OT:RR:CTF:EPDR H326262 ND
Margo VanHeusden
Comstock & Theakston, Inc.
466 Kinderkamack Rd.
Oradell, NJ 07649
RE: Substitution unused merchandise drawback under 19 U.S.C. 1313(j)(2); drawback calculation; foreign status components of articles produced within a Foreign Trade Zone; 19 U.S.C. 1313(l); 19 C.F.R. 190.51
Dear Ms. VanHeusden,
This is in response to the July 15, 2022, ruling request filed by Comstock & Theakston, Inc. ("Comstock"), on behalf of [[ ]] (hereinafter "the Company"), regarding the calculation methodology for claiming drawback for certain exports from a foreign trade zone ("FTZ") pursuant to 19 U.S.C. 1313(j)(2).
On May 28, 2024, the Company sought confidential treatment of certain information submitted in connection with its ruling request. In consideration of the request and the sufficient justification presented pursuant to 19 C.F.R. 177.2(b)(7), this office will not identify any business confidential information provided to U.S. Customs and Border Protection ("CBP").
FACTS:
The Company produces merchandise in a FTZ that contains domestic and foreign status components. According to the Company, the foreign status components are previously imported and not duty paid, while the domestic status components are either domestically produced or previously imported and duty paid. The Company seeks to claim drawback with regard to the finished merchandise, classified under subheading 8507.60.00, Harmonized Tariff Schedule of the United States ("HTSUS"), which is withdrawn for exportation and was manufactured with foreign status components classified under subheading 8507.60.00, HTSUS.
According to the HTSUS, imports classified under subheading 8507.60.00, HTSUS, are subject to a duty rate of 3.4 percent ad valorem plus additional duties assessed pursuant to Section 301 of the Trade Act of 1974 ("Section 301"). The "Unit of Quantity" for the two 10-digit subheadings (8507.60.0010 and 8507.60.0020, Harmonized Tariff Schedule of the United States Annotated ("HTSUSA")), indicate that both numerical quantity ("No.") and weight ("kg") should be reported on the entry summary (CBP Form 7501).
The Company seeks a ruling regarding the drawback calculation methodology for exportations of the finished merchandise from a FTZ produced with domestic status and foreign status components for purposes of unused merchandise drawback claims under 19 U.S.C. 1313(j)(2). Specifically, the Company would like to use value and weight as a means to deduct the foreign status components from the total value and weight of the finished and exported products for purposes of making a 1313(j)(2) drawback claim. This proposed methodology would allow the Company, when matching duty paid imports to the exports from the FTZ, to decrement from the import on the basis of the value and weight of drawback-eligible exports from the FTZ.
ISSUE:
Whether, for purposes of calculating drawback pursuant to 19 U.S.C. 1313(j)(2) for exports from a FTZ, the Company may deduct both the value and weight of foreign status components from a finished and exported product and use the remaining value and weight for purposes of filing a distinct drawback claim.
LAW AND ANALYSIS:
Pursuant to 19 U.S.C. 1313(j)(2), drawback may be claimed on exported merchandise which is substituted for imported and duty-paid merchandise. Drawback "means the refund, in whole or in part, of the duties, taxes, and/or fees paid on imported merchandise." 19 C.F.R. 190.2. Among the requirements for claiming drawback under 19 U.S.C. 1313(j)(2), the substituted merchandise must be classifiable under the same 8-digit subheading as the imported merchandise, exported or destroyed within 5 years of the date of importation, and not be used in the United States.
Pursuant to 19 C.F.R. 190.51(b)(1), there are specific requirements for computing the eligible drawback amount for a claim based on whether the claim entails direct identification or substitution. For substitution claims under 1313(j)(2), the calculation of drawback is dictated by 19 U.S.C. 1313(l)(2)(B), which states:
The regulations . . . shall provide for a refund of equal to 99 percent of the duties, taxes, and fees paid on the imported merchandise, which were imposed under Federal law upon entry or importation of the imported merchandise, and may require the claim to be based upon the average per unit duties, taxes, and fees as reported on the entry summary line item or, if not reported on the entry summary line item, as otherwise allocated by U.S. Customs and Border Protection, except that where there is substitution of the merchandise, then -
i) in the case of an article that is exported, the amount of the refund shall be equal to 99 percent of the lesser of -
I) the amount of duties, taxes, and fees paid with respect to the imported merchandise; or
II) the amount of duties, taxes, and fees that would apply to the exported article if the exported article were imported . . . .
The regulations in 19 C.F.R. 190.51(b)(1)(ii) provide that the eligible drawback amount "is determined by per unit averaging, as defined in 190.2." Per unit averaging "means the equal apportionment of the amount of duties, taxes, and fees eligible for drawback for all units covered by a single line item on an entry summary to each unit of merchandise." 19 C.F.R. 190.2. Additionally, among other data elements, a complete drawback claim must include:
For each designated import entry line item, the entry number and the line item number designating the merchandise, a description of the merchandise, a unique import tracing identification number(s) (ITIN) . . . as well as the following information for the merchandise designated as the basis for the drawback claim: The 10-digit HTSUS classification, amount of duties paid, applicable entered value . . . quantity, and unit of measure (using the unit(s) of measure required under the HTSUS for substitution manufacturing and substitution unused merchandise drawback claims), as well as the types and amounts of any other duties, taxes, or fees for which a refund is requested . . . .
19 C.F.R. 190.51(a)(2)(viii).
CBP recently evaluated the drawback eligibility of vehicles manufactured within a FTZ with foreign and domestic status components. CBP concluded that when such vehicles are exported directly from a FTZ, given that only the domestic status components are eligible for drawback, "[t]he amount of duty refund claimed upon the submission of a drawback entry must therefore be limited to the value of the domestic status components within the exported vehicles." Headquarters Ruling Letter ("HQ") H305251 (Dec. 10, 2021) (citing 19 C.F.R. 190.51(a)(2)(vii)). Consequently, a drawback claim on such vehicles required "the deduction of all foreign status components from the value of the manufactured and exported vehicles." Id.
The Company does not challenge the need to deduct the value of all foreign status components from the total value of the finished and exported merchandise for purposes of properly calculating its drawback claim. Rather, the Company seeks confirmation that it can do so by deducting the value and weight of foreign status components from the total value and weight of the exported finished merchandise and then use both to compare to eligible imports.
The Company provided an example whereby it exports 1000 pounds of merchandise from a FTZ made up of $150,000 in total export value. Of that merchandise, 600 pounds and $75,000, is made up of drawback-eligible domestic status merchandise (400 pounds and $75,000 were deducted as foreign status merchandise). If that 600 pounds of merchandise had been imported with a value of $75,000, the total duties paid would have been $2,524.50. The Company's proposed methodology would seek drawback of that $2,524.50 against eligible import duties paid. The import, in the example, was of 1000 pounds of merchandise, with a value of $200,000, and import duties paid totaling $6,732.00. If both value and weight are allowed for consideration in the calculation of eligible drawback in this example, the Company proposes that there would remain 400 pounds of import merchandise that could be used as a "match" for future similar exports for purposes of a drawback claim. If weight is not allowed in the consideration, then the 1000-pound export (prior to excluding foreign status merchandise) is a one-for-one match with the 1000-pound import and there would not remain any further eligibility for the import to be used in a drawback claim.
It seems the Company's request stems from the fact that the HTSUSA indicates that both numerical quantity ("No.") and weight ("kg.") are required to be reported on an entry summary for purposes of the relevant 10-digit statistical level of classification at issue.
We note that the Company has not requested a classification determination, and as such, this ruling is limited solely to the drawback calculation methodology proposed by the Company for unused merchandise drawback purposes and does not address the correctness of the Company's proposed classification.
The proposed drawback calculation methodology by the Company is not permissible. The drawback statute, in relevant part, states that for purposes of claims with respect to unused merchandise, the drawback refunded shall be "equal to 99 percent of the duties, taxes, and fees paid on the imported merchandise, which were imposed under Federal law upon entry or importation of the imported merchandise, and [CBP] may require the claim to be based upon the average per unit duties, taxes, and fees as reported on the entry summary line item." 19 U.S.C. 1313(l)(2)(B). Accordingly, pursuant to the relevant regulations, 19 C.F.R. 190.51(b)(1)(ii), "[t]he amount of duties, taxes, and fees eligible for drawback pursuant to . . . 1313(j)(2) is determined by per unit averaging, as defined in 190.2." Pursuant to 19 C.F.R. 190.2, drawback is "the refund, in whole or in part, of the duties, taxes, and/or fees paid on imported merchandise."
In this case, duties, taxes, and/or fees paid on the imported merchandise is determined by an ad valorem percentage. Imports classified under subheading 8507.60.00, HTSUS, are subject to a duty rate of 3.4 percent ad valorem plus additional duties assessed pursuant to Section 301, which are also assessed on an ad valorem basis. As described above, the "Unit of Quantity" required by the HTSUSA for the two 10-digit statistical level of classification provided for under subheading 8507.60.00, requires providing both unit quantity ("No.") and weight ("kg") as the units of measurement reported on an entry summary. However, as instructed by General Statistical Note 4(b) of the HTSUS,
[w]henever two separate units of quantity are shown for the same article, the value of the article is to be reported with the first unit of quantity shown, unless there is a "v" following the second unit of quantity in which case the value of the article is to be reported with that unit of quantity.
As a result, upon importation of any merchandise under subheading 8507.60.00, HTSUS, the Company is required to report both units of quantity, but the first unit of quantity shown-in this case the numerical quantity ("No.")-is that which establishes the entered value per unit for purposes of substitution drawback.
Allowing the Company's proposed methodology could result in either the over-refund or under-refund of certain drawback claims. Further, the proposal could ultimately result in the inconsistent treatment of drawback claims. Accordingly, weight cannot be used as the basis for computing the value of the duties, taxes, and fees potentially eligible for drawback with respect to imports classified under 8507.60.00, HTSUS.
HOLDING:
Based on the above, the Company cannot deduct the value and weight of foreign status components from the finished exported merchandise classified under subheading 8507.60.00, HTSUS, for purposes of calculating its claim for unused merchandise drawback pursuant to 19 U.S.C. 1313(j)(2).
Please note that 19 C.F.R. 177.9(b)(1) provides that "[e]ach ruling letter is issued on the assumption that all the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by [CBP] to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based."
Sincerely,
Alexandra B. Hess, Chief
Entry Process & Duty Refunds Branch