DRA-4-CO:R:C:E 222059 C
Alan P. Rodgers
Senior Vice President
National Customs Brokers and Forwarders Association
245 Woodport Road
Sparta, New Jersey 07871-2644
RE: 19 U.S.C. 1313(j)(1); same condition drawback; whether
reduction in value of imported merchandise changes its condition
Dear Mr. Rodgers:
This responds to your letters of January 10, 1990, and
November 27, 1990, submitted on behalf of your client who engages
in the importation of the below described merchandise.
FACTS:
The importer in question imports diaries, appointment books,
and other stationary items that are printed for a given calendar
year. Naturally, these items lose their appeal, and thus much of
their commercial value, after the year for which they were
printed has passed. The importer desires to destroy this
merchandise and obtain a drawback under the same condition
drawback provision.
ISSUE:
The issue in this case is whether or not same condition
drawback, under 19 U.S.C. 1313(j)(1), should be prohibited when
the imported merchandise in question is in the same condition as
when imported in every respect except one: the value of the
merchandise is not the same as it was when imported.
LAW AND ANALYSIS:
Senate Report No. 999, 96th Cong., 2d Sess.(1980), stated
the following regarding the then proposed same condition drawback
provision:
Present law provides for drawback of duties in very
limited circumstances. Additionally, the alternatives
to drawback, such as TIB's, customs bonded warehouses,
or foreign trade zones, all have substantial
limitations associated with their use. . . . [The same
condition drawback provision] would give U.S. firms
more flexibility in meeting customer demands, without
having to pay nonrefundable duties on merchandise that
is not used in the United States. It would be
beneficial for U.S. exporters in such ways as
increasing their capability for distribution of
products to all markets, assuring uniform testing of a
company's products, and giving maximum flexibility with
cargo in order to meet deadlines or emergency orders.
Importers would receive drawback in those instances in
which the merchandise imported was not used, and they
were unable to anticipate the need to export [or
destroy]. Such would be the case when the importer
discovers that there is little domestic demand for the
imported product, that the merchandise cannot be
disposed of commercially without financial loss, and
that [it] is desirable to return the merchandise to the
foreign source or sell it in a foreign country [or
destroy it if that is the appropriate business choice].
This provision would be particularly helpful in
preventing 'distress' sales of imported merchandise,
which could have a disruptive effect on U.S. markets.
(Emphasis added.)
Id. at 23, 24.
The underlined language above indicates that Congress
envisioned that the provision would apply to importers who, after
importation, discern a need to export. The highlighted language,
added by us, makes explicit what we believe the Congress intended
to convey but, by simple, unwitting omission, failed so to do.
That is that there is no legal significance in the choice between
exporting or destroying merchandise. So long as merchandise
otherwise qualifies for same condition drawback - being in the
same physical condition as when imported and not having been used
in the United States - the choice to export or destroy is to be
freely made by the importer without consequence.
We believe that the Congress intended to have the law cover
situations of the instant kind. First, as above, the provision
was intended to be an expansion of what the Congress viewed to be
a limited drawback law. Second, it was designed to obviate more
complicated transactions, or transactions that carried with them
more onerous and costly procedural requirements, such as the
temporary importation under bond provision which requires that
merchandise be imported for other than a commercial purpose and
that it be exported within a limited period of time, requiring
further application to Customs for extensions of that period.
Subchapter XIII, Chapter 98, Harmonized Tariff Schedule of the
United States, 19 CFR 10.31-41b. Similarly, bonded warehouse and
foreign trade zone provisions impose limitations and costs on
importers who operate under them. 19 U.S.C. 1557, 19 CFR Part
144 and 19 U.S.C. 81a-u, 19 CFR Part 146, respectively.
Obviously, the Congress believed that for the particular context
that the same condition drawback law was intended to address,
fewer procedural burdens and greater flexibility for importers
were beneficial goals. The context referred to is the commercial
practice of importing merchandise for other than manufacturing or
manipulation purposes; for further sale appears to be the primary
purpose envisioned by the Congress. The basic idea was to limit
costs and provide greater flexibility for U.S. firms.
The purpose of the same condition drawback provision is
served when an importer decides that imported merchandise, in the
same condition as when imported and (which was) not used in the
United States, should be exported. The recovery of duties upon
exportation of such merchandise, and the freedom to economically
so dispose of merchandise that was either ordered in greater
quantities than needed or was victim of a flat to non-existent
market, are two genuine benefits to U.S. firms.
Likewise, the same condition drawback provision is served
when an importer decides that imported merchandise should be
destroyed, rather than exported. The same monetary savings
(recovered duties) and flexibility in decision making that
benefit importers who choose to export merchandise are available
to those who choose to destroy it. Whether or not to export or
destroy is a business decision which will be made on the basis of
costs, both monetary and operational. This decision will include
consideration of the value of the merchandise.
The question in this case asks whether or not the law
contemplates a distinction between merchandise that is less
valuable to the importer at the time of exportation/destruction
than it was at importation and merchandise that holds the same
value at the time of exportation/destruction as it held at
importation. To put it another way, is merchandise that has lost
value since importation, but is otherwise unused and unchanged
(in condition), ineligible for same condition drawback on the
theory that it is not in the same condition because it no longer
holds the same value?
Given the aforementioned purpose of the same condition
drawback provision, it is hard to put forward a reason why
merchandise of the kind in question should not qualify for
drawback treatment. If the Congress intended to draw the above
distinction, we think it of such a critical nature that Congress
would have explicitly spelled it out, either, and most
appropriately, in the statute itself or, at least, in the
language of its recorded discussions. Each of the aforementioned
reasons for providing same condition drawback apply to the export
or destruction of the instant kind of merchandise. The purpose
of the statute is eminently fulfilled by exportation or
destruction of merchandise that has lost its value or is less
valuable than it was at importation. In the expansive world of
commercial transactions, it is probably the case every day that
firms face decisions involving such merchandise. It is difficult
to conceive of a situation that is more suited to same condition
drawback consideration than the instant one.
The merchandise in question was not used in the United
States. It is in fact - that is, literally - in the same
physical condition it was in when imported. The importer is the
quintessential beneficiary of the same condition drawback
provision's intent. He enjoyed the flexibility of ordering
enough merchandise to meet customer demand without worrying
excessively about ordering a greater quantity than was needed.
This freed him from making the difficult projection of just how
much merchandise he would be able to sell. It freed him from the
consequences he would suffer if merchandise was over-ordered -
unrecoverable excessive duties. In turn, he was free to over-
order to a measured extent in order to avoid the problem of an
insufficient inventory. Even a prudent businessman may over-
order. With the same condition drawback law, any consequent
losses can be reduced. The same is true where the market for
imported goods is less than expected.
The statute provides importers the choice to either export
or destroy imported merchandise. That choice envisions an
importer's decision to choose one or the other for reasons that
make sound business sense. If undisposed of imported merchandise
has value, such that exportation is the correct business choice,
that choice will likely be made. If the value of such
merchandise is sufficiently low, such that exportation will be a
losing proposition, destruction will be the likely choice. We
think this is the limit of the statute's contemplation. To read
into it an intent to limit the destruction option to merchandise
that retains its original value is, in this case, to exceed the
limits of statutory interpretation. The fact that merchandise
has lost its value - some, most, or all of it - is a primary
reason for either exporting or destroying it. Indeed, it is
fairly certain that Congress included the destruction option for
just such situations. Giving importers that kind of cost saving
flexibility is the purpose of the same condition drawback
provision.
We believe that the merchandise in question is entitled to
same condition drawback for three reasons: 1) the merchandise is
literally in the same physical condition as when imported; 2)
drawback on these facts falls well within the purpose and intent
of the statute; and 3) there is virtually nothing in the law, the
regulations, or the legislative history to recommend against the
applicability of the law in the instant case. This
interpretation of the same condition drawback provision is to be
distinguished from that applied to situations where imported
merchandise becomes damaged or defective after importation, such
as where perishable goods deteriorate. In these cases, there is
a literal change in condition in the merchandise. Even with
merchandise of the instant kind, paper products, if the
merchandise were to deteriorate, due to natural aging or some
other force or event, it would be ineligible for same condition
drawback because it would no longer be in the same condition.
This ruling holds only that merchandise which has lost value, but
is otherwise in the same condition, is eligible for same
condition drawback if it otherwise qualifies under the law and
regulations.
HOLDING:
Imported merchandise which is, at the time of exportation or
destruction, in the same physical condition as it was upon
importation qualifies for same condition drawback despite the
fact that its commercial value has diminished since importation.
A reduction in the commercial value of merchandise, by itself, is
immaterial to the same condition determination. If such
reduction is caused by deterioration or some other change in
physical condition, drawback is precluded.
Sincerely,
John Durant, Director
Commercial Rulings Division