DRA-4 FOR-2 RR:CR:DR 230591RDC
Port Director, Customs and Border Protection
Houston Service Port
2350 N Sam Houston Parkway East
Suite 1000
Houston, Texas 77032-3126
Att: Vivian Yuan
RE: Protest number 5301-03-100563; Valero Marketing & Supply Co.; Denial of drawback claim; 19 U.S.C. § 1313(p); 19 U.S.C. § 1313(u); domestic feedstocks.
Dear Sir or Madam:
Protest number 5301-03-100563 was forwarded to this office for further review on 4/7/2004. We have considered the evidence provided and the points raised by your office and the Protestant. Our decision follows.
FACTS:
The Protestant, Valero Marketing & Supply Co., (Valero), protests the denial of drawback claimAA6-xxxxx953. The drawback entry reflects that Valero claimed drawback per 19 U.S.C. § 1313(p) on fifteen exportations of MTBE (the exported article). The qualified article is four consumption entries of MTBE. According to the Houston Drawback Office (Houston), and Valero, the exported MTBE was manufactured from domestic feedstocks in a foreign trade zone (FTZ), and exported from that zone. Houston states that the “Attribution Detail” provided for the exported MTBE shows that the feedstocks used to make the MTBE in the zone were in domestic status.
The drawback entry was liquidated on 5/16/2003 with zero drawback paid because, according to Houston, the exported MTBE, made from domestic feedstocks, was not entered for consumption from the zone. Consequently, Houston determined that this drawback claim was inconsistent with the requirement of 19 U.S.C. § 1313(u), that imported merchandise must be regularly entered to satisfy the requirement for exportation under 19 U.S.C. § 1313. The instant protest was filed on 8/13/2003.
Finally, we note that Valero protests the refusal to grant drawback of the Harbor Maintenance Fee and Merchandise Processing Fee. However, no claim for drawback of these fees was made on the protested drawback entry and therefore we do not address these matters here. Nor do we address the amount of drawback to be paid. The sole issue here is the applicability of 19 U.S.C. § 1313(u) to the protested drawback claim.
ISSUE:
Does 19 U.S.C. § 1313(u) require that a petrochemical manufactured from domestic feedstocks in a FTZ and exported from that FTZ be regularly entered to be eligible for drawback per 19 U.S.C. § 1313(p)?
LAW AND ANALYSIS:
We note initially that the instant Protest was timely filed, i.e., within 90 days of the refusal to pay the drawback claim (19 U.S.C. § 1514(c)(3)(B)). Under 19 U.S.C. § 1514 “decisions of the Customs Service, including the legality of all orders and findings entering into the same, as to . . . the refusal to pay a claim for drawback . . .” (§ 1514(a)(6)) are final unless a protest of that decision is filed within 90 days of the decision to deny drawback (§ 1514(c)(3)(B)). This Protest was filed on 8/13/2003 and the drawback claim was liquidated on 5/16/2003, with zero drawback paid.
Valero claimed drawback per 19 U.S.C. § 1313(p). Section 1313(p) provides for drawback of duty on certain petroleum derivatives. Under § 1313(p)(1), notwithstanding any other provision of § 1313, if:
(A) an article (referred to in section 1313(p) as the “exported article”) of the same kind an quality (as specifically defined in section 1313(p)) as a qualified article is exported;
(B) the requirements set forth in section 1313(p)(2) are met; and
(C) a drawback claim is filed regarding the exported article,
drawback shall be allowed, as provided in paragraph (4). For purposes of this subsection a “qualified article” per § 1313(p)(3)(A), means an article described in heading 2909.19.14, HTSUS (among other headings), which is imported and duty-paid (see also 19 C.F.R. § 191.172(a)).
The designated qualified articles are the four duty-paid entries of MTBE. The § 1313(p) “exported article” is the MTBE manufactured in an FTZ and attributed per 19 C.F.R. § 146.93 to domestic feedstocks in the FTZ. Petroleum refineries operating in FTZs are permitted to attribute manufactured petrochemicals to feedstocks according to one of the approved attribution methods. Valero and Houston agree that the exported MTBE was manufactured in a FTZ, attributed to domestic feedstock and exported from the FTZ. Houston denied the drawback claim because it was inconsistent with the requirement of 19 U.S.C. § 1313(u). Section 1313(u) provides:
Imported merchandise that has not been regularly entered or withdrawn for consumption shall not satisfy any requirement for use, exportation, or destruction under this section.
Section 1313(u) was enacted to codify the holding in C.S.D. 85-49 (7/19/1985). (See H. Rept. 103-361, part 1, pg. 130 (Nov. 15, 1993) and S. Rept. 103-189, pg. 84 (Nov. 18, 1993).
In C.S.D. 85-49 CBP held:
While in a foreign-trade zone exempt from the payment of duty, privileged foreign or nonprivileged foreign merchandise does not thereby constitute duty-free merchandise within the meaning of the substitution manufacturing drawback law, 19 U.S.C. 1313(b), and, hence, an article manufactured therefrom, and then exported, may not be the subject of a claim for drawback under section 1313(b).
Because foreign merchandise admitted to an FTZ is exempt from duty until it is entered into the U.S., no duty has been paid on foreign merchandise admitted to an FTZ in privileged foreign or nonprivileged foreign status from outside the U.S. Customs territory. Since no duty has been paid on this foreign merchandise, no drawback of duty is permitted upon the exportation of such foreign merchandise from a zone, or goods manufactured with that foreign merchandise and exported, unless that foreign merchandise was entered into the U.S. and the applicable duty -if any - paid. Section 1313(u) was enacted to codify the position that no duty drawback shall be allowed on the exportation, use or destruction of foreign goods upon which no duty had been paid by, among others, virtue of their admission to an FTZ in privileged or nonprivileged foreign status.
However, Valero argues that because the “exported article” in its case was attributed to domestic feedstocks, § 1313(u) does not apply to this drawback claim. Attribution is defined as “the association of a final product with its source material.” (19 C.F.R. § 146.92(a)). Accordingly, the MTBE manufactured in an FTZ and attributed to domestic feedstock was made with domestic feedstock. In C.S.D. 81-44 (8/4/1980) CBP held that “foreign-trade zones of the United States are located in the United States even though they are not within the Customs territory of the United States. Therefore, manufacturing performed within a foreign-trade zone is manufacturing in the United States for purposes of the drawback law.” (See also 19 U.S.C. § 1401(h), defining “United States and General Note 2, Harmonized Tariff System of the United States, codified at 19 U.S.C. § 1202 defining “Customs Territory”). Therefore, the MTBE that was manufactured in an FTZ was manufactured in the United States. The CBP regulations at 19 C.F.R. § 146.43 provide that merchandise manufactured in the U.S. is domestic status merchandise. (19 C.F.R. § 146.43(a)(1)). Consequently, the exported MTBE that was manufactured in an FTZ from domestic feedstock was domestic merchandise.
As stated above § 1313(u) was enacted to codify the prohibition against paying duty drawback on, among other things, the exportation of foreign merchandise upon which no duty had been paid. However, there is no similar rule against paying drawback on exported domestic goods that are substituted for imported duty-paid goods. The language of § 1313(u) states that “imported merchandise that has not been regularly entered . . .” (emphasis added) will not support a claim for drawback. Thus, this section only applies to imported goods and has no application to the MTBE, which, by virtue of its manufacture in an FTZ from domestic feedstock, is domestic merchandise.
Finally, there is no factual dispute as to whether the MTBE was exported; Valero and Houston agree that it was exported from the FTZ. However, the port states, “if the merchandise from a Foreign Trade Zone is not entered into the commerce of the United States, it is not exported from the United States and is not eligible as a drawback export.” As stated above, “foreign-trade zones of the United States are located in the United States even though they are not within the Customs territory of the United States.” (C.S.D. 81-44 (8/4/1980)). The definition of exportation for purposes of drawback law is “a severance of goods from the mass of things belonging to this country with an intention of uniting them with the mass of things belonging to some foreign country.” (United States v. National Sugar Refining Co., 39 C.C.P.A. 96 (CCPA 1951)). Accordingly, an exportation of domestic goods from a FTZ is an exportation from the United States. Therefore, the domestic MTBE exported from an FTZ is eligible to be considered the “exported article” per § 1313(p) and, provided all other requirements per § 1313(p) are met, is eligible for drawback.
HOLDING: 19 U.S.C. § 1313(u) does not require that a petrochemical manufactured from domestic feedstocks in a FTZ be regularly entered to be eligible for drawback per 19 U.S.C. § 1313(p).
Therefore, this Protest should be GRANTED to the extent that the denial is based on the application of 19 U.S.C. § 1313(u).
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division