties paid or owed on a good imported into its territory and substituted by an identical or similar good that is subsequently exported to the territory of another Party.
Clearly, the NAFTA prohibits the refund of duties paid on imported merchandise on the basis of an exportation to Canada or Mexico of substituted identical or similar goods. Paragraph 6 of Article 303, describes the goods Article 303 does not apply to, and therein describes certain goods described in §3333(a), paragraphs (1) through (8), including:
(b) a good exported to the territory of another Party in the same condition as when imported into the territory of the Party from which the good was exported (processes such as testing, cleaning, repacking or inspecting the good, or preserving it in its same condition, shall not be considered to change a good’s condition). Except as provided in Annex 703.2, Section A, paragraph 12, where such a good has been commingled with fungible goods and exported in the same condition, its origin for purposes of this subparagraph may be determined on the basis of the inventory methods provided for in the Uniform regulations established under Article 511 (Uniform regulations);
The petroleum, which is the basis for Bayer’s drawback claims under 1313(p), has not been shown to be the imported petroleum. Therefore, Article 303, while not eliminating 1313(p) claims to NAFTA countries does limit the 1313(p) claims to the “lesser of” formula found in Article 303.
The Customs Regulations implementing the NAFTA Implementation Act are found in 19 C.F.R. Part 181. Subpart E of Part 181 contains the regulations providing restrictions on drawback and duty-deferral programs. According to section 181.41, which is the first section in Subpart E:
This subpart sets forth the provisions regarding drawback claims and duty-deferral programs under Article 303 of the NAFTA and applies to any good that is a “good subject to NAFTA drawback” within the meaning of 19 U.S.C. 3333. Except in the case of 181.42(d), the provisions of this subpart apply to goods which are imported into the United States and then subsequently exported from the United States to Canada on or after January 1, 1996, or to Mexico on or after January 1, 2001.
(Emphasis added). As the imported petroleum, on which the drawback claim is based, has not been shown to be the good that was exported to a NAFTA country in the same condition as when imported, it is a “good subject to NAFTA drawback”, and subpart E is applicable to such good.
Generally, subpart E of Part 181 applies to imported goods exported to Canada on or after January 1, 1996, and to imported goods exported to Mexico on or after January 1, 2001.
Furthermore, our position that while 19 U.S.C. 1313(p) claims are still allowed for NAFTA countries, those claims are subject to the NAFTA limitation on drawback that was first articulated in HQ 225463, supra, which Bayer itself quotes.
Bayer’s second claim is that Customs has already established a “treatment” under 19 U.S.C. 1625(c)(2), by liquidating a number of its drawback claims, and accepting, without liquidating, a great deal of drawback claims.
Section 1625(c) (19 U.S.C. 1625(c)(2) (1994)) provides that a proposed interpretive ruling or decision which would have the effect of modifying the “treatment” previously accorded by Customs to substantially identical transaction shall be published in the Customs Bulletin for public comment and be effective 60 days after the date of publication of the final ruling or decision.
The first court to discuss a “treatment” in terms of 19 U.S.C. 1625(c)(2) was the Court of International Trade in cross-motions for summary judgement in Precision Specialty Metals, Inc. v. United States, 116 F. Supp. 2d 1350 (2000). The Court stated:
It appears that a "treatment" may be found where a "position" might not -- that the definition of "treatment" does not require publication or liquidation among many ports over many years. The term "treatment" looks to the actions of Customs, rather than its "position" or policy. It is also distinct from the terms "ruling" and "decision," which are governed by § 1625(c)(2). n25 This construction would recognize that importers may order their actions based not only on Customs' formal policy, "position," "ruling" or "decision," but on its prior actions. This construction furthers the stated legislative intent underlying § 1625(c).
n25 The fact that § 1625(c)(2) provides for relief even when the proposed ruling or decision would not modify any prior ruling forecloses any argument that there is no modification sufficient to trigger § 1625 because Customs' position was already contained in, and did not vary from, prior rulings such as C.S.D. 80-137. The bases for relief set forth in § 1625(c)(1) and (2) exist independent of each other.
The Court in Precision Specialty Metal, Inc. v. United States, 182 F. Supp. 2d 1314 (2001) (Precision II) found a “treatment” where Precision filed 116 drawback entries under T.D. 81-74 between December 11, 1991 and May 13, 1996, and Customs liquidated 69 of these entries with full benefit of drawback. The Court stated Customs was required to publish for notice and comment its intent to revoke the “treatment.”
Regulations have recently been published by Customs with respect to what constitutes a “treatment,” see, T.D. 02-49, 67 F.R.53483 (August 16, 2002), however, the regulations are not effective until September 16, 2002. Customs opinion prior to the publication of the regulations was that the answer as to what constitutes a “treatment” is dependent upon the facts and circumstances involved and that treatment is personal to each importer. The granting of “treatment” to one importer does not carry over to anther importer of the same merchandise where different facts or circumstances involved. Each claim must be looked at separately and a determination made under the specific facts and circumstances as to whether or not to grant a claim of “treatment.”
In HQ 964035 dated September 25, 2000, Customs found that a “treatment,” subject to a notice and comment revocation, was established where an importer’s merchandise was entered more than 50 times erroneously for at least eleven years and was examined at least six times by Customs. In HQ 964515 dated August 16, 2001, Customs granted a claim for “treatment” where an importer entered over 300 line items of merchandise since 1992 under its claimed classification. After February 19, 1993 Customs consistently liquidated the merchandise as entered. The merchandise was also examined on five occasions in 1995 and 1996, without changing the classification.
In contrast, Customs in HQ 964858 dated July 18, 2001, found that a “treatment” was not established where an importer states he “consistently” entered his merchandise under a certain classification and his merchandise was subject to intensive examination by Customs. In that case, Customs stated that the importer failed to supply any evidence of its “treatment” claim. Customs stated that two entries mentioned by the importer were examined by Customs as part of an inspector audit on paperless entries, and not to verify classification. Customs stated that the importer’s entries were on bypass, and there are no records indicating that the entries were ever examined for purposes of verifying classification. In HQ 965079 dated July 25, 2001 Customs denied a request for “treatment” under 1625(c)(2) where the importer supplied a list of entries between 1998 and 2000 consisting of 26 liquidated and 17 unliquidated entries.
In the case at issue, Bayer has submitted a list of 64 entries it has filed with Customs at the Port of New York. The list of entries also contains the following information: export invoice numbers, export dates, export quantities, destinations, export values, and drawback claimed.
Bayer submitted documentation for two 1313(p) drawback entries it claims were liquidated without reference to the NAFTA “lesser of” formula. The two documented claims are also on the list of 64 entries. However, as we stated in the FACTS portion of this ruling, entry 521-7 while documented, is not liquidated according to ACS. Also, one of the 64 entries, number 465-4 is liquidated according to ACS, but no supporting documentation was submitted. Altogether Bayer has submitted two liquidated 1313(p) drawback entries, one that is documented, one that is not; and 62 unliquidated entries, one that is documented. Finally, Bayer also submitted a check from Treasury to Bayer for a drawback claim, 521-7 that is neither on the list, nor supported.
Based on the Court’s holdings in its Precision decisions, and Customs’ previous rulings on the issue, Bayer has not established that a “treatment” exists. Bayer has two liquidated claims. One 1313(p) drawback claim, 705-6 (liquidated December 13, 1996), is liquidated and has supporting documentation. However, an exporter’s summary was provided, not the entry documents for Canada and Mexico. Bayer cannot, without the entry documents to Canada and Mexico, show that its drawback claim was liquidated without reference to the NAFTA “lesser of” formula because it has not submitted evidence of how much duty it paid upon entry into those countries. The second liquidated claim, 465-4 (June 6, 1997), has no supporting documentation attached, thus, this liquidation does not show that Customs liquidated the drawback without reference to the “lesser of” formula. However, even if the two claims were fully documented, and Customs liquidated both 1313(p) claims for full drawback without applying the NAFTA “lesser of” formula, Bayer would still not have a “treatment.” Two claims, liquidated within seven months of each other, over five years ago, is not comparable to the cases discussed above, where Customs found or denied a “treatment.”
The remaining 62 entries are unliquidated and do not support Bayer’s position either, because accelerated payments have no bearing on the issue of “treatment.”
Bayer then attached a check for a drawback entry, 521-7 that has no documentation and is not on the list of 1313(p) claims.
Finally, Bayer has not alleged any of the events Customs has found to be part of a “treatment” claims, such as liquidation, examinations of merchandise, and numerous drawback claims in which Customs routinely accepts the claimant’s position over a considerable period of years.
We also note that while the new regulations, T.D. 02-49, 67 F.R.53483, 53497 (August 16, 2002), are not yet effective, they state in pertinent part that to establish a treatment there must be evidence that:
(C) Over a 2-year period immediately preceding the claim of treatment, Customs consistently applied that determination on a national basis as reflected in liquidations of entries or reconciliations or other Customs actions with respect to all or substantially all of that person’s Customs transactions involving materially identical facts and issues;
Applying the above definition to the facts Bayer presents, Bayer could not establish a “treatment” under the new regulations even if the new regulations were effective immediately.
HOLDINGS:
Drawback claims under 19 U.S.C. 1313(p) for exports to NAFTA countries are limited to the “lesser of amount” formula in 19 U.S.C. 1313(n).
Bayer has established that two of its 1313(p) drawback claims were liquidated, not that those two claims were liquidated without reference to the “lesser of” formula in 19 U.S.C. 1313(n). Bayer has not established a “treatment” under 19 U.S.C. 1625(c)(2).
Sincerely,
Myles Harmon, Acting Director
Commercial Rulings Division